Future looks troubled for x-ray firm Fidelity Medical

Firm delays filing of annual report

Fidelity Medical of Florham Park, NJ, appears to be in financialtrouble after posting several years of million-dollar losses.The company has notified the Securities and Exchange Commissionthat its annual report on Form 10-K for fiscal year 1994 cannotbe filed in a timely manner due to doubts about the company'sfuture.

Fidelity has acknowledged being unable to finalize its 1994financial statements "in light of the uncertainty of itsability to continue as a going concern," the company said.George Lombardi, Fidelity's CFO, said the company is trying towork through its fiscal difficulties. Lombardi joined Fidelitylast October.

Net revenues for Fidelity's 1994 fiscal year are expected tobe about $3.5 million, compared to $5.7 million for the prioryear (end-September). The operating loss for fiscal 1994 is expectedto be approximately $2.8 million, compared to operating lossesof $5.5 million in 1993 and $4.7 million in 1992. The net lossfor fiscal 1994 was expected to be $1.9 million, compared to 1993'snet loss of $10.1 million. Lombardi said he does not expect anychanges to the preliminary results.

In October, Fidelity signed an agreement to settle class-actionlitigation filed against the company. The suit was related toFidelity's revelation in 1992 of irregularities in its revenuerecognition practices (SCAN 8/26/92). As a result, shareholdersfiled nine class-action securities complaints against the company,according to Lombardi. The lawsuits were later consolidated bycourt order.

"There were claims for common-law fraud and negligentmisrepresentation, but the thrust of the consolidated suit wasthat sales and overall financial condition of the company wereinflated during the period from 1989 to May of 1992," Lombardisaid.

The settlement called for Fidelity to pay out $2.56 millionin cash and $1 million in convertible preferred stock. The settlement,which includes additional contributions from other defendants,received court approval in October and became effective Nov. 24.The agreement, however, had virtually no effect on the financesreported at the end of last September.

Fidelity Medical develops and markets systems for digitizationof x-ray images. At last year's Radiological Society of NorthAmerica meeting the company introduced InstaCine, a digital imagingsystem featuring real-time and postprocessing capabilities, includingdigital subtraction angiography.