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FISCHER IMAGING CORPORATION TABLE OF CONTENTS

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission file number 0-19386

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

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 o    No ý

        The number of shares of Registrant's Common Stock outstanding as of September 30, 2002 was 9,274,826.

FISCHER IMAGING CORPORATION
TABLE OF CONTENTS

Part 1—Financial Information

Item 1. Financial Statements

FISCHER IMAGING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands except share data)

(Unaudited)

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

FISCHER IMAGING CORPORATION—

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands except per share data)

(Unaudited)

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

FISCHER IMAGING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

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

FISCHER IMAGING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2002

(UNAUDITED)

(1) GENERAL:

        In management's opinion, the accompanying unaudited condensed consolidated balance sheets and statements of operations and cash flows contain all adjustments necessary to present fairly the financial position of Fischer Imaging Corporation (the "Company"), at September 29, 2002, its results of operations for the three and nine months ended September 29, 2002 and September 30, 2001 and its cash flows for the nine months ended September 29, 2002 and September 30, 2001. 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 condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, as a result, 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, 2001.

        Typically, and for the year ending December 31, 2002, the Company closes its first three fiscal quarters as of the Sunday closest to the end of March, June and September, respectively.

        During the second quarter of 2002, the Board of Directors approved a plan to review the Company's business and its organizational structure. This resulted in the establishment of the new Radiology, Electrophysiology & Surgery ("RES") Division, with its own sales, marketing and engineering structure, and staffed with experienced Company employees. Management believes the divisionalization of the business relating to its non-core products into the newly formed RES Division will facilitate increased focus on the RES product lines.

        The Company's core business is the design, manufacture and marketing of specialty digital and other mammography systems for the diagnosis and treatment of disease.

(2) INVENTORIES:

        Inventories, which include costs of materials, direct labor, and manufacturing overhead, are priced at the lower of cost (using primarily the first-in, first-out, or FIFO, method of valuation) or market. Write-downs for excess and obsolete inventories are charged to expense in the period when conditions giving rise to the write-downs are first recognized.

        During the second quarter, the Company conducted a review of its products and strategies pertaining to its business and in particular with respect to its newly formed RES Division. As a result of this analysis, the Company has identified significant amounts of obsolete inventories related to product strategy changes, primarily in the RES product lines. Additionally, during the second quarter, the Company consolidated and reviewed its warehousing operations, inventory stores locations, production lines, field inventory and work order inventory counts. As a consequence of this review, a total shrinkage charge of $4.7 million relating to the review of field inventory and work order inventory was estimated and has been recorded in cost of sales—products and services. A total charge of $6.1 million relating to obsolete inventory primarily in the non-core business products that represents the RES product lines was estimated and has been recorded in cost of sales—inventory write-down and other charges.

        The Company took a complete physical inventory at the end of third quarter 2002, which resulted in no material adjustments to the inventory balances. The Company believes the inventory balances properly reflect the product strategy changes implemented during the second quarter.

        Inventories consisted of the following components (in thousands):

(3) NOTES PAYABLE AND LONG-TERM DEBT:

        Notes payable and long-term debt consisted of the following (in thousands):

        The Company paid interest of $11,000 and $27,000 for the quarters ended September 29, 2002 and September 30, 2001, respectively and $78,000 and $130,000 for the nine months periods then ended, respectively.

        See "Management's Discussion and Analysis—Liquidity and Capital Resources" for further discussion of the Company's line of credit.

(4) PATENT LITIGATION SETTLEMENT:

        During the second quarter, the Company settled a patent infringement lawsuit that it had filed against Thermo Electron and Hologic, Inc. Under the $32.2 million settlement, the Company received $25 million in cash and $7.2 million in a long-term receivable from ThermoElectron to be received in equal annual installments over the remaining eight-year life of the patents for continued sales of the breast-biopsy imaging system now being sold by Hologic, Inc. The Company recognized a one time other income item of $24.7 million in quarter two, net of certain settlement costs. The $7.2 million receivable, due to various contingencies, will be recognized as cash is received over the remaining receivable payment period, which will result in $900,000 being recognized each year during quarter two for the remaining 8-year patent life.

(5) NET INCOME PER SHARE:

        Basic net income per share is computed by dividing the net income by the weighted average number of shares of common stock outstanding. Diluted net income per share is determined by dividing the net income by the sum of: (1) the weighted average number of common shares outstanding; and (2) 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 diluted net income per share is as follows (in thousands):

        As of September 29, 2002 and September 30, 2001, there were, respectively, 1,704,857 and 1,601,472 outstanding options to purchase shares of common stock under the Company's current stock option plans.

        The anti-dilutive options for the three months ended September 29, 2002 and September 30, 2001 were 1,367,089 and 530,420, respectively. The anti-dilutive options for the nine months ended September 29, 2002 and September 30, 2001 were 976,368 and 833,007 respectively. The anti-dilutive options were excluded from the computation of diluted earnings per share for the quarters ended September 29, 2002 and September 30, 2001 because the exercise price exceeded the average market price of the stock.

(6) 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 and foreign currency translation adjustments, as follows (in thousands):

(7) NEW OPERATING DIVISION

        In establishing the new RES Division, the Company recognized a $1.2 million charge during the second quarter to provide system enhancements for non-core systems already sold in order to meet certain customer and safety requirements. This charge and the $6.1 million inventory write-down during the second quarter have been included in the consolidated statement of operations in cost of sales—inventory write-down and other charges. Additionally in the second quarter, the Company charged a $0.2 million write-down of impaired goodwill related to a now-discontinued sales subsidiary of non-core products, which is included in general and administrative expenses.

(8) OPERATING AND GEOGRAPHIC SEGMENT INFORMATION:

        The Company operates in a single industry segment: the design, manufacture, and marketing of x-ray imaging systems. 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. The following is a summary of the Company's operations by segment

        Inter-company sales from the United States to Europe are recorded on the basis of transfer pricing established by the Company.

(9) COMMITMENTS & CONTINGENCIES

        The Company is a defendant in various lawsuits incident to the operation of its business. We believe there are no pending legal proceedings that would have a material adverse effect on the consolidated financial position or results of operations of the Company.

Vendor Financing Program

        The Company has agreed to provide a guarantee to one customer on the lease with a third-party of one SenoScan system. If the customer should default on its lease obligation for a period of more than 60 days, the Company has agreed to assume the liability remaining on the lease. In such a case, the Company may be exposed to a maximum liability of the total amount of the remaining lease payments of $482,000 as of September 29, 2002 if it is not able to resell or relocate the SenoScan system.

(10) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards No. 142.

        In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," which replaced Accounting Principle Board Opinion No. 17, "Intangible Assets". 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. After December 31, 2001, goodwill can only be written down upon impairment as a result of annual tests for fair value, or tests taken when certain triggering events occur. The Company adopted SFAS No. 142 on January 1, 2002 and did not have a material effect on the consolidated financial statements for the three and nine months ended September 29, 2002. Goodwill amortization expense recorded in the three and nine months ended September 30, 2001 was $50,000 and $150,000, respectively.

Statement of Financial Accounting Standards No. 143.

        In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." The statement requires companies to recognize the fair value of an asset retirement liability in the financial statements and capitalize that cost as part of the cost of the related long-lived asset. The asset retirement liability should then be allocated to expense by using a systematic and rational method. The statement is effective for fiscal years beginning after June 15, 2002. Adoption of this statement is not expected to have a significant impact on the Company's consolidated financial statements.

Statement of Financial Accounting Standards No. 144.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The provisions of this statement are generally to be applied prospectively. The Company adopted SFAS 144 on January 1, 2002. The adoption of SFAS No. 144 did not have a material impact on the Company's consolidated financial statements.

Statement of Financial Accounting Standards No. 146.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). Generally, SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized as incurred, whereas EITF Issue No. 94-3 required such a liability to be recognized at the time that an entity committed to an exit play. The Company is currently evaluating the provisions of the new rule, which is effective for exit or disposal activities that are initiated after December 31, 2002.

Special Note Regarding Forward-looking Statements

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

•

the success in marketing SenoScan;



•

production and enhancement of SenoScan to meet market demands;



•

the market penetration of SenoScan;



•

the strength of sales of Mammotest;



•

the adequacy of financial resources;



•

future revenues, expenses and other operating results;



•

the success of our new RES Division;



•

marketing arrangements, and other agreements pertaining to Mammotest, SenoScan and other products;



•

our ability to obtain the necessary FDA approvals;



•

the success of our products in development;



•

the size and growth of our markets;



•

our manufacturing capacity and capabilities; and



•

the availability of raw materials and components.

        These forward-looking statements are only predictions and involve risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. In addition, these forward-looking statements represent our estimates and assumptions only as of the date of this report, and we expressly disclaim any duty to update these estimates and assumptions. Factors that could cause the actual results we achieve to differ materially from those discussed in the forward-looking statements are included in the risk factors of the Form 10-K as well as elsewhere in this report.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        You should read the following discussion of the results of operations and financial condition in conjunction with our consolidated financial statements and notes thereto appearing in the Company's Form 10-K for the year ended December 31, 2001.

Critical Accounting Policies and Estimates

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

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

        The Company designs, manufactures and markets specialty digital and other mammography systems for the diagnosis and treatment of disease. During the second quarter of 2002, the Board of Directors approved the establishment of the new RES Division, with its own sales, marketing and engineering structure, and staffed with experienced Fischer employees. Management believes the divisionalization of the business relating to its non-core products into the newly formed RES Division will facilitate increased focus on the RES product lines.

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

        The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. In the second quarter of 2002, there was a substantial write-down of inventory associated with a review of the Company's products and strategies in its business and in particular with respect to the non-core product lines that represent the new RES Division.

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

Contractual Obligations

        At September 29, 2002, the Company's commitments under contractual obligations were as follows:

Payments Due by Period
(in thousands)