IPO Provides X-ray Equipment Firm a Clearer Growth Picture

By Leslie Gornstein for Crain’s Chicago Business
September 24, 1994

Fluoroscan Imaging Systems Inc., a Northbrook-based X-ray maker reduced to bare bones five years ago, is using a recent stock offering to help it sharpen its focus and zoom in on a new market.

Fluoroscan, which makes portable X-ray machines with safer-than-average levels of radiation, filed for Chapter 11 bankruptcy in June 1989, when it was named HealthMate Inc.

Arlen Issette bought one-third of the company’s stock from another officer and took over as president, getting the company’s debts paid by March 1993 and the initial public offering (IPO) of stock out in July.

Fluoroscan officers - undaunted by the prospect of health care reform cutting hospitals’ high-tech purchases - hope to nearly double annual revenues to $16 million by 1996 from an estimated $9 million this year.

In the first six months of this year, the company reported net income of $1.1 million, or 39 cents a share, more than double the figure in the year-earlier period.

The company expects net income to stay between 18% and 22% of sales in the coming years.

The trick behind the turnaround: switching targets from industrial buyers to medical practitioners.

“Our markets are 90% United States medical, 5% industrial and 5% international,” says Larry Grossman, Fluoroscan’s 45-year-old chairman and CEO. “Most other companies (in the industry) are an equal measure of medical, industrial and international.”

Mr. Grossman and Mr. Issette, Fluoroscan’s 51-year-old president, say they wanted to raise money through an initial public offering to maintain the company’s growth. They also wanted a respite after having supported the company out of pocket for six years, investing more than $300,000 in cash in exchange for more equity.

The company had been expected to sell $6 million worth of stock, but by the time the offering was completed, more than $8 million worth of shares had been sold at $6 each. Early last week, the stock was trading at about $7.

A continued price rise is predicted by Christopher Marlett, a vice-president at Drake Capital Securities in Santa Monica, Calif. “We expect (the value) to double in the next 18 to 24 months,” he says. “There won’t be any major letdowns.”

As a private company, Fluoroscan earned the equivalent of 15 cents a share last year. Mr. Marlett and company officials expect that, in this year’s second half, Fluoroscan will at least match its first-half earnings of 39 cents a share.

Hospitals lost most of their fear of health care reform a few months ago, Mr. Issette says. “They got tired of all the rhetoric. A whole floodgate opened.”

Says Ronald Heller, head of investment banking at Jersey City-based M. H. Meyerson & Co., which underwrote Fluoroscan’s IPO: “The (Fluoroscan) machine is one-third the cost of competing X-ray machines, and maintenance costs are 80% less. It’s profitable for the doctor who is buying it.”

The company makes a $45,000 portable X-ray machine used by doctors to examine arms and legs, and also by defense equipment makers to examine airplane wings for faults.

Fluoroscan soon will introduce two other products, one for veterinarians who treat horses, another to examine larger sections of the human body, such as hips and torsos.

Fluoroscan plans to use most of the money raised by the offering to pay for marketing of those products, with the rest going toward research and development and general company operations.

Fluoroscan also is preparing to do more international business, having waited two years for inspectors in Scandinavia and Germany to approve its equipment.