10-Q 1 d10q.txt FORM 10-Q DATED 07-01-2001 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 July 1, 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 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 ----- ----- The number of shares of Registrant's Common Stock outstanding as of July 1, 2001 was 8,635,651. FISCHER IMAGING CORPORATION TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page ---- Item 1. Consolidated Financial Statements Consolidated Balance Sheets (unaudited) -- July 1, 2001 and December 31, 2000 3 Consolidated Statements of Operations (unaudited) -- Three and six months ended July 1, 2001 and July 2, 2000 4 Consolidated Statements of Cash Flows (unaudited) -- Six months ended July 1, 2001 and July 2, 2000 5 Notes to Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 PART II. OTHER INFORMATION Item 1. Legal Proceedings 20 Item 2. Changes in Securities and Use of Proceeds 20 Item 3. Defaults Upon Senior Securities 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 20 FISCHER IMAGING CORPORATION CONSOLIDATED BALANCE SHEETS (Amounts in thousands except share data) (Unaudited)
July 1, December 31, 2001 2000 ------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,520 $ 843 Trade accounts receivable, net of allowance for doubtful accounts of approximately $709 and $1,236 at July 1, 2001 and December 31, 2000, respectively 12,491 12,600 Inventories 18,112 18,844 Prepaid expenses and other current assets 554 744 ------- ------- Total current assets 33,677 33,031 ------- ------- PROPERTY AND EQUIPMENT Manufacturing equipment 8,147 8,124 Office equipment and leasehold improvements 6,039 6,021 ------- ------- 14,186 14,145 Less- Accumulated depreciation and amortization 12,300 12,032 ------- ------- Property and equipment, net 1,886 2,113 ------- ------- INTANGIBLE ASSETS, net 1,903 1,841 DEFERRED COSTS AND OTHER ASSETS 1,399 1,491 ------- ------- TOTAL ASSETS $38,865 $38,476 ======= =======
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES Notes payable and current maturities of long-term debt $ 18 $ 39 Trade accounts payable 3,131 3,463 Accrued salaries and wages 2,186 1,781 Customer deposits 660 715 Accrued warranty and installation costs 864 1,206 Deferred service revenue 520 687 Other current liabilities 2,007 1,768 -------- -------- Total current liabilities 9,386 9,659 LONG-TERM DEBT 846 840 -------- -------- TOTAL LIABILITIES 10,232 10,499 -------- -------- STOCKHOLDERS' INVESTMENT Common Stock, $.01 par value, 25,000,000 shares authorized, 8,635,651 and 8,587,315 shares issued and outstanding at July 1, 2001 and December 31, 2000, respectively 86 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 -- -- Additional paid-in capital 47,460 47,377 Accumulated deficit (18,711) (19,670) Accumulated other comprehensive income (foreign currency translation adjustments) (202) 184 -------- -------- TOTAL STOCKHOLDERS' INVESTMENT 28,633 27,977 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 38,865 $ 38,476 ======== ========
The accompanying notes are an integral part of these financial statements. 3 FISCHER IMAGING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands except per share data) (Unaudited)
Three Months Ended Six Months Ended ------------------------ ---------------------- July 1, July 2, July 1, July 2, 2001 2000 2001 2000 ------- ------- ------- ------- REVENUES Products and services $12,824 $11,946 $24,070 $25,689 COST OF SALES Products and services 6,386 5,993 12,070 13,546 ------- ------- ------- ------- Gross profit 6,438 5,953 12,000 12,143 OPERATING EXPENSES Research and development 937 976 1,909 2,017 Selling, marketing and 3,125 3,316 6,019 6,699 service General and administrative 1,551 1,105 2,849 2,314 ------- ------- ------- ------- Total operating 5,613 5,397 10,777 11,030 expenses ------- ------- ------- ------- INCOME FROM OPERATIONS 825 556 1,223 1,113 Interest expense (50) (177) (104) (345) Interest income 25 10 47 30 Other income (expense), net (49) 76 (208) 17 ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 751 465 958 815 Provision for income taxes -- -- -- -- ------- ------- ------- ------- NET INCOME $ 751 $ 465 $ 958 $ 815 ======= ======= ======= ======= NET INCOME PER SHARE Basic $ 0.09 $ 0.07 $ 0.11 $ 0.12 ======= ======= ======= ======= Diluted $ 0.08 $ 0.06 $ 0.10 $ 0.10 ======= ======= ======= ======= SHARES USED TO CALCULATE INCOME PER SHARE Basic 8,635 7,075 8,633 7,075 ======= ======= ======= ======= Diluted 9,403 7,781 9,235 7,788 ======= ======= ======= =======
The accompanying notes are an integral part of these financial statements. 4 FISCHER IMAGING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited)
Six Months Ended ------------------------- July 1, July 2, 2001 2000 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net cash provided by operating activities $ 2,509 $ 2,552 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (538) (121) ------- ------- Net cash used in investing activities (538) (121) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sales of common stock, net 90 88 Net repayments under line of credit agreement -- (1,776) Repayments of long-term debt -- (367) Net Cash provided by (used in) financing activities 90 (2,055) ------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (384) (313) ------- ------- NET INCREASE IN CASH AND CASH EQUIVALENTS 1,677 63 CASH AND CASH EQUIVALENTS, beginning of period 843 1,056 ------- ------- CASH AND CASH EQUIVALENTS, end of period $ 2,520 $ 1,119 ======= =======
5 FISCHER IMAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) GENERAL In management's opinion, 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") on July 1, 2001, its results of operations for the three and six months ended July 1, 2001 and July 2, 2000 and its cash flows for the six months ended July 1, 2001 and July 2, 2000. Results of operations and cash flows for the interim periods may not be indicative of the results of operations and cash flows for the full fiscal year. These unaudited consolidated financial statements 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, 2000. Typically, and for the year ending December 31, 2001, the Company closes its first three fiscal quarters as of the Sunday closest to the end of March, June and September. (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): July 1, December 31, 2001 2000 ------- ------- FIFO cost-- Raw materials $ 9,808 $ 9,363 Work in process and finished goods 8,49 9,676 LIFO valuation adjustment (195) (195) Inventories, net $18,112 $18,844 ======= =======
6 FISCHER IMAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) (3) NOTES PAYABLE AND LONG-TERM DEBT Notes payable and long-term debt consisted of the following (in thousands):
July 1, December 31, 2001 2000 ---- ---- Borrowing under bank revolving line of credit $ -- $ -- Capitalized lease obligations 56 71 Other 808 808 ----- ----- 864 879 Less--Current maturities (18) (39) ----- ----- Long-term debt $ 846 $ 840 ===== =====
See "Management's Discussion & Analysis - Liquidity and Capital Resources" for further discussion of the Company's line of credit. (4) NET INCOME PER SHARE Basic income per share is computed by dividing the net income or loss by the weighted average number of shares of common stock outstanding. Diluted income or loss per share is determined by dividing the net income or loss by the sum of: (1) the weighted average number of common shares outstanding; (2) if dilutive, the number of shares of convertible preferred stock as if converted upon issuance; and (3) if dilutive, the effect of outstanding stock options determined utilizing the treasury stock method. A reconciliation between the number of securities used to calculate basic and, if dilutive, diluted income per share is as follows (in thousands):
Three Months Ended Six Months Ended -------------------- -------------------- July 1, July 2, July 1, July 2, 2001 2000 2001 2000 ------- ------- ------- ------- Weighted average number of common shares outstanding (Shares used in Basic Earnings Per Share Computation).................................... 8,635 7,075 8,633 7,075 ----- ----- ----- Shares of convertible preferred stock (as if converted)...................................... -- 507 -- 507 Effect of stock options (treasury stock method).. 768 199 602 206 ----- ----- ----- ----- Shares used in Diluted Earnings Per Share Computation, if dilutive........................ 9,403 7,781 9,235 7,788 ===== ===== ===== =====
As of July 1, 2001 and July 2, 2000, there were, respectively, 1,652,275 and 1,277,450 outstanding options to purchase shares of Common Stock under the Company's current stock option plans. 7 (5) COMPREHENSIVE INCOME Comprehensive income is defined as the change in equity of an enterprise other than the change resulting from investments by or distributions to its owners. For the Company, comprehensive income includes only net earnings or loss and foreign currency translation adjustments, as follows:
Three Months Ended Six Months Ended ------------------------------- -------------------------- July 1, July 2, July 1, July 2, 2001 2000 2001 2000 ------------ ------------- ----------- ----------- Net income $ 751 $ 465 $ 958 $ 815 Foreign currency translation (144) (318) (388) (313) adjustments ----- ----- ----- ----- Comprehensive income $ 607 $ 147 $ 570 $ 502 ===== ===== ===== =====
8 FISCHER IMAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) (6) OPERATING AND GEOGRAPHIC SEGMENT INFORMATION The Company operates in a single industry segment: the design, manufacture, and marketing of x-ray imaging systems. Because of differences in distribution costs, strategies, and aftermarket potential, the Company separately manages and reports operating results for products sold by the Company (proprietary) from those manufactured for sale to other medical products companies under Original Equipment Manufacturer ("OEM") contracts. The Company's manufacturing and most distribution activities are in the United States, including export sales to Europe, primarily, and elsewhere. The Company also has marketing operations in Europe. Australia operations were closed at December 31, 2000. The following is a summary of the Company's operations by segment (in thousands):
United States ---------------------------------------- Proprietary International ------------------ ------------------- Internal Domestic Export OEM Total Australia Europe Sales Total -------- ------ ------ ----- --------- --------- -------- ---------- Three Months Ended July 1, 2001 ------------------------------- Revenues: Product..................... $ 7,542 $1,422 $ $ 8,964 $ -- $ 138 $ (30) $ 9,072 Service..................... 3,541 3,541 -- 211 -- 3,752 ------- ------- ------ ------- -------- ----- ----- ------- 11,083 1,422 12,505 349 (30) 12,824 ------- ------- ------ ------- -------- ----- ----- ------- Costs of sales: Product..................... 4,096 846 4,942 -- 85 (30) 4,997 Service..................... 536 536 44 580 ------- ------- ------ ------- -------- ----- ----- ------- Allocated................... 4,632 846 5,478 129 (30) 5,577 ------- ------- ------ Unallocated................. 809 -- -- -- 809 ------- -------- ----- ----- ------- 6,287 -- 129 (30) 6,386 ------- -------- ----- ----- ------- Gross profit................. 6,218 220 6,438 Operating expenses........... 5,418 -- 195 -- 5,613 ------- -------- ----- ----- ------- Income from operations....... 800 25 -- 825 Interest expense............. (50) -- -- -- (50) Interest income.............. 25 -- -- 25 Other expense, net........... (56) -- 7 -- (49) ------- -------- ----- ----- ------- Net income................... $ 719 $ -- $ 32 $ -- $ 751 ======= ======== ===== ===== =======
Three Months Ended July 2, 2000 ------------------------------- Revenues: Product..................... $ 7,463 $1,648 $ 248 $ 9,359 $ -- $ 278 $(440) $ 9,197 Service..................... 2,643 -- -- 2,643 55 51 -- 2,749 ------- ------ ------ ------- ------- ----- ----- ------- 10,106 1,648 248 12,002 55 329 (440) 11,946 ------- ------ ------ ------- ------- ----- ----- ------- Costs of sales: Product..................... 4,127 910 11 5,048 -- -- (165) 4,883 Service..................... 304 -- -- 304 30 20 2 356 ------- ------ ------ ------- ------- ----- ----- ------- Allocated................... 4,431 910 11 5,352 30 20 (163) 5,239 ------- ------ ---- Unallocated................. 754 -- -- -- 754 ------- ------- ----- ----- ------- 6,106 30 20 (163) 5,993 ------- ------- ----- ----- ------- Gross profit................. 5,896 25 309 (277) 5,953 Operating expenses........... 5,305 117 252 (277) 5,397 ------- ------- ----- ----- ------- (Loss) income from operations 591 (92) 57 -- 556 Interest expense............. (177) -- -- -- (177) Interest income.............. 5 5 -- -- 10 Other expense, net........... 88 (28) 16 -- 76 ------- ------- ----- ----- ------- Net (loss) income............ $ 507 $ (115) $ 73 $ -- $ 465 ======= ======= ===== ===== =======
9 FISCHER IMAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited)
United States ---------------------------------------- Proprietary International ------------------ --------------------- Internal Domestic Export OEM Total Australia Europe Sales Total --------- ------- ------ ------------ ---------- --------- ---------- ----------- Six Months Ended July 1, 2001 ----------------------------- Revenues: Product $14,570 $2,323 $ $16,893 $ -- $ 285 $ (33) $17,145 Service 6,401 -- 6,401 -- 524 -- 6,925 ------- ------- ------ ------- ---------- ------ ----- ------- 20,971 2,323 23,294 -- 809 (33) 24,070 ------- ------- ------ ------- ---------- ------ ----- ------- Costs of sales: Product . 8,117 1,348 9,465 -- 194 (33) 9,626 Service . 871 -- 871 -- 125 -- 996 ------- ------- ------- ---------- ------ ----- ------- Allocated 8,988 1,348 10,336 -- 319 (33) 10,622 ------- ------- ------- Unallocated 1,448 -- -- -- 1,448 ------- ---------- ------ ----- ------- 11,784 -- 319 (33) 12,070 ------- ---------- ------ ----- ------- Gross profit 11,510 -- 490 -- 12,000 Operating expenses 10,339 -- 438 -- 10,777 ------- ---------- ------ ----- ------- Income from operations 1,171 -- 52 -- 1,223 Interest expense (104) -- -- -- (104) Interest income 47 -- -- -- 47 Other expense, net (203) -- (5) -- (208) ------- ---------- ------ ----- ------- Net income $ 911 $ -- $ 47 $ -- $ 958 ======= ========== ====== ===== ======= Other information: Identifiable $37,727 $ -- $1,138 $38,865 assets Capital 538 -- -- $ 538 expenditures Depreciation 407 -- -- $ 407 Amortization 288 -- -- $ 288
Six Months Ended July 2, 2000 ----------------------------- Revenues: Product $14,247 $4,636 $1,300 $20,183 $ -- $ 533 $(712) $20,004 Service 5,468 -- -- 5,468 114 103 -- 5,685 ------- ------- ------- ------- ------ ------ ----- ------- 19,715 4,636 1,300 25,651 114 636 (712) 25,689 ------- ------- ------- ------- ------ ------ ----- ------- Costs of sales: Product 7,652 2,503 635 10,790 -- -- (175) 10,615 Service 706 -- -- 706 42 29 (5) 772 ------- ------- ------- ------- ------ ------ ----- ------- Allocated 8,358 2,503 635 11,496 42 29 (180) 11,387 ------- ------- ------- ------- Unallocated 2,159 -- -- -- 2,159 ------- ------ ------ ----- ------- 13,655 42 29 (180) 13,546 ------- ------ ------ ----- ------- Gross profit 11,996 72 607 (532) 12,143 Operating expenses 10,865 200 497 (532) 11,030 ------- ------ ------ ----- ------- Income (loss) from 1,131 (128) 110 -- 1,113 operations Interest expense (343) -- (2) -- (345) Interest income 21 9 -- -- 30 Other expense, net 226 (221) 12 -- 17 ------- ------ ------ ------- Net income (loss) $ 1,035 $ (340) $ 120 $ -- $ 815 ======= ====== ====== ----- ======= Other information: Identifiable assets $35,978 $1,100 $1,004 $38,082 Capital expenditures 121 -- -- $ 121 Depreciation 832 -- -- $ 832 Amortization 279 -- -- $ 279
Internal sales from the United States to Australia and Europe are recorded on the basis of transfer pricing established by the Company. International sales to OEM customers are managed and, therefore, reported as part of OEM business results. 10 (7) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 133 and No. 137. In June 1998, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards 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 our financial condition or results of operations. Disclosure Regarding FASB 141 & 142 In July 2001 the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets," which replace Accounting Principle Board Opinion Nos. 16, "Business Combinations," and 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, and that the use of the pooling-of-interests method be prohibited. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only- method. Amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of SFAS No. 142, which the Company will be required to adopt on January 1, 2002. After December 31, 2001, goodwill can only be written down upon impairment discovered during annual tests for fair value, or discovered during tests taken when certain triggering events occur. Prior to the adoption of SFAS No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed of." 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. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of financial condition and results of operations should be read in conjunction with the company's Consolidated Financial Statements and Notes thereto appearing in the company's Annual Report on Form 10-K for the year ended December 31, 2000 (the "Form 10-K"). This Form 10-Q, including the information incorporated by reference herein, 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, statements contained herein that are not statements of historical fact may be considered forward-looking statements. Without limiting the foregoing, the words "believes", "expects", "anticipates", "plans", "estimates", and similar words and expressions are intended to identify such statements. These forward-looking statements include statements about: . resolutions of deficiencies noted by the FDA; . the adequacy of financial resources; . future revenues, expenses, and other operating results; . sales under the company's strategic alliances, marketing arrangements, and other agreements pertaining to Mammotest, digital radiography, and other products; . the status of SenoScan and other new products in development; . the size and growth of the company's markets; . the success of efforts to reduce manufacturing and other costs; . manufacturing capacity and capabilities; . submissions to the FDA and receipt of FDA approvals and clearances; . the availability of raw materials and components; 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 set forth: (1) in the Business section of the Form 10-K under the headings: "Risks Associated with OEM Agreements," "Sales and Marketing," "International Operations," "Strategic Alliances," "Risks of Technological Change and New Products," "Risks of New Product Development and Market Acceptance," "Competition," "Government Regulation," "Government Reimbursement," "Manufacturing and Operating Risks," "Product Liability, Market Withdrawal, and Product Recalls," "Patents and Intellectual Property," "Risk of Dependence on Key Personnel," 12 (2) in the Market for Registrant's Common Equity and Related Stockholder Matters under the headings "Risk of Price Volatility of Common Stock," 'Risks of Fluctuations in Quarterly Results of Operations," "Risks of Fluctuations in Quarterly Results of Operations," Risks Associated with Shares Eligible for Future Sale," "Risks Associated with Control by Management and Certain Stockholders," and "Certain Anti-Takeover Effects," (3) in the Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") section of the Form 10-K under the "Overview," "Quantitative and Qualitative Disclosures About Market Risk," "FDA Regulations," and "Recent Developments" headings, (4) elsewhere in the Business, MD&A, and other sections of the Form 10-K, (5) and in this Form 10-Q under the "Overview," section of MD&A and elsewhere. 13 Results of Operations The following table sets forth the percentage of revenues represented by certain data included in the Company's statements of operations for the periods indicated:
Three Months Ended Six Months Ended ------------------ ----------------- July 1, July 2, July 1, July 2, 2001 2000 2001 2000 ------- ------- ------- -------- Revenues 100.0% 100.0% 100.0% 100.0% Gross margin 50.2 49.8 49.9 47.3 Research and development 7.3 8.2 7.9 7.9 Selling, marketing and service 24.4 27.8 25.0 26.1 General and administrative 12.1 9.3 11.8 9.0 Income (Loss) from Operations 6.4 4.7 5.1 4.3 Benefit for income taxes -- -- -- -- Net income (loss) 5.9 3.9 4.0 3.2
Revenues. Second quarter 2001 revenues were $12,824,000, a 7.3% increase from second quarter 2000 revenues of $11,946,000. The increase reflects the increase in domestic product and service sales. Domestic sales increased $1,018,000 from second quarter 2000. For the six months ended July 1, 2001, revenues were $24,070,000, or about 6.3% lower than revenues of $25,689,000 for the six months ended July 2, 2000. This decrease reflects the increase explained above, offset by decreases in International and OEM sales. Gross Profit. For the second quarter of 2001, gross profit expressed as a percentage of revenues was 50.2%, as compared to 49.8% for the second quarter of 2000. For the six months ended July 1, 2001, gross profit as a percentage of revenues was 49.9%, as compared to a gross profit of 47.3% for the six months ended July 2, 2000. The increase in gross profit was primarily due to efficiencies derived from our corporate right-sizing and reorganization, the implementation of a flattened manufacturing process, a continued shift towards higher margin direct sales versus dealer and OEM sales and an increase in production of higher margin mammography and digital radiology products. 14 Research and Development Expenses. Research and development expenses for the second quarters of 2001 and 2000 were $937,000 and $976,000, respectively, or 7.3% and 8.2% of revenues, respectively. For the six months ended July 1, 2001 and July 2, 2000, research and development expenses were $1,909,000 and $2,017,000, respectively, or 7.9% and 7.9%, respectively, of revenues. The decrease in the three and six month periods ended July 1, 2001 reflect reductions in staffing and the near completion of the SenoScan project. Although the Company continues to aggressively pursue new product development, it has significantly reduced its customization of existing products and has delivered a more standard product to its customers. This has driven the reduction in engineering staffing and costs. Selling, Marketing and Service Expenses. Selling, marketing and service expenses for the second quarters of 2001 and 2000 were $3,125,000 and $3,316,000, respectively, or 24.4% and 27.8%, respectively, of revenues. For the six months ended July 1, 2001 and July 2, 2000, selling, marketing and service expenses were $6,019,000 and $6,699,000, respectively, or 25.0% and 26.1%, respectively, of revenues. As compared to the same three and six month period in 2000, selling, marketing and service expenses decreased as a result of lower headcount, reduced commissions and reduced travel expenses. 15 General and Administrative Expenses. General and administrative expenses for the second quarters of 2001 and 2000 were $1,551,000 and $1,105,000, respectively, or 12.1% and 9.3%, respectively, of revenue. For the six months ended July 1, 2001 and July 2, 2000, general and administrative expenses were $2,849,000, and $2,314,000, respectively, or 11.8% and 9.0% of revenues, respectively. For both the three and six month periods, the increase was primarily due to an increase in general legal reserves and some special projects that began in the second quarter of 2001. Interest Expense / Interest Income. Interest expense for the three months ended July 1, 2001 and July 2, 2000 was $50,000 and $177,000, respectively and, for the six month periods then ended was $104,000 and $345,000, respectively. Interest income for the second quarters of 2001 and 2000 was $25,000 and $10,000, respectively and, for the six months ended July 1, 2001 and July 2, 2000 was $47,000 and $30,000, respectively. The decrease in interest expense, as well as the increase in interest income in the three and six months ended July 1, 2001 as compared to the three and six months ended July 2, 2000 is due primarily to lower levels of borrowings under the Company's working capital line of credit and higher levels of investing. Net Income/Loss. The Company's net income for the second quarter of 2001 was $751,000 as compared to net income for the second quarter of 2000 of $465,000. For the six months ended July 1, 2001, the Company's net income was $958,000 as compared to net income of $815,000 for the six months ended July 2, 2000. The changes in net income are due to the factors mentioned above. 16 Income Taxes The Company's estimated effective tax rate for the year ended December 31, 2001 is currently 0%. Accordingly, no income tax benefit or provision has been recorded for the three or six month periods ended July 1, 2001. This rate was determined based upon the anticipated 2001 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 2001 domestic consolidated tax return. As of December 31, 2000, the Company had valuation allowances of approximately $15.8 million, reducing net deferred tax assets to $0. The realizability of net deferred tax assets is dependent on the Company's ability to generate future taxable income, and the Company's estimate of realizable deferred tax assets may change in the near future. 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. 17 Liquidity and Capital Resources Net cash provided by operating activities for the six months ended July 1, 2001 was $2.5 million which was consistent with $2.6 million provided by operations in the comparable six-month period of 2000. Net cash used in investing activities was $538,000 for the six months ended July 1, 2001, up $417,000 from the comparable six-month period in 2000. The Company anticipates that the level of spending for capital expenditures in the second quarter of 2001 will continue, although there currently are no material commitments for capital expenditures. Net cash provided by financing activities for the six months ended July 1,2001 was $69,000, which resulted from the exercise of stock options. For the comparable period in 2000, cash of $2,055,000 was used principally for the reduction in borrowings under the Company's bank revolving line of credit. The reduction in borrowings was made possible by the decrease in accounts receivable and improved profitability. As of July 1, 2001, the Company had $2.5 million in cash and cash equivalents, working capital of $24.3 million, and a $8.0 million bank revolving line of credit facility, which is subject to restrictions as to availability based on eligible receivables and inventory, as defined. As of July 1, 2001, $8.0 million was available under this line. The agreement is secured by the Company's tangible assets and is for a term of three years. The borrowings under the agreement are subject to interest at the bank's prime rate of interest, 6.75%, at July 1, 2001. The company believes its current cash and cash equivalent balances, its available borrowings under the line of credit, and cash generated from operations will be sufficient to satisfy its liquidity needs for the remainder of 2001. The company may need to obtain additional debt or equity financing to fund its long-term growth needs. 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk: -------------------------------------------------------------------- There have been no significant changes in market risk from December 31, 2000. 19 PART II. OTHER INFORMATION Item 1. Legal Proceedings: --------------------------- Not applicable. Item 2. Changes in Securities and Use of Proceeds: --------------------------------------------------- Not applicable. Item 3. Defaults Upon Senior Securities: ----------------------------------------- Not applicable. Item 4. Submission of Matters to a Vote of Security Holders: ------------------------------------------------------------- The annual shareholder meeting was held June 20, 2001 at 3:00 p.m. There were two proposals presented to the shareholders for consideration. The first proposal was the election of directors. Kathryn A. Paul and Louis E. Rivelli were re-elected for a three year term ending in 2004. The second proposal was the ratification of Arthur Andersen, LLP as independent auditors of the company for the fiscal year ending December 31, 2001. Arthur Andersen LLP was approved as the company's independent auditors. No other business came before the shareholders for vote. The vote results were as follows: For Withheld Proposal #1 Kathryn A. Paul 3,721,939 58,844 Louis E. Rivelli 3,718,940 61,843 Proposal #2 Ratification of the appointment of Arthur Andersen LLP as independent auditors for the fiscal year ending December 31, 2001. For Against Abstain 3,722,930 57,853 -0- Directors whose terms expire in 2002 are David G. Bragg, M.D. and Gerold D. Knudson. Morgan W. Nields and Fred Burbank, M.D. terms expire in 2003. Item 5. Other Information: --------------------------- Not applicable. Item 6. Exhibits and Reports on Form 8-K: ------------------------------------------ (a) Documents filed as part of this report: 1. Financial Statements. See pages 3 through 5 of this Form 10-Q. 2. Financial Statement Schedules. None 3. Exhibits. 20 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(4) 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 Purchase Agreement, dated August 29, 1994, between the Company and General Electric Company on behalf of GE Medical Systems(4) 10.3 Nonemployee Director Stock Option Plan, as amended(5) 10.4 Stock Option Plan(1) 10.5 Retention Bonus Plan(3) 10.6 Lease Agreement, dated July 31, 1992, between the Company and JN Properties(2) 10.7 Stock Purchase Agreement, dated as of June 20, 1995, between the Company and General Electric Company, acting through its GE Medical Systems Division ("GEMS")(4) 10.8 Registration Rights Agreement, dated as of June 20, 1995, between the Company and GEMS(4) 10.9 Manufacturing and License Agreement, dated as of June 20, 1995, between the Company and GEMS(4) 10.10 Amendment, dated as of June 20, 1995, to Purchase Agreement, dated as of August 29, 1994, between the Company and GEMS(4) 10.11 Agreement dated October 10, 1997, between the Company and Ethicon Endo-Surgery, Inc. with Addendum dated January 28, 1998.(5) 27 Financial Data Schedule(6)
---------------- (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. (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) Filed herewith. (b) Reports on Form 8-K None (c) Exhibits 21 See Item 6(a)(3) of this Form 10-Q. (d) Financial Statement Schedules 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 July 1, 2001 to be signed on its behalf by the undersigned thereunto duly authorized. FISCHER IMAGING CORPORATION /s/ RODNEY B. JOHNSON ---------------------- Rodney B. Johnson Chief Financial Officer, Secretary August 15, 2001 22