<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1998
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SWISSRAY INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW YORK [ ] 16-0950197
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) Identification Number)
</TABLE>
SWISSRAY INTERNATIONAL, INC.
200 EAST 32ND STREET, SUITE 34-B
NEW YORK, NEW YORK 10016
UNITED STATES: (212) 545-0095
SWITZERLAND: 011-4141-914-1200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RUEDI G. LAUPPER,
CHAIRMAN OF THE BOARD AND PRESIDENT
SWISSRAY INTERNATIONAL, INC.
200 EAST 32ND STREET, SUITE 34-B
NEW YORK, NEW YORK 10016
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copy to:
GARY B. WOLFF, ESQ.
GARY B. WOLFF, P.C.
747 THIRD AVENUE
NEW YORK, NEW YORK 10017
(212)644-6446
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At the
discretion of the converting shareholders after the effective date of the
Registration Statement.
In accordance with Rule 429 of the General Rules and Regulations under the
Securities Act of 1933 this Registration Statement and the Prospectus which is a
part thereof relates, in part, and combines with an earlier Registration
Statement under Registration No. 333-50069 declared effective May 12, 1998.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
<PAGE> 2
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE(3)
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED
AMOUNT TO OFFERING MAXIMUM
TITLE OF EACH CLASS OF BE PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED PER SHARE OFFERING REGISTRATION
REGISTERED (1) (2) PRICE(1)(2) FEE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.01 par
value per share) 12,774,572 $0.41 $5,237,575 $1,545.08
</TABLE>
(1) Includes (a) 5,950,477 shares which are reserved for issuance pursuant to
currently issued and outstanding Convertible Debentures which will be
offered for resale by certain Selling Holders under Registration No.
333-50069, (b) 5,973,333 shares which are reserved for issuance pursuant to
currently issued and outstanding Convertible Debentures which will be
offered for resale by certain Selling Holders under this Registration
Statement and (c) 850,762 shares being registered pursuant to certain
"piggy-back" registration rights granted to an otherwise unaffiliated
lender pursuant to terms of promissory note (see "Description of Capital
Stock - Promissory Note"). No. 333-50069. Also registered hereunder is such
indeterminate number of shares of Common Stock, $.01 par value, of the
Registrant as may be issuable on conversion of the Debentures, including
such additional shares as may be issuable as a result of adjustments to the
conversion price as well as such additional shares as may become issuable
pursuant to (i) any shares issuable in exchange for interest earned under
Convertible Debentures and (ii) any anti-dilution provisions as may be
contained in the aforesaid Convertible Debentures and related Registration
Rights Agreements. All of such additional shares of Common Stock will, if
issued, be issued for no additional consideration and therefore no
registration fee is required.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933. In
accordance with Rule 457(c) of Regulation C, the estimated price for the
Securities was based on the average of the high and low reported prices on
the Nasdaq SmallCap Market on July 22, 1998.
(3) The number of securities being carried forward and the amount of the filing
fee associated with such securities that was previously paid under earlier
Registration No. 333-50069 was 14,770,081 shares of Common Stock, $.01 par
value, for which the registration fee of $2,859.80 was paid. This
information is provided in accordance with Rule 429(b) of the 1933 Act.
(4) The amount of registration fee is based upon those shares being registered
for which no prior registration fee has been paid; to wit: an additional
5,950,477 shares under Registration No. 333-50069 and the additional
6,824,095 shares under this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
<PAGE> 3
SWISSRAY INTERNATIONAL, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K.
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION
--------------------------------------- ------------------
<S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of the Prospectus Cover Page of Registration
Statement; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus Inside Front and Outside
Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges Prospectus Summary; Risk
Factors; The Company
4. Use of Proceeds Prospectus Summary; Use
of Proceeds
5. Determination of Offering Price Outside Front Cover Page
of Prospectus
6. Dilution Risk Factors; Dilution
7. Selling Security Holders Selling Holders and Plan
of Distribution
8. Plan of Distribution Outside Front Cover Page
of Prospectus; Selling
Holders and Plan of
Distribution
9. Description of Securities to be Registered Description of Capital
Stock
10. Interests of Named Experts and Counsel Legal Matters; Independent
Auditors
11. Information with Respect to Registrant
(a) (1) Description of Business Prospectus Summary;
Management's Discussion
and Analysis of Financial
Condition and Results of
Operations; Business; The
Company
(2) Description of Property Business -- Property
(3) Legal Proceedings Business -- Legal
Proceedings
(4) Control of Registrant Not Applicable
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION
--------------------------------------- ------------------
<S> <C>
(5) Nature of Trading Market Risk Factors; Selling
Holders and Plan of
Distribution
(6) Exchange Controls and Other Limitations
Affecting Security Holders Risk Factors; Description
of Capital Stock
(7) Taxation Risk Factors
(8) Selected Financial Data Prospectus Summary;
Selected Consolidated
Financial Data
(9) Management's Discussion and Analysis of
Financial Condition and Results of
Operations Management's Discussion
and Analysis of
Financial Condition and
Results of Operations
(10) Directors and Officers of Registrant Management
(11) Compensation of Directors and Officers Management
(12) Options to Purchase Securities from
Registrant or Subsidiaries Management
(13) Interest of Management in Certain
Transactions Certain Transactions
(b) Financial Statements Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities Information Not Required
In Prospectus
</TABLE>
<PAGE> 5
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE
SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO
BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY
STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
DATED JULY 24, 1998
PROSPECTUS
SWISSRAY INTERNATIONAL, INC.
12,774,572 SHARES OF COMMON STOCK
This prospectus ("Prospectus") relates to the offer and sale of up to
12,774,572 shares of common stock, $.01 par value per share (the "Common
Stock"), of Swissray International, Inc., a New York corporation ("Swissray
International, Inc." or the "Registrant"), which shares consist of (i) up to
5,973,333 shares of Common Stock which are issuable to certain persons (the
"Selling Holders") upon conversion of convertible debentures, issued in June,
1998, (the "Convertible Debentures") and which shares are being registered
hereby pursuant to Registration Rights Agreements between the Registrant and
the Selling Holders named in this Prospectus under Registration No. 333-_____,
(ii) up to 5,950,477 additional shares of Common Stock which are issuable to
certain Selling Holders upon conversion of convertible debentures issued in
March 1998, (the "Convertible Debentures") and which additional shares are
being registered hereby pursuant to Registration Rights Agreements between the
Registrant and the Selling Holders named in a Prospectus under Registration No.
333-50069 and (iii) 850,762 shares being registered pursuant to certain
"piggy-back" registration rights granted to an otherwise unaffiliated lender
pursuant to terms of promissory note (see "Description of Capital Stock -
Promissory Note"). The up to 12,774,572 shares of Common Stock offered hereby
are herein referred to as the "Securities".
The Securities may be offered and sold from time to time by the Selling
Holders named herein (or in Registration #333-50069 hereinafter "Selling
Holders" unless otherwise indicated or the Stockholder whose shares are being
registered pursuant to aforesaid piggy-back rights) or by their transferees,
pledgees, donees or their successors pursuant to the Prospectus. The Securities
may be sold by the Selling Holders from time to time directly to purchasers or
through agents, underwriters or dealers who may receive compensation in the form
of discounts, concessions or commissions from the Selling Holders or the
purchasers of the Securities for whom such agents, underwriters or dealers may
act. See "Selling Holders and Plan of Distribution." If required, the names of
any such agents or underwriters involved in the sale of the Securities and the
applicable agent's commission, dealer's purchase price or underwriter's
discount, if any, will be set forth in an accompanying supplement to this
Prospectus. The Registrant will not receive any of the proceeds from the sale of
the Securities by the Selling Holders.
The Selling Holders will receive all of the net proceeds from the sale of
the Securities and will pay all underwriting discounts and selling commissions,
if any, applicable to any such sale. The Registrant is responsible for payment
of all other expenses incident to the offer and sale of the Securities. The
Selling Holders and any broker-dealers, agents or underwriters that participate
in the distribution of the Securities may be deemed to be "underwriters" within
the meaning of the Securities Act of 1933, as amended (the "Act"), and any
profit on the sale of the Securities by the Selling Holders and any commissions
received by any such underwriters may be deemed to be underwriting commissions
or discounts under the Act. See "Selling Holders and Plan of Distribution" for a
description of indemnification arrangements.
All references herein to the "Company" refer to Swissray International,
Inc. and its subsidiaries. The executive offices of the Company are located at
Swissray International, Inc., 200 East 32nd Street, Suite 34-B, New York, New
York 10016. The telephone number is 212-545-0095 and the fax number is
212-545-7912. The address in Switzerland is Turbistrasse 25-27 CH6280 Hochdorf,
Switzerland and the telephone number in Switzerland is 011-4141-914-1200.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE
AND INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
<PAGE> 6
The Registrant has not taken any action to register or qualify the
Securities for offer and sale under the securities or "blue sky" laws of any
state of the United States. However, pursuant to the Registration Rights
Agreements among the Registrant and the Selling Holders (the "Registration
Rights Agreements"), the Registrant will use reasonable efforts to (i) register
and qualify the Securities covered by the Registration Statement under such
other securities or blue sky laws of such jurisdictions as the investors who
hold a majority in interest of the Securities being offered reasonably request
and in which significant volumes of shares of Common Stock are traded, (ii)
prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times until the earliest (the "Registration Period") of (A) the date that is two
years after the Closing Date, (B) the date when the Selling Holders may sell all
Securities under Rule 144 or (C) the date the Selling Holders no longer own any
of the Securities; (iii) take such other actions as may be necessary to maintain
such registrations and qualification in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Securities for sale in such jurisdictions; provided,
however, that the Registrant shall not be required in connection therewith or as
a condition thereto to (A) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify, (B) subject itself to general
taxation in any such jurisdiction, (C) file a general consent to service of
process in any such jurisdiction, (D) provide any undertakings that cause more
than nominal expense or burden to the Registrant or (E) make any change in its
articles of incorporation or by-laws or any then existing contracts, which in
each case the Board of Directors of the Registrant determines to be contrary to
the best interests of the Registrant and its stockholders. Unless and until such
times as offers and sales of the Securities by Selling Holders are registered or
qualified under applicable state securities or "blue sky" laws, or are otherwise
entitled to an exemption therefrom, initial resales by Selling Holders will be
materially restricted. Selling Holders are advised to consult with their
respective legal counsel prior to offering or selling any of their Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED ON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
AVAILABLE INFORMATION
The Registrant is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed with the Commission can be inspected and
copied at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of this material can also be obtained at
prescribed rates from the Public Reference Section of the Commission at its
principal office at 450 Fifth Street, NW., Washington, D.C. 20549. The
Commission maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission, such as the Registrant. The address of such
site is http:\\www.sec.gov.
-2-
<PAGE> 7
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
detailed information and financial information incorporated by reference herein
appearing elsewhere in this Prospectus. This Prospectus contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the Exchange
Act. When used in this Prospectus, the words "believes," "expects," "intends,"
"anticipates" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain uncertainties that could
cause actual results to differ materially from those projected. Such risks and
uncertainties include the timing and acceptance of new product introductions,
the actions of the Company's competitors, and those discussed under the caption
"Risk Factors."
THE COMPANY
The Registrant was incorporated under the laws of the State of New York on
January 2, 1968 under the name CGS Units Incorporated. On June 15, 1994, the
Registrant merged with Direct Marketing Services, Inc. and changed its name to
DMS Industries, Inc. In May of 1995 the Registrant discontinued the operations
then being conducted by DMS Industries, Inc. and acquired all of the outstanding
securities of SR-Medical AG, a Swiss corporation engaged in the business of
manufacturing and selling X-ray equipment, components and accessories. On June
5, 1995 the Registrant changed its name to Swissray International, Inc. The
Registrant's operations are being conducted principally through its wholly owned
subsidiaries, SR-Medical Holding AG (known as SR-Medical AG until renamed in
February 1998), the latter's wholly owned subsidiaries, SR Medical AG (known as
Telray AG until renamed in February 1998), a Swiss corporation, Swissray
Deutschland (Rontgentechnik) GmbH (formerly known as SR-Medical GmbH), a German
limited liability company and Telray Research and Development AG (a Swiss
corporation), as well as through the Company's other wholly owned subsidiaries,
SR Management AG (formerly SR Finance AG), a Swiss corporation, Swissray Medical
Systems, Inc. (formerly Swissray Corporation), a Delaware corporation, Swissray
Healthcare, Inc., a Delaware corporation, and Swissray Information Solutions,
Inc., a Delaware corporation. Unless otherwise specifically indicated, all
references hereinafter to the "Company" refer to the Registrant and its
subsidiaries.
The Company is active in the markets for diagnostic imaging devices for the
health care industry. The Company's products include a full range of
conventional X-ray equipment for all diagnostic purposes other than mammography
and dentistry, a direct digital multi-functional X-ray system, the
AddOn-Multi-System, and the SwissVision(TM) line of DICOM 3.0 compatible
postprocessing workstations operating on a Windows NT platform for the
processing of digital image data. In addition, the Company is in the business of
selling computer tomography systems, magnetic resonance systems and nuclear
medicine systems and components and accessories for X-ray equipment manufactured
by third parties and providing services related to imaging systems. The Company
is also offering products and services related to networking, archiving and
electronic distribution of digital X-ray images, including Picture Archiving and
Communications Systems ("PACS").
The services offered by the Company include the installation and
after-sales servicing of imaging equipment sold by the Company, consulting
services and application training of radiographers. In the United States, the
Company plans to offer consulting services to hospital imaging departments and
imaging centers, including maintenance management, capital planning services and
after sales-services of products manufactured by the Company and third parties
(multi-vendor services).
The Company and its predecessors have been in the business of manufacturing
and selling X-ray equipment in Switzerland and Germany since 1988. Beginning in
1991, the Company's predecessors began to expand into other markets in Europe,
the Middle East and Asia. In 1992, the Company entered into a first Original
Equipment Manufacturing ("OEM") Agreement with Philips Medical Systems GmbH
("Philips Medical Systems") providing for the manufacturing by the Company of a
Multi-Radiography System ("MRS").
-3-
<PAGE> 8
Simultaneously, the Company developed the first SwissVision(TM) image
post-processing system, which was able to convert analog images obtained in
fluoroscopy into digital information. In 1993, the Company won the innovation
award of the Chamber of Commerce of Central Switzerland for this post-processing
system. Beginning in 1993, the Company began the development of direct digital
X-ray technology for medical diagnostic purposes. On April 1, 1997, the Company
acquired Empower, Inc. ("Empower"). Since its incorporation in 1985, Empower has
been engaged in distributing and servicing diagnostic X-ray equipment and
accessories in the New York/New Jersey/Connecticut area. On February 13, 1998
the Company entered into a letter of intent with E.M. Parker, Inc. with respect
to the sale of Empower's film and x-ray accessories business. Terms of the
transaction are currently being negotiated. On October 17, 1997, the Company
acquired substantially all of the assets of Service Support Group LLC ("SSG"),
located in Gig Harbor, Washington. SSG has been in the business of selling
diagnostic imaging equipment and providing services related thereto in the
markets on the West Coast of the United States since it was formed on October
16, 1996.
On April 1, 1997, the Company acquired Empower, Inc., a New York
corporation ("Empower") which since incorporation in 1985, had been engaged in
distributing and servicing diagnostic X-ray equipment and accessories in the New
York/New Jersey/Connecticut area. Certain details with respect to such
acquisition were reported in a Form 8-K and Form 8-K/A1 with date of report of
April 1, 1997. In February 1998 the Company entered into a letter of intent with
E.M. Parker Co., Inc., a Massachusetts corporation ("Parker") with respect to
the sale of Empower's film and x-ray accessories business. Thereafter, the
Company and its wholly owned subsidiary, Swissray Empower, Inc. ("Empower")
entered into an Asset Purchase Agreement with Parker pursuant to which the
Company and Empower sold and Parker purchased substantially all of the assets of
Empower (excluding certain excluded assets as defined in the Agreement) in
consideration of: (i) the assumption by Parker of certain liabilities of
Empower; (ii) the cash purchase price of $250,000.00; and (iii) the payment by
Parker of approximately $376,000 to a banking institution in satisfaction of
certain outstanding indebtedness of Empower. Empower remains a wholly owned
subsidiary of the Company.
On October 17, 1997, the Company acquired substantially all of the assets
of Service Support Group LLC ("SSG"), located in Gig Harbor, Washington. SSG
has been in the business of selling diagnostic imaging equipment and providing
services related thereto in the markets on the West Coast of the United States
since it was formed on October 16, 1996. SSG's operations are currently being
conducted through the following wholly owned Company subsidiaries: Swissray
Medical Systems, Inc., Swissray Healthcare, Inc. and Swissray Information
Solutions, Inc.
The following organizational chart graphically indicates the Company, its
wholly owned subsidiaries and certain additional information regarding each of
such firms including principal locations.
Organization Chart Swissray
Swissray International Inc.
New York USA
<TABLE> |
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<S> | <C> | <C> | <C> | <C> | <C> |
Swissray Empower Swissray Medical Swissray Healthcare Inc. Swissray Information SR Medical Holding AG SR Management AG
Glen Cove, NY Systems Inc. Gig Harbour, WA Solutions, Inc. Hochdorf Hitzkirch
USA Gig Harbour, WA USA Gig Harbour, WA Switzerland Switzerland
USA USA
|
-------------------------------------------------------
| | |
SR Medical AG Swissray Rontgentechnik Teleray Research
Hochdorf (Deutschland) GmbH and Development AG
Switzerland Wiesbaden Hochdorf
Germany Switzerland
</TABLE>
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<PAGE> 9
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock Offered(1) Up to 12,774,572 shares of Common Stock.
Common Stock Outstanding
Before the Offering(2)(3) 41,436,842
Common Stock Outstanding
After the Offering(4)
Use of Proceeds The Registrant will not receive any of the proceeds from the sale of
any of the Securities.
Risk Factors The Securities offered
hereby involve a high degree of
risk. See "Risk Factors"
commencing on page 7 hereof.
Nasdaq SmallCap Market Symbol SRMI
</TABLE>
(1) Includes an aggregate of up to 5,973,333 shares of Common Stock reserved
for issuance upon the conversion of the Convertible Debentures. See
"Selling Holders and Plan of Distribution" and "Description of Capital
Stock." Also includes an aggregate of up to an additional 5,950,477 shares
of Common Stock reserved for issuance upon conversion of Convertible
Debentures issued in March 1998, which latter shares relate to
Registration No. 333-50069 in accordance with Rule 429(b) of the 1933 Act.
Also being registered hereunder in accordance with certain "piggy-back"
registration rights are 850,762 restrictive shares heretofore issued
pursuant to terms of a convertible promissory note.
(2) Does not include (i) an aggregate of 16,426,667 shares of Common Stock
reserved for issuance upon the conversion of certain convertible
debentures issued by the Registrant in March 1998 (assumes conversion
based on 20% discount to the closing price on the NASDAQ SmallCap Market
on June 26, 1998), (ii) up to 5,973,333 shares of Common Stock to be
issued to holders of Convertible Debentures issued by the Registrant in
June 1998 upon conversion of such Convertible Debentures (assumes
conversion based on a 20% discount to the closing price on the Nasdaq
SmallCap Market on June 26, 1998); (iii) 1,455,000 shares of Common Stock
which may be issued upon the exercise of outstanding options under the
Registrant's 1996 Non-Statutory Stock Option Plan (the "1996 Plan"), (iv)
155,000 shares of Common Stock reserved for issuance upon the exercise of
options available for future grant under the 1996 Plan and (v) 2,000,000
shares of Common Stock reserved for issuance upon the exercise of options
available for future grant under the 1997 Non-Statutory Stock Option Plan
(the "1997 Plan"). Those shares indicated in 2(iv) and (v) above will only
be issued if and when sufficient authorized shares are available
therefore. See "Management--Stock Option Plans" and "Description of
Capital Stock."
(3) As of the close of business on June 26, 1998 there were 41,436,842 shares
issued and outstanding held by 697 stockholders of the Registrant's Common
Stock.
(4) Since the Common Stock registered hereunder is being offered on a delayed
or continuous basis pursuant to Rule 415 under the Act, the Registrant
cannot include herein information about the Common Stock outstanding after
the Offering.
-5-
<PAGE> 10
SUMMARY FINANCIAL DATA
The summary information below represents financial information of the
Registrant for the (i) nine month periods ended March 31, 1998 and March 31,
1997, which information was derived from the unaudited consolidated financial
statements of the Registrant and the (ii) fiscal years ended June 30, 1997, June
30, 1996, June 30, 1995 (six-month period), December 31, 1994 and December 31,
1993, which information was derived from the audited consolidated financial
statements of the Registrant.
<TABLE>
<CAPTION>
Swissray International, Inc.
Years Ended
(In Thousands, Except Per Share Data)
Nine Month Period Ended -------------------------------------
(Unaudited) (Six Months)
3/31/98 3/31/97* 6/30/97* 6/30/96* 6/30/95(1) 12/31/94 12/31/93
-------- --------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales 17,801 9,117 13,151 10,899 3,806 8,618 5,989
Cost of goods sold 13,921 4,902 8,445 5,793 2,484 5,363 4,181
------ ------ ------- ------ ------ ------ -----
Gross profit 3,880 4,215 4,706 5,106 1,322 3,255 1,808
Gross profit margin (%) 22% 46% 36% 47% 35% 38% 30%
Selling, general and
administrative expenses 11,607 8,483 16,327 14,966 2,307 3,175 2,094
Unusual charges -- -- -- -- -- -- --
------ ------ ------- ------ ------ ------ -----
Operating (loss) income (7,727) (4,268) (11,621) (9,860) (985) 80 (286)
Debt related fees -- --
Other expense (income), net 799 (235) (319) (1,004) 3,054 15 (7)
Interest expense 6,377 171 762 194 122 237 215
(Loss) income from
continuing operations
before income taxes (14,903) (4,204) (12,064) (9,050) (4,161) (172) (494)
Income taxes -- -- 110 (365) (339) 24 --
------- ------ ------- ------ ------ ------ -----
(Loss) income from
continuing operations (14,903) (4,204) (12,174) (8,685) (3,822) (196) (494)
======= ====== ======= ====== ====== ====== =====
(Loss) income per share
from continuing
operations (.62) (.28) (.77) (.67) (.48) (.03) (.06)
======= ====== ======= ===== ====== ====== =====
BALANCE SHEET DATA:
Working capital (deficit) 5,837 4,431 2,833 3,433 11,851 (1,236) (875)
Total assets 29,924 21,116 24,788 18,793 13,027 3,899 3,517
Short-term debt, including
current portion,
long-term debt 10,426 8,684 4,211 2,737 2,954 2,843 2,145
Long-term debt 12,351 -- 5,835 -- 705 420 337
Stockholders' (deficit)
equity 7,148 11,843 7,693 10,655 6,377 (798) (429)
Total shares outstanding
at year end 32,011 17,798 19,694 14,185 12,035 7,850 7,850
</TABLE>
(1) In 1995, the Registrant changed its fiscal year end from December 31 to
June 30. As a result, the Company had a fiscal year beginning on January 1,
1995 and ending on June 30, 1995. Accordingly, the Summary Financial Data
for the period ended June 30, 1995 is for a six-month period.
* Restated
-6-
<PAGE> 11
RISK FACTORS
Investors should carefully consider the factors set forth below as well as
the other information set forth in this Prospectus before purchasing the
Securities.
HISTORY OF LOSSES; PROFITABILITY UNCERTAIN
As of June 30, 1995 the Registrant had accumulated losses on a consolidated
basis of approximately $6,000,000. A substantial part of such losses resulted
from activities unrelated to the Company's present operations. Since June 30,
1995 and for the two fiscal years commencing July 1, 1995 and concluding June
30, 1997, the Company incurred additional net losses aggregating $20,828,295
($12,562,215 of which was attributable to year ended June 30, 1997). For the
nine month period ended March 31, 1998, the Company incurred a further loss of
$14,598,835. Such additional losses primarily resulted from the significant
expenses associated with the development of the Company's products, primarily
its direct digital X-ray system, the Addon-Multi-System, the building of the
Company's organization and market position and the absence of a significant
increase in sales as a result of the delay in the market introduction of certain
of the Company's products. The likelihood of the success of the Company must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with the development of new products
and the competitive environment in which the Company operates. Although the
Company is deriving operating revenue from its current operations, such revenue
has not been sufficient to make the Company's operations profitable. There can
be no assurance that the Company will be able to develop significant additional
sources of revenue or that it will become profitable. Results of operations may
fluctuate significantly and will depend upon successful introduction of the
Addon-Multi-System, market acceptance of new product introductions in the future
and competition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Products," "-- Research
and Development" and "-- Competition."
NEED FOR MARKET ACCEPTANCE OF THE ADDON-MULTI-SYSTEM
The Company's future performance will depend to a substantial degree upon
continued market introduction and acceptance of the Addon-Multi-System. The
Company's marketing efforts to date have generated considerable awareness about
the Addon-Multi-System among radiologists. Most recently from October 1997
through June 1998, the Company installed five Addon-Multi-Systems both within
and without the United States and expects to install an additional three
Addon-Multi-Systems during July-August 1998. The extent of, and rate at which,
the market introduction, acceptance and penetration can be achieved by the
Addon-Multi-System are functions of many variables, including, but not limited
to, obtaining the necessary governmental approvals, price, effectiveness,
acceptance by potential customers and manufacturing, training capacity and
marketing and sales efforts. There can be no assurance that the
Addon-Multi-System will achieve or maintain acceptance in its target markets.
Similar risks may confront other products developed by the Company in the
future. See "Business -- Products" and "-- Regulatory Matters."
RELIANCE ON A SINGLE PRODUCT
The Company has concentrated its efforts primarily on the development of
the Addon-Multi-System and will be dependent to a significant extent upon
acceptance of that product to generate additional revenues. There can be no
assurance that the Addon-Multi-System will be successfully commercialized
notwithstanding its recent successful introduction both within and without the
United States (as hereinafter indicated). There can be no assurance that the
Company's competitors will not succeed in developing or marketing technologies
and products that are more commercially attractive than the Addon-Multi-System.
See "Business -- Products" and "-- Competition."
RELIANCE ON LARGE CUSTOMERS
In the past, the Company has made a significant amount of sales to a few
large customers. Historically, the identity of the Company's largest customers
and the volumes purchased by them has varied. The loss of one or more of the
Company's current two largest customers or a reduction of the volume purchased
by either of them would have an adverse effect upon the Company's sales until
such time, if ever, as significant sales to other customers can be made. See
Note 27 to the Consolidated Financial Statements June 30, 1997 and 1996 and
"Business -- Sales and Marketing."
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<PAGE> 12
RISK OF CURRENCY FLUCTUATIONS
The Company is subject to risks and uncertainties resulting from changes in
currency exchange rates. Future currency fluctuations, to the extent not
adequately hedged, could have an adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Effect of Currency
on Results of Operations."
NO REGISTRATION UNDER "BLUE SKY" LAWS
The Registrant has not taken any action to register or qualify the
Securities for offer and sale under the securities or "blue sky" laws of any
state of the United States. However, pursuant to the Registration Rights
Agreements, the Registrant will use reasonable efforts to (i) register and
qualify the Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as the investors who hold a
majority in interest of the Securities being offered reasonably request and in
which significant volumes of shares of Common Stock are traded, (ii) prepare
and file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times until the earliest
(the "Registration Period") of (A) the date that is two years after the Closing
Date (B) the date when the Selling Holders may sell all Securities under Rule
144 or (C) the date the Selling Holders no longer own any of the Securities;
(iii) take such other actions as may be necessary to maintain such
registrations and qualification in effect at all times during the Registration
Period and (iv) take all other actions reasonably necessary or advisable to
qualify the Securities for sale in such jurisdictions; provided, however, that
the Registrant shall not be required in connection therewith or as a condition
thereto to (A) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify, (B) subject itself to general taxation in any
such jurisdiction, (C) file a general consent to service of process in any such
jurisdiction, (D) provide any undertakings that cause more than nominal expense
or burden to the Registrant or (E) make any change in its articles of
incorporation or by-laws or any then existing contracts, which in each case the
Board of Directors of the Registrant determines to be contrary to the best
interests of the Registrant and its stockholders. Unless and until such times
as offers and sales of the Securities by Selling Holders are registered or
qualified under applicable state securities or "blue sky" laws, or are
otherwise entitled to an exemption therefrom, initial resales by selling
Holders will be materially restricted. Selling Holders are advised to consult
with their respective legal counsel prior to offering or selling any of their
Securities.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company does business in numerous countries, including the United
States, Switzerland and Germany and expects to expand its operations into
various additional countries. In addition to the currency risks discussed above,
the Company's international operations are subject to the risk of new and
different legal and regulatory requirements in local jurisdictions, tariffs and
trade barriers, potential difficulties in staffing and managing local
operations, credit risk of local customers and distributors, potential inability
to obtain regulatory approvals, different requirements as to product standards,
potential difficulties in protecting intellectual property, risk of
nationalization of private enterprises, potential imposition of restrictions on
investments or transfer of funds, potentially adverse tax consequences,
including imposition or increase of withholding and other taxes on remittances
and other payments by subsidiaries, and local economic, political and social
conditions, including the possibility of hyper-inflationary conditions, in
certain countries. Any adverse changes in any of these conditions could have a
material adverse effect on the Company's business or financial condition. See
"--Risk of Currency Fluctuations," "-- Government Regulation," "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Taxes,"
"-- Effect of Currency on Results of Operations" and "Business -- Regulatory
Matters."
-8-
<PAGE> 13
COMPETITION; IMPROVEMENTS IN TECHNOLOGY
The highly competitive markets in which the Company operates are
characterized by rapid and significant technological change, evolving industry
standards and new product introductions. The Company competes with numerous
competitors, many of which are well-established in the Company's markets. Most
competitors are divisions of larger companies with potentially greater
financial and other resources than the Company.
The Company's competitors can be expected to continue to improve the
design and performance of their products and to introduce new products with
competitive price and performance characteristics. Although the Company believes
that it has certain technological and other advantages over its competitors,
realizing and maintaining these advantages will require continued investment by
the Company in research and development, sales and marketing and customer
service and support. There can be no assurance that the Company will have
sufficient resources to continue to make such investments or that the Company
will be successful in maintaining such advantages. If the Company's products or
technologies become uncompetitive or obsolete, it will have a material adverse
effect on the Company. See "Business -- Competition."
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY
The Company has patented certain aspects of its proprietary technology in
certain markets and has filed patent applications for its direct digital
technology in key markets, including the United States. However, there can be no
assurance that such applications will be granted. There can be no assurance that
the Company's issued patents or other patents issued in the future will afford
protection from material infringement or that such patents will not be
challenged. The Company also relies on trade secrets and proprietary and
licensed know-how, which it protects, in part, through confidentiality
agreements with employees, consultants and other parties. There can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach or that the Company's trade secrets will
not otherwise become known to, or independently developed by, competitors.
There also can be no assurance that the Company's technology will not
infringe upon the patents of others. In the event that any such infringement
claim is successful, there can be no assurance that the Company would be able to
negotiate with the patent holder for a license, in which case the Company could
be prevented from practicing the subject matter claimed by such patent. In
addition, there can be no assurance that the Company would be able to redesign
its products to avoid infringement. The inability of the Company to practice the
subject matter of patents claimed by others or to redesign its products to avoid
infringement could have a material adverse effect on the Company.
The Company has obtained a non-exclusive license for a term of two years
ending July 24, 1999 to use certain software for its line of SwissVision(TM)
postprocessing systems. There can be no assurance that this license will not be
granted to a competitor of the company or that such license will be renewed on
favorable terms with the Company or at all. Negotiations with respect to
potential renewal of such license have not, as yet, commenced. See "Business --
Intellectual Property."
GOVERNMENT REGULATION
The Company's services, products and manufacturing activities are subject
to extensive and rigorous government regulation, including the provisions of the
Federal Food, Drug and Cosmetic Act. Commercial distribution in certain foreign
countries is also subject to government regulations. The process of obtaining
required regulatory approvals can be lengthy, expensive and uncertain. Moreover,
regulatory approvals, if granted, may include significant limitations on the
indicated uses for which a product may be marketed. The Food and Drug
Administration (the "FDA") actively enforces regulations prohibiting marketing
without compliance with the pre-market approval provisions of medical devices. A
Section 510(k) application is required in order to market a new or modified
medical device. If specifically required by the FDA, a pre- market approval may
be necessary. The FDA review process typically requires extended
-9-
<PAGE> 14
proceedings pertaining to the safety and efficacy of new products, which may
delay or hinder a product's timely entry into the marketplace. On November 21,
1997, the AddOn Bucky(TM), the direct digital detector of the AddOn
- -Multi-System received FDA approval. The Company also submitted the AddOn-
Multi-System for Section 510(k) approval with the FDA and such approval was
obtained on December 18, 1997 so that the AddOn-Multi-System may be marketed in
the United States.
The FDA also regulates the content of advertising and marketing materials
relating to medical devices. There can be no assurance that the Company's
advertising and marketing materials regarding its products are and will be in
compliance with such regulations. The Company is also subject to other federal,
state, local and foreign laws, regulations and recommendations relating to safe
working conditions, laboratory and manufacturing practices. Failure to comply
with applicable regulatory requirements can result in, among other things,
fines, suspensions of approvals, seizures or recalls of products, operating
restrictions and criminal prosecutions. Furthermore, changes in existing
regulations or adoption of new regulations could affect the timing of, or
prevent the Company from obtaining, future regulatory approvals. The effect of
government regulation may be to delay for a considerable period of time or to
prevent the marketing and full commercialization of future products or services
that the Company may develop and/or to impose costly requirements on the
Company. There can also be no assurance that additional regulations will not be
adopted or current regulations amended in such a manner as will materially
adversely affect the Company. See "--Risks Associated With International
Operations," "Business -- Markets" and "-- Regulatory Matters."
SALES TO HEALTH CARE INDUSTRY
The Company's products are used exclusively in the health care industry,
which is highly regulated. The health care industry in certain markets for the
Company's products, including the United States, has experienced a significant
pressure to reduce costs, which has led in some jurisdictions to substantial
reorganizations and consolidations of health care providers or payors. Cost
reduction efforts by the Company's customers may adversely affect the potential
markets for the Company's products and services. It is also possible that
legislation could be adopted in any of these jurisdictions which could increase
such pressures or which could otherwise result in a modification of the private
or public health care system or both or impose limitations on the ability of the
Company to market its products in any such jurisdiction. Any such event or
condition could have an adverse impact on the Company's business, financial
condition or results of operations. See "Business -- Markets."
RELIANCE ON KEY MANAGEMENT
The Company's business is highly dependent on the principal members of its
management, marketing, research and development and technical staffs, and the
loss of their services might impede the achievement of the Company's business
objectives. In addition, the Company's future success will depend in part upon
its ability to retain highly qualified management, scientific, technical and
marketing personnel. There can be no assurance that the Company will be
successful in retaining such qualified personnel or hiring additional qualified
personnel. Losses of key personnel could have a material adverse effect on the
Company's business. The Company has no key man life insurance policies with
respect to any of its senior executives. See "Business -- Research and
Development" and "Management -- Directors and Executive Officers of the
Company."
LIMITED MANUFACTURING HISTORY WITH RESPECT TO ADDON-MULTI-SYSTEM; DEPENDENCE ON
SOLE SOURCE SUPPLIERS
The Company has limited experience with the manufacture and assembly of the
AddOn-Multi-System in the volumes that will be necessary for the Company to
generate significant revenues from the sale of the AddOn-Multi-System. The
Company may encounter difficulties in scaling up its production or in hiring and
training additional personnel to manufacture the AddOn-Multi-System. Future
interruptions in
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<PAGE> 15
supply or other production problems could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company has only single sources for certain essential components of the
AddOn-Multi-System. Interruptions in the supply of such components might result
in production delays, each of which could have a material adverse effect on the
Company's business, financial condition and results of operations. See "--
Reliance on A Single Product" and "Business --Products."
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FINANCING
There can be no assurance that the Company will not be required to seek
additional equity or debt capital to finance its operations in the future. In
addition, there can be no assurance that any such financings, if needed, will be
available to the Company or that adequate funds for the Company's operations,
whether from the Company's revenues, financial markets, collaborative or other
arrangements with corporate partners or from other sources, will be available
when needed or on terms attractive to the Company. The inability to obtain
sufficient funds may require the Company to delay, scale back or eliminate some
or all of its research and product development programs, sales and marketing
efforts, manufacturing and slide processing operations, clinical studies and/or
regulatory activities or to grant licenses to third parties to commercialize
products or technologies that the Company would otherwise seek to market and
sell itself.
POTENTIAL RECALLS AND PRODUCT LIABILITY
Any of the Company's products may be subject to recall for unforeseen
reasons. The medical device industry has been characterized by significant
malpractice litigation. As a result, the Company faces a risk of exposure to
product liability, errors and omissions or other claims in the event that the
use of its X-ray equipment, components, accessories or related services or other
future potential products is alleged to have resulted in a false diagnosis and
there can be no assurance that the Company will avoid significant liability.
There also can be no assurance that the Company will be able to obtain adequate
insurance coverage or that, if obtained, such coverage will continue to be
available at an acceptable cost, if at all. Consequently, such claims could have
a material adverse effect on the business or financial condition of the Company.
DILUTION; EFFECT OF OUTSTANDING CONVERTIBLE DEBENTURES ON CERTAIN SHARES
The Registrant has outstanding convertible debentures and options to
purchase Common Stock at prices that are below the per share price to purchasers
of the Registrant's Common Stock in the market. The exercise of such convertible
debentures or options may have a dilutive effect on the investment of a holder
of the Registrant's Common Stock. The market price of the Registrant's Common
Stock may also be adversely affected by sales of substantial amounts of Common
Stock in the public market, including sales of Common Stock under Rule 144 or
after the expiration of any other applicable holding period (by contract and/or
statute). The sale of such stock could also adversely affect the ability of the
Registrant to sell Common Stock for its own account. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Management -- Compensation of Directors and Executive Officers," "Selling
Holders and Plan of Distribution" and "Description of Capital Stock."
LIMITED PUBLIC MARKET; LIQUIDITY; POSSIBLE VOLATILITY OF STOCK PRICE
The Common Stock is quoted on the Nasdaq SmallCap Market System under the
symbol "SRMI." There can be no assurance that an active public market for the
Common Stock can be sustained. The market price of the Common Stock could
fluctuate significantly as a result of the Company's financial results,
regulatory approval filings, clinical studies, technological innovations or new
commercial products introduced by the Company or its competitors, developments
concerning patents or proprietary rights, trends in the health care industry or
in health care generally, litigation, the adoption of new
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<PAGE> 16
laws or regulations or new interpretations of existing laws or regulations and
other factors.
RECENTLY ADOPTED LISTING STANDARDS FOR NASDAQ SECURITIES
The Nasdaq Stock Market recently adopted certain changes to the standards
for issuers with securities listed on Nasdaq. One of the changes included
increasing the quantitative maintenance requirements for continued listing in
the Nasdaq SmallCap Market, on which the Company's Common Stock is currently
listed. While the Company currently is in compliance with the new qualitative
maintenance requirements (except as hereinafter indicated), it could cease to be
in compliance in the future if it continues to incur substantial losses from
operations. In order to maintain continued listing on Nasdaq the Company's
Common Stock is required to maintain a closing bid price at least equal to $1.00
per share. Nasdaq has advised the Company that its Common Stock failed to
maintain such price and that no delisting actions with respect to such bid price
deficiency will be initiated at this time. Instead, the Company has until August
6, 1998 in which to regain compliance with the minimum bid price requirement.
One manner in which compliance may be achieved would require Common Stock
reports of closing bid price of $1.00 or more for ten consecutive trading days.
Management of the Company is pursuing such alternative procedures as are
necessary and as are acceptable to Nasdaq in the event that the aforementioned
ten consecutive trading days requirement is not achieved. Nevertheless, if this
matter is not remedied (or in the event that the Company fails to maintain
compliance with any other listing requirement) the Company's Common Stock would
be delisted from the Nasdaq SmallCap Market.
ENVIRONMENTAL MATTERS
The Company is subject to various environmental laws and regulations in the
jurisdiction in which it operates. Although the Company believes that it is in
substantial compliance with applicable environmental requirements and the
Company to date has not incurred material expenditures in connection with
environmental matters, it is possible that the Company could become subject to
additional environmental liabilities in the future that could result in an
adverse effect on the Company's financial condition or results of operations.
See "-- Environmental Matters" and "Business -- Environmental Matters."
-12-
<PAGE> 17
THE COMPANY
The Registrant was incorporated under the laws of the State of New York on
January 2, 1968 under the name CGS Units Incorporated. On June 15, 1994, the
Registrant merged with Direct Marketing Services, Inc. and changed its name to
DMS Industries, Inc. In May of 1995 the Registrant discontinued the operations
then being conducted by DMS Industries, Inc. and acquired all of the outstanding
securities of SR-Medical AG, a Swiss corporation engaged in the business of
manufacturing and selling X-ray equipment, components and accessories. On June
5, 1995, the Registrant changed its name to Swissray International, Inc. The
Registrant's operations are being conducted principally through its wholly owned
subsidiaries, SR-Medical Holding AG (known as SR-Medical AG until renamed in
February 1998), the latter's wholly owned subsidiaries, SR Medical AG (known as
Telray AG until renamed in February 1998), a Swiss corporation, Swissray
Deutschland (Rontgentechnik) GmbH (formerly known as SR-Medical GmbH), a German
limited liability company, and Telray Research and Development AG (a Swiss
corporation), as well as through the Company's other wholly owned subsidiaries,
SR Management AG (formerly SR Finance AG), a Swiss corporation, Swissray Medical
Systems, Inc. (formerly Swissray Corporation), a Delaware corporation, Swissray
Healthcare, Inc., a Delaware corporation, and Swissray Information Solutions,
Inc., a Delaware corporation. Unless otherwise specifically indicated, all
references hereinafter to the "Company" refer to the Registrant and its
subsidiaries. See Note 1 to the Consolidated Financial Statements June 30, 1995
and December 31, 1994 and 1993 and June 30, 1997 and 1996.
The Company and its predecessors have been in the business of manufacturing
and selling X-ray equipment in Switzerland and Germany since 1988. Beginning in
1991, the Company's predecessors began to expand into other markets in Europe,
the Middle East and Asia. In 1992, SR Medical AG entered into a first Original
Equipment Manufacturing ("OEM") Agreement with Philips Medical Systems GmbH
("Philips Medical Systems") providing for the manufacturing of a
multi-radiography system ("MRS"). In 1996, this agreement was replaced with a
new OEM Agreement ("Philips OEM Agreement") which provides for the manufacturing
of the Bucky Diagnost TS bucky table in addition to the MRS System.
Simultaneously, the Company developed the first SwissVision(TM) post-processing
system which was able to convert analog images obtained in fluoroscopy into
digital information. Beginning in 1993, the Company began the development of
direct digital X-ray technology for medical diagnostic purposes.
On November 6, 1996, the Company formed Swissray Corporation (which has
since been renamed Swissray Medical Systems, Inc.), a Delaware corporation
located in Azusa, California, as the Company's principal authorizing division in
the United States.
On April 1, 1997, the Company acquired Empower, Inc., a New York
corporation ("Empower"), which since incorporation in 1985, had been engaged in
distributing and servicing diagnostic X-ray equipment and accessories in the New
York/New Jersey/Connecticut area. Certain details with respect to such
acquisition were reported in a Form 8-K and Form 8-K/A1 with date of report of
April 1, 1997. In February 1998 the Company entered into a letter of intent with
E.M. Parker Co., Inc., a Massachusetts corporation ("Parker") with respect to
the sale of Empower's film and x-ray accessories business. Thereafter, the
Company and its wholly owned subsidiary, Swissray Empower, Inc. ("Empower")
entered into an Asset Purchase Agreement with Parker pursuant to which the
Company and Empower sold and Parker purchased substantially all of the assets of
Empower (excluding certain excluded assets as defined in the Agreement) in
consideration of: (i) the assumption by Parker of certain liabilities of
Empower; (ii) the cash purchase price of $250,000.00; and (iii) the payment by
Parker of approximately $376,000 to a banking institution in satisfaction of
certain outstanding indebtedness of Empower. Empower remains a wholly owned
subsidiary of the Company.
During the fiscal year ended June 30, 1997, the Company created a new
Information Solution Division known as Swissray Information Solutions, Inc.
which is engaged in services related to Picture Archiving and Communications
Systems ("PACS") as well as consulting activities. This division is located in
Gig Harbor, Washington and headed by Michael J. Baker, who has more than 20
years experience in radiology, most recently as head of Lockheed Martin's
Medical Imaging Systems division.
On October 17, 1997, the Company acquired substantially all of the assets
of Service Support Group LLC ("SSG") located in Gig Harbor, Washington,
principally in exchange for the payment of approximately $622,000 in cash and
issuance of 333,333 shares of its Common Stock in equal thirds to each of SSG's
then owners based upon certain warranties and representations made by them.
Pursuant to the terms of the Asset Purchase Agreement and related Registration
Rights Agreement both dated October 17, 1997 (Exhibits 10.9 and 10.10 hereto),
the holders of such Company shares were then given the right, commencing June
30, 1998 and terminating April 16, 1999, to require the Company to purchase any
or all of such shares at $4.50 per share. Since its formation on October 16,
1996, SSG has been in the business of selling diagnostic imaging equipment and
providing services related thereto in the markets on the West Coast of the
United States. Issues involving the aforesaid Company shares and a number of
other related matters are currently the subject of dispute and the three former
SSG owners relationship with the Company (and certain Company subsidiaries with
whom such persons held positions as officers, to wit: Swissray Medical Systems,
Inc. and Swissray Healthcare, Inc.) was terminated on July 20, 1998. As a result
of such termination Ueli Laupper has been appointed Chief Executive Officer of
both Swissray Medical Systems, Inc. and Swissray Healthcare, Inc. (with Michael
J. Baker being appointed Deputy Chief Executive Officer of both subsidiaries).
Swissray Healthcare, Inc. remains engaged in providing maintenance management,
capital planning and other services to hospital imaging departments and imaging
centers. See "The Company" and "Business -- Services."
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<PAGE> 18
DETERMINATION OF OFFERING PRICE
Since the Common Stock registered hereunder is being offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as
amended (the "Act"), the Registrant cannot include herein information about the
price to the public of the Common Stock.
USE OF PROCEEDS
The Registrant will not receive any of the proceeds from the sale of the
Securities. All of the proceeds will be received by the Selling Holders. See
"Selling Holders and Plan of Distribution."
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<PAGE> 19
MARKET PRICES AND DIVIDEND POLICY
The Registrant's common stock, $.01 par value (the "Common Stock") is
listed on the Nasdaq SmallCap Market and traded under the symbol SRMI. The
following table sets forth, for the periods indicated, the range of high and low
bid prices on the dates indicated for the Registrant's securities indicated
below for each full quarterly period within the two most recent fiscal years (if
applicable) and any subsequent interim period for which financial statements are
included and/or required to be included.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1996 QUARTERLY COMMON STOCK PRICE
BY QUARTER RANGES (1)
QUARTER DATE HIGH LOW
- ------- ---- ---- ---
<S> <C> <C> <C>
1st September 30, 1995(1) $6.8125 $6.00
2nd December 31, 1995(1) $7.875 $5.50
3rd March 31, 1996(1) $7.25 $4.4375
4th June 30, 1996 $6.50 $5.25
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1997 QUARTERLY COMMON STOCK PRICE
BY QUARTER RANGES (1)
QUARTER DATE HIGH LOW
- ------- ---- ---- ---
<S> <C> <C> <C>
1st September 30, 1996 $5.0625 $3.6875
2nd December 31, 1996 $4.00 $2.375
3rd March 31, 1997 $3.5625 $1.6875
4th June 30, 1997 $3.250 $1.4063
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1998 QUARTERLY COMMON STOCK PRICE
BY QUARTER RANGES (1)
QUARTER DATE HIGH LOW
- ------- ---- ---- ---
<S> <C> <C> <C>
1st September 30, 1997 $1.6375 $1.5625
2nd December 31, 1997 $1.250 $1.125
3rd March 31, 1998 $1.6875 $0.75
4th June 30, 1998 $0.9375 $0.46875
</TABLE>
(1) The Registrant's Common Stock began trading on the Nasdaq SmallCap market
on March 20, 1996 with an opening bid of $4.75. The following statement
specifically refers to the Common Stock activity, if any, prior to March
20, 1996. The existence of limited or sporadic quotations should not of
itself be deemed to constitute an "established public trading market." To
the extent that limited trading in the Registrants's Common Stock took
place, such transactions have been limited to the over-the-counter market.
Until March 20, 1996, all prices indicated are as reported to the
Registrant by broker-dealer(s) making a market in its common stock in the
National Quotation Data Service ("pink sheets") and in the Electronic
Over-the-Counter Bulletin Board. Through such date the Registrant's Common
Stock was not traded or quoted on any automated quotation system other than
as indicated herein. The over-the-counter market and other quotes indicated
reflect inter-dealer prices without retail mark-up, mark-down or commission
and do not necessarily represent actual transactions.
As of the close of business on June 26, 1998 there were 697 stockholders
of the Registrant's Common Stock and 41,436,842 shares issued and outstanding
(as certified by its transfer agent).
The payment by the Registrant of dividends, if any, in the future rests
within the discretion of its Board of Directors and will depend, among other
things, upon the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors. The Registrant has not paid or
declared any dividends upon its Common Stock since its inception and, by reason
of its present financial status and its contemplated financial requirements,
does not contemplate or anticipate paying any dividends upon its Common Stock in
the foreseeable future.
-15-
<PAGE> 20
CAPITALIZATION
The following table sets forth (i) the current liabilities and capitalization of
the Company as of June 30, 1997 and (ii) the pro forma liabilities and
capitalization as of June 30, 1997, adjusted to reflect the conversion of the
Convertible Debentures subsequent to such date.
<TABLE>
<CAPTION>
JUNE 30, 1997
PROFORMA AS
ACTUAL PROFORMA ADJUSTED
------ ----------- --------
<S> <C> <C> <C>
Current liabilities 11,259,798 11,259,798
Long-term liabilities, net of current portion 5,835,248 5,835,248
Total liabilities 17,095,046 17,095,046
Stockholders' equity:
Common Stock, $.01 par value, 35,977,353 2,000,000 37,977,353
30,000,000 shares authorized,
19,694,433 issued and outstanding;
26,667,766 as adjusted (1)
Accumulated (deficit) (28,284,165) (240,000) (28,524,165)
Total stockholders' equity 7,693,188 1,760,000 9,453,188
Total liabilities and stockholders' equity 24,788,234 1,760,000 26,548,234
</TABLE>
(1) Based on a conversion price of 80% of the average closing price of the
Registrant's Common Stock during the five trading days prior to actual
conversion.
DILUTION
As of June 30, 1997 the Company's net tangible book value per share of Common
Stock was $0.08. "Net tangible book value per share" represents total tangible
assets minus total liabilities divided by the number of shares of Common Stock
outstanding. After giving effect to the funds received for the issuance of the
Convertible Debenture (after deducting underwriting discounts, commissions and
escrow fees) but without taking into account any other changes in such tangible
book value after June 30, 1997, the net tangible book value per share would
increase to $0.13, assuming a conversion price of $0.33. This represents an
immediate increase in net tangible book value of $0.05 and an immediate dilution
of $0.20 per share to purchasers of shares purchasing at the conversion price.
<TABLE>
<S> <C> <C>
$ $
Offering price per share 0.33
Net tangible book value per Share before Offering 0.08
Increase in net tangible book value per share
attributable to cash payments by purchaser 0.05
Pro forma net tangible book value per Share -----
after Offering 0.13
Dilution from Offering price which will be ----
absorbed by purchaser 0.20
====
</TABLE>
-16-
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and related
notes thereto included elsewhere in this Prospectus. The selected consolidated
financial data as of and for the fiscal years ended December 31, 1993, December
31, 1994, June 30, 1995 (six-month period), June 30, 1996 and June 30, 1997 and
the nine month periods ended March 31, 1998 and March 31, 1997 are derived
from the consolidated financial statements of the Company.
<TABLE>
<CAPTION>
SWISSRAY INTERNATIONAL, INC.
YEARS ENDED
NINE MONTH PERIOD ENDED (IN THOUSANDS, EXCEPT PER SHARE DATA)
----------------------- -------------------------------------
(UNAUDITED) (SIX MONTHS)
3/31/98 3/31/97* 6/30/97* 6/30/96* 6/30/95(1) 12/31/94 12/31/93
------- -------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales 17,801 9,117 13,151 10,899 3,806 8,618 5,989
Cost of goods sold 13,921 4,902 8,445 5,793 2,484 5,363 4,181
------ ------ ------ ------ ------ ------ ------
Gross profit 3,880 4,215 4,706 5,106 1,322 3,255 1,808
Gross profit margin (%) 22% 46% 36% 47% 35% 38% 30%
Selling, general and
administrative expenses 11,607 8,483 16,327 14,966 2,307 3,175 2,094
Unusual charges -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Operating (loss) income (7,727) (4,268) (11,621) (9,860) (985) 80 (286)
Debt related fees -- --
Other expense (income), net 799 (235) (319) (1,004) 3,054 15 (7)
Interest expense 6,377 171 762 194 122 237 215
(Loss) income from
continuing operations
before income taxes (14,903) (4,204) (12,064) (9,050) (4,161) (172) (494)
Income taxes -- -- 110 (365) (339) 24 --
------ ------ ------ ------ ------ ------ ------
(Loss) income from
continuing operations (14,903) (4,204) (12,174) (8,685) (3,822) (196) (494)
====== ====== ====== ====== ====== ====== ======
(Loss) income per share
from continuing
operations (.62) (.28) (.77) (.67) (.48) (.03) (.06)
====== ====== ====== ====== ====== ====== ======
BALANCE SHEET DATA:
Working capital (deficit) 5,837 4,431 2,833 3,433 11,851 (1,236) (875)
Total assets 29,924 21,116 24,788 18,793 13,027 3,899 3,517
Short-term debt, including
current portion,
long-term debt 10,426 8,684 4,211 2,737 2,954 2,843 2,145
Long-term debt 12,351 -- 5,835 -- 705 420 337
Stockholders' (deficit)
equity 7,148 11,843 7,693 10,655 6,377 (798) (429
Total shares outstanding
at year end 32,011 17,798 19,694 14,185 12,035 7,850 7,850
</TABLE>
(1) In 1995, the Registrant changed its fiscal year end from December 31 to
June 30. As a result, the Company had a fiscal year beginning on January
1, 1995 and ending on June 30, 1995. Accordingly, the Summary Financial
Data for the period ended June 30, 1995 is for a six-month period.
* Restated
-17-
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company is active in the markets for products and services related to
diagnostic imaging devices for the health care industry. Diagnostic imaging
devices include X-ray equipment, computer tomography ("CT") systems and magnetic
resonance imaging ("MRI") systems for three dimensional projections, nuclear
medicine ("NM") imaging devices and ultrasound devices. The Company is primarily
engaged in the business of manufacturing and selling diagnostic X-ray equipment
for all radiological applications other than mammography and dentistry. In
addition, the Company is in the business of selling imaging systems and
components and accessories for X-ray equipment manufactured by third parties and
providing services related to diagnostic imaging. See "The Company" and
"Business -- Products."
The Company's marketing strategy is to offer to its customers a complete
package of products and services in the field of radiology, including equipment,
accessories and related services. The Company's products include a full range of
conventional X-ray equipment for all diagnostic purposes other than mammography
and dentistry, a multi-functional direct digital X-ray system, the
AddOn-Multi-System and the SwissVision(TM) line of DICOM 3.0 compatible work
stations operating on a Windows NT platform for the processing of digital image
data. Currently, most of the Company's X-ray equipment is manufactured and
developed in Switzerland. On July 26, 1996, SR Medical AG, the Company's Swiss
marketing subsidiary, was ISO 9002 and EN 46002 certified.
The services offered by the Company include the installation and
after-sales servicing of imaging equipment sold by the Company, consulting
services and application training of radiographers. In the United States, the
Company plans to offer consulting services to hospital imaging departments and
imaging centers, including maintenance management, capital planning services and
after-sales services of products manufactured by the Company and third parties
(multi-vendor services). The Company is also offering products and services
related to networking, archiving and electronic distribution of digital X-ray
images, including Picture Archiving and Communications Systems ("PACS").
The Company and its predecessors have been in the business of manufacturing
and selling X-ray equipment in Switzerland and Germany since 1988. Beginning in
1991, the Company's predecessors began to expand into other markets in Europe,
the Middle East and Asia. In 1992, the Company entered into a first OEM
Agreement with Philips Medical Systems providing for the manufacturing by the
Company of an MRS. In 1996, this agreement was replaced with a new OEM Agreement
which provides for the manufacturing of the Bucky Diagnost TS bucky table in
addition to the MRS system. See "The Company" and "Business -- Products."
On November 6, 1996, the Company formed Swissray Corporation (which has
since been renamed Swissray Medical Systems, Inc.), a Delaware corporation
located in Azusa, California, as the Company's principal marketing division in
the United States.
On April 1, 1997 the Company acquired Empower, Inc., a New York corporation
("Empower") which since incorporation in 1985 had been engaged in distributing
and servicing diagnostic X-ray equipment and accessories in the New York/New
Jersey/Connecticut area. Certain details with respect to such acquisition were
reported in a Form 8-K and Form 8-K/A1 with date of report of April 1, 1997. In
February 1998 the Company entered into a letter of intent with E.M. Parker Co.,
Inc., a Massachusetts corporation ("Parker") with respect to the sale of
Empower's film and x-ray accessories business. Thereafter, the Company and its
wholly owned subsidiary, Swissray Empower, Inc. ("Empower") entered into an
Asset Purchase Agreement with Parker pursuant to which the Company and Empower
sold and Parker purchased substantially all of the assets of Empower (excluding
certain excluded assets as defined in the Agreement) in consideration of: (i)
the assumption by Parker of certain liabilities of Empower; (ii) the cash
purchase price of $250,000.00; and (iii) the payment by Parker of approximately
$376,000 to a banking institution in satisfaction of certain outstanding
indebtedness of Empower. Empower remains a wholly owned subsidiary of the
Company.
During the fiscal year ended June 30, 1997, the Company also created a new
Information Solution Division known as Swissray Information Solutions, Inc.
which is engaged in the business of providing services related to Picture
Archiving and Communications Systems ("PACS") as well as consulting activities.
This division is located in Gig Harbor, Washington and headed by Michael J.
Baker, who has more than 20 years experience in radiology, most recently as head
of Lockheed Martin's Medical Imaging Systems division.
On October 17, 1997, the Company acquired substantially all of the assets
of Service Support Group LLC ("SSG") located
-18-
<PAGE> 23
in Gig Harbor, Washington, principally in exchange for the payment of
approximately $622,000 in cash and issuance of 333,333 shares of its Common
Stock in equal thirds to each of SSG's then owners based upon certain warranties
and representations made by them. Pursuant to the terms of the Asset Purchase
Agreement and related Registration Rights Agreement both dated October 17, 1997
(Exhibits 10.9 and 10.10 hereto), the holders of such Company shares were then
given the right, commencing June 30, 1998 and terminating April 16, 1999, to
require the Company to purchase any or all of such shares at $4.50 per share.
Since its formation on October 16, 1996, SSG has been in the business of selling
diagnostic imaging equipment and providing services related thereto in the
markets on the West Coast of the United States. Issues involving the aforesaid
Company shares and a number of other related matters are currently the subject
of dispute and the three former SSG owners relationship with the Company (and
certain Company subsidiaries with whom such persons held positions as officers,
to wit: Swissray Medical Systems, Inc. and Swissray Healthcare, Inc.) was
terminated on July 20, 1998. As a result of such termination Ueli Laupper has
been appointed Chief Executive Officer of both Swissray Medical Systems, Inc.
and Swissray Healthcare, Inc. (with Michael J. Baker being appointed Deputy
Chief Executive Officer of both subsidiaries). Swissray Healthcare, Inc. remains
engaged in providing maintenance management, capital planning and other services
to hospital imaging departments and imaging centers. See "The Company" and
"Business -- Services."
In 1993, the Company began to develop technologies related to direct
digital radiography ("ddR"). It developed a post-processing system which was
able to convert analog images obtained in fluoroscopy into digital information.
This first of the line of SwissVision(TM) postprocessing systems won the
innovation award of the Chamber of Commerce of Central Switzerland in 1993.
Simultaneously, the Company began the development of a direct digital detector
using CCD technology to replace the film or phosphor plate bucky used in
conventional and Computed Radiology systems.
Originally, the Company intended to offer its digital detector, the AddOn
Bucky(TM) as a retrofit product for conventional X-ray equipment. During the
fiscal year ended June 30, 1997, however, the Company decided to change its
strategy and to offer a complete multi-functional direct digital X-ray system
which combines the functions of a conventional bucky table and a bucky wall
stand and which is able to perform all examinations necessary in orthopedics,
traumatology and chest examination rooms. The primary reason for the Company's
new strategy was management's belief that potential customers can achieve cost
benefits with a multi-functional direct digital X-ray system compared to
retrofitting existing equipment. These cost benefits result primarily from the
fact that a multi-functional direct digital X-ray system only requires one
detector, the most expensive part of a direct digital X-ray system, to replace
the two bucky devices used in a typical conventional bucky room. In addition,
because of an upcoming regulatory change in Europe, CE qualification will be
required for all elements in an X-ray system if any components are exchanged.
The Company was also concerned that the high quality of its product could not be
guaranteed in a retrofitted X-ray system. Finally, a complete system offers
significant advantages for potential customers and the Company in the
after-sales market because suppliers of X-ray equipment typically are reluctant
to extend product warranties and services to a product that is retrofitted with
third party products. As a result, the Company believes that market acceptance
of a complete system would be greater than that of the AddOn Bucky(TM) alone.
The Company's new strategy with respect to the Company's direct digital
technology required the incurrence of significant additional research and
development expenses. Due to this effort, the AddOn-Multi-System could be
developed during the fiscal year ended June 30, 1997 and the first product has
been delivered to a customer during the first quarter of the 1997/98 fiscal year
with four additional installations having occurred shortly thereafter and with
three further additional installations expected to be concluded during
July-August 1998. In February 1998 the Company announced U.S. sale of its
multifunctional direct digital radiography (ddr) x-ray system, the
AddOn-Multi-System to a firm located in Poughkeepsie, New York, thereby
supplementing the earlier sale of such AddOn-Multi-System in January 1998 in
Fargo, North Dakota and further announced entry into contracts for additional
installations in Staten Island, New York and San Francisco, California. See
"Business -- Products," "--Research and Development" and "--Regulatory Matters."
-19-
<PAGE> 24
RESULTS OF OPERATION
In 1995, the Company changed its fiscal year end from December 31 to June
30. As a result, the Company had a fiscal period beginning on January 1, 1995
and ending on June 30, 1995. In order to make the comparison with the period
ended June 30, 1995 more meaningful, the discussion contained herein compares
the results of operations for the six-month period ended June 30, 1996 rather
than the full fiscal year ended June 30, 1996 with the fiscal year ended June
30, 1995.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
(UNAUDITED) YEARS ENDED
----------- SIX MONTHS -----------
3/31/98 3/31/97 6/30/97 6/30/96 6/30/95 12/31/94 12/31/93
-------- -------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 78.2% 53.8% 64.2% 53.2% 65.3% 62.2% 69.8%
Gross profit 21.8% 46.2% 35.8% 46.8% 34.7% 37.8% 30.2%
Selling, general and 65.2% 93.0% 124.1% 137.3% 60.6% 36.9% 35.0%
administrative
Operating (Loss) Income (43.4%) (46.8%) (88.3%) (90.5%) (25.9%) 0.9% (4.8%)
Other expenses (Income) 4.5% (2.6%) (5.3%) (9.2%) 80.2% 0.2% (0.1%)
Interest expense 35.8% 1.9% 1.9% 1.8% 3.2% 2.8% 3.6%
(Loss) Income from
Continuing Operations
before Income Taxes (83.7%) (46.1%) (91.7%) (83.1%) (109.3%) (2.1%) (8.3%)
Income Taxes -- -- 0.8% (3.3%) (8.9%) 0.3% --
(Loss) Income from
Continuing Operations (83.7%) (46.1%) (92.6%) (79.8%) (100.4%) (2.4%) (8.3%)
</TABLE>
THREE-MONTH PERIOD ENDED MARCH 31, 1998 COMPARED TO
THREE-MONTH PERIOD ENDED MARCH 31, 1997
RESULTS OF OPERATIONS
Net sales amounted to $6,498,416 for the three-month period ended March
31, 1998 an increase of $3,453,445 compared to $3,044,971, or 113.4%, for the
three-month period ended March 31, 1997. The increase in net sales was partially
due to the acquisition of Empower, Inc on April 1, 1997. The Company also
increased sales in Swiss Francs made under its Philips OEM Agreement by
approximately 545%.
Gross profit increased by $6,700, to $1,168,226 for the three-month
period ended March 31, 1998 from $1,161,526 for the three-month period ended
March 31, 1997. Gross profit as a percentage of net revenues decreased to 18.0%
for the three-month period ended March 31, 1998 from 38.2% for the three-month
period ended March 31, 1997 The decrease in gross profit as a percentage of net
revenues is attributable to the fact that a major part of the sales was made
with products which have a relatively lower margin during the three months ended
March 31, 1998 compared to the comparative period ended March 31, 1997 where
sales of high margin products and revenue from servicing of x-ray equipment with
high margin dominated.
Operating expenses increased by $2,529,964, or 112.8% to $4,773,545, or
73.5% of net revenues, for the three-month period ended March 31, 1998, from
$2,243,581, or 73.7% of net revenues for the three-month period ended March 31,
1997. The single largest items of operating expenses continued to be officers
and directors compensation and salaries of $1,467,740 or 22.6% of net sales for
the three-month period ended March 31, 1998 compared to $599,696 or
19.7% of net sales for the three-month period ended March 31, 1997. Other
operating expenses increased to $845,610 or 13.0% of net revenue for the three
month period ended March 31, 1998 from $296,714 or 9.7% of net revenue for the
three month period ended March 31, 1997. This increase was primarily due to the
efforts to keep the production up during the phase of extension in the
production plant in Switzerland. Selling expenses were $721,891 or 11.1% for the
three-month period ended March 31,1998 compared to $312,966 or 10.3% for the
three-month period ended March 31,1997. The increase in selling expenses was
partially due to the selling expenses attributable to Empower, Inc. which was
not a subsidiary of the Company during the three-month period ended March 31,
1997 as well as the efforts of the Company to market its digital Add On System
in the US. Research and development expenses increased $303,250 to $763,373 or
11.7% of net sales for the three-month period ended March 31, 1998 compared to
$460,132 or 7.1% of net sales for the three-month period ended March 31, 1997.
Interest expenses increased to $1,960,362 for the three month ended March 31,
1998 compared to $33,939 for the three month ended March 31, 1997. This increase
is primarily due to the interest expense for amortization of Debenture issuance
cost and Conversion Benefit.
-20-
<PAGE> 25
NINE-MONTH PERIOD ENDED MARCH 31, 1998 COMPARED TO NINE-MONTH PERIOD ENDED
MARCH 31, 1997
RESULTS OF OPERATIONS
Net sales amounted to $17,800,994 for the nine-month period ended March
31, 1998 compared to $9,117,390, an increase of $8,683,604, or 95.2%, from the
nine-month period ended March 31, 1997. The increase in net sales was partially
due to the acquisition of Empower, Inc. on April 1, 1997 and the Asset
purchase of Service Support Group LLC on October 17, 1997. The Company could
also increased sales in Swiss Francs made under its Philips OEM Agreement by
approximately 445%.
Gross profit decreased by $335,840, or 7.9%, to $3,879,857, for the
nine-month period ended March 31, 1998 from $4,215,697 for the nine-month period
ended March 31, 1997. Gross profit as a percentage of net revenues decreased to
21.8% for the nine-month period ended March 31, 1998 from 46.2% for the
nine-month period ended March 31, 1997. The decrease in gross profits as a
percentage of net revenues is attributable to the fact that a major part of the
sales was made with products which have a relatively lower margin during the
nine month ended March 31, 1998 compared to the comparative period ended March
31, 1997 where sales of high margin products dominated.
Operating expenses increased by $3,123,645, or 36.8% to $11,607,137, or
65.2% of net revenues, for the nine-month period ended March 31, 1998, from
$8,483,492, or 93.0% of net revenues for the nine-month period ended March 31,
1997. The single largest items of operating expenses continued to be officers
and directors compensation and salaries of $3,645,056 or 20.5% of net sales for
the nine-month period ended March 31, 1998 compared to $1,987,911 or 21.8% of
net sales for the nine-month period ended March 31, 1997. Selling expenses were
$2,396,089 or 13.5% for the nine-month period ended March 31, 1998 compared to
$869,710 or 4.9% for the nine-month period ended March 31, 1997. The increase in
selling expenses was partially due to the selling expenses attributable to
Empower, Inc. which was not a subsidiary of the Company during the nine-months
period ended March 31, 1997 and the selling expenses of Swissray Medical
Systems, Inc. for marketing the digital Add On System in the US, which
activities started after July 1, 1997. Research and development expenses
decreased $112,110 to $2,185,855 or 12.3% of net sales for the nine-month period
ended March 31, 1998 compared to $2,297,965 or 25.2% of net sales for the
nine-month period ended March 31, 1997. Interest expenses increased to
$6,377,276 for the nine months ended March 31, 1998 compared to $171,416 for the
nine months ended March 31, 1997. This increase is primarily due to the interest
expense for amortization of Debenture issuance cost and Conversion Benefit. Gain
on early extinguishment of Debt was $304,923 for the nine months ended March 31,
1998 compared to $-0- for the nine months ended March 31, 1997. The
extinguishment gain resulted from refinancing of Convertible debentures.
FISCAL YEARS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Net sales for the fiscal year ended June 30, 1997 were $13,151,701
compared to $10,899,222 for the fiscal year ended June 30, 1996.
The 21% increase in net sales was partially due to the acquisition of
Empower on April 1, 1997. The sale of conventional X-ray equipment, accessories
and imaging equipment manufactured by third parties to customers in Europe and
other markets outside the United States also increased by approximately 21%.
Contributing factors to
-21-
<PAGE> 26
this increase were sales made under the Philips OEM Agreement and an order to
deliver X-ray equipment to 21 hospitals located in Eastern Europe, which was
filled in part during the fiscal year ended June 30, 1997. The Company made no
sales of the AddOn-Multi-System during the fiscal year ended June 30, 1997. See
"Business -- Products." Gross profits amounted to $4,706,287 or 36% of net sales
for the fiscal year ended June 30, 1997 compared to $5,105,916 or 46.9% for the
fiscal year ended June 30, 1996.
The decrease in gross profits is attributable to sales of low-margin
products increased substantially. This is mainly attributable to increased sales
of accessories, which are generally low-margin products, during the fourth
quarter as a result of the acquisition of Empower and increased sales of CT
systems from Elscint Ltd., a leading Israeli manufacturer of diagnostic imaging
systems and other technologically advanced products ("Elscint"). Each of the
foregoing contributed approximately 15% to the Company's net sales. See
"Business -- Products."
Operating expenses for the fiscal year ended June 30, 1997 were $16,327,360
or 124.1% of net sales compared to $14,966,147 or 137.3% of net sales for the
fiscal year ended June 30, 1996. The principal items were research and
development expenses of $5,786,158 or 46% of net sales for the fiscal year ended
June 30, 1996 compared to $1,731,502 or 15.9% of net sales for the fiscal year
ended June 30, 1997 and salaries (net of directors and officers compensation),
which amounted to $2,059,396 or 15.6% of net sales for the fiscal year ended
June 30, 1997 compared to $1,829,535 or 16.8% of net sales for the fiscal year
ended June 30, 1996. General and administrative expenses for years ended June
30, 1997 and 1996 included value of stock options issued for services in the
amount of $1,161,462 and $6,374,468, respectively.
The financial statements for the years ended June 30, 1997 and 1996 have
been restated to properly record the accounting treatment of certain beneficial
conversion features and debt issuance cost of convertible debentures issued
during the year ended June 30, 1997 and the accounting for the value of stock
options granted during the year ended June 30, 1997 and 1996. The net effect of
such restatements on the Company's 1997 financial statements resulted in an
increase in total assets of $435,619, a decrease in total liabilities of
$689,441, an increase in stockholders' equity of $1,124,760, and an increase in
the net loss of $1,672,587 or $(.10) per common share. The restated net loss for
1997 of $12,562,215 or $(.79) per common share compared to the previously
reported loss of $10,889,628 or $(.69) per common share. The net effect of such
restatements on the Company's 1996 financial statement resulted in no change in
total assets, total liabilities or total stockholders' equity and an increase in
net loss of $6,374,468 or ($.49) per common share. The restated net loss of
$8,266,080 or $(.64) per common share compared to the previously reported net
loss of $1,891,612 or $(.15) per common share. There was no effect to the
Company's cash flows for either 1997 or 1996.
Research and development expenses increased by 234% mainly due to the
significant additional research necessary to implement the Company's new
strategy with respect to its direct digital technology. Additional research and
development expenses have also been incurred to develop the Bucky Diagnost TS
system for Philips Medical Systems and to maintain the technological advantages
of the Company's conventional X-ray equipment. Management considers the relative
size of the research and development expenses for the fiscal year ended June 30,
1997 as extraordinarily high and expects a reduction of their relative size in
the near future. However, significant research and development expenses will
continue to be incurred for the development of new technologically advanced
products and the continuing improvement of existing products. The increase of
64% in selling expenses is the result of the continuing strong efforts of the
Company to build its market position in key markets (including the United States
and Germany), develop new markets and lay the groundwork for a successful market
introduction of the Company's direct digital AddOn-Multi-System. In addition,
the Company has incurred expenses to develop products which are complementary to
its AddOn-Multi-System (such as a digital C-arm system and a digital remote
controlled fluoroscopy system). This will allow the Company to offer a full line
of digital X-ray equipment. See "Business -- Research and Development."
The Company's operating loss increased to $12,064,478 for the fiscal year
ended June 30, 1997 from $9,050,228 for the fiscal year ended June 30, 1996. The
increase in
-22-
<PAGE> 27
the Company's operating loss is due to the significant expenses associated with
the development of the Company's products and the building of the Company's
organization and market position on the one hand and the absence of a
significant increase in sales as a result of the delay in the market
introduction of certain of the Company's products, in particular the
AddOn-Multi-System and the Bucky Diagnost TS on the other hand. After taking
into account income tax benefits and extraordinary items of income (loss) the
resulting net loss of the Company for the fiscal year ended June 30, 1997
increased to $12,562,215 from $8,266,080 for the fiscal year ended June 30,
1996. Extraordinary expenses include the write off of inventory and clean-up
costs as a consequence of a fire which affected the Company's previous
manufacturing facility. However, management of the Company expects to be able to
recover such expenses at least in part under applicable insurance policies.
SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND JUNE 30, 1995
Net sales for the six-month period ended June 30, 1996 were $4,963,537
compared to $3,806,313 for the six-month period ended June 30, 1995.
The 30% increase in net sales was due to a major increase in sales in
Germany and the first sales of CT systems under the agreement with Elscint. In
addition, service and spare part sales under the Philips OEM Agreement and in
Switzerland increased materially. The Company also increased its sales in Swiss
Francs by approximately 37% for the above-mentioned reasons as well as an
increase in sales to Eastern Europe and the Far East.
Gross profits amounted to $2,236,616 or 45% of net sales for the six-month
period ended June 30, 1996 compared to $1,322,060 or 34.7% for the six-month
period ended June 30, 1995. The 69% increase in gross profits is primarily
attributable to the major increase in service and spare part sales which sales
have a much higher gross margin than equipment sales.
Operating expenses for the six-month period ended June 30, 1996 were
$11,205,696 or 225.8% of net sales compared to $2,307,231 or 60.6% of net sales
for the six-month period ended June 30, 1995. The principal items were salaries
(net of officers' compensation) expenses of $734,389 or 19% of net sales for the
six-month period ended June 30, 1995 compared to $696,812 or 14.0 % of net sales
for the six-month period ended June 30, 1996 and research and development
expenses, which amounted to $1,211,653 or 24.4% of net sales for the six-month
period ended June 30, 1996 compared to $233,084 or 6.1% of net sales for the
six-month period ended June 30, 1995. General and administrative expenses for
the six-month period ended June 30, 1996 included $6,374,468 of stock options
for services rendered while the six-month period ended June 30, 1995 had no
charge to operations.
Research and development expenses increased by 419.8%. This significant
increase in research and development expenses resulted primarily from increased
expenses associated with the development of the AddOn Bucky(TM). Selling
expenses decreased by 14.9%. See "Business -- Research and Development."
The Company's operating loss increased to $4,466,197 for the six-month
period ended June 30, 1996 from $4,160,815 for the six-month period ended June
30, 1995. The increase in the Company's operating loss was due to the fact that
the Company paid consulting fees of $3,050,000 toward the acquisition of SR
Medical AG and subsidiaries in June 1995. Without taking into account the
expenses paid for such consulting services, the Company would have had an
increase of $7,171,924 in operating losses for the six-month period ended June
30, 1996 compared with the six-month period ended June 30, 1995, mainly due to
an increase in research and development expenses and stock options issued for
services rendered in the amount of $6,374,468. After taking into account income
tax benefits and extraordinary items of income (loss), the resulting net loss of
the Company for the six-month period ended June 30, 1996 decreased to $1,124,123
from $3,406,145 for the six-month period ended June 30, 1995. Extraordinary
items included a gain on the sale of marketable securities of $419,500, net of
income taxes of approximately $343,000.
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FISCAL YEAR 1994
Net sales for the fiscal year ended December 31, 1994 were $8,617,604.
Gross profits amounted to $3,254,906 or 37.8% of net sales for the fiscal
year ended December 31, 1994.
Operating expenses for the fiscal year ended December 31, 1994 were
$3,175,269 or 36.8% of net sales. The principal items were salaries (net of
officers' compensation) expenses of $1,127,474 or 13% of net sales for the
fiscal year ended December 31, 1994 and other operating expenses, which amounted
to $748,157 or 8.7% of net sales for the fiscal year ended December 31, 1994.
Research and development expenses were $103,675 for the fiscal year ended
December 31, 1994. During the fiscal year 1994, research and development costs
consisted primarily of expenses related to the development of the AddOn
Bucky(TM).
The Company's operating loss was $172,480 for the fiscal year ended
December 31, 1994. After taking into account income tax provisions, the
resulting net loss of the Company for the fiscal year ended December 31, 1994
was $196,592. There were no extraordinary expenses recorded for the fiscal year
ended December 31, 1994.
FINANCIAL CONDITION
March 31, 1998 compared to June 30, 1997
Total assets of the Company on March 31, 1998 increased by $5,136,085
to $29,924,319 from $24,788,234 on June 30, 1997, primarily due to
the increase of Current Assets, Property and Equipment and Goodwill resulting
from the purchase of substantially all of the assets of Service Support Group
LLC, located in Gig Harbor, Washington ("SSG"). The increase in Property and
Equipment resulted from the extension and expansion of the production plant in
Hochdorf, Switzerland. Current Assets increased $2,169,184 to $16,262,530 on
March 31, 1998 from $14,093,346 on June 30, 1997. The increase in current assets
is primarily attributable to the increase of Inventories of $4,535,233 which was
partially offset by the decrease in Cash and Accounts payable. Other Assets
increased $1,661,918 to $8,020,189 on March 31, 1998 from $6,358,271 on June 30,
1997. The increase is primarily due to the increase in Goodwill.
On March 31, 1998, the Company had total liabilities of $22,776,313
compared to $17,095,046 on June 30, 1997. On March 31, 1998, current liabilities
were $10,425,769 compared to $11,259,798 on June 30, 1997. Working capital at
March 31, 1998 was $5,836,761 compared to $2,833,548 at June 30, 1997.
JUNE 30, 1997 COMPARED TO JUNE 30, 1996
Total assets of the Company on June 30, 1997 increased by $5,994,796 to
$24,788,234 from $18,793,438 on June 30, 1996, primarily due to the acquisition
of Empower and a new office and production facility in Hochdorf, Switzerland.
Current assets increased $2,522,432 to $14,093,346 on June 30, 1997 from
$11,570,914 on June 30, 1996. The increase in current assets is primarily
attributable to the increase of accounts receivable as a consequence of the
acquisition of Empower and the increase in inventory due to an increased amount
of orders to be filled within the first quarter of the fiscal year ending June
30, 1998. Other assets increased $274,029 to $6,358,271 on June 30, 1997 from
$6,084,242 on June 30, 1996. The increase of other assets was primarily due to a
decrease in long-term accounts receivable, which was partially offset by an
increase in intangible assets.
On June 30, 1997, the Company had total liabilities of $17,095,046 compared
to $8,138,182 on June 30, 1996. On June 30, 1997, current liabilities were
$11,259,798 compared to $8,138,182 on June 30, 1996. The increase in current
liabilities was primarily due to the incurrence of a mortgage to finance in part
the acquisition of the new Hochdorf facility. Management currently intends to
refinance this mortgage, which may be terminated on three months notice, with a
long-term mortgage. In addition, as a result of the acquisition of Empower,
there was an increase in accounts payable. On
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June 30, 1997, the Company also had $5,310,559 (net of discount) principal
amount of convertible subordinated debentures. Such debentures bore interest at
6% per annum and were repayable at maturity in Common Stock of the Registrant.
As of June 30, 1997, all of such convertible debentures could be converted into
Common Stock of the Registrant at a price equal to 80% of the average closing
price during the five trading days preceding the date of conversion, subject,
with respect to $2 million principal amount of debentures with a maturity date
of April 28, 1998, to a minimum conversion price of $2.50. $2 million principal
amount of the remaining debentures with a maturity date of May 15, 2000 and $2
million principal amount of such debentures with a maturity date of June 13,
2000 were refinanced on July 31, 1997 with the proceeds of the issuance of
$4,262,500 principal amount of convertible debentures. Such debentures may have
a dilutive effect on the investment of stockholders of the Registrant upon
conversion or payment of the principal at maturity, but no funds of the Company
are expected to be used for their repayment. See "Risk Factors -- Dilution;
Effect of Outstanding Convertible Debentures and Certain Shares."
At June 30, 1997, long-term debt net of the current portion thereof
amounted to $524,689 compared to $0 at June 30, 1996. The increase in long-term
debt resulted from the incurrence of new debt obligations and the
reclassification of certain existing debt as long-term debt.
Working capital at June 30, 1997 was $2,833,548 compared to $3,432,732 at
June 30, 1996.
JUNE 30, 1996 COMPARED TO JUNE 30, 1995
Total assets of the Company on June 30, 1996 increased by $5,766,082 to
$18,793,438 from $13,027,356 on June 30, 1995, primarily due to the increase in
current assets and property and equipment. Current assets increased $4,440,278
to $11,570,914 on June 30, 1996 from $7,130,636 on June 30, 1995. The increase
in current assets was attributable to an increase in cash, accounts receivable,
inventories and prepaid expenses as a result of the significant growth of the
Company's overall activities. Other assets increased $535,221 to $6,084,242 on
June 30, 1996 from $5,549,021 on June 30, 1995. The increase of other assets was
primarily due to the increase in long-term accounts receivable.
On June 30, 1996, the Company had total liabilities of $8,138,182 compared
to $6,650,523 on June 30, 1995. On June 30, 1996, current liabilities were
$8,138,182 compared to $5,945,488 on June 30, 1995. The increase in current
liabilities is primarily due to the increase in accounts payable and accrued
expenses as a result of the growth of the Company's activities.
At June 30, 1996, long-term debt net of the current portion thereof
amounted to $0 compared to $705,035 at June 30, 1995. Long-term debt has been
repaid in full amount.
Working capital at June 30, 1996 was $3,432,732 compared to $1,185,148 at
June 30, 1995.
DECEMBER 31, 1994
Total assets of the Company on December 31, 1994 were $3,898,787. Current
assets were $3,040,982 on December 31, 1994. Other assets were $566,476 on
December 31, 1994.
On December 31, 1994, the Company had total liabilities of $4,697,286. On
December 31, 1994, current liabilities were $4,276,866.
At December 31, 1994, long-term debt net of the current portion thereof
amounted to $420,420.
Working capital at December 31, 1994 was $(1,235,884).
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CASH FLOW AND CAPITAL EXPENDITURES NINE-MONTH PERIOD ENDED MARCH 31, 1998
COMPARED TO NINE-MONTH PERIOD ENDED MARCH 31, 1997
Cash used for operating activities for the nine months ended March 31,
1998 increased to $9,287,591 from $7,618,847 for the nine months ended March 31,
1997 and cash used for investing activities increased to $2,340,976 for the nine
months ended March 31, 1998 from $455,355 for the nine months ended March 31,
1997. Cash flow from financing activities for the nine months ended March 31,
1998 was $10,758,418 compared to $7,784,153 for the period ended March 31, 1997.
The Company anticipates that its use of cash will be substantial for
the foreseeable future. In particular, management of the Company expects
substantial expenditures in connection with the improvement of the new Hochdorf,
Switzerland facility, the continuation of the strengthening and expansion of the
Company's marketing organization and, to a lesser degree, ongoing research and
development projects. The availability of the necessary funds to finance these
expenditures depends on the Company's ability to obtain (i) equity and/or debt
financing to the extent necessary and (ii) a sufficient future cash flow which
in turn depends on the marketability of the Company's AddOn-Multi-System. There
can be no assurance whether or not such financing or sufficient future cash flow
will be available.
On August 19, 1997, the Company issued $5,000,000 aggregate principal
amount of 6% convertible debentures (the "Convertible Debentures"), convertible
into Common Stock of the Company. Placement Agent for such convertible debenture
was Rolcan Finance Ltd. The aggregate offering price of the Convertible
Debentures was $5,000,000. After deducting underwriting discounts, commissions
and escrow fees in the aggregate amount of $681,250 the Company received a net
amount of $4,318,750. All Convertible Debentures were issued to accredited
investors as defined in Rule 501(a) of Regulation D promulgated under the Act
("Regulation D") and the Company has received written representations from each
investor to that effect. Fifty percent of the face amount of the Convertible
Debentures were convertible into shares of Common Stock of the Company at any
time after November 3, 1997 and the remaining 50% of the face value of the
Convertible Debentures were convertible into shares of Common Stock of the
Company after December 3, 1997, in each case at a conversion price equal to 80%
of the average Closing bid price for the five trading days preceding the date of
conversion. Any Convertible Debentures not so converted were subject to
mandatory conversion by the Company on the 36th monthly anniversary of the date
of issuance of the Convertible Debentures. All conversions have been completed
(or rolled over as indicated below).
Between November 26, 1997 and December 11, 1997, the Company issued
$2,158,285 aggregate principal amount of 8% convertible debentures (the
"Convertible Debentures") including a 15% premium, and accrued interest,
convertible into Common Stock of the Company. The Registrant did not receive any
cash proceeds from the offering of the Convertible Debentures. An amount of
$2,158,285 was paid by investors to holders of the Company's Convertible
Debentures issued on August 19, 1997 holding $1,850,000 of such Convertible
Debentures as repayment in full of the Company's obligations under such
Convertible Debentures. During the same period the Company issued $3,690,000
aggregate principal amount of 8% Convertible Debentures, convertible into Common
Stock of the Company. After deducting fees, commissions and escrow fees in the
aggregate amount of $690,000 the Company received a net amount of $3,000,000.
All Convertible Debentures were issued to accredited investors as defined in
Rule 501(a) of Regulation D promulgated under the Act ("Regulation D") and the
Company has received written representation from each investor to that effect.
Twenty-five percent of the face amount of both Convertible Debentures are
convertible into shares of Common Stock of the Company as at the effective date
of a registration statement covering
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the underlying shares of Common Stock towit: March 12, 1998. An additional
twenty-five percent of the face amount of both Convertible Debentures may be
converted each 30 days thereafter, in each case at a conversion price equal to
75% of the average closing bid price for the five trading days preceding the
date of the conversion. Any Convertible Debenture not so converted are subject
to mandatory conversion by the Company on the 24th monthly anniversary of the
date of issuance of the Convertible Debentures. As at June 26, 1998 there
remained an unconverted balance of $145,969.
In March of 1998, the Company issued $5,500,000 aggregate principal amount
of 6% convertible debentures (the "Convertible Debentures"), convertible into
Common Stock of the Company. After deducting fees directly attributable to such
offering the Company received a net amount of $4,915,000. All Convertible
Debentures were issued to accredited investors as defined in Rule 501(a) of
Regulation D promulgated under the Act ("Regulation D") and the Company has
received written representations from each investor to that effect. One Hundred
percent of the face amount of the Convertible Debentures are convertible into
shares of Common Stock of the Company at the earlier of May 15, 1998 or the
effective date of this Registration Statement at a conversion price equal to 80%
of the average closing bid price for the ten trading days preceding the date of
conversion. Any Convertible Debentures not so converted are subject to mandatory
conversion by the Company on the 24th monthly anniversary of the date of
issuance of the Convertible Debentures. As of June 30, 1998 no portion of the
above mentioned Convertible Debentures were converted.
FISCAL YEARS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Cash used by operating activities for the fiscal year ended June 30, 1997
increased to $10,684,988 from $3,658,665 for the fiscal year ended June 30, 1996
and cash used by investing activities increased to $3,668,196 for the fiscal
year ended June 30, 1997 from $1,171,120 for the fiscal year ended June 30,
1996. Cash flow from financing activities for the fiscal year ended June 30,
1997 was $14,752,928 compared to $5,788,694 for the fiscal year ended June 30,
1996.
The Company's capital expenditures totaled $3,431,375 for the fiscal year
ended June 30, 1997 compared to $932,066 for the fiscal year ended June 30,
1996. Capital expenditures were primarily incurred for the purchase of the
Hochdorf facility and equipment. The increased financing needs resulted
primarily from the significant research and development expenses necessary in
connection with the development of the AddOn-Multi-System, the purchase of the
Hochdorf facility and the initiation and expansion of the Company's sales
organization in Europe and in the United States. See "Business -- Products," "--
Sales and Marketing" and "-- Research and Development."
The Company financed its liquidity needs during the fiscal year ended June
30, 1997 primarily with the issuance of $13,300,000 principal amount of
convertible debentures and the issuance of Common Stock for a consideration of
$2 million in the aggregate.
SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND JUNE 30, 1995
Cash used by operating activities for the six-month period ended June 30,
1996 increased to $2,511,188 from $1,165,279 for the six-month period ended June
30, 1995 and cash used by investing activities decreased to $789,792 for the
six-month period ended June 30, 1996 from $961,379 for the six-month period
ended June 30, 1995. Cash flow from financing activities for the six-month
period ended June 30, 1996 was $983,129 compared to $4,850,310 for the six-month
period ended June 30, 1995.
The Company's capital expenditures totaled $572,783 for the six-month
period ended June 30, 1996 compared to $80,714 for the six-month period ended
June 30, 1995. Capital expenditures were primarily for the purchase of
equipment. The increased financing needs resulted primarily from the increase in
research and development expenses and the increased inventory level of June 30,
1996.
FISCAL YEAR 1994
Cash used by operating activities for the fiscal year ended December 31,
1994 was $728,865 and cash used by investing activities was $32,007 for the
fiscal year ended December 31, 1994. Cash flow from financing activities for the
fiscal year ended December 31, 1994 was $697,519.
The Company's capital expenditures totaled $88,600 for the fiscal year
ended December 31, 1994. Capital expenditures were primarily for the purchase of
equipment.
EFFECT OF CURRENCY ON RESULTS OF OPERATIONS
The result of operations and the financial position of the Company's
subsidiaries outside of the United States is reported in the relevant foreign
currency (primarily in Swiss Francs) and then translated into U.S. dollars at
the applicable foreign exchange rate for inclusion in the Company's consolidated
financial statements. Accordingly, the results of operations of such
subsidiaries as reported in U.S. dollars
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can vary significantly as a result of changes in currency exchange rates (in
particular the exchange rate between the Swiss Franc and the U.S. dollar). For
the fiscal year ended June 30, 1997 the Swiss Franc depreciated by approximately
11% against the U.S. dollar compared to the rate in effect during the fiscal
year ended June 30, 1996. If such exchange rate had remained in effect, the
Company's net sales and net loss would have been higher by approximately
$2,788,209 and $2,335,548, respectively. See "Risk Factors -- Risk of Currency
Fluctuation."
TAXES
The Company is subject to taxation in many jurisdictions throughout the
world. The Company's effective tax rate and tax liability is affected by a
number of factors, such as the amount of taxable income in particular
jurisdictions, the tax rates in such jurisdictions, tax treaties between
jurisdictions, the extent to which the Company transfers funds between
jurisdictions and income is repatriated, and future changes in law. Generally,
the tax liability for each legal entity is determined either (i) on a
non-consolidated basis or (ii) on a consolidated basis only with other entities
incorporated in the same jurisdiction, in either case without regard to the
taxable losses of non-consolidated affiliated entities. As a result, the Company
may pay income taxes in certain jurisdictions even though the Company on an
overall basis incurs a net loss for the period.
ENVIRONMENTAL MATTERS
The Company is subject to various environmental laws and regulations in the
jurisdictions in which it operates. The Company, like many of its competitors,
has incurred, and will continue to incur, capital and operating expenditures and
other costs in complying with such laws and regulations. The Company does not
currently anticipate any material capital expenditures for environmental control
technology. Some risk of environmental liability is inherent in the Company's
business, and there can be no assurance that material environmental costs will
not arise in the future. However, the Company does not anticipate any material
adverse effect on its results of operations or financial condition as a result
of future costs of environmental compliance. See "Risk Factors -- Environmental
Matters" and "Business -- Environmental Matters."
INFLATION
Inflation can affect the costs of goods and services used by the Company.
The competitive environment in which the Company operates limits somewhat the
Company's ability to recover higher costs through increased selling prices.
Moreover, there may be differences in inflation rates between countries in which
the Company incurs the major portion of its costs and other countries in which
the Company sells its products, which may limit the Company's ability to recover
increased costs, if not offset by future increases of selling prices. To date,
the Company's sales to high-inflation countries have either been made in Swiss
Francs or U.S. dollars. Accordingly, inflationary conditions have not had a
material effect on the Company's operating results.
SEASONALITY
The Company's business has historically experienced a slight amount of
seasonal variation with sales in the first fiscal quarter slightly lower than
sales in the other fiscal quarters due to the fact that the Company's first
quarter coincides with the summer vacations in certain of the Company's markets.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
On November 7, 1997 the Board of Directors selected STG-Coopers & Lybrand
AG as the Registrant's auditors for the fiscal year ending June 30, 1998 and
this action was ratified by the stockholders at the Annual Meeting held on
December 23, 1997.
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Bederson & Company LLP ("Bederson") audited the books, records and accounts
of the Registrant for the fiscal year ended June 30, 1997. Bederson was
dismissed on November 7, 1997.
BUSINESS
OVERVIEW
The Company is active in the markets for diagnostic imaging devices for the
health care industry. Diagnostic imaging devices include X-ray equipment,
computer tomography ("CT") systems and magnetic resonance imaging ("MRI")
systems for three dimensional projections, nuclear medicine ("NM") imaging
devices and ultrasound devices. The Company is primarily engaged in the business
of manufacturing and selling diagnostic X-ray equipment for all radiological
applications other than mammography and dentistry. In addition, the Company is
in the business of selling imaging systems and components and accessories for
X-ray equipment manufactured by third parties and providing services related to
diagnostic imaging.
X-rays were discovered in 1895 by Wilhelm Konrad Rontgen. Shortly
thereafter, X-ray imaging found numerous applications for medical diagnostic and
non-medical purposes. Today, medical X-ray imaging is a fundamental tool in bone
and soft tissue diagnosis. X-ray diagnosis is primarily used in orthopedics,
traumatology, gastro-enterology, angiography, urology, pulmology, mammography
and dentistry. The principal elements of a diagnostic X-ray system are the X-ray
generator, the X-ray tube and the bucky device. The generator generates high
tension, which is converted into X-rays in the X-ray tube. The X-rays so created
are then penetrating a patient's body and subsequently expose a film contained
in the bucky device. Following exposure, the film is chemically processed and
dried in a dark room. A typical room used for general X-ray examinations (bucky
room) contains an X-ray system which includes a table with a bucky device for
examinations of recumbent patients (bucky table) and a wall stand with a second
bucky device for examinations of sitting and standing patients (bucky wall
stand).
The film used in conventional X-ray systems has certain inherent
disadvantages, including the significant amount of time and operating expenses
associated with the handling, processing and storage thereof, the need for
chemicals to develop films and the environmental concerns related to their
disposal. Additional expenses and inconveniences arise in connection with the
storage, duplication and transportation of conventional films. The following
X-ray systems have been developed to overcome these disadvantages: scanning
devices, phosphor plate or Computed Radiography(TM) ("CR") systems and direct
digital radiography ("ddR") systems. Scanning devices are used to convert
existing X-ray images into a digital form. While the use of scanning devices
permits the electronic storage, retrieval and transmission of X-ray images, they
do not eliminate the other inconveniences of conventional films and add time and
expenses associated with the scanning process. In a CR system the film cassette
is replaced with a phosophor plate which is electrically charged by X-rays. The
electrical charges on this phosphor plate are then converted into digital
information by a laser scanner. Although this system has the advantage that the
phosphor plates are reusable and the inconveniences related to the development
of X-ray films are eliminated, it does not achieve instant images and a
significant amount of time and operating expenses are required in connection
with the handling and scanning of the phosphor plates. Additional expenses arise
due to the fact that phosphor plates have a limited lifespan.
DdR technology is designed to eliminate the disadvantages and significant
operating costs associated with conventional X-ray systems and CR systems. With
ddR technology digital information can be made available for diagnostic purposes
within a few seconds after an X-ray image is taken without any additional steps,
thereby reducing processing time and related operating expenses. Direct digital
X-ray technology uses either charge coupled devices ("CCD") arrays, amorphous
silicon panels or silicium drums to convert X-rays into digital information. To
the Company's knowledge, no silicon or silicium-based technology is currently
available for purposes of general X-ray diagnosis. To the Company's knowledge,
the only CCD based direct
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digital technology available for general diagnostic purposes is the Company's
AddOn Bucky(TM). While other CCD based direct digital X-ray systems are used for
dental X-ray imaging and chest examinations, the Company believes that neither
such technologies nor the silicium based technology used in a chest examination
system offered by one of the Company's competitors can easily be adapted for
general diagnostic purposes because none of them is capable of providing the
resolution necessary to obtain digital information with sufficient diagnostic
value on a standard 14' by 17' X-ray image.
PRODUCTS
The Company's marketing strategy is to offer to its customers a complete
package of products and services in the field of radiology, including equipment,
accessories and related services such as consulting and after-sales services.
The Company's products include a full range of conventional X-ray equipment for
all diagnostic purposes other than mammography and dentistry, the direct digital
AddOn-Multi-System and the SwissVision(TM) line of DICOM 3.0 compatible
postprocessing work stations operating on a Windows NT platform. Currently, most
of the Company's X-ray equipment is manufactured and developed in Switzerland.
On July 26, 1996, SR Medical AG, the Company's Swiss marketing subsidiary, was
ISO 9002 and EN 46002 certified. See also "Products -- Distribution of Agfa
Products."
Digital Addon-Multi-System/Swissvision
The AddOn-Multi-System, which includes a SwissVision(TM) workstation for
the postprocessing of digital image data and the transfer of such data through
central networks or via telecommunications systems, is a complete
multi-functional direct digital X-ray system which combines the functions of a
conventional bucky table and a bucky wall stand. It is the first direct digital
radiography system available which allows all plane X-ray examinations on the
recumbent, upright and sitting patient necessary in orthopedics, traumatology
and chest examination rooms. The AddOn-Multi-System uses the Company's AddOn
Bucky(TM) as the digital detector. The AddOn Bucky(TM) is able to make available
an X-ray image in a direct digital way for diagnostic study within 16 to 20
seconds. As a consequence, the efficiency and the throughput of the bucky room
can be increased. The Company believes that a significant advantage of the
Company's AddOn-Multi-System is the fact that a variety of X-ray examinations
can be made with the use of only one digital detector, the most expensive part
of an X-ray system using direct digital technology.
During the 100 years in which X-ray imaging has been used for medical
purposes, there has been a continuous trend to improve image quality, to reduce
the radiation dose and to improve the ergonomic features of X-ray equipment.
Management believes that the ddR technology developed by the Company will take
this development to the next level because the ergonomically advanced
AddOn-Multi-System provides excellent image quality with minimal radiation doses
and at the same time reduces operating expenses through the elimination of
films, phosphor plates or cassettes and the handling, development and storage
thereof.
The Company's line of SwissVision(TM) postprocessing workstations permit
the postprocessing of digital X-ray images, including section, zooming,
enlargement, soft tissue and bone structure imaging, accentuation of the
limitation of the joints, noise suppression, presentation of different fields of
interest within an area and archiving and transferring the data through central
networks and telecommunication systems. In addition, the SwissVision(TM)
post-processing workstations are able to analyze data stored with respect to a
particular patient. As a result, consistent image quality of different images of
the same patient can be achieved. The workstations operate on a Windows NT
platform and are DICOM 3.0 compatible. The Company is also offering products and
services related to networking, archiving and electronic distribution of digital
X-ray images, including PACS.
Conventional X-Ray Equipment, Imaging Systems, Components and Accessories
The Company manufactures and sells conventional diagnostic X-ray equipment
for all radiological applications other than mammography and dentistry. The
conventional
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X-ray equipment manufactured by the Company includes X-ray generators, basic
X-ray equipment, bucky table systems, mobile X-ray systems, mobile C-arm
systems, fluoroscopy systems, urology systems and remote controlled examination
systems. In addition, the Company sells components and accessories for X-ray
systems. In general, the components and accessories for X-ray equipment sold by
the Company are manufactured by third parties. In Switzerland, the Company is
the exclusive distributor of CT systems, MRI systems and NM systems manufactured
by Elscint.
Original Equipment Manufacturing (OEM)
On June 11, 1996, the Company entered into a new OEM Agreement (the
"Philips OEM Agreement") with Philips Medical Systems which replaced the
previous OEM Agreement with Philips Medical Systems, dated July 29, 1992. The
Philips OEM Agreement provides for the production of two conventional X-ray
systems, the Bucky Diagnost TS bucky table and a Multi Radiography System
("MRS"), which is approved by the World Health Organization ("WHO") as a World
Health Imaging System for Radiology ("WHIS-RAD"). As a result, the Company's MRS
system may be tendered in projects financed by the World Bank. Under the Philips
OEM Agreement these two products are marketed worldwide by Philips Medical
Systems through its existing distribution network. The initial term of the
Philips OEM Agreement expires on December 31, 2000 and may be extended for
additional periods of 12 months. It is anticipated that discussions and
negotiations with respect to potential extension of such Agreement will
commence during 1999.
Services
The services offered by the Company include the installation and
after-sales servicing of imaging equipment sold by the Company, consulting
services and application training of radiographers. In the United States, the
Company plans to offer consulting services to hospital imaging departments and
imaging centers, including maintenance management, capital planning services and
after-sales services of products manufactured by the Company and third parties.
Maintenance management (or asset management) services for imaging equipment
include the management of after-sales services with respect to different kinds
and brands of imaging equipment (multi-vendor services). Capital planning
services include consulting services in connection with the acquisition,
disposition or refurbishment of imaging equipment.
Distribution of Agfa Products
In April of 1998 the Company entered into an OEM Agreement with Agfa for
the distribution of the latter's laser imagers, dry printers and computed
radiography systems. By virtue of having entered into such distribution
agreement, the Company is able to offer a complete solution for a total digital
radiology department. Both Company products and Agfa products are DICOM 3.0
compatible and can be used on a network or for point-to-point connections. Agfa,
a leading worldwide manufacturer of imaging products and systems, is part of the
Agfa-Gevaert Group, with Agfa-Gevaert being a wholly owned subsidiary of Bayer
AG.
MARKETS
Product Markets
The Company estimates that the global market for X-ray equipment and
accessories is approximately $5 billion, 45% of which is in the United States,
26% in Western Europe, 19% in Japan and 10% in the rest of the world (Sources:
National Electrical Manufacturers Association; Market Line). The Company's
principal markets for its X-ray equipment, components and accessories by country
are Switzerland, the United States and Germany constituting 17%, 15% and 11% of
the Company's sales during the fiscal year ended June 30, 1997 respectively. For
the fiscal year ended June 30, 1997, 22% of the Company's sales were made in
Eastern Europe, primarily attributable to the delivery of conventional X-ray
equipment to hospitals located in Eastern Europe under a contract financed by
the Swiss government. The Company believes that because of the need to bring
medical services to Western standards, Eastern Europe continues to offer
interesting opportunities as a market for the Company's conventional X-ray
equipment and accessories. The Company has also been able to gain access to
markets in Asia, the Middle East and Africa. See "--Sales and Marketing."
The Company believes that the principal markets for its direct digital
X-ray equipment are located in North America and Western Europe, where the first
sales of the AddOn-Multi-System have been made. The Company submitted both its
AddOn Bucky(TM) and the AddOn-Multi-System to the FDA for Section 510(k)
clearance. On November 21, 1997, the Company's AddOn Bucky(TM), the direct
digital detector of the AddOn-Multi-System, received FDA approval and on
December 18, 1997 the Company's AddOn-Multi-System received FDA approval; the
Company thus receiving authorization to market the AddOn-Multi-System in the
United States. Having obtaining the required approval from
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the FDA, the Company intends to sell the AddOn-Multi-System in the United States
through its subsidiaries and other channels. See "Risk Factors -- Government
Regulation" and "Business -- Regulatory Matters."
Service Markets
The Company estimates that the worldwide market for services related to
X-ray equipment, including maintenance management and capital planning, is
approximately $44 billion, of which approximately $40.5 billion (or 92%) relate
to after-sales services. The markets for maintenance management and capital
planning amount to $3.4 billion or 8% of the total market for services related
to X-ray equipment. The principal markets for after-sales services are the
United States (45%), Western Europe (26%) and Japan (19%). The Company expects
that as the installed base of X-ray equipment grows, the market for after-sales
services will also expand. Additional growth may result from a general increase
in the demand for such services. To date, a significant market for maintenance
management and capital planning has only developed in the United States as a
result of the impact of managed care plans and health maintenance organizations
("HMOs") on the health care industry. The Company expects that in the future
there will be a similar trend in Europe, which may lead to the development of a
market for such services in Europe. See "--Products" and "-- Sales and
Marketing."
SALES AND MARKETING
The Company's customers are hospitals, clinics, radiology centers and
physicians generally. The Company is marketing its products and services
primarily through its own sales force in Switzerland, Germany and Eastern Europe
and through resellers in these and other markets in Europe, the Middle East,
Africa, Asia, Canada and Latin America. In the United States, the Company plans
to market its products and services primarily through subsidiaries on the East
Coast and West Coast and through resellers in other markets in the United
States. In the United States, the Company plans to also enter the markets for
maintenance management and capital planning services for imaging equipment. The
Company plans to offer such services through its recently created Swissray
Healthcare, Inc located in Gig Harbor, Washington. The Company is also offering
products and services related to networking, electronic archiving and
distribution, including PACs, through the Swissray Information Solution
division.
Two of the Company's products, the MRS system and the Bucky Diagnost TS
system, are distributed worldwide through Philips Medical Systems.
The Company believes that in the foreseeable future there will be a
continuous world-wide growth in the markets for complete X-ray systems,
components, accessories and related services because of the improvement of
health care services in developing countries and Eastern Europe and the
necessity to meet increasingly stricter regulations with respect to radiation
dosage and other safety features and environmental hazards in many
jurisdictions. With the transition from conventional to digital X-ray systems,
the demand for products and services related to networking, archiving and
electronic distribution of digital X-ray images will grow in industrialized
countries. In these markets the demand for conventional X-ray equipment,
accessories and related services will decrease over time. As a result of the
continuing cost pressure on health-care providers in the United States, the
Company expects the demand for maintenance management and capital services to
grow in the near future. See "-- Markets."
In the past, the Company has made a significant amount of sales of
conventional X-ray equipment to a few large customers. For the fiscal year ended
June 30, 1997 sales to the Company's two largest customers accounted for
approximately 33% of all revenues while sales to the Company's single largest
customer during such period accounted for approximately 18% of all revenues.
During the fiscal year ended June 30, 1997, 15% of the Company's sales were made
to Philips Medical Systems and 18% of the Company's sales were made to
Gesellschaft fur Elektronische Rohren Comet Bern, as general contractor for the
sale of conventional X-ray equipment to hospitals in Eastern Europe financed by
the Swiss government.
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<PAGE> 37
The Company considers the relationship with its largest customers to be
satisfactory. Historically, the identity of the Company's largest customers and
the volumes purchased by them has varied. The loss of one or more of the
Company's current two largest customers or a reduction of the volume purchased
by either of them would have an adverse effect upon the Company's sales until
such time, if ever, as significant sales to other customers can be made. The
Company expects that as sales of its AddOn-Multi-System increase, the Company's
revenue will be less dependent on a few large customers. See "Risk Factors --
Reliance on Large Customers" and Note 27 to the Company's Consolidated Financial
Statements.
In a further effort to market its products internationally, the Company,
in May 1998, entered into a letter of intent with Tamro Corporation ("Tamro") of
Finland for the distribution and service of the Company's direct digital x-ray
systems in Finland, Sweden and the Baltic States. Tamro is a large
multinational distributor of pharmaceuticals and the marketer of healthcare,
medical, laboratory and diagnostic imaging equipment.
RESEARCH AND DEVELOPMENT
During the fiscal year ended June 30, 1997, the Company incurred expenses
related to research and development of $5,786,158 (accounting for 35% of the
Company's operating expenses), compared to $1,731,502 (accounting for 12% of the
Company's operating expenses) during the previous fiscal year and $233,084 (or
10.1% of the Company's operating expenses) during the 6-month period ended June
30, 1995. The increase of the Company's research and development expenses by
643% from the fiscal year ended June 30, 1995 to the fiscal year ended June 30,
1996 resulted primarily from the Company's decision not to market the AddOn
Bucky(TM) as a retrofit product for existing conventional bucky table X-ray
systems, but rather to offer a complete multi-functional direct digital X-ray
system which combines a conventional bucky table and a bucky wall stand and
includes a postprocessing system. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company will continue to have significant research and development
expenses associated with the development of new products (including diagnostic
hardware and software products and new digital X-ray products) and improvements
to existing products manufactured by the Company. New products currently being
developed by or on behalf of the Company include a new digital C-arm system, a
digital remote controlled fluoroscopy system, a conventional bucky-table system
and a multi-functional floating table.
As of June 30, 1997, the Company employed six people in research and
development. The number of people employed in research and development has
increased by 50% since June 30, 1996. The Company is outsourcing certain
research and development activities (such as the development of the Company's
mobile units, C-arm systems and fluoroscopy tables) and intends to continue this
policy in the future.
The Company has established a scientific board to support its research and
development projects and to enable the Company to develop technologically
advanced products. The Company believes that the integration of academic
institutions and hospitals will allow the Company to save research and
development expenses and will provide it with access to clinical and scientific
experience and know-how. Currently, the following individuals have been
appointed to this scientific board: Prof. Dr. med. Michael Meves, head of the
Central Radiology Department at the Northeast Hospital in Frankfurt/Main,
Germany, Prof. Dr. med. Hanfried Weigand, head of the Central Radiology
Department of the Horst-Schmidt-Clinic in Wiesbaden, Germany, Dr. med. Paul
Jegge, Co-head of the Radiology Department at the Regional Hospital, Langenthal,
Switzerland, Hans Behrendt, General Manager of Elscint GmbH, and Michael L.
Baker, head of the Company's Information Solution division.
RAW MATERIALS AND SUPPLIERS
The Company has a policy of outsourcing the manufacturing of components for
its X-ray equipment whenever such outsourcing is more efficient and cost
effective than
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in-house production. In particular, components for which serial production is
available are produced by third-party manufacturers according to Company
specifications. Generally, the X-ray accessories sold by the Company are
manufactured by third parties.
There is virtually no stock of finished X-ray equipment on the Company's
premises for any extended period of time since X-ray equipment is generally
manufactured at a customer's request. At June 30, 1997 finished products
accounted for approximately 21% of inventory while raw material, parts and
supplies accounted for approximately 67% of inventory and work in process for
approximately 12%.
In general, key components for the Company's X-ray equipment can be
obtained from several sources and the Company has entered into supply agreements
with certain of its suppliers. The CCD camera, a key component of the AddOn
Bucky(TM), has been developed on the Company's behalf by the Philips Components
division of Philips GmbH, Hamburg. Philips Components has entered into an
exclusive supply agreement with the Company (which is currently being restated)
and the Company considers its relationship with Philips Components to be
satisfactory. While other suppliers of CCD cameras are available, a significant
amount of time would be required to integrate a CCD camera of another supplier
into the Company's AddOn-Multi-System and there can be no assurance that such
integration could be achieved in a timely manner. The Company believes that
there is no anticipated shortage in the supply of key components for its X-ray
equipment. See "Risk Factors -- Limited Manufacturing History with Respect to
AddOn-Multi-System; Dependence on Sole Source Suppliers."
BACKLOG
Management estimates that as of the end of the fiscal year ended June 30,
1997, the Company had an order backlog of $10,500,000 for conventional X-ray
equipment as compared to $25,000,000 as of June 30, 1996. The Company had
previously reported an order backlog for its digital x-ray equipment as of June
30, 1997 of $30,000,000; $29,000,000 of which related to a contract with a
purchaser located in South Korea. As a result of certain recent economic
problems in South Korea, management currently does not expect that such order
will be filled (to any significant degree) in the current calendar year (if at
all) absent a dramatic positive change in such economic conditions which
currently is not expected to occur. Accordingly, the Company no longer, for
practicable purposes, considers such South Korea contract to be part of its
backlog. The Company believes that substantially the entire order backlog for
conventional X-ray equipment (which consists primarily of orders under the
Philips OEM Agreement) will be filled during the current fiscal year. While the
Company expects to continue to have a certain order backlog for conventional
X-ray equipment (exclusive of that indicated above) in the future because of the
Philips OEM Agreement, the order backlog for digital X-ray equipment is likely
to be substantially reduced in the future as the Company estimates that orders
for such equipment will typically be filled within three months.
COMPETITION
X-Ray Equipment Market
The markets in which the Company operates are highly competitive. Most of
the Company's competitors are significantly larger than the Company and have
access to greater financial and other resources than the Company. The principal
competitors for the Company's X-ray equipment are General Electric, Siemens,
Toshiba, Trex Medical, Shimatsu, Picker and Philips. In general, it is the
Company's strategy to compete primarily based on the quality of its products. In
the market for conventional X-ray equipment, the Company's strategy is to focus
on niche products and standard equipment.
To the Company's knowledge the only direct digital X-ray systems for
medical diagnostic purposes other than the AddOn-Multi-System currently
available are chest examination systems offered by Philips and IMIX, a Finnish
manufacturer. In addition, there are several direct digital X-ray systems
available for dental purposes. None of these systems is able to perform bone
examinations on extremities. To the best of management's knowledge the Company's
AddOn-Multi-System is the only multi-functional direct digital X-ray system
currently available which allows all plane X-ray
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examinations on the recumbent, upright and sitting patient without the use of
cassettes, films, chemicals or phosphor plates. A number of companies, including
certain of the Company's competitors in the markets for conventional X-ray
equipment, are currently developing direct digital X-ray detectors or direct
digital X-ray systems for specific applications (including mammography). To the
Company's knowledge there is no competing multi-functional X-ray system
currently being developed. See "-- Products," "-- Markets," "Risk Factors
- --Competition."
Service Market
In the markets for services related to imaging equipment the Company's
competitors are equipment manufacturers (including certain of the Company's
competitors in the X-ray equipment market) and independent service
organizations. In the service markets, it is the Company's strategy to build a
market position based on the confidence of its customers in the quality of its
products and service personnel. See "-- Products," "-- Markets," "Risk Factors
- --Competition."
INTELLECTUAL PROPERTY
The Company has obtained patent protection for certain aspects of its
conventional X-ray technology. The Company has filed patent applications
covering certain aspects of its direct digital technology in key markets in
Europe, North-America and Asia, including the United States, Canada, Switzerland
and Germany. There can be no assurance, however, as to the breadth or degree of
protection which such patents may afford the Company, that any patent
applications will result in issued patents or that patents will not be
circumvented or invalidated. Although the Company believes that its products do
not infringe patents or violate proprietary rights of others, it is possible
that infringement of proprietary rights of others has occurred or may occur. In
the event the Company's products infringe patents or proprietary rights of
others, the Company may be required to modify the design of its products or
obtain a license. There can be no assurance that the Company will be able to do
so in a timely manner, upon acceptable terms and conditions or at all. The
failure to do any of the foregoing could have a material adverse effect upon the
Company. In addition, there can be no assurance that the Company will have the
financial or other resources necessary to enforce or defend a patent
infringement action and the Company could, under certain circumstances, become
liable for damages, which also could have a material adverse effect on the
Company.
The Company also relies on proprietary know-how and employs various methods
to protect its concepts, ideas and technology. However, such methods may not
afford complete protection and there can be no assurance that others will not
independently develop such technology or obtain access to the Company's
proprietary know-how or ideas. Furthermore, although the Company has generally
entered into confidentiality agreements with its employees, consultants and
other parties, there can be no assurance that such arrangements will adequately
protect the Company. The Company has obtained licenses to use certain technology
which is essential for certain of the Company's products, including certain
software used for its line of SwissVision(TM) postprocessing systems. The
software license is a worldwide, non-exclusive, non-transferable license for a
term of two years to use and distribute the Agfa software in combination with
the Add-On Bucky.
The Company considers the Swissray name as material to its business and has
obtained, or is in the process of obtaining, trademark protection in key
markets. The Company is not aware of any claims or infringement or other
challenges to the Company's rights to use this or any other trademarks used by
the Company. See "Risk Factors --Dependence on Patents and Proprietary
Technology."
REGULATORY MATTERS
The Company's X-ray equipment, components and related accessories are
subject to regulation by national or regional authorities in the markets in
which the Company operates. Pursuant to the Federal Food, Drug and Cosmetic Act,
X-ray equipment is a
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class II medical device which may not be marketed in the United States without
prior approval from the FDA.
The FDA review process typically requires extended proceedings pertaining
to the safety and efficacy of new products. A 510(k) application is required in
order to market a new or modified medical device. If specifically required by
the FDA, a pre-market approval ("PMA")may be necessary. Such proceedings, which
must be completed prior to marketing a new medical device, are potentially
expensive and time consuming. They may delay or hinder a product's timely entry
into the marketplace. Moreover, there can be no assurance that the review or
approval process for these products by the FDA or any other applicable
governmental authorities will occur in a timely fashion, if at all, or that
additional regulations will not be adopted or current regulations amended in
such a manner as will adversely affect the Company. Moreover, such pre-marketing
clearance, if obtained, may be subject to conditions on the marketing or
manufacturing of the AddOn-Multi-System which could impede the Company's ability
to manufacture and/or market the product. The Company submitted both its
AddOn-Bucky(TM) and the AddOn-Multi-System for Section 510(k) clearance with the
FDA. On November 21, 1997, the Company's AddOn Bucky(TM), the direct digital
detector of the AddOn-Multi-System, received FDA approval and on December 18,
1997 the Company's AddOn-Multi-System received FDA approval; the Company thus
receiving authorization to market the AddOn-Multi-System in the U.S. The FDA
also regulates the content of advertising and marketing materials relating to
medical devices. There can be no assurance that the Company's advertising and
marketing materials regarding its products are and will be in compliance with
such regulations.
The Company is also subject to other federal, state, local and foreign
laws, regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices. The electrical components of the
Company's products are subject to electrical safety standards in many
jurisdictions, including Switzerland, EU, Germany and the United States. The
Company believes that it is in compliance in all material respects with
applicable regulations. Failure to comply with applicable regulatory
requirements can result in, among other things, fines, suspensions of approvals,
seizures or recalls of products, operating restrictions and criminal
prosecutions. The effect of government regulation may be to delay for a
considerable period of time or to prevent the marketing and full
commercialization of future products or services that the Company may develop
and/or to impose costly requirements on the Company. There can also be no
assurance that additional regulations will not be adopted or current regulations
amended in such a manner as will materially adversely affect the Company. See
"Risk Factors --Risks Associated With International Operations," "-- Government
Regulations," "Business -- Markets" and "--Regulatory Matters."
ENVIRONMENTAL MATTERS
The Company is subject to various environmental laws and regulations in the
jurisdictions in which it operates, including those relating to air emissions,
wastewater discharges, the handling and disposal of solid and hazardous wastes
and the remediation of contamination associated with the use and disposal of
hazardous substances. The Company owns or leases properties and manufacturing
facilities in Switzerland, the United States and Germany. The Company, like its
competitors, has incurred, and will continue to incur, capital and operating
expenditures and other costs in complying with such laws and regulations in both
the United States and abroad. As a result of the operation of the Company's
business, the Company may have potential liability with respect to the
remediation of past contamination in certain of its presently and formerly owned
or leased facilities in both the United States and abroad. In addition, certain
of the Company's facilities may have used substances or generated and disposed
of wastes which are or may be considered hazardous. It is possible that such
sites, as well as disposal sites owned by third parties to which the Company has
sent wastes, may in the future be identified and become the subject of
remediation. Accordingly, although the Company believes that it is in
substantial compliance with applicable environmental requirements and the
Company to date has not incurred material expenditures in connection with
environmental matters, it is possible that the Company
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<PAGE> 41
could become subject to additional environmental liabilities in the future that
could result in an adverse effect on the Company's financial condition or
results of operations. See "Risk Factors -- Environmental Matters."
EMPLOYEES
After giving effect to the Empower, Inc. transaction heretofore initially
referred to on page 15 of this Registration Statement, the Company had 116
employees worldwide, of which 34 were employed by subsidiaries in the United
States, 72 in Switzerland, and 10 in European countries other than Switzerland.
The Company believes that its relationship with employees is satisfactory. The
Company has not suffered any significant labor problems during the last five
years.
DESCRIPTION OF PROPERTY
On April 12, 1997, the production facility rented by the Company in
Hochdorf, Switzerland was affected by a fire in an adjacent facility. On May 15,
1997, the Company purchased a new office and production facility of
approximately 43,000 square feet and moved its entire production to this
facility and has since moved the offices and other facilities formerly located
in its Hitzkirch facility to the new Hochdorf facility. The Company believes
that its new Hochdorf facility provides it with sufficient production and office
space to meet its demand in Switzerland in the foreseeable future.
The Company also leases approximately 9,000 square feet of office and
warehouse space in Glen Cove, New York. In addition, the Company leases office
space in New York City, Azusa, California, Gig Harbor, Washington and Wiesbaden,
Germany.
LEGAL PROCEEDINGS
On or about October 3, 1997, the Registrant and Swissray Healthcare, Inc.
were served with a complaint by a company engaged in the business of providing
services related to imaging equipment alleging that defendant received benefits
from breach of fiduciary duties and contract obligations and misappropriation of
trade secrets by certain former employees of such competitor. Such company also
obtained a temporary restraining order against the Registrant and Swissray
Healthcare, Inc. On November 10, 1997, the Court denied a Motion for a
preliminary injunction and the temporary restraining order was vacated. On
December 1, 1997 and January 30, 1998 the Registrant answered the Complaint and
Amended Complaint respectively by denying the allegations contained therein. The
Plaintiff in such action (on December 2, 1997) filed a Motion to reargue and
renew its prior denied Motion for a Preliminary Injunction and such Motion was
(by Order and Decision dated June 17, 1998) denied. The Company denies the
allegations, intends to vigorously defend the litigation, and believes the
ultimate outcome thereof will not have a material adverse effect upon the
Company's results of operations or financial position. The Company believes that
the complaint is without merit. Nevertheless, management of the Company believes
that it would be in the Company's best interest to settle such litigation under
certain defined terms and conditions and recent settlement negotiations have
resulted in an agreement in principal to resolve and settle all outstanding
matters but, to date, such agreement has not been finalized.
RECENT DEVELOPMENTS
In May 1998 Swissray Medical Systems, Inc., a wholly owned subsidiary of
the Company, was awarded a contract from the Department of Veterans Affairs
estimated at $400,000 for the base year for its Diagnostic x-ray systems, the
AddOn-Multi-System, with the VA reserving its option to extend the term of the
contract up to March 31, 2001; the AddOn-Multi-System being the first ever FDA
approved multifunctional direct digital radiography (ddR) system to be offered
worldwide. With the official contract award in hand, management intends to
actively pursue sales to various VA hospitals, medical centers and outpatient,
community and outreach clinics throughout the United States.
In July of 1998 the Company sold its multifunctional direct digital
radiography (ddR) system, the AddOn-Multi-System, to the largest Diagnostic Out
Patient Center in Warsaw, Poland, the Diagnostic Center Luxmed. This order
represents Swissray's first sale within the Eastern European Market,
complementing sales previously made in both Western Europe and the United
States.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information concerning each director and
executive officer of the Registrant, including age, position(s) with the
Registrant, present principal occupation and business experience during the past
five years.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
- ---- --- ----------------
<S> <C> <C>
Ruedi G. Laupper 48 Chairman of the Board of Directors,
President and Chief Executive Officer,
Josef Laupper 52 Secretary, Treasurer and Director
Herbert Laubscher 32 Chief Financial Officer
Ueli Laupper 28 Vice President International Sales and Director
Dr. Erwin Zimmerli 50 Director and Member of the Independent Audit Committee
Erich A. Kalbermatter 41 Chief Operating Officer
Dr. Sc. Dov Maor 50 Director and Member of the Independent Audit Committee
</TABLE>
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have qualified.
Officers are appointed to serve until the meeting of the Board of Directors
following the next annual meeting of stockholders and until their successors
have been elected and have qualified.
Ruedi G. Laupper has been President, Chief Executive Officer and a director
of the Registrant since May 1995 and Chairman of the Board of Directors since
March 1997. In addition, he is Chairman of the Board of Directors of the
Company's principal operating subsidiaries. Ruedi G. Laupper is the founder of
the predecessors of the Company and was Chief Executive Officer of SR-Medical AG
until May 1995. He has approximately 22 years of experience in the field of
radiology. Ruedi G. Laupper is the brother of Josef Laupper and the father of
Ueli Laupper.
Josef Laupper is the brother of Ruedi G. Laupper and the uncle of Ueli
Laupper and has been Secretary, Treasurer and a director of the Registrant since
May 1995 (with the exception of not having served as Secretary from December 23,
1997 to February 23, 1998). He has held comparable positions with SR-Medical AG,
Teleray AG and their respective predecessors since 1990. He is principally in
charge of the Company's administration. Josef Laupper has approximately 18 years
of experience within the medical device business.
Herbert Laubscher joined the Company as a manager responsible for finance
and controlling on August 2, 1996. He was appointed Chief Financial Officer of
the Registrant on September 15, 1997. Herbert Laubscher obtained his graduate
degree in business administration from the University of St. Gall, Switzerland
in October 1992. From October 1992 until June 1995 he was an accountant with
Price Waterhouse in Zurich. Prior to joining the Company he served as group
financial officer of AZ Zibatra Holding GmbH in Leipzig, Germany.
Ueli Laupper is the son of the Registrant's President and the nephew of
Josef Laupper. Ueli Laupper has overall Company responsibilities in the area of
international marketing and sales with approximately seven years of experience
within the international X-ray market. He has been Vice President of
International Sales since March 1997 and a director of the Registrant since
March 1997. He was Chief Executive Officer of SR Medical AG from July 1995 until
June 30, 1997. On July 20, 1998 Ueli Laupper became Chief Executive Officer of
both Swissray Medical Systems, Inc. and Swissray Healthcare, Inc., two of the
Company's wholly owned subsidiaries and became an officer of Swissray
Information Solutions, Inc., a wholly owned subsidiary of the Company in which
Michael J. Baker acts as Chief Executive Officer.
Erwin Zimmerli has been a director of the Registrant since May 1995 and
since March 1998, a member of the Registrant's Independent Audit Committee.
Since receiving his Ph.D. degree in law and economics from the University of St.
Gall, Switzerland in 1979, Zimmerli has served as head of the White Collar Crime
Department of the Zurich State Police (1980-86), an expert of a Swiss
Parliamentary Commission for penal law and Lecturer at the Universities of St.
Gall and Zurich (1980-87), Vice President of an accounting firm (1987-1990) and
Executive Vice President of a multinational aviation company (1990-92). Since
1992 he has been actively engaged in various independent consulting capacities
primarily within the Swiss legal community.
Erich A. Kalbermatter, commenced serving the Company in the position of
Chief Operating Officer in April 1998. Mr. Kalbermatter whose background is
principally as an internationally experienced manager with expertise in the
areas of electronics and telecommunications, has served as managing director of
Private & Business Communications of ASCOM Ltd., Berne, Switzerland being
responsible for the turn-over of more than 1 billion Swiss Francs, with
approximately 4,800 employees worldwide. In addition, he was a member of ASCOM's
Group Management, an international communications corporation.
Dr. Sc. Dov Maor, was appointed as a member of the Registrant's Board of
Directors and a member of its Independent Audit Committee effective March 26,
1998 in accordance with and in compliance with recently adopted NASDAQ
Marketplace Rule as same relates to Independent Audit Committee for NASDAQ
SmallCap companies. Dr. Sc. Maor currently holds the position of Chief
Scientist of the Advanced Technology Center of Elscint, Haifa, one of the
leading companies in the field of CT, MRI, Nuclear Medicine and medical imaging
in general. Elscint employs more than 2,000 persons worldwide. Dr. Sc. Dov Maor
is well experienced in the field of Nuclear Medicine and medical imaging and
has been employed for over 10 years in a leading position in Research &
Development. Additionally, he was working in conjunction with the Max Planck
Institute for Nuclear Physics in Heidelberg within his field of experience. In
addition to his technical knowledge, Dr. Sc. Dov Maor is experienced in the
commercial sector of the industry.
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<PAGE> 43
On December 23, 1997 Messrs. Seddigh and Wuersch were elected to serve as
members of the Company's Board of Directors with Mr. Wuersch also assuming the
position of Company Secretary on December 23, 1997. Additionally, such two
persons along with Dr. Erwin Zimmerli (a Company director) comprised the
Company's newly formed committee of Company directors. While Dr. Zimmerli
remains a Company director, Messrs. Seddigh and Wuersch resigned from all
positions held with Registrant in order to pursue other interests unrelated to
Registrant. Such resignations were not the result of any disagreement whatsoever
with Registrant on any matter relating to its operations, policies or practices
as no such disagreements have ever existed or currently exist.
THE BOARD OF DIRECTORS
The Board of Directors has responsibility for establishing broad corporate
policies and for overseeing the performance of the Registrant. Members of the
Board of Directors are kept informed of the Registrant's business by various
reports and documents sent to them in anticipation of Board meetings as well as
by operating and financial reports presented at Board meetings. The Registrant
pays its directors fees or compensation for services rendered in their capacity
as directors. The current Board of Directors was elected and assumed office as
of December 23, 1997 with the exception that Dr. Sc. Dov Maor assumed his
position on March 26, 1998.
The Board does not currently have a standing audit, nominating or
compensation committee or any committee or committees performing similar
functions, but acts, as a whole, in performing the functions of such committees
(except as may be indicated directly hereinafter). At a meeting of the Board of
Directors held on March 26, 1998, an Independent Audit Committee was
established.
EMPLOYMENT AGREEMENTS
Ruedi G. Laupper has entered into a five-year employment agreement with Swissray
Management AG, a wholly owned subsidiary of the Registrant, on December 18,
1997, which agreement will be automatically renewed for another five years
unless terminated by either party no later than December 31, 2001. Such
agreement provides for (i) an annual salary of 276,000 Swiss francs (or
$192,683, based on an exchange rate of 1.4324), (ii) a fixed annual bonus of
23,000 Swiss francs (or $16,057), and (iii) a performance based bonus, based on
the audited consolidated financial statements of the Company as of the end of
the fiscal year. The bonus shall be 25% of EBIT (earnings before interest and
taxes) payable in stock of Swissray International, Inc. valued at the average of
the closing prices during the five business days following the filing of the
10-K. In addition, the agreement entitles Mr. Laupper to a car allowance, five
weeks of vacation, $698 per month for expenses and a "Bel Etage" insurance which
provides certain pension benefits not mandated by Swiss law. If such employment
agreement is terminated for reasons beyond the employee's control, Ruedi Laupper
will receive 2 million Swiss francs (or $1,396,258) including any bonus. The
Registrant guarantees the obligation of Swissray Management AG in the event of a
default.
Ueli Laupper and Josef Laupper have entered into three-year employment
agreements with Swissray Management AG on December 18, 1997, which agreements
will be automatically renewed for another three years unless notice is given six
months prior to the expiration date. Such agreements provide for salaries of
$84,924 and 119,700 Swiss francs (or $83,566) respectively with annual bonuses
of $7,077 and 9975 Swiss francs (or $6,964) respectively, $1,500 and 1000 Swiss
francs (or $698) per month for expenses respectively and 20 days and 25 days of
vacation respectively. The employment agreements of each of Ueli Laupper and
Josef Laupper also provide for a car allowance. If either of such employees is
terminated for reasons beyond the employees control he will receive 500,000
Swiss francs (or $349,065).
Herbert Laubscher has entered into an employment agreement with Swissray
Management AG for an indefinite term, with termination upon one month notice
during the first year of employment, two months notice after two years of
employment and three months notice after ten years of employment. Such agreement
provides for (i) an annual
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<PAGE> 44
salary of 102,000 Swiss francs (or $71,209), (ii) an annual bonus of 8,500 Swiss
francs (or $5,934), (iii) 500 Swiss francs (or $349) per month for expenses and
(v) 20 days vacation.
Mr. Kalbermatter in accordance with his Agreement with Swissray Management
AG shall assume the position of Chief Operating Officer of the Company
effective April 14, 1998 at an annual salary equivalent to $153,333. Mr.
Kalbermatter shall also receive (a) an expense allowance equivalent to $12,000,
(b) an automobile allowance equivalent to $11,333, (c) 25 days of vacation and
(d) a "Bel Etage" insurance which provides certain pension benefits. U.S.
dollar equivalents indicated above are based upon a Swiss Francs (CHF) exchange
rate of $150.
All of these employment agreements are covered by Swiss law.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Summary Compensation Table
(A) The following Summary Compensation Table sets forth certain information
for the years ended June 30, 1995, 1996 and 1997 concerning the cash and
non-cash compensation earned by or awarded to the Chief Executive Officer of the
Registrant, the three other most highly compensated executive officers of the
Registrant and the former Chairman of the Board of Directors (the "Named
Executive Officers") as of June 30, 1997:
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
------------------- ------------
ALL
OTHER
NAME AND FISCAL OTHER ANNUAL STOCK COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS SATION
- ------------------ ---- ------ ----- ------------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Ruedi G. Laupper 1997 $146,983 -- $15,000(2) 120,000(6) --
President and Chief 1996 $161,085 -- $15,000(2) -- --
Executive Officer 1995 $ 50,555(1) -- -- -- --
Chairman of the
Board of Directors
Josef Laupper 1997 $ 96,861 -- $12,000(2) -- --
Secretary, Treasurer 1996 $106,229 -- $12,000(2) -- --
1995 $ 50,555(1) -- -- -- --
Ueli Laupper 1997 -- -- -- -- --
Vice President 1996 -- -- -- -- --
International Sales(3) 1995 -- -- -- -- --
Herbert Laubscher 1997 -- -- -- -- --
Chief Financial 1996 -- -- -- -- --
Officer(3)(4) 1995 -- -- -- -- --
Ulrich R. Ernst(5) 1997 $ 96,979 -- $10,000(2) -- --
1996 $ 98,197 -- $15,000(2) -- --
1995 -- -- -- -- --
</TABLE>
(1) In 1995, the Registrant changed its fiscal year end from December 31 to
June 30. As a result, the Registrant had a fiscal year beginning on
January 1, 1995 and ending on June 30, 1995. Accordingly, the salaries
listed for fiscal year 1995 were for a six-month period. The salaries for
each of Ruedi G. Laupper and Josef Laupper for the twelve-month period
ending June 30, 1995 were $101,110 and $101,110, respectively.
(2) Fees for service on the Board of Directors of the Registrant.
(3) Compensation did not exceed $100,000 in any fiscal year.
(4) Herbert Laubscher joined the Registrant on August 2, 1996.
(5) Ulrich R. Ernst was Chairman of the Board of Directors from May, 1995
until March 18, 1997.
(6) The options, which were fully vested on date of grant (6/13/97), were
issued in accordance with applicable provisions of the Company's 1996
Non-Statutory Stock Option Plan.
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<PAGE> 45
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following tables set forth certain information concerning the grant of
options to purchase shares of the Common Stock to each of the executive officers
of the Registrant, as well as certain information concerning the exercise and
value of such stock options for each of such individuals. Options generally
become exercisable upon issuance and expire no later than ten years from the
date of grant.
STOCK OPTIONS GRANTED IN FISCAL YEAR ENDED JUNE 30, 1997(1)
<TABLE>
<CAPTION>
PERCENT OF
TOTAL POTENTIAL
OPTIONS REALIZATION VALUE AT
GRANTED ASSUMED ANNUAL RATES
NUMBER OF TO EXERCISE OF STOCK APPRECIATION
SECURITIES EMPLOYEES OR MARKET FOR OPTION TERM
UNDERLYING IN BASE PRICE ON
OPTIONS FISCAL PRICE DATE OF EXPIRATION
NAME GRANTED YEAR PER SHARE GRANT DATE 0% 5% 10%
- ---- ------- ---- --------- ----- ---- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ruedi G. Laupper 120,000(2) 30.4% $0.73(3) $2.94(4) 6/13/02 265,200 282,840 300,480
Josef Laupper(5) -- -- -- -- -- -- -- --
Ueli Laupper(5) -- -- -- -- -- -- -- --
Herbert Laubscher(5) -- -- -- -- -- -- -- --
Ulrich Ernst(5)(6) -- -- -- -- -- -- -- --
</TABLE>
(1) The options to purchase the Registrant's Common Stock were granted under
the Swissray International, Inc. 1996 Non-Statutory Stock Option Plan.
(2) These options were owned indirectly through SR Medical Equipment Ltd., a
corporation wholly owned by Mr. Laupper. They were immediately exercisable
on the date of grant.
(3) The exercise price per share is contingent on purchase of the entire
amount of securities.
(4) The market price on date of grant was based on the average of the high and
low reported prices on the Nasdaq SmallCap Market on June 13, 1997.
(5) These individuals own no stock options of the Registrant.
(6) Mr. Ernst was Chairman of the Board of Directors from May 1995 until March
18, 1997.
-41-
<PAGE> 46
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END
OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
NAME AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
(A) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
--- ------------------------- -------------------------
<S> <C> <C>
Ruedi G. Laupper 120,000/0(3) $1.79/0
Josef Laupper(4) 0/0 0/0
Ueli Laupper(4) 0/0 0/0
Herbert Laubscher(4) 0/0 0/0
Ulrich R. Ernst(4)(5) 0/0 0/0
</TABLE>
(1) No options were exercised by a Named Executive Officer during the fiscal
year ended June 30, 1997.
(2) Options are in-the-money if the fair market value of the underlying
securities exceeds the exercise price of the option.
(3) Includes 120,000 options which are owned indirectly by Mr. Laupper through
SR Medical Equipment Ltd., a corporation which is wholly owned by Mr.
Laupper.
(4) These individuals own no stock options of the Registrant.
(5) Mr. Ernst was Chairman of the Board of Directors from May 1995 until March
18, 1997.
STOCK OPTION PLAN
On January 30, 1996, the Board of Directors adopted the Company's 1996
Non-Statutory Stock Option Plan (the "1996 Plan"). Substantially all of the
options under such plan have been granted. Consequently, the Board of Directors
and the Registrant's stockholders approved the Swissray International, Inc. 1997
Stock Option Plan (the "Stock Option Plans").
The purpose of the Stock Option Plans is to provide directors, officers and
employees of, and consultants to the Company and its subsidiaries with
additional incentives by increasing their ownership interests in the Company.
Directors, officers and other employees of the Company and its subsidiaries are
eligible to participate in the Stock Option Plans. Options may also be granted
to directors who are not employed by the Company and consultants providing
valuable services to the Company and its subsidiaries. In addition, individuals
who have agreed to become an employee of, director of or a consultant to the
Company and its subsidiaries are eligible for option grants, conditional in each
case on actual employment, directorship or consultant status. Awards of options
to purchase Common Stock may include incentive stock options under Section 422
of the Internal Revenue Code ("ISOs") and/or non-qualified stock options
("NQSOs"). Grantees who are not employees of the Company or a subsidiary shall
only receive NQSOs.
The maximum number of options that may be granted under this plan shall be
options to purchase 2,000,000 shares of Common Stock. As of March 31, 1998, none
of such options have been granted.
The Compensation Committee will administer the Stock Option Plan. The
Compensation Committee generally will have discretion to determine the terms of
any option grant, including the number of option shares, exercise price, term,
vesting schedule, the post-termination exercise period, and whether the grant
will be an ISO or NQSO. Notwithstanding this discretion: (i) the number of
shares subject to options
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<PAGE> 47
granted to any individual in any calendar year may not exceed 200,000; (ii) the
term of any option may not exceed 10 years (unless granted as an ISO to an
individual or entity who possesses more than 10% of the voting power of the
Company, which term may not exceed five years); (iii) an option will terminate
as follows: (a) if such termination is on account of permanent and total
disability (as determined by the Compensation Committee), such options shall
terminate one year thereafter; (b) if such termination is on account of death,
such options shall terminate six months thereafter; (c) if such termination is
for cause (as determined by the Compensation Committee), such options shall
terminate immediately; (d) if such termination is for any other reason, such
options shall terminate three months thereafter; and (iv) the exercise price of
each share subject to an ISO shall be not less than 100%, or, in the case of an
ISO granted to an individual described in Section 422(b)(6) of the Code, 110% of
the fair market value (determined in accordance with Section 422 of the Code) of
a share of the Stock on the date such option is granted. Unless otherwise
determined by the Compensation Committee, (i) the exercise price per share of
Common Stock subject to an option shall be equal to the fair market value of the
Common Stock on the date such option is granted; (ii) all outstanding options
become exercisable immediately prior to a "change in control" of the Company (as
defined in the Stock Option Plans) and (iii) each option shall become
exercisable in three equal installments on each of the first, second and third
anniversary of the date such option is granted.
The Stock Option Plans may be amended, altered, suspended, discontinued or
terminated by the Board of Directors without further stockholder approval,
unless such approval is required by law or regulation or under the rules of the
stock exchange or automated quotation system on which the Common Stock is then
listed or quoted. Thus, stockholder approval will not necessarily be required
for amendments which might increase the cost of the Stock Option Plans or
broaden eligibility. The Stock Option Plans will remain in effect until
terminated by the Board of Directors. No ISO may be granted more than ten years
after such date.
The Registrant currently has outstanding non-statutory stock options to
purchase an aggregate of 1,455,000 shares of Common Stock. See "Management --
Compensation of Directors and Executive Officers" and Note 26 to the
Consolidated Financial Statements June 30, 1997 and 1996.
RETIREMENT AND LONG-TERM INCENTIVE PLANS
The Swiss and German Subsidiaries, mandated by government regulations, are
required to contribute approximately five (5%) percent of eligible, as defined,
employees' salaries into a government pension plan. The subsidiaries also
contribute approximately five (5%) percent of eligible employee salaries into a
private pension plan. Total contributions charged to operations for the years
ended June 30, 1997 and 1996, were $274,009 and $198,722, respectively.
Effective March 1, 1992, Empower adopted a qualified 401(k) retirement plan
for the benefit of substantially all its employees. Under the plan, employees
can contribute and defer taxes on compensation contributed. Empower matches,
within prescribed limits, the contributions of the employees. Empower also has
the option to make an additional contribution to the plan. Empower's
contribution to the plan for the period April 1, 1997 (date of the Registrant's
acquisition of Empower) to June 30, 1997 was $4,185.
Effective April 3, 1992, Empower adopted a "Section 125" employee benefits
plan, which is also referred to as a "Cafeteria" plan. Empower pays for
approximately 85% of the employees' health coverage and the employee pays
approximately 15% of the cost of the coverage. With the implementation of the
Cafeteria plan, the employees' payments for coverage are on a pre-tax basis. A
new employee has only a ninety (90) day waiting period before he or she becomes
eligible to participate in the group insurance plan and the Cafeteria plan. See
Note 21 to the Consolidated Financial Statements June 30, 1997 and 1996.
Reference is herewith made to "The Company" fifth paragraph with respect
to the Company's acquisition of Empower in April of 1997 and its subsequent sale
of substantially all of Empower's assets to E.M. Parker Co., Inc.
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<PAGE> 48
DIRECTOR COMPENSATION
Directors of the Registrant receive $10,000 annually for serving as
directors except for Josef Laupper, who receives $12,000 and Ruedi Laupper, the
Chairman of the Board of Directors, who receives $15,000. Ruedi Laupper also
received options to acquire 120,000 shares of the Registrant's Common Stock on
June 13, 1997 in accordance with applicable provisions of the Company's 1996
Non-Statutory Stock Option Plan. The exercise price for such options is $.73 per
share. The options were fully vested on the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Registrant had no Compensation Committee during the last completed
fiscal year. The Registrant's executive compensation was supervised by all
members of the Registrant's Board of Directors and the following directors were
concurrently officers of the Registrant in the following capacities: Ruedi G.
Laupper (Chairman of the Board of Directors, President and Chief Executive
Officer); Josef Laupper (Secretary and Treasurer), Ueli Laupper (Vice President
International Sales) and Ulrich R. Ernst (Chairman of the Board of Directors
from May 1995 until March 18, 1997). No executive officer of the Registrant
served as a member of the board of directors or compensation committee of any
entity which has one or more executive officers who serve on the Registrant's
Board of Directors.
The Registrant issued 482,590 shares of Common Stock to a company
controlled by Ruedi G. Laupper pursuant to an agreement between Mr. Laupper and
the Registrant, dated as of June 30, 1997, in consideration of Mr. Laupper's
agreement to the temporary cancellation of 1,608,633 shares of Common Stock held
by Mr. Laupper or companies controlled by him to enable the Registrant to
maintain a sufficient number of shares of Common Stock to meet certain
obligations of the Registrant to issue Common Stock and to permit certain
financings prior to the increase of the number of authorized shares of Common
Stock from 15,000,000 to 30,000,000.
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<PAGE> 49
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of March 31, 1998 (except where otherwise
noted) with respect to (a) each person known by the Registrant to be the
beneficial owner of more than five percent of the outstanding shares of Common
Stock, (b) each director of the Registrant, (c) the Registrant's executive
officers and (d) all officers and directors of the Registrant as a group (except
as indicated in the footnotes to the table, all of such shares of Common Stock
are owned with sole voting and investment power):
<TABLE>
<CAPTION>
PERCENTAGE
NO. OF SHARES OF SHARES
NAME AND ADDRESS OF BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER(1) OWNED(2) OWNED(8)
- ------------------- -------- -----
<S> <C> <C>
Ruedi G. Laupper (3) 4,102,590 9.90%
Josef Laupper (4) 500,000 1.21%
Ulrich R. Ernst(5)(6) 500,000 1.21%
Erwin Zimmerli (7) 50,000 *
Ueli Laupper 0 --
Herbert Laubscher 0 --
Erich A. Kalbermatter 0 --
Dr. Sc. Dov Maor 0 --
All Officers and Directors as
a Group (7 persons) 5,147,590 12.42%
</TABLE>
* Represents less than 1%.
(1) Unless otherwise indicated, the address of each named individual is in
care of Swissray International Inc., 200 East 32nd Street, Suite 34-B, New
York, NY 10016.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of the Common Stock beneficially owned by them. A person is deemed to be
the beneficial owner of securities which may be acquired by such person
within 60 days from the date indicated above upon the exercise of options,
warrants or convertible securities. Each beneficial owner's percentage
ownership is determined by assuming that options that are held by such
person (but not those held by any other person) and which are exercisable
within 60 days of the date hereof have been exercised.
(3) Includes (i) 300,000 shares owned indirectly by Mr. Laupper through SR
Medical Equipment Ltd., a corporation which is wholly owned by Mr.
Laupper; (ii) 3,682,590 shares owned indirectly by Mr. Laupper through
Tomlinson Holding, Inc., a corporation which is wholly owned by Mr.
Laupper and (iii) 120,000 shares which may be acquired upon exercise of
immediately exercisable options, which options are owned indirectly by Mr.
Laupper through SR Medical Equipment Ltd., a corporation which is wholly
owned by Mr. Laupper.
(4) Includes 500,000 shares owned indirectly by Mr. Laupper through Lairy
Investment Inc., a corporation of which Mr. Laupper is a majority
shareholder.
(5) Includes 500,000 shares owned indirectly by Mr. Ernst through a
corporation of which Mr. Ernst is a majority shareholder.
(6) Mr. Ernst was Chairman of the Board of Directors from May 1995 until March
18, 1997.
(7) Includes 50,000 shares which may be acquired upon exercise of immediately
exercisable options.
(8) Based upon number of shares outstanding as of close of business June 26,
1998, to wit: 41,436,842.
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<PAGE> 50
CERTAIN TRANSACTIONS
The Registrant issued 482,590 shares of Common Stock to a company
controlled by Ruedi G. Laupper pursuant to an agreement between Mr. Laupper and
the Registrant, dated as of June 30, 1997, in consideration of Mr. Laupper's
agreement to the temporary cancellation of 1,608,633 shares of Common Stock held
by Mr. Laupper or companies controlled by him to enable the Registrant to
maintain a sufficient number of shares of Common Stock to meet certain
obligations of the Registrant to issue Common Stock and to permit certain
financings prior to the increase of the number of authorized shares of Common
Stock from 15,000,000 to 30,000,000.
The Company made unsecured advances to its former Chairman of the Board of
Directors (a principal stockholder) during the fiscal year ended June 30, 1997
requiring interest at 6% per annum. The balance at June 30, 1997 was $69,587.
Interest charged to the stockholder for the fiscal year ended June 30, 1997 was
$3,460. See Note 9 to the Consolidated Financial Statements June 30, 1997 and
1996.
SELLING HOLDERS AND PLAN OF DISTRIBUTION
The Securities offered hereby may be sold from time to time to purchasers
directly by the Selling Holders (which term includes their transferees,
pledgees, donees or their successors). Any such transferee, pledgee, donee or
their successors may not offer the Securities pursuant to this Prospectus until
such holder is included as a Selling Holder in a supplement to this Prospectus.
The Securities consist of shares of Common Stock which are issuable to Selling
Holders upon conversion of the Convertible Debentures. The Registrant has agreed
to register the public offering of the Securities by the Selling Holders under
the Securities Act. The Registrant will not receive any of the proceeds from the
sale of the shares by the Selling Holders.
The following table sets forth as of June 26, 1998, certain information
with respect to the Selling Holders, including the number of shares that may be
offered by them. The number of shares which may actually be sold by the Selling
Holders will be determined from time to time by them and will depend upon a
number of factors, including, with respect to the shares underlying the
Convertible Debentures, the price of the Registrant's Common Stock from time to
time. Because the Selling Holders may offer all or none of the Securities that
they hold and because the offering contemplated by the Prospectus is not being
underwritten, no estimate can be given as to the number of Securities that will
be held by the Selling Holders upon termination of such offering. None of the
Selling Holders have had any material relationship with the Registrant other
than as purchasers of Convertible Debentures.
<TABLE>
<CAPTION>
NAME OF SELLING HOLDER SHARES(1) % OF CLASS(2)
- ---------------------- --------- -------------
<S> <C> <C>
Dominion Capital Fund Ltd. 3,200,000 6.84%
Sovereign Partners Ltd. Partnership 1,600,000 3.42%
Canadian Advantage Ltd. Partnership 533,333 1.14%
</TABLE>
(1) Assumes conversion of the Convertible Debentures held by such Selling
Holders based on the reported closing prices on the Nasdaq SmallCap Market
on June 26, 1998 at a 20% discount but does not include additional shares
which may be issued for interest (at 6% per annum) earned from date of
closing to date of conversion.
(2) Based upon an aggregate of 46,770,175 shares arrived at by adding the
aggregate of those shares indicated in column designated "Shares" to
those shares issued and outstanding as of June 26, 1998.
Reference is herewith made to prior Registration Statement on Form S-1 as
declared effective May 12, 1998 (Registration No. 333-50065) and in
particular the section therein entitled "Selling Holders and Plan of
Distribution". In that regard, and as heretofore indicated, and in accordance
with Rule 429 under the Securities Act of 1933, an aggregate of an additional
5,950,477 shares of Common Stock are being registered hereunder for issuance
against unconverted balance of aggregate principal amount of $5,500,000 in
Convertible Debentures issued in March 1998.
The Selling Holders of the Securities identified above may have sold,
transferred or otherwise disposed of, in transactions exempt from the
registration requirements of the Securities Act, all or a portion of the
Convertible Debentures or Securities since the date on which the information in
the preceding table is presented. Information concerning the Selling Holders may
change from time to time and any such changed information will be set forth in
supplements to this Prospectus if and when necessary.
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<PAGE> 51
The sale of the Securities by the Selling Holders may be effected from time
to time in transactions on the Nasdaq SmallCap Market System, in the
over-the-counter market, in negotiated transactions, or through a combination of
such methods of sale (a) at fixed prices, which may be changed, (b) at market
prices prevailing at the time of sale, (c) at prices related to such prevailing
market prices or (d) at negotiated prices. The Selling Holders may effect such
transactions by selling the Securities directly to purchasers or to or through
broker-dealers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Holders and/or the
purchasers of the Securities for whom such broker-dealers may act as agents or
to whom they sell as principals, or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions). The Selling Holders
and any broker-dealers who act in connection with the sale of the Securities
hereunder may be deemed to be "underwriters" within the meaning of Section 2(11)
of the Securities Act, and any commissions received by them and profit on any
resale of the Securities as principals might be deemed to be underwriting
discounts and commissions under the Securities Act.
At the time a particular offering of the Securities is made, a Prospectus
Supplement, if required, will be distributed, which will set forth the aggregate
amount and type of Securities being offered and the terms of the offering,
including the name or names of any underwriters, broker/dealers or agents, any
discounts, commissions and other terms constituting compensation from the
Selling Holders and any discounts, commissions or concessions allowed or
reallowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the Securities will be offered or sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain jurisdictions
the Securities may not be offered or sold unless they have been registered or
qualified for sale in such jurisdictions or any exemption from registration or
qualification is available and is complied with. The Registrant has not taken
any action to register or qualify the Securities for offer and sale under the
securities or "blue sky" laws of any state of the United States. However,
pursuant to the Registration Rights Agreements among the Registrant and the
Selling Holders (the "Registration Rights Agreements"), the Registrant will use
reasonable efforts to (i) register and qualify the Securities covered by the
Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Selling Holders who hold a majority in interest of the
Securities being offered reasonably request and in which significant volumes of
shares of Common Stock are traded, (ii) prepare and file in those jurisdictions
such amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof at all times until the earliest (the "Registration
Period") of (A) the date that is two years after the Closing Date, (B) the date
when the Selling Holders may sell all Securities under Rule 144 or (C) the date
the Selling Holders no longer own any of the Securities, (iii) take such other
actions as may be necessary to maintain such registrations and qualification in
effect at all times during the Registration Period and (iv) take all other
actions reasonably necessary or advisable to qualify the Securities for sale in
such jurisdictions; provided, however, that the Registrant shall not be required
in connection therewith or as a condition thereto to (A) qualify to do business
in any jurisdiction where it would not otherwise be required to qualify, (B)
subject itself to general taxation in any such jurisdiction, (C) file a general
consent to service of process in any such jurisdiction, (D) provide any
undertakings that cause more than nominal expense or burden to the Company or
(E) make any change in its articles of incorporation or by-laws or any then
existing contracts, which in each case the Board of Directors of the Registrant
determines to be contrary to the best interests of the Company and its
stockholders. Unless and until such times as offers and sales of the Securities
by Selling Holders are registered or qualified under applicable state securities
or "blue sky" laws, or are otherwise entitled to an exemption therefrom, initial
resales by Selling Holders will be materially restricted. Selling Holders are
advised to consult with their respective legal counsel prior to offering or
selling any of their Securities.
-47-
<PAGE> 52
The Selling Holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Securities by the Selling
Holders. The foregoing may affect the marketability of the Securities.
Pursuant to the Registration Rights Agreements between the Registrant and
each of the Selling Holders all expenses of the registration of the Securities
will be paid by the Registrant, including, without limitation, Commission filing
fees and expenses of compliance with state securities or "blue sky" laws;
provided, however, that the Selling Holders will pay all underwriting discounts
and selling commissions, if any. The Selling Holders will be indemnified by the
Registrant against certain civil liabilities, including certain liabilities
under the Securities Act or will be entitled to contribution in connection
therewith.
DESCRIPTION OF CAPITAL STOCK
The following statements do not purport to be complete and are qualified in
their entirety by reference to the detailed provisions of the Registrant's
Certificate of Incorporation, as amended and By-Laws, copies of which are
incorporated by reference as exhibits to this Registration Statement.
COMMON STOCK
On December 26, 1997 an amendment to the Certificate of Incorporation with
respect to an increase of the number of shares of Common Stock the Registrant is
authorized to issue from 30,000,000 to 50,000,000 was filed with the Department
of State of the State of New York. Accordingly, the Registrant is authorized to
issue up to 50,000,000 shares of Common Stock, par value $.01 per share. The
amount of shares of Common Stock of the Registrant issued and outstanding at the
close of business on June 26, 1998 was 41,436,842. In addition, the Registrant
currently has reserved (i) an aggregate of 5,973,333 shares of Common Stock
reserved for issuance upon the conversion of certain convertible debentures
issued by the Registrant in June 1998 (assumes conversion based on 20% discount
to the closing price on the NASDAQ SmallCap Market on June 26, 1998), (ii) up to
an additional 16,426,667 shares of Common Stock to be issued to holders of
Convertible Debentures issued in March 1998 upon conversion of outstanding
balance of principal amount of Convertible Debentures (assumes conversion based
on a 20% discount to the closing price on the NASDAQ SmallCap Market on June 2,
1998); (iii) 1,455,000 shares of Common Stock which may be issued upon the
exercise of outstanding options under the Registrant's 1996 Non-Statutory Stock
Option Plan (the "1996 Plan"), (iv) 155,000 shares of Common Stock reserved for
issuance upon the exercise of options available for future grant under the 1996
Plan and (v) 2,000,000 shares of Common Stock reserved for issuance upon the
exercise of options available for future grant under the 1997 Non-Statutory
Stock Option Plan (the "1997 Plan"). Those shares indicated in (iv) and (v)
above will only be issued if and when sufficient authorized shares are available
therefore.
All of the issued and outstanding shares of Common Stock are fully paid and
non-assessable. The holders of Common Stock are entitled to one vote per share
for the election of directors and with respect to all other matters submitted to
a vote of stockholders. Shares of Common Stock do not have cumulative voting
rights, which means that the holders of more than 50% of such shares voting for
the election of directors can elect 100% of the directors if they choose to do
so and, in such event, the holders of the remaining shares so voting will not be
able to elect any directors. There is no classification of the Board of
Directors. The payment by the Registrant of dividends, if any, in the future
rests within the discretion of its Board of Directors and will depend, among
other things, upon the Registrant's earnings, its capital requirements and its
financial condition, as well as other relevant factors. The Registrant has not
paid or declared any dividends upon its Common Stock since its inception and, by
reason of its present financial status and its contemplated financial
requirements, does not contemplate or anticipate paying any dividends upon its
Common Stock in the foreseeable future. The holders of the Common Stock have no
preemptive or conversion rights, and there are no redemption or sinking fund
rights with respect to the Common Stock. See "Market Prices and Dividend
Policy."
The number of shares of Common Stock reserved for issuance as indicated in
the first paragraph of this subsection exceeds the number of shares currently
authorized thereby necessitating corporate action so as to increase the number
of authorized shares available for issuance in order for the Company to meet its
existing debenture and other commitments. Management of the Company has
determined that rather than increase the number of authorized shares from its
current authorization of 50,000,000 to a greater number that the Company instead
would seek stockholder approval to effectuate a reverse stock split of all
currently issued and outstanding securities with those shares of Common Stock
canceled as a result of such reverse stock split being utilized as additional
authorized but unissued shares, thereby increasing the number of authorized and
unissued shares available to meet the commitments referred to herein. A Special
Meeting of Stockholders, whereby the Board of Directors having previously
unanimously approved this proposal and whereby such Board unanimously recommends
shareholder approval thereof, is scheduled to be held in August, 1998.
Promissory Note
On or about April 28, 1997 an otherwise unaffiliated lender, Trianon Opus
One Inc. ("Trianon"), loaned the Company the sum of $2,000,000 bearing interest
at the rate of 6% per annum in accordance with the terms and conditions of a
certain convertible promissory note due April 28, 1998. In accordance with the
terms of such note both principal and interest were convertible into shares of
Company Common Stock one year from the date of the note at the higher of 80% of
bid price or $2.50 per share on the date of conversion. The note also provided
for certain "piggy-back" registration rights and, accordingly, the 850,762
restrictive shares of Company Common Stock issued upon conversion in accordance
with the terms of the note are herewith being registered hereunder.
-48-
<PAGE> 53
REGISTRATION RIGHTS
The Convertible Debentures
The Registrant issued $2,000,000 aggregate principal amount of Convertible
Debentures in June of 1998. One Hundred percent of the face amount of such
Convertible Debentures is convertible into shares of Common Stock of the
Registrant at the earlier of the effective date of a Registration Statement
covering the underlying shares of Common Stock or August 14, 1998 at a
conversion price equal to 80% of the average closing bid price for the ten
trading days preceding the date of conversion. Any Convertible Debentures not so
converted are subject to mandatory conversion by the Registrant on the 24th
monthly anniversary of the date of issuance of the Convertible Debentures. Other
than on the date of such mandatory conversion provision, the Selling Holder
shall not be entitled to convert any amount of Convertible Debentures in excess
of that amount upon conversion of which the sum of (i) the number of shares of
Common Stock beneficially owned by the Selling Holder and its affiliates (other
than the unconverted Convertible Debentures) and (ii) the number of shares of
Common Stock issuable upon conversion of the Convertible Debentures would result
in beneficial ownership by the Selling Holder and its affiliates of more than
4.9% of the outstanding shares of Common Stock of the Registrant.
If at any time the number of shares of Common Stock into which the
Convertible Debentures may be converted exceeds the aggregate number of shares
of Common Stock then registered, the Registrant shall, within ten (10) business
days after receipt of written notice from any investor, either (i) amend the
registration statement filed by the Registrant, if such registration statement
has not been declared effective by the SEC at that time, to register all shares
of Common Stock into which the Debenture may be converted, or (ii) if such
registration statement has been declared effective by the Securities and
Exchange Commission (the "SEC") at that time, file with the SEC an additional
registration statement on Form S-1 to register the shares of Common Stock into
which the Convertible Debentures may be converted that exceed the aggregate
number of shares of Common Stock already registered.
Pursuant to the Registration Rights Agreements between the Registrant and
the Selling Holders, the Registrant is required to file with the SEC, no later
than July 15, 1998 a Registration Statement covering a sufficient number of
shares of Common Stock for the Selling Holders into which the Convertible
Debentures would be convertible. Consequently, the Registrant is filing with the
Commission this Registration Statement on Form S-1 (the "Registration
Statement"), of which this prospectus is a part, to cover the sale of the Common
Stock issuable to the Selling Holders upon conversion of the Convertible
Debentures. The Registration Rights Agreements provide that the Registrant shall
keep the Registration Statement effective at all times until the earliest (the
"Registration Period") of (i) the date that is two years after the Closing Date,
(ii) the date when the Investors may sell all Securities under Rule 144 or (iii)
the date the Investors no longer own any of the Securities.
If the registration statement covering the Securities required to be filed
by the Registrant pursuant to the Registration Rights Agreements is not filed by
July 15, 1998 or if such Registration Statement is not declared effective within
90 days of the June 15, 1998 closing date (the "Initial Date"), the Registrant
shall make payments to the Selling Holders in such amounts and at such times as
shall be determined pursuant to the Registration Rights Agreements. In the event
a timely filing is not made, the Registrant shall pay the Selling Holder 2% of
the face amount of the Convertible Debenture for each 30 day period, or portion
thereof after 30 days following the Closing Date that the Registration Statement
is not filed. The amount to be paid by the Registrant to the Selling Holders in
the event the registration statement is not declared effective within 90 days of
the June 15, 1998 closing date shall be determined as of each Computation Date,
and such amount shall be equal to two percent (2%) of the purchase price paid by
the Selling Holders for the Convertible Debentures pursuant to the
-49-
<PAGE> 54
Registration Rights Agreements for the period from the Initial Date to the first
Computation Date, and two percent (2%) of the purchase price for each
Computation Date thereafter, to the date the Registration Statement is declared
effective by the SEC (the "Periodic Amount"). The full Periodic Amount shall be
paid by the Registrant in immediately available funds within five business days
after each Computation Date. Notwithstanding the foregoing, the amounts payable
by the Registrant pursuant to the Registration Rights Agreements shall not be
payable to the extent any delay in the effectiveness of the Registration
Statement occurs because of an act of, or a failure to act or to act timely by
the Selling Holders or their respective counsel.
"Computation Date" means the date which is the earlier of (i) 35 days after
the Registrant is notified by the SEC that the Registration Statement may be
declared effective or (ii) one hundred twenty (120) days after the Closing Date
and, if the Registration Statement required to be filed by the Registrant
pursuant to the Registration Rights Agreements has not therefore been declared
effective by the SEC, each date which is thirty (30) days after the previous
Computation Date until such Registration Statement is so declared effective.
The number of shares of Common Stock issuable upon conversion of the
Convertible Debentures depends on several factors, including the conversion
ratio and the date on which such shares are converted. As of June 26, 1998 if
all of the Convertible Debentures (issued in June 1998) were converted based on
a 20% discount to the reported closing price on the Nasdaq SmallCap Market on
June 26, 1998, the Registrant would be required to issue 5,333,333 shares of
Common Stock. Additionally, if the entire balance of the Convertible Debentures
heretofore issued in March 1998 were converted based upon a 20% discount on the
aforesaid reported closing price, the Registrant would be required to issue an
additional 14,666,667 shares of Common Stock, each exclusive of shares which may
be issued in exchange for interest earned (at the rate of 6% per annum) from the
date of closing through date of conversion.
Except for the total number of shares to which this Prospectus relates as
set forth above, references in this Prospectus to the "number of Shares covered
by this Prospectus," or similar statements, and information in this Prospectus
regarding the number of Securities issuable to or held by the Selling Holders
and percentage information relating to the Securities of the outstanding capital
stock of the Registrant, are based, with respect to the Convertible Debentures,
upon the fixed conversion ratio set forth in the instruments establishing the
rights of the Convertible Debentures and assume that a total of 11,923,810
Securities are issued upon conversion of all Convertible Debentures. See
"Selling Holders and Plan of Distribution" and "Description of Capital Stock."
The Securities are being offered on a continuous basis pursuant to Rule 415
under the Securities Act of 1933, as amended (the "Securities Act"). No
underwriting discounts, commissions or expenses are payable or applicable in
connection with the sale of the Securities by the Selling Holders. The Common
Stock of the Registrant is quoted on the Nasdaq SmallCap Market ("Nasdaq") under
the symbol "SRMI". The Securities offered hereby will be sold from time to time
at the then prevailing market prices, at prices relating to prevailing market
prices or at negotiated prices. On June 26, 1998, the last reported sale price
of the Common Stock on NASDAQ was $.46875 per share. This Prospectus may be used
by the Selling Holders or any broker-dealer who may participate in sales of the
Securities covered hereby.
-50-
<PAGE> 55
COMMON STOCK RESERVED
The Registrant is required to reserve and keep available out of its
authorized but unissued Common Stock such number of shares of Common Stock as
shall from time to time be sufficient to effect conversion of all of the then
outstanding Convertible Debentures and exercise of options. The Registrant does
not currently have a sufficient number of authorized but unissued shares for
such purposes. Accordingly, necessary steps to make available additional
authorized but unissued shares are being undertaken. See "Description of Capital
Stock--Common Stock", third paragraph.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Registrant's Common Stock is
Continental Stock Transfer & Trust Company, New York, New York.
LEGAL MATTERS
The validity of the Securities will be passed upon for the Registrant by Gary B.
Wolff, P.C., counsel to the Company.
INDEPENDENT AUDITORS
The consolidated financial statements of the Registrant and its
subsidiaries for each of the three years included herein have been included in
reliance upon the report of Bederson & Company LLP, independent accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing. As set forth in the report of Bederson & Company LLP,
the financial statements of one of the Registrant's subsidiaries for the year
ended June 30, 1997 were audited by other auditors whose report was furnished to
Bederson & Company LLP. The opinion of Bederson & Company LLP set forth in such
report, insofar as it relates to amounts included for that subsidiary, is based
solely on the report of the other auditors.
-51-
<PAGE> 56
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements for Fiscal Years Ended June 30, 1995 and
December 31, 1994 and 1993
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-15
Financial Statements for Fiscal Years Ended
June 30, 1997 and 1996
Independent Auditors' Report F(1)
Consolidated Balance Sheets F(2)
Consolidated Statements of Operations F(3)
Consolidated Statements of Stockholders' Equity F(4)
Consolidated Statements of Cash Flows F(5)
Notes to Consolidated Financial Statements F(6) - F(23)
Financial Statements for Quarter Ended
December 31, 1997
Consolidated Balance Sheets FS-1
Consolidated Statement of Operations FS-3
Consolidated Statements of Cash Flows FS-4
Consolidated Statements of Stockholder's Equity FS-5
Notes to Consolidated Financial Statements FS-6
</TABLE>
-52-
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Swissray International, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Swissray
International, Inc., and its subsidiaries, as of June 30, 1995 and December 31,
1994 and 1993, and the related consolidated statements of operations,
stockholders' equity and cash flows for the six months ended June 30, 1995 and
the years ended December 31, 1994 and 1993. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the 1995, 1994 and 1993 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Swissray International, Inc., and its subsidiaries, at June 30, 1995
and December 31, 1994 and 1993 and the results of their operations and their
cash flows for the six months ended June 30, 1995 and years ended December 31,
1994 and 1993, in conformity with generally accepted accounting principles.
BEDERSON & COMPANY LLP
West Orange, New Jersey
September 8, 1995, except for
Note 24, as to which the date is
September 20, 1995
F-1
<PAGE> 58
SWISSRAY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- ------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 2,676,826 $ 92,415 $ 134,940
Accounts receivable, net of allowance
for doubtful accounts of $73,137
for June 1995, $31,673
for 1994 and $26,936 for 1993 2,840,212 672,046 1,100,761
Receivables - other 22,138 764,400 136,084
Inventories 1,492,443 1,453,637 1,247,101
Prepaid expenses and sundry
receivables 99,017 58,484 115,079
------------ ----------- -----------
TOTAL CURRENT ASSETS 7,130,636 3,040,982 2,733,965
------------ ----------- -----------
PROPERTY AND EQUIPMENT 347,699 291,329 243,252
------------ ----------- -----------
OTHER ASSETS:
Due from stockholders 154,114 137,592 53,872
Due from officers 4,354 -- --
Due from affiliates 221,268 226,174 258,778
Investments -- -- 23,989
Licensing agreement 4,966,575 -- --
Patents and trademarks 202,710 202,710 202,710
------------ ----------- -----------
TOTAL OTHER ASSETS 5,549,021 566,476 539,349
------------ ----------- -----------
TOTAL ASSETS $ 13,027,356 $ 3,898,787 $ 3,516,566
============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current maturities of
long-term debt $ 87,070 $ -- $ --
Notes payable, banks 2,709,965 2,706,088 2,030,574
Loan payable 157,375 136,442 114,437
Accounts payable 2,671,627 1,310,365 1,285,865
Accrued expenses 280,652 123,971 178,347
Customer deposits 38,799 -- --
------------ ----------- -----------
TOTAL CURRENT LIABILITIES 5,945,488 4,276,866 3,609,223
------------ ----------- -----------
LONG-TERM DEBT, less
current maturities 705,035 420,420 336,700
------------ ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock 120,351 78,501 78,501
Additional paid-in capital 12,719,998 1,911,848 1,911,848
Accumulated deficit (6,027,336) (2,621,191) (2,424,599)
Cumulative foreign currency
translation adjustment (436,180) (167,657) 4,893
------------ ----------- -----------
TOTAL STOCKHOLDERS'
EQUITY (DEFICIENCY) 6,376,833 (798,499) (429,357)
------------ ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) $ 13,027,356 $ 3,898,787 $ 3,516,566
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-2
<PAGE> 59
SWISSRAY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
-------- ------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
NET SALES $ 3,806,313 $ 8,617,604 $ 5,989,680
COST OF SALES 2,484,253 5,362,698 4,181,393
----------- ----------- -----------
GROSS PROFIT 1,322,060 3,254,906 1,808,287
----------- ----------- -----------
OPERATING EXPENSES:
Salaries - officers 155,214 275,512 246,563
Salaries 734,389 1,127,474 581,902
Selling 619,735 507,783 330,772
Research and development 233,084 103,675 409,939
General and administrative 55,684 149,061 115,465
Other operating expenses 453,934 748,157 390,023
Bad debts 30,847 223,084 --
Depreciation and amortization 24,344 40,523 19,414
----------- ----------- -----------
TOTAL OPERATING EXPENSES 2,307,231 3,175,269 2,094,078
----------- ----------- -----------
INCOME (LOSS) BEFORE OTHER INCOME
(EXPENSES) AND INCOME TAXES (985,171) 79,637 (285,791)
OTHER INCOME (EXPENSES) (3,175,644) (252,117) (207,912)
----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (4,160,815) (172,480) (493,703)
INCOME TAX PROVISION (BENEFIT) (338,975) 24,112 --
----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEM (3,821,840) (196,592) (493,703)
EXTRAORDINARY ITEM - gain on
extinguishment of debt, net of
income tax of approximately $ 340,000 415,695 --
----------- ----------- -----------
NET LOSS $(3,406,145) $ (196,592) $ (493,703)
=========== =========== ===========
LOSS PER COMMON SHARE:
Loss from continuing operations $ (.48) $ (.03) $ (.06)
Extraordinary item .05 -- --
----------- ----------- -----------
NET LOSS $ (.43) $ (.03) $ (.06)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 8,017,242 7,850,064 7,850,064
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-3
<PAGE> 60
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
ADDITIONAL CURRENCY
COMMON STOCK PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL
------ ------ ------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE - January 1, 1993,
as previously 1,000 $ 673,850 $ -- $ (614,397) $ -- $ 59,453
reported
Adjustment for pooling
of interest with
DMS Industries Inc. 850,064 8,501 1,307,998 (1,316,499) -- --
Adjustment for pooling
of interest with
SR Medical AG 6,999,000 (603,850) 603,850 -- -- --
---------- --------- ----------- ----------- --------- ----------
BALANCE - January 1, 1993,
as restated 7,850,064 78,501 1,911,848 (1,930,896) -- 59,453
For year ended December 31, 1993:
Foreign currency
translation adjustment -- -- -- -- 4,893 4,893
Net loss for the year -- -- -- (493,703) -- (493,703)
---------- --------- ----------- ----------- --------- ----------
BALANCE - December 31, 1993 7,850,064 78,501 1,911,848 (2,424,599) 4,893 (429,357)
For year ended
December 31, 1994:
Foreign currency
translation adjustment -- -- -- -- (172,550) (172,550)
Net loss for the year -- -- -- (196,592) -- (196,592)
---------- --------- ----------- ----------- --------- ----------
BALANCE -
December 31, 1994 7,850,064 78,01 1,911,848 (2,621,191) (167,657) (798,499)
For the six months
ended June 30, 1995:
Issuance of common stock
for services 1,525,000 15,250 3,034,750 -- -- 3,050,000
Issuance of common stock
for licensing 660,000 6,600 3,793,400 -- -- 3,800,000
agreement
Issuance of common stock
for cash 2,000,000 20,000 3,980,000 -- -- 4,000,000
Foreign currency
translation adjustment -- -- -- -- (268,523) (268,523)
Net loss of the period -- -- -- (3,406,145) -- (3,406,145)
---------- --------- ----------- ----------- --------- ----------
BALANCE - June 30, 1995 12,035,064 $ 120,351 $12,719,998 $(6,027,336) $(436,180) $6,376,833
========== ========= =========== =========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-4
<PAGE> 61
SWISSRAY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX
MONTHS YEARS ENDED
ENDED DECEMBER 31,
JUNE 30, ------------
1995 1994 1993
------------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,406,145) $ (196,592) $ (493,703)
Adjustments to reconcile net loss
to net cash from operating
activities:
Depreciation and amortization 24,344 40,523 19,414
Provision for bad debts 30,847 223,084 --
Gain on extinguishment of debt (755,695) -- --
Income from investment
recorded on equity method -- -- (2,931)
Foreign currency translation (129,282) (193,378) 8,092
Operating expenses through
issuance of common stock 3,050,000 -- --
(Increase) decrease in operating assets:
Accounts receivable (2,199,013) 205,631 (137,308)
Receivables - other 742,262 (628,316) (21,097)
Inventories (38,806) (206,536) (424,072)
Prepaid expenses and
sundry receivables (40,533) 56,595 (57,842)
Increase (decrease) in operating
liabilities:
Accounts payable 1,361,262 24,500 993,250
Accrued expenses 156,681 (54,376) (99,480)
Customer deposits 38,799 -- --
----------- ---------- -----------
NET CASH USED BY OPERATING ACTIVITIES (1,165,279) (728,865) (215,677)
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (80,714) (88,600) (81,898)
Licensing agreement (885,571) -- --
Investments in affiliates -- 23,989 --
Advances to affiliates 4,906 32,604 (118,239)
----------- ---------- -----------
NET CASH USED BY INVESTING ACTIVITIES (961,379) (32,007) (200,137)
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowing 2,730,898 2,728,093 2,145,011
Proceeds from long-term borrowing 90,681 83,720 700
Principal payments of
short-term borrowing (1,950,393) (2,030,574) (1,646,879)
Issuance of stock for cash 4,000,000 -- --
Repayments from (advances to)
stockholder (16,522) (83,720) (53,872)
Repayments from (advances to) officer (4,354) -- --
----------- ---------- -----------
NET CASH PROVIDED BY (USED BY)
FINANCING ACTIVITIES 4,850,310 697,519 444,960
----------- ---------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (139,241) 20,828 (3,199)
----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH 2,584,411 (42,525) 25,947
CASH - beginning of period 92,415 134,940 108,993
----------- ---------- -----------
CASH - end of period $ 2,676,826 $ 92,415 $ 134,940
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-5
<PAGE> 62
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND DECEMBER 31, 1994 AND 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated under the laws of the State of New
York on January 2, 1968 under the name "C.G.S. Units, Inc." On May
23, 1994, the Company acquired 100% of the outstanding securities
of Direct Marketing Services, Inc., a company incorporated in the
State of Delaware on June 3, 1993. On June 6, 1994, the Company
merged with Direct Marketing Services, Inc. and the surviving
corporation changed its' name to DMS Industries, Inc. DMS
Industries, Inc. was principally engaged in the promotion and
sales of its proprietary brand of cigarettes on a commission
basis. In May of 1995 the Company discontinued its' operations and
changed its' name to Swissray International, Inc.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Swissray International, Inc. (Parent), and its' wholly
owned subsidiary SR Medical AG (a Swiss corporation) and the
latter's wholly owned subsidiaries Teleray AG (a Swiss
Corporation) and SR Medical GmbH (a German corporation). All
substantial intercompany transactions and balances have been
eliminated in consolidation.
SR Medical GmbH is not included in the 1993 consolidated financial
statements since the Company did not have a majority interest.
Business Combination and Restatement
On June 6, 1995, Swissray International, Inc. exchanged 7,000,000
shares of common stock for all of the outstanding shares of SR
Medical AG. The merger between Swissray International Inc. and SR
Medical AG is considered for accounting purposes to be a
recapitalization of SR Medical AG with SR Medical AG as the
acquirer. The consolidated financial statements for all periods
presented include the accounts of Swissray International, Inc.
(from June 6, 1995 thru June 30, 1995), SR Medical AG, Teleray AG
and SR Medical GmbH. The stockholders' equity of SR Medical AG has
been retroactively restated for the equivalent number of shares
received in the merger.
SR Medical AG (a Swiss corporation) was organized in 1988 and
develops, assembles and markets diagnostic x-ray medical
equipment.
Teleray AG (a Swiss corporation) was organized in 1994 and is
engaged in research and development activities related to
diagnostic x-ray equipment and accessories.
SR Medical GmbH (a German corporation) is engaged in sales and
marketing of diagnostic x-ray medical equipment and accessories.
Basis of Accounting
The Company maintains its records on the accrual basis of
accounting. Revenues are recognized when the products are
delivered and expenses are recorded when incurred.
Inventories
Inventories are stated at lower of cost or market, with cost being
determined on the first-in, first-out (FIFO) method. Inventory
cost include material, labor, and manufacturing overhead.
F-6
<PAGE> 63
Property and Equipment
Property and equipment including significant betterments, are
recorded at cost. Upon retirement or disposal of properties, the
cost and accumulated depreciation are removed from the accounts,
and any gain or loss is included in income. Maintenance and repair
costs are charged to expense as incurred.
Depreciation
Depreciation of property and equipment is provided for over the
estimated useful lives of the respective assets. Depreciation is
recorded on the declining balance method. The estimated useful
lives of each asset category are as follows:
YEARS
-------
Equipment 5
Office furniture and equipment 5 - 8
Leasehold improvements 8
Intangible Assets
Patents and trademarks are stated at cost less accumulated
amortization. Amortization will commence on July 1, 1995 and will
be computed by the straight line method over its estimated
economic life of 10 years. No amortization expense has been
provided for the years ended December 31, 1994 and 1993 and for
the six months ended June 30, 1995.
Licensing agreement is stated at fair value (cost less imputed
interest) net of accumulated amortization. Amortization will
commence upon the initial sale of the Company's products within
the defined territories of the agreement and will be computed by
the straight-line method over its estimated economic life of 10
years. No amortization expense has been provided for the for the
six months ended June 30, 1995.
Research and Development
Cost associated with research, new product development, and
product cost improvements are treated as expense when incurred.
Research and development cost expended for the for the six months
ended June 30, 1995 was $233,084 and for the years ended December
31, 1994 and 1993 were $103,675 and $409,939, respectively.
Expenses Related to Sales and Issuance of Securities All costs
incurred in connection with the sale of the Company's common stock
have been capitalized and charged to additional paid-in capital.
Net Loss Per Common Share
Loss per common share is computed by dividing the net loss by the
weighted average number of shares of common stock outstanding
during the periods.
Foreign Currency Translation
Assets and liabilities of subsidiaries operating in foreign
countries are translated into U.S. dollars using the exchange rate
in effect at the balance sheet date. Results of operations are
translated using the average exchange rates prevailing throughout
the year. The effects of exchange rate fluctuations on translating
foreign currency assets and liabilities into U.S. dollars are
included in stockholders' equity, while gains and losses resulting
from foreign currency transactions are included in operations.
F-7
<PAGE> 64
NOTE 2 - CONCENTRATION OF CREDIT RISK AND RISK ARISING FROM CASH DEPOSITS IN
EXCESS OF INSURED LIMITS
The Company sells its products to various customers primarily in
Europe, Asia and Africa. The Company performs ongoing credit
evaluations on its customers and generally does not require
collateral. The Company maintains reserves for potential credit
losses and such losses have been within management's expectations.
The Company maintains its cash balances with major Swiss financial
institutions. The cash balances are not insured.
NOTE 3 - RECEIVABLES - OTHER
Receivables due to the Company from transactions from other than
operations are as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- ------------
1995 1994 1993
-------- --------- -------
<S> <C> <C> <C>
Dr. P. Dragonat $ 22,138 $ -- $ --
Interfinance Investment Co. -- 764,400 --
Kehrli Medipriy -- -- 136,084
-------- -------- -------
$ 22,138 $764,400 $136,084
======== ======== ========
</TABLE>
NOTE 4 - INVENTORIES
Inventories are summarized by major classification as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- ------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Raw materials, parts and
supplies $ 945,257 $ 908,476 $ 808,044
Work-in process 130,605 114,660 101,010
Finished goods 416,581 430,501 338,047
---------- --------- ----------
$1,492,443 $1,453,637 $1,247,101
========== ========== ==========
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
---------- ------------
1995 1994 1993
-------- --------- ---------
<S> <C> <C> <C>
Equipment $140,407 $130,180 $ 80,716
Office furniture and
equipment 145,840 143,424 138,376
Leasehold improvement 153,964 84,642 51,805
-------- -------- --------
440,211 358,246 270,897
Less: Accumulated
depreciation
and amortization 92,512 66,917 27,645
-------- -------- --------
$347,699 $291,329 $243,252
======== ======== ========
</TABLE>
Depreciation and amortization expense for the six months ended
June 30, 1995 was $24,344 and for the years ended December 31,
1994 and 1993 were $40,523 and $19,414, respectively.
F-8
<PAGE> 65
NOTE 6 - DUE FROM STOCKHOLDER
The Company has made unsecured advances to its' President (a
principal stockholder) requiring interest only payments at 6% per
annum. These advances are not expected to be repaid within one
year. The balance at June 30, 1995 was $154,114, and at December
31, 1994 and 1993 were $137,592 and $53,872, respectively.
Interest charged the stockholder for the six months ended June 30,
1995 was $4,376, and for the years ended December 31, 1994 and
1993 were $5,744 and $1,616, respectively.
NOTE 7 - DUE FROM OFFICER
In June of 1995, the Company made an unsecured advance to an
officer in the amount of $4,354 requiring interest only payments
at 6% per annum.
NOTE 8 - DUE FROM AFFILIATES
The Company has made non-interest bearing advances to affiliated
sales companies as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------
1995 1994 1993
-------- --------- ---------
<S> <C> <C> <C>
Swissray SR Medical GmbH,
Willich $181,519 $159,358 $202,020
Swissray Medical s.r.o
Bratislaua 4,353 54,802 48,194
Swissray Medical s.r.o
Brno 17,784 -- --
Teleray s.r.o
Bratislaua 11,073 9,721 8,564
Teleray s.r.o. Brno 6,539 2,293 --
-------- -------- --------
$221,268 $226,174 $258,778
======== ======== ========
</TABLE>
These unsecured advances are due and payable on demand. However,
the Company does not anticipate repayment within one year.
NOTE 9 - INVESTMENTS
The Company owned a 49% interest in Swissray SR Medical GmbH in
1993, and subsequently acquired 100% interest in 1994. The
investment was recorded on the equity method in 1993 and for all
subsequent periods included in the consolidated financial
statements of the Company.
F-9
<PAGE> 66
The Company has made various other investments which are recorded
on the equity method. These entities have operated at a loss in
excess of equity, therefore the Company is carrying these
investments as follows:
<TABLE>
<CAPTION>
COST
OWNERSHIP JUNE 30, CARRYING
% 1995 VALUE
- ------- --------
<S> <C> <C> <C>
Swissray SR Medical GmbH,
Willich 34% $16,892 $-0-
Swissray Medical s.r.o.,
Bratislaua 34% 6,757 -0-
Swissray Medical s.r.o.,
Brno 34% 6,757 -0-
Teleray s.r.o., Willich 49% 28,362 -0-
Teleray s.r.o. Brno 34% 6,757 -0-
Digitec GmbH, Neuss 20% 11,484 -0-
------ ----
TOTAL $77,009 $-0-
======= ====
</TABLE>
NOTE 10 - LICENSING AGREEMENT
The Company entered into a licensing agreement in June of 1995
with an unaffiliated individual. The agreement is for an exclusive
field-of-use license within the United States and Canada to use
the proprietary information, including the patent rights, for
certain technology regarding the integration of computer
technology with diagnostic x-ray and radiology medical equipment
through digital imaging systems. The agreement required a fee of
$5,000,000 consisting of $1,200,000 in cash and 660,000 shares of
the Company's common stock. The cash payment requirement consisted
of $900,000 upon the signing of the agreement and the $300,000
balance due on December 31, 1996. The fee has been discounted at
7.5% for imputed interest of $33,425 resulting in a net
capitalized cost of $4,966,575. This agreement is for an
indefinite term or until all of the proprietary information
becomes public knowledge and the patent rights expire.
NOTE 11 - NOTES PAYABLE - BANK
The Company has line-of-credit agreements with various Swiss banks
aggregating $2,777,575 at June 30, 1995. The line-of-credits are
secured by accounts receivable.
Lines-of-credit are summarized as follows:
<TABLE>
<S> <C>
Credit Suisse Bank $ 905,570
Union Bank 1,741,400
Cantonal Bank of Lucerne 130,605
----------
$2,777,575
==========
</TABLE>
F-10
<PAGE> 67
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Credit Suisse Bank, due on demand, with
interest at 8% per annum, collateralized
by accounts receivable $ 905,570 $1,127,515 $ 829,517
Union Bank, due on demand, with interest
at 8% per annum, collateralized by
accounts receivable 1,711,255 -- --
Cantonal Bank of Lucerne, due on demand,
with interest at 8% per annum,
collateralized by accounts receivable 93,140 1,578,573 1,201,057
--------- ---------- ----------
$2,709,965 $2,706,088 $2,030,574
========== ========== ==========
</TABLE>
NOTE 12 - LOAN PAYABLE
The Company has negotiated a 5% demand loan from a private
foundation fund. The balance at and June 30, 1995 was and
$157,375, and at December 31, 1994 and 1993 was $136,442 and
$114,437, respectively.
NOTE 13 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Note payable - licensing agreement, due
December 31, 1996, bearing interest at
7-1/2% per annum (See Note 10.) $281,004 $ -- $ --
Note payable - Carba, AG, due July 1, 1996,
requiring interest only payments at 6% per
annum with no current amortization required 293,426 229,320 202,020
Note payable - Carbamed-Ruegge Reduktion, due
July 1, 1996, requiring interest only payments
at 6% per annum with no current amortization required 130,605 114,660 134,680
Note payable - Dr. Zeman-Wiegand Helga, due May 15, 1996,
requires interest only payments at 7% per annum with
no current amortization required 87,070 76,440 --
-------- -------- --------
792,105 420,420 336,700
Less: Current portion 87,070 -- --
-------- -------- --------
$705,035 $420,420 $336,700
======== ======== ========
</TABLE>
Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
--------
<S> <C>
1996 $ 87,070
1997 705,035
---------
$ 792,105
=========
</TABLE>
F-11
<PAGE> 68
NOTE 14 - COMMON STOCK
On June 6, 1994, by consent of the majority stockholders, the
Company amended its certificate of incorporation to change the
number of authorized common shares from 50,000,000 to 15,000,000
of $.01 par value common stock.
The Company's outstanding shares of common stock of $.01 par value
at June 30, 1995 was 12,035,064, and at December 31, 1994 and 1993
were 7,850,064 shares. The outstanding shares include the
retroactive effect given to the June 6, 1995 merger between
Swissray International Inc. and SR Medical AG which was recorded
as a recapitalization of SR Medical A.G.
NOTE 15 - ISSUANCE OF COMMON STOCK FOR CASH
The Company issued 2,000,000 shares of common stock for
$4,000,000 during the six month period ending June 30, 1995.
NOTE 16 - PENSION PLAN
The Company, mandated by government regulations, is required to
contribute approximately five (5%) percent of eligible, as
defined, employees' salaries into a government pension plan. The
Company also contributes approximately five (5%) percent of
eligible employee salaries into a private pension plan. Total
contributions charged to operations for the years ended December
31, 1994 and 1993 were $194,837 and $165,968, respectively, and
for the six months ended June 30, 1995 were $96,718.
NOTE 17 - OTHER INCOME (EXPENSES)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Miscellaneous income $ 4,544 $ 320 $ 5,141
Interest income -stockholder 4,376 5,744 1,616
Foreign currency income 16,158 10,948 4,091
Income (loss) from investments (16,909) (28,652) 2,931
Consulting fees -related party (3,050,000) -- --
Interest expense (121,987) (237,013) (214,631)
Miscellaneous expenses (11,826) (3,464) (7,060)
----------- --------- ---------
TOTAL OTHER INCOME (EXPENSES) $(3,175,644) $(252,117) $(207,912)
=========== ========= =========
</TABLE>
NOTE 18 - INCOME TAXES
The Company adopted Statement of Financial Accounting Standard 109
("SFAS"). SFAS 109 provides for an asset and liability approach to
accounting for income taxes that require the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's
financial statements or tax returns.
In estimating future consequences, SFAS 109 generally considers
all expected future events other than proposed changes in the tax
law or rates prior to enactment.
For the six months ended June 30, 1995, and for the years ended
December 31, 1994 and 1993, there was no provision for deferred
federal, state or foreign income taxes because all net operating
loss carryforwards are no longer available due to the change in
ownership of the Company.
F-12
<PAGE> 69
A reconciliation between the statutory federal income tax rate
(34%) and the effective income tax rates based on continuing
operations is as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Statutory federal income tax (benefit) $(1,414,600) $(58,600) $(167,800)
State income tax -- -- --
Foreign income tax in excess of (less than)
domestic rate (457,760) (18,973) (54,307)
Benefit not recognized on operating loss 1,533,385 101,685 222,107
Valuation allowance -- -- --
----------- -------- ----------
$ (338,975) $ 24,112 $ --
=========== ======== =========
</TABLE>
The income tax related to the extraordinary gain on extinguishment
of debt was approximately $340,000 for the six months ended June
30, 1995.
NOTE 19 - EXTRAORDINARY GAIN - EXTINGUISHMENT OF DEBT
During 1995, the Company extinguished, at a discount, a $1,659,497
note obligation. The transaction resulted in an extraordinary gain
of $415,695 ($.05 per share), net of income taxes of approximately
$340,000.
NOTE 20 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for the six months ended June 30, 1995 and for the
years ended December 31, 1994 and 1993 include interest of
$121,987, $237,013 and $214,631, respectively, and income taxes of
$1,025, $24,112 and $-0-, respectively.
Non-cash operating activities consisted of issuance of common
stock for services for the six months ended June 30, 1995 in the
amount of $3,050,000.
Non-cash investing and finance activities for the six months ended
June 30, 1995 consisted of the acquisition of a licensing
agreement for $4,966,575 for $885,571 in cash, and a note
obligation for $281,004 and the issuance of common stock for
$3,800,000. Total cash paid was $885,571.
NOTE 21 - SIGNIFICANT CUSTOMER AND GEOGRAPHIC AREAS
The Company presently has no domestic operations and derives all
of its' revenues from its subsidiaries located in Switzerland and
Germany. Domestic (Switzerland and Germany) and export sales were
as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Switzerland $1,980,606 $1,165,730 $1,488,839
Germany 1,029,413 2,334,265 2,127,050
Other export sales 796,294 5,117,609 2,373,791
---------- ---------- ----------
$3,806,313 $8,617,604 $5,989,680
========== ========== ==========
</TABLE>
F-13
<PAGE> 70
The following summarizes customers sales in excess of 10% or more
of the total revenues:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
OEM/Phillips $ 166,660 $3,232,206 $ 708,852
SR Medical, GmbH, Bubenreuth 340,572 748,495 1,505,051
Belmedtechnika, Minsk -- -- --
Rodiay, Solothurn 1,431,705 -- --
Carbamed, Dattwic -- 913,500 1,350,634
</TABLE>
Sales to the Company's three largest customers for the six months
ended June 30, 1995 and years ended December 31, 1994 and 1993
accounted for approximately 51%, 57% and 60% of all revenues,
respectively. Sales to the Company's single largest customer for
the six months ended June 30, 1995 and years ended December 31,
1994 and 1993 accounted for approximately 38%, 38% and 23% of all
revenues, respectively.
The following summarizes operating profit or (losses) by
geographic area:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Switzerland $(4,095,783) $(295,805) $(493,703)
Germany (65,032) 123,325 --
----------- --------- ---------
NET LOSS BEFORE INCOME TAX $(4,160,815) $(172,480) $(493,703)
=========== ========= =========
</TABLE>
The following summarizes identifiable assets by geographic area:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Switzerland $12,513,262 $3,651,518 $3,516,566
Germany 514,094 247,269 --
----------- ---------- ----------
TOTAL $13,027,356 $3,898,787 $3,516,566
=========== ========== ==========
</TABLE>
NOTE 22 - COMMITMENTS
The Company leases various facilities and vehicles under operating
lease agreements expiring through November 6, 2002. The facilities
lease agreements provide for a base monthly payment of $15,847 per
month. Rent expense for the six months ended June 30, 1995 was
$148,818 and for the years ended December 31, 1994 and 1993 were
$185,459 and $143,140, respectively.
F-14
<PAGE> 71
Minimum annual lease payments under the facilities lease
agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
--------
<S> <C>
1996 $190,160
1997 190,160
1998 190,160
1999 141,575
2000 125,380
Thereafter 229,864
</TABLE>
NOTE 23 - RELATED PARTY TRANSACTIONS
The Company entered into agreements with Berkshire Capital
Management Ltd., (Berkshire), a stockholder, whereby Berkshire
would render consulting and related services towards and in
regards with the acquisition of SR Medical AG and subsidiaries.
Berkshire received 1,525,000 shares of the Company's restricted
common stock in full payment of service rendered in June of 1995
which were valued at $3,050,000 ($2 per share).
NOTE 24 - SUBSEQUENT EVENT
On July 7, 1995 the Board of Directors approved the changing of
the Company's accounting year from December 31 to a June 30 fiscal
year end. All necessary documents have been filed with proper
governmental taxing agencies.
On or about July 7, 1995, the Company commenced litigation against
a former officer and director alleging certain misconduct on the
part of such officer and seeking monetary compensation as a result
thereof. On or about September 15, 1995 such defendant has
responded by filing certain affirmative defenses and
counter-claims against the Company and others. The time within
which to respond to such counter-claims has not expired although
it is expected that all material allegations of wrongdoing
contained in such counter-claims will be denied in their entirety.
Owing to the fact that the litigation has only recently commenced
and further owing to the fact that discovery proceedings have not
even been scheduled as yet, it is virtually impossible to
determine, with any degree of certainty, the final outcome of this
litigation although the Company fully expects to prevail on all
material aspects of this lawsuit.
Pursuant to the terms and conditions of an August 31, 1995
Investment Letter for Restricted Securities, the Company sold and
issued 200,000 shares of its common stock during September 1995
for $700,000. The Company received $300,000 in September 1995 and
the balance of $400,000 due in October 1995.
F-15
<PAGE> 72
[Letterhead of Bederson & Company LLP]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Swissray International, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Swissray
International, Inc., and its subsidiaries, as of June 30, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of Swissray (Deutschland) Rontgentechnik
GmbH, a wholly- owned subsidiary, which statements reflect total assets of
$437,021 as of June 30, 1997 and total revenues of $1,255,140 for the year then
ended. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it related to the amounts included
for Swissray (Deutschland) Rontgentechnick GmbH, is based solely on the report
of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Swissray International, Inc., and
its subsidiaries, at June 30, 1997 and 1996 and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
BEDERSON & COMPANY LLP
/s/ Bederson & Company LLP
West Orange, New Jersey
September 16, 1997
Except for Notes 1, 17, 20,
22, 23, 25, 27, 29, 30 and
31, as of March 6, 1998
F(1)
<PAGE> 73
SWISSRAY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------ -------------
(Restated) (Restated)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,091,307 $ 3,252,685
Accounts receivable, net of allowance for doubtful accounts of
$148,390 and $109,843 5,154,794 3,335,679
Accounts receivable - affiliates - 31,533
Note receivable - 962,500
Inventories 3,911,107 2,912,836
Prepaid expenses and sundry receivables 1,936,138 1,075,681
------------ ------------
TOTAL CURRENT ASSETS 14,093,346 11,570,914
------------ ------------
PROPERTY AND EQUIPMENT, NET 4,336,617 1,138,282
------------ ------------
OTHER ASSETS:
Due from stockholders 69,587 17,414
Due from affiliate - 166,384
Loan receivable 17,396 20,292
Accounts receivable - long-term, net of allowance for doubtful account
of $814,178 and $300,000 240,912 1,038,693
Licensing agreement, net of accumulated amortization of $869,151 and $372,493 4,097,424 4,594,082
Patents and trademarks, net of accumulated amortization of $54,941 and $28,001 206,003 220,018
Capitalized computer software, net of accumulated amortization of $34,512 317,524 -
Organization cost, net of accumulated amortization of $2,464 and $978 5,921 7,407
Security deposits 43,728 19,952
Note receivable - long-term 513,643 -
Goodwill, net of accumulated amortization of $9,023 410,814 -
Debt issuance costs on convertible debentures, net of accumulated
amortization of $200,566 435,319 -
------------ ------------
TOTAL OTHER ASSETS 6,358,271 6,084,242
------------ ------------
TOTAL ASSETS $ 24,788,234 $ 18,793,438
============ ============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 243,135 $ 511,101
Notes payable - banks 3,834,706 2,069,828
Loan payable 133,008 156,254
Accounts payable 5,336,749 4,186,092
Accounts payable - affiliates - 1,541
Accrued expenses 1,401,938 1,135,693
Customer deposits 170,436 77,673
Due to stockholders and officers 139,826 -
------------ ------------
TOTAL CURRENT LIABILITIES 11,259,798 8,138,182
------------ ------------
CONVERTIBLE DEBENTURES 5,310,559 -
------------ ------------
LONG-TERM DEBT, less current maturities 524,689 -
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock 196,944 141,851
Additional paid-in capital 35,780,409 25,642,868
Accumulated deficit (26,855,631) (14,293,416)
Accumulated other comprehensive loss (1,428,534) (836,047)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 7,693,188 10,655,256
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,788,234 $ 18,793,438
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F(2)
<PAGE> 74
SWISSRAY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(Restated) (Restated)
<S> <C> <C>
NET SALES $ 13,151,701 $ 10,899,222
COST OF SALES 8,445,414 5,793,306
------------ ------------
GROSS PROFIT 4,706,287 5,105,916
------------ ------------
OPERATING EXPENSES:
Officers and directors compensation 693,906 612,776
Salaries 2,059,396 1,829,535
Selling 1,873,389 1,140,604
Research and development 5,786,158 1,731,502
General and administrative 2,879,257 7,535,759
Other operating expenses 1,645,800 1,098,346
Bad debts 619,160 491,487
Depreciation and amortization 770,294 526,138
------------ ------------
TOTAL OPERATING EXPENSES 16,327,360 14,966,147
------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSES)
AND INCOME TAXES (11,621,073) (9,860,231)
OTHER INCOME (EXPENSES) (443,405) 810,003
------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS (12,064,478) (9,050,228)
INCOME TAX PROVISION (BENEFIT) 110,223 (364,648)
------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEMS (12,174,701) (8,685,580)
EXTRAORDINARY ITEMS, net of income tax
of approximately $-0- and $343,000 (387,514) 419,500
------------ ------------
NET LOSS $(12,562,215) $ (8,266,080)
============ ============
LOSS PER COMMON SHARE:
Loss from continuing operations $ (.77) $ (.67)
Extraordinary items (.02) .03
------------ ------------
NET LOSS $ (.79) $ (.64)
============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 15,817,571 12,974,749
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F(3)
<PAGE> 75
SWISSRAY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-in Accumulated
Shares Amount Capital Deficit
---------- -------- ---------- -----------
(Restated) (Restated)
<S> <C> <C> <C> <C>
BALANCE - July 1, 1995 12,035,064 $120,351 $ 12,719,998 $ (6,027,336)
COMPREHENSIVE LOSS:
Net loss for the year -- -- -- (8,266,080)
Other comprehensive loss net of taxes $-0-
foreign currency translation adjustments -- -- -- --
TOTAL COMPREHENSIVE LOSS -- -- -- --
Issuance of common stock for cash 1,100,000 11,000 5,189,000 --
Stock options exercised for cash 1,050,000 10,500 2,039,500 --
Stock options granted for services -- -- 6,374,468 --
Public offering expenses -- -- (680,098) --
---------- -------- ------------ ------------
BALANCE - June 30, 1996 14,185,064 141,851 25,642,868 (14,293,416)
COMPREHENSIVE LOSS:
Net loss for year -- -- -- (12,562,215)
Other comprehensive loss net of taxes $-0-
foreign currency translation adjustments -- -- -- --
TOTAL COMPREHENSIVE LOSS -- -- -- --
Issuance of common stock for cash 5,197,759 51,977 7,583,715 --
Stock options exercised for cash 161,000 1,610 115,920 --
Issuance of common stock in lieu of interest payment 70,610 706 132,244 --
Beneficial conversion feature of convertible debentures -- -- 1,000,000 --
Stock options granted as compensation -- -- 25,000 --
Stock options granted for services -- -- 1,161,462 --
Purchase of subsidiary for stock 80,000 800 119,200 --
---------- -------- ------------ ------------
BALANCE - June 30, 1997 19,694,433 $196,944 $ 35,780,409 $(26,855,631)
========== ======== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Loss Total
------------- ----------
(Restated)
<S> <C> <C>
BALANCE - July 1, 1995 $ (436,180) $ 6,376,833
------------
COMPREHENSIVE LOSS:
Net loss for the year -- (8,266,080)
Other comprehensive loss net of taxes $-0-
foreign currency translation adjustments (399,867) (399,867)
------------
TOTAL COMPREHENSIVE LOSS -- (8,665,947)
------------
Issuance of common stock for cash -- 5,200,000
Stock options exercised for cash -- 2,050,000
Stock options granted for services -- 6,374,468
Public offering expenses -- (680,098)
----------- ------------
BALANCE - June 30, 1996 (836,047) 10,655,256
------------
COMPREHENSIVE LOSS:
Net loss for year -- (12,562,215)
Other comprehensive loss net of taxes $-0-
foreign currency translation adjustments (592,487) (592,487)
------------
TOTAL COMPREHENSIVE LOSS -- (13,154,702)
------------
Issuance of common stock for cash -- 7,635,692
Stock options exercised for cash -- 117,530
Issuance of common stock in lieu of interest payment -- 132,950
Beneficial conversion feature of convertible debentures -- 1,000,000
Stock options granted as compensation -- 25,000
Stock options granted for services -- 1,161,462
Purchase of subsidiary for stock -- 120,000
----------- ------------
BALANCE - June 30, 1997 $(1,428,534) $ 7,693,188
=========== ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F(4)
<PAGE> 76
SWISSRAY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
(Restated) (Restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(12,562,215) $(8,266,080)
Adjustment to reconcile net loss to net
cash from operating activities:
Depreciation and amortization 770,294 526,138
Debt issue costs and discount on convertible debentures 511,125 --
Provision for bad debts 552,725 336,706
Write off of affiliate receivable 166,384 --
Operating expenses through issuance of stock options 1,319,412 6,374,468
Gain on sale of marketable securities -- (762,500)
(Increase) decrease in operating assets:
Accounts receivable (1,857,662) (1,870,866)
Accounts receivable - affiliates 31,533 (31,533)
Accounts receivable - long-term 283,603 22,138
Inventories (998,271) (1,420,393)
Prepaid expenses and sundry receivables (860,457) (976,664)
Increase(decrease) in operating liabilities:
Accounts payable 1,601,074 1,514,465
Accounts payable - affiliates (1,541) 1,541
Accrued expenses 266,245 855,041
Customer deposits 92,763 38,874
------------ -----------
NET CASH USED BY OPERATING ACTIVITIES (10,684,988) (3,658,665)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (3,431,375) (932,066)
Licensing agreement (352,036) --
Purchase of marketable securities -- (200,000)
Patents and trademarks (12,925) (45,309)
Goodwill (299,837) --
Organization cost -- (8,385)
Collection of note receivable 448,857 --
Security deposits (23,776) (19,952)
Repayments from affiliates -- 34,592
Repayment of loan receivable 2,896 --
------------ -----------
NET CASH USED BY INVESTING ACTIVITIES (3,668,196) (1,171,120)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 9,198,821 2,069,828
Proceeds from long-term borrowings 248,987 --
Principal payment of short-term borrowings (2,093,074) (2,711,086)
Principal payments of long-term borrowings (442,681) (281,004)
Issuance of common stock for cash 7,753,222 7,250,000
Repayment from stockholder and officers 87,653 141,054
Public offering expenses -- (680,098)
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,752,928 5,788,694
------------ -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (561,122) (383,050)
------------ -----------
NET INCREASE (DECREASE) IN CASH (161,378) 575,859
CASH AND CASH EQUIVALENTS - beginning of period 3,252,685 2,676,826
------------ -----------
CASH AND CASH EQUIVALENTS - end of period $ 3,091,307 $ 3,252,685
============ ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F(5)
<PAGE> 77
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company was incorporated under the laws of the State of New York
on January 2, 1968 under the name "C.G.S. Units, Inc." On May 23,
1994, the Company acquired 100% of the outstanding securities of
Direct Marketing Services, Inc., a company incorporated in the State
of Delaware on June 3, 1993. On June 6, 1994, the Company merged with
Direct Marketing Services, Inc. and the surviving corporation changed
its name to DMS Industries, Inc. DMS Industries, Inc. was principally
engaged in the promotion and sales of its proprietary brand of
cigarettes on a commission basis. In May of 1995 the Company
discontinued its operations and changed its name to Swissray
International, Inc.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Swissray International, Inc. (Parent), and its
wholly-owned subsidiaries SR Medical AG and SR Management AG (both
Swiss corporations), Swissray Corporation and Empower, Inc. (both
U.S. corporations) and SR Medical AG's wholly-owned subsidiaries
Teleray AG (a Swiss Corporation) and Swissray (Deutschland)
Rontgentechnik GmbH (a German corporation). All material intercompany
transactions and balances have been eliminated in consolidation.
SR Medical AG (a Swiss corporation) was organized in 1988 and markets
and services diagnostic x-ray medical equipment.
Teleray AG (a Swiss corporation) was organized in 1994 and is engaged
in research, development and assembly activities related to
diagnostic x-ray medical equipment and accessories.
Swissray (Deutschland) Rontgentechnik GmbH (a German corporation) was
organized in 1988 and is engaged in sales and marketing of diagnostic
x-ray medical equipment and accessories. The Company in 1997 changed
its name from SR Medical GmbH to Swissray (Deutschland)
Rontgentechnik GmbH.
SR Management AG (a Swiss corporation) was organized in December of
1995 as a service oriented company serving only the other companies
within the consolidated group in the areas of consultation,
bookkeeping, logistics, and employment services. The Company in 1997
changed its name from SR Finance AG to SR Management AG.
Swissray Corporation (a U.S. corporation) was organized in November
of 1996 and is engaged in sales and marketing of diagnostic x-ray
medical equipment and accessories.
Empower, Inc. (a U.S. corporation) was organized in 1985 and was
acquired by Swissray International, Inc. on April 1, 1997. The
Company is engaged in the sale of diagnostic x-ray supplies.
See Note 30 - Subsequent Events
BUSINESS ACQUISITION
On April 1, 1997, Swissray International, Inc. exchanged 80,000
shares of common stock at the then quoted market price of $120,000
($1.50 per share) for all the outstanding shares of Empower, Inc. The
consolidated financial statements presented include the accounts of
Empower, Inc., from April 1, 1997 (date of acquisition) to June 30,
1997. The acquisition has been accounted for as a purchase. The
contract requires the Company to repurchase the 80,000 shares of
common stock at $4 per share for a period of one year commencing two
years from the date of the contract at the option of the former owner
of Empower, Inc.
BASIS OF ACCOUNTING
The Company maintains its records on the accrual basis of accounting.
Revenues are recognized when the products are delivered and expenses
are recorded when incurred.
F(6)
<PAGE> 78
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CERTAIN SIGNIFICANT RISK AND UNCERTAINTIES
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates
and assumptions that effect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during this period. Actual results could differ
from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost
being determined on the first-in, first-out (FIFO) method. Inventory
costs include material, labor, and overhead.
PROPERTY AND EQUIPMENT
Property and equipment including significant betterments, are
recorded at cost. Upon retirement or disposal of properties, the cost
and accumulated depreciation are removed from the accounts, and any
gain or loss is included in income. Maintenance and repair costs are
charged to expense as incurred.
DEPRECIATION
Depreciation of property and equipment is provided for over the
estimated useful lives of the respective assets. Depreciation is
recorded on the straight-line method. The estimated useful lives of
each asset category are as follows:
Years
Automobiles 3
Equipment 5 - 10
Office furniture and equipment 5 - 10
Office and leasehold improvements 10
Building 40
INTANGIBLE ASSETS
Licensing agreement is stated at cost less imputed interest net of
accumulated amortization computed on the straight-line method over
its estimated economic life of 10 years. Amortization commenced on
October 1, 1995 upon the initial sale of the Company's products
within the defined territories of the agreement. Amortization
expense, for the licensing agreement, for the years ended June 30,
1997 and 1996 was $465,293 and $372,493, respectively.
Patents and trademarks are stated at cost less accumulated
amortization computed on the straight-line method over their
estimated economic lives of 10 years. Amortization expense, for
patents and trademarks, for the years ended June 30, 1997 and 1996
was $26,940 and $28,001, respectively.
Capitalized computer software is stated at cost less accumulated
amortization computed on the straight-line method over its estimated
useful lives of 5 to 8 years. Amortization commenced on January 1,
1997. Amortization expense, for capitalized computer software, for
the year ended June 30, 1997 was $34,512. No amortization expense has
been provided for the year ended June 30, 1996.
All costs incurred by the Company in connection with incorporation of
subsidiaries have been capitalized and are being amortized over a
period of sixty (60) months. Amortization expense, for organization
cost, for the years ended June 30, 1997 and 1996 was $1,486 and $978,
respectively.
F(7)
<PAGE> 79
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill has been recorded for the amount of cost in excess of fair
value of the net assets of Empower, Inc. which was acquired in a
purchase transaction on April 1, 1997. The goodwill is being
amortized on a straight-line method over 10 years. Amortization
charged to operations amounted to $9,023 for the year ended June 30,
1997. No amortization was charged during the year ended June 30,
1996.
Debt issuance costs on convertible debentures are stated at cost less
accumulated amortization computed on the straight-line method over
the period from the date of issuance to the first available
conversion date of the respective debenture. Amortization expense,
charged to interest, was $200,566 for the year ended June 30, 1997.
No amortization was charged during the year ended June 30, 1996.
The Company reevaluates intangible assets based on expectations of
cash flows and operating income to determine whether any potential
impairment exists. If necessary, the Company writes down the recorded
cost of the intangible asset to the fair value when recorded costs,
prior to impairment, are higher.
ADVERTISING AND PROMOTION
Advertising and promotion cost are expensed as incurred and included
in "Selling Expenses". Advertising and promotion expenses for the
years ended June 30, 1997 and 1996 were $781,189 and $740,044,
respectively.
RESEARCH AND DEVELOPMENT
Costs associated with research, new product development, and product
cost improvements are treated as expenses when incurred. Research and
development costs expended for the years ended June 30, 1997 and 1996
were $5,786,158 and $1,731,502, respectively.
DEFERRED INCOME TAXES
Deferred income taxes are provided on a liability method whereby
deferred income tax assets are recognized for deductible temporary
differences and operating loss carryforwards and deferred income tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred
income tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion
or all deferred tax assets will not be realized. Deferred income tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
EXPENSES RELATED TO SALES AND ISSUANCE OF SECURITIES
All costs incurred in connection with the sale of the Company's
common stock have been capitalized and charged to additional paid-in
capital.
NET LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss by the
weighted average number of shares of common stock outstanding during
the periods. Convertible debentures, a common stock equivalent, were
not included in the computations since the effect would be
anti-dilutive.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year's financial
statements to conform to the June 30, 1997 presentation.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of subsidiaries operating in foreign countries
are translated into U.S. dollars using both the exchange rate in
effect at the balance sheet date or the historical rate, as
applicable. Results of operations are translated using the average
exchange rates prevailing throughout the year. The effects of
exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are included in stockholders' equity,
while gains and losses resulting from foreign currency transactions
are included in operations.
F(8)
<PAGE> 80
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 2 - CONCENTRATION OF CREDIT RISK AND RISK ARISING FROM CASH DEPOSITS IN
EXCESS OF INSURED LIMITS
The Company sells its products to various customers primarily in
Europe, Asia and Africa. The Company performs ongoing credit
evaluations on its customers and generally does not require
collateral. Export sales are usually made under letter of credit
agreements. The Company maintains reserves for potential credit
losses and such losses have been within management's expectations.
The Company maintains its cash balances with major United States,
Swiss and German financial institutions. Funds on deposit with
financial institutions in the United States are insured by the
Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At
June 30, 1997, all funds on deposit in the United States are insured.
The cash balances at Swiss and German financial institutions are not
insured. At June 30, 1997 and 1996, cash in the amount of $3,021,843
and $3,252,685, respectively, was not insured.
NOTE 3 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its financial assets and liabilities in
accordance with generally accepted accounting principles. For certain
of the Company's financial instruments, including cash and cash
equivalents, trade and other accounts receivable, notes receivable,
accounts payable, accrued expenses, notes and loans payable, the
carrying amounts approximate fair value due to their short term
maturities. The amounts shown for long-term receivables also
approximate fair value.
Investments in affiliated companies for which there is no quoted
market price are accounted for by the equity method resulting in no
carrying value which the Company considers a fair value.
NOTE 4 - ACCOUNTS RECEIVABLE - AFFILIATES
The Company sells merchandise to affiliated sales companies in the
normal course of business. No amounts were due to the Company at June
30, 1997 whereas at June 30, 1996 the amounts due to the Company were
$31,533.
NOTE 5 - NOTE RECEIVABLE
On June 20, 1996 the Company sold marketable securities for a 5%
promissory note in the amount of $962,500 originally due on October
20, 1996 of which $100,000 was paid on December 10, 1996. On January
15, 1997, the Company renegotiated the terms of the unpaid balance. A
new note in the amount of $862,500 was renegotiated, with interest at
6% cumulative and payable when the note matures on January 1, 2000.
At June 30, 1997, principal payments of $348,857 were received
leaving a balance due of $513,643. Interest payments were also paid
to June 30, 1997.
NOTE 6 - INVENTORIES
Inventories are summarized by major classification as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------------
1997 1996
---------- ----------
<S> <C> <C>
Raw materials, parts and supplies $2,632,256 $1,854,322
Work in process 468,204 853,657
Finished goods 810,647 204,857
---------- ----------
$3,911,107 $2,912,836
========== ==========
</TABLE>
F(9)
<PAGE> 81
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 7 - PREPAID EXPENSES AND SUNDRY RECEIVABLES
Prepaid expenses and sundry receivables consist of the following:
<TABLE>
<CAPTION>
June 30,
-----------------------------
1997 1996
---------- ----------
<S> <C> <C>
Prepaid expenses, deposits and advance payments $ 681,742 $ 258,373
Insurance claim for fire damage 352,996 --
Prepaid and refundable taxes 888,169 806,138
Employee loans 13,231 1,378
Interest receivable -- 9,792
---------- ----------
$1,936,138 $1,075,681
========== ==========
</TABLE>
NOTE 8 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
-----------------------------
1997 1996
---------- ----------
<S> <C> <C>
Land and building $3,022,772 $ --
Equipment 1,223,572 1,031,849
Office furniture and equipment 161,223 121,404
Office and leasehold improvements 249,160 219,024
---------- ----------
4,656,727 1,372,277
Less: Accumulated depreciation and amortization 320,110 233,995
---------- ----------
$4,336,617 $1,138,282
========== ==========
</TABLE>
Depreciation and amortization expense, for property and equipment,
for the years ended June 30, 1997 and 1996 were $233,040 and
$103,176, respectively.
NOTE 9 - DUE FROM STOCKHOLDERS
The Company has made unsecured advances to its President (a
principal stockholder) requiring interest only payments at 6% per
annum. The balance at June 30, 1996 was $17,414 and by June 30,
1997 had been repaid. Interest charged the stockholder for the
years ended June 30, 1997 and 1996, was $891 and $12,530,
respectively.
The Company also made unsecured advances to its former Chairman of
the Board of Directors (a principal stockholder) during the year
ended June 30, 1997 requiring interest at 6% per annum. The balance
at June 30, 1997 was $69,587. Interest charged to the stockholder
for the year ended June 30, 1997 was $3,460.
NOTE 10 - DUE FROM AFFILIATE
The Company has made non-interest bearing advances to Swissray
Medical GmbH, Willich, an affiliated sales company. The balance due
to the Company at June 30, 1996 was $166,384, which was written off
in 1997.
F(10)
<PAGE> 82
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 11 - ACCOUNTS RECEIVABLE - LONG-TERM
The Company sold merchandise to a customer in 1995. In June 1996,
the Company renegotiated payment terms with the customer and agreed
that the customer would pay the Company approximately $5,000 to
$30,000 per month based on usage of the merchandise for a period of
5 years. The amount due the Company at June 30, 1997 and 1996 was
$240,912 and $1,038,693, respectively, after applying a discount
for imputed interest and a provision for doubtful collection in the
total amount of $814,178 and $300,000, respectively.
NOTE 12 - LICENSING AGREEMENT
The Company entered into a licensing agreement in June of 1995 with
an unaffiliated individual. The agreement is for an exclusive
field-of-use license within the United States and Canada to use the
proprietary information, including the patent rights, for certain
technology regarding the integration of computer technology with
diagnostic x-ray and radiology medical equipment through digital
imaging systems. The agreement required a fee of $5,000,000
consisting of $1,200,000 in cash and 660,000 shares of the
Company's common stock. The cash payment requirement consisted of
$900,000 upon the signing of the agreement and the $300,000 balance
due on December 31, 1996. The fee has been discounted at 7.5% for
imputed interest of $33,425 resulting in a net capitalized cost of
$4,966,575. This agreement is for an indefinite term or until all
of the proprietary information becomes public knowledge and the
patent rights expire.
NOTE 13 - INVESTMENTS
The Company has made various investments which are recorded on the
equity method. These entities have operated at a loss in excess of
equity, and therefore, the Company is carrying these investments as
follows:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------------------ ---------------------------
Ownership Carrying Carrying
% Cost Value Cost Value
--------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
Swissray SR Medical GmbH, Willich 34% $ 16,892 $ -- $16,892 $ --
Swissray Medical, s.r.o., Bratislaua 34% 6,757 -- 6,757 --
Swissray Medical, s.r.o., Brno 34% 6,757 -- 6,757 --
Teleray s.r.o., Willich 49% 38,403 -- 28,362 --
Teleray s.r.o., Brno 34% 6,757 -- 6,757 --
Digitec GmbH, Neuss 20% 59,641 -- 11,484 --
------- ------- -------
Total $135,207 $ -- $77,009 $ --
======== ========= ======= ========
</TABLE>
NOTE 14 - NOTES PAYABLE - BANKS
The Company has negotiated a line-of-credit agreement with the
Union Bank of Switzerland dated July 16, 1996 for $376,310, based
on the exchange rate in effect on June 30, 1997, for borrowing
availability in excess of cash balances on deposit with the bank.
The bank is reducing the amount available in excess of the cash on
deposit with the bank by $102,630 per month until October of 1997.
The Company has also negotiated a line-of-credit agreement with the
Swiss Bank Corporation for $1,505,240, based on the exchange rate
in effect on June 30, 1997.
Empower, Inc., a subsidiary, has negotiated a line-of-credit
agreement with the State Bank of Long Island dated October 21, 1996
with a maximum borrowing base of $450,000 as of June 30, 1997. The
maximum borrowing base is reduced in the future by $25,000 per
quarter terminating on December 31, 2001.
F(11)
<PAGE> 83
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 14 - NOTES PAYABLE - BANKS (CONTINUED)
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
June 30,
1997 1996
---------- ----------
<S> <C> <C>
Union Bank of Switzerland, due on demand, with interest at 8% per
annum, collateralized by the cash on deposit at Union Bank of
Switzerland and accounts receivable. Cash balances on deposit at
Union Bank of Switzerland at June 30, 1997 and 1996 were
$2,805,747 and $1,596,200, respectively $1,421,075 $2,069,828
Swiss Bank Corporation, due on demand, with interest at 5.25% per
annum, collaterized by the cash on deposit at Swiss Bank
Corporation and accounts receivable. Cash balances on deposit at
Swiss Bank Corporation at June 30, 1997
were $106,007 695,231 --
State Bank of Long Island, due on demand, with
interest at prime plus 2.25%, collateralized by
the assets of Empower, Inc. and guaranteed by
the Company Total assets of Empower, Inc.
were $1,983,502 at June 30, 1997 350,000 --
Cantonal Bank of Lucerne, on demand with three months notice,
with interest at 5.25% payable
quarterly, collateralized by the land and building 1,368,400 --
---------- ----------
$3,834,706 $2,069,828
</TABLE>
NOTE 15 - LOAN PAYABLE
The Company has negotiated a 5% demand loan from a private
foundation fund. The loan balance payable at June 30, 1997 and 1996
was $133,008 and $156,254, respectively.
NOTE 16 - DUE TO STOCKHOLDERS AND OFFICERS
In June 1997, the President of the Company (a principal
stockholder) made non-interest bearing advances to the Company in
the amount of $5,862.
Prior to the acquisition of Empower, Inc., the president of
Empower, Inc. advanced that company funds for operating expenses at
8.25% interest. As part of the acquisition, the Company agreed to
continue to pay this obligation. The balance due the stockholder of
the Company at June 30, 1997 was $112,013 including unpaid interest
of $25,695. Interest payable to the stockholder for the period from
April 1, 1997 (date of acquisition) to June 30, 1997 was $2,315.
An officer of Swissray Corporation made non-interest bearing
advances to the subsidiary for operating expenses during 1997. The
balance due at June 30, 1997 was $21,951.
F(12)
<PAGE> 84
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 17 - CONVERTIBLE DEBENTURES
Convertible debentures consist of the following:
<TABLE>
<CAPTION>
June 30,
1997 1996
----------- ----------
<S> <C> <C>
Convertible promissory note dated April 28, 1997 and due April 28,
1998 with interest at 6% per annum. The principle shall be
convertible into common shares one year from the issue date of the
note at the greater of eighty (80%) percent of bid price or $2.50
per share on the date of conversion. Interest due on the note shall
similarly be paid in common stock at the time
of conversion $ 2,000,000 $ --
Convertible promissory debenture dated May 15, 1997 and due May 15,
2000 with interest at 6% per annum. The debentures are convertible
into common shares at a price equal to eighty (80%) of the average
closing bid price for the five (5) trading days preceding the date
of conversion. One-half of the debentures are convertible at the
earlier of a registration effective date or August 7, 1997. The
remainder are convertible 30 days thereafter. Any debenture not so
converted is subject to
mandatory conversion on May 15, 2000 2,000,000 --
Convertible promissory debenture dated June 13, 1997 and due June
13, 2000 with interest at 6% per annum. The debentures are
convertible into common shares at a price equal to eighty (80%) of
the average closing bid price for the five (5) trading days
preceding the date of conversion. One-half of the debentures are
convertible at the earlier of a registration effective date or
September 13, 1997. The remainder are convertible 30 days
thereafter. Any debenture not so converted is subject to
mandatory conversion on June 13, 2000 2,000,000 --
----------- ----------
6,000,000 --
Less discount due to beneficial conversion features,
net of accumulated amortization of $310,559 (689,441) --
----------- ----------
$ 5,310,559 $ --
=========== ==========
</TABLE>
See Note 30 - Subsequent Events
F(13)
<PAGE> 85
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 18 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30,
1997 1996
-------- --------
<S> <C> <C>
Note payable - Edward Coyne, in weekly installments of $817,
including principal and interest at 8% per annum, maturing on
October 9, 2002 $182,617 $ --
Note payable - Thatcher Company of New York, in monthly
installments of $855, including principal interest at 10.25%
per annum, maturing on October 3, 2001, secured by various
x-ray chemical mixing machines 35,623 --
Note payable - Union Bank of Switzerland, related to the
acquisition of equipment sold to a customer (see Accounts
Receivable -Long-Term), in monthly installments of $12,589 with
imputed interest at 6.0%, expiring on September 30, 2000 450,417 --
Capitalized leases related to the acquisition of various
computer and office equipment in monthly installments over
periods ranging up to June 4, 2001 with interest imputed at
rates ranging from 9.1% to 28.3%. These leases are secured by
the specific equipment leased 30,747 --
Note payable - Dr. Zeman-Wiegand Helga,
due on demand, requires interest only
payments at 7% per annum with no current
amortization required 68,420 87,070
Note payable - Carba, AG, due July 1, 1996, requiring interest
only payments at 6% per annum with no current amortization
required -- 293,426
Note payable - Carbamed-Ruegge Reduktion, due July 1, 1996,
requiring interest only payments at 6% per annum with no
current amortization required -- 130,605
-------- --------
767,824 511,101
Less: Current portion 243,135 511,101
-------- --------
$524,689 $ --
======== ========
</TABLE>
F(14)
<PAGE> 86
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 18 - LONG-TERM DEBT (CONTINUED)
The aggregate long-term debt payment are as follows:
<TABLE>
<CAPTION>
Years Ending
June 30,
------------
<S> <C>
1998 $ 243,135
1999 180,834
2000 190,321
2001 99,889
2002 43,134
Thereafter 10,511
-----------
$ 767,824
===========
</TABLE>
NOTE 19 - COMMON STOCK
On March 12, 1997, the Company amended its certificate of
incorporation to change the number of authorized common shares from
15,000,000 to 30,000,000 of $.01 par value common shares. See Note 30
- Subsequent Events.
The Company's outstanding shares of common stock of $.01 par value at
June 30, 1997 and 1996 were 19,694,433 and 14,185,064, respectively.
NOTE 20 - ISSUANCE OF COMMON STOCK FOR CASH
The Company issued 5,358,759 shares for $7,753,222 (including 161,000
shares for $117,530 issued under stock option plan) for the year ended
June 30, 1997 and 2,150,000 shares for $7,250,000 (includes 1,050,000
shares for $2,050,000 issued under stock option plan) for the year
ended June 30, 1996.
NOTE 21 - PENSION AND EMPLOYEE BENEFIT PLANS
The Swiss and Germany Subsidiaries, mandated by government
regulations, are required to contribute approximately five (5%)
percent of eligible, as defined, employees' salaries into a government
pension plan. The subsidiaries also contribute approximately five (5%)
percent of eligible employee salaries into a private pension plan.
Total contributions charged to operations for the years ended June 30,
1997 and 1996, were $274,009 and $198,722, respectively.
Effective March 1, 1992, Empower, Inc., a U.S. subsidiary, adopted a
qualified 401(k) retirement plan for the benefit of substantially all
its employees. Under the plan, employees can contribute and defer
taxes on compensation contributed. The subsidiary matches, within
prescribed limits, the contributions of the employees. The subsidiary
also has the option to make an additional contribution to the plan.
The subsidiary's contribution to the plan for the period April 1, 1997
(date of acquisition) to June 30, 1997 was $4,185.
Effective April 3, 1992, Empower, Inc., a U.S. subsidiary, adopted a
"Section 125" employee benefits plan, which is also referred to as a
"Cafeteria" plan. The subsidiary pays for approximately 85% of the
employees' health coverage and the employee pays approximately 15% of
the cost of coverage. With the implementation of the Cafeteria plan,
the employees' payments for coverage are on a pre-tax basis. A new
employee has only a ninety (90) day waiting period before he or she
becomes eligible to participate in the group insurance plan and the
Cafeteria plan.
F(15)
<PAGE> 87
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 22 - OTHER INCOME (EXPENSES)
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
1997 1996
--------- ---------
<S> <C> <C>
Interest income $ 68,950 $ 131,166
Interest income - stockholder and officer 4,351 12,530
Foreign currency income 484,846 377,587
Miscellaneous income 6,833 512
Loss from investments (246,217) --
Interest expense (759,853) (193,930)
Interest expense - stockholder (2,315) --
Licensing income -- 482,138
--------- ---------
TOTAL OTHER INCOME (EXPENSES) $(443,405) $ 810,003
========= =========
</TABLE>
NOTE 23 - INCOME TAXES
Deferred income tax assets as of June 30, 1997 and 1996 of
$7,122,142 and $4,499,614, respectively, as a result of net
operating losses, have been fully offset by valuation allowances.
The valuation allowances have been established equal to the full
amounts of the deferred tax assets, as the Company is not assured
that it is more likely than not that these benefits will be
realized.
A reconciliation between the statutory United States corporate
income tax rate (34%) and the effective income tax rates based on
continuing operations is as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Statutory federal income tax (benefit) $(4,101,913) $(3,077,078)
State and foreign income tax 79,296 --
Foreign income tax (benefit) in
excess of domestic rate 509,203 (325,715)
Benefit not recognized on operating loss 114,233 --
Valuation allowance 2,622,528 3,038,145
Permanent, timing and other differences 886,886 --
----------- -----------
$ 110,223 $ (364,648)
=========== ===========
</TABLE>
Net operating loss carryforwards at June 30, 1997 were approximately
as follows:
<TABLE>
<S> <C>
United States (expiring through June 30, 2012) $12,300,000
Switzerland (expiring through June 30, 2007) 15,200,000
-----------
$27,500,000
===========
</TABLE>
The income tax related to the extraordinary gain on sale of marketable
securities was approximately $343,000 for the year ended June 30,
1996.
No income tax benefit has been recognized related to the extraordinary
loss incurred as a result of fire damage for the year ended June 30,
1997.
F(16)
<PAGE> 88
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 24 - EXTRAORDINARY ITEMS
In June of 1996, the Company sold marketable securities for
$962,500, at a cost of $200,000, resulting in an extraordinary gain
of $419,500 ($.03 per share), net of income taxes of approximately
$343,000.
On April 12, 1997, the Company sustained significant fire damage at
a leased production and office facility in Hochdorf, Switzerland,
resulting in an extraordinary loss, net of insurance proceeds, of
$387,514 ($.02) per share), net of income taxes of $-0-.
NOTE 25 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for the years ended June 30, 1997 and 1996, include
interest of $122,427 and $193,930, respectively, and income taxes
of $56,562 and $-0-, respectively.
NON-CASH OPERATING ACTIVITIES
In April of 1997, the Company issued options to an officer under
the 1996 non-statutory stock option plan. The excess of the then
quoted market price over the option price has been recorded as
additional compensation amounting to $25,000.
For the years ended June 30, 1997 and 1996, the Company issued
options to various individuals and companies for services rendered
under the 1996 non-compensation stock option plan. The excess of
the fair value over the option price has been charged to operations
in the amounts of $1,161,462 and $6,374,468, for the years ended
June 30, 1997 and 1996, respectively.
During 1997, the Company issued 70,610 shares of common stock in
the amount of $132,950 in lieu of interest payments due on
convertible debentures.
NON-CASH INVESTING AND FINANCING ACTIVITIES
For the year ended June 30, 1996 the Company received a note
receivable for $962,500 from the sale of marketable securities. No
cash was received.
On April 1, 1997, the Company acquired a subsidiary through the
issuance of 80,000 shares of common stock at the then quoted market
price of $120,000 ($1.50 per share). This transaction was accounted
for as a purchase.
On May 15, 1997 and June 13, 1997, the Company issued convertible
promissory debentures which were convertible into common shares at
a price equal to eighty (80%) of the average closing bid price for
the five (5) trading days preceding the date of the conversion. A
beneficial conversion feature of $1,000,000 was charged to
additional paid-in capital and is being amortized over the period
from the date of issuance to the first available conversion date of
the respective debenture.
NOTE 26 - STOCK OPTIONS
The Board of Directors, on January 30, 1996, adopted a
non-statutory stock option plan and reserved 3,000,000 shares for
issuance to eligible full and part-time employees, officers,
directors and consultants. Options are non-transferrable and are
exercisable during a term of not more than ten (10) years from the
grant date. The options are issuable in such amounts and at such
prices as determined by the Board of Directors, except that each
option price of each grant will not be less than twenty (20%)
percent of the fair value of such shares on the date the options
are granted.
F(17)
<PAGE> 89
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 26 - STOCK OPTIONS (CONTINUED)
The following table summarizes the non-statutory stock options
outstanding as of June 30, 1997.
<TABLE>
<CAPTION>
Option Grant
Price Per Date Fair Options Options Options
Date Granted Share Value Granted Exercised Outstanding
----------------- --------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
March 11, 1996 $1.00 $4.81 50,000 50,000 -
March 11, 1996 2.00 4.81 2,000,000 1,000,000 1,000,000
July 22, 1996 .73 3.63 200,000 151,000 49,000
January 24, 1997 4.00 2.47 125,000 - 125,000
January 24, 1997 3.50 2.47 150,000 - 150,000
April 4, 1997 1.00 1.38 50,000 - 50,000
June 13, 1997 .73 2.87 270,000 10,000 260,000
--------- --------- ---------
2,845,000 1,211,000 1,634,000
========= ========= =========
</TABLE>
The Company has also issued other stock options as follows:
<TABLE>
<CAPTION>
Option Grant
Price Per Date Fair Options Options Options
Date Granted Share Value Granted Exercised Outstanding
----------------- --------- --------- -------- --------- -----------
<S> <C> <C> <C> <C>
September 20, 1995 $6.50 $6.50 200,000 - 200,000
June 8, 1996 5.00 6.32 100,000 - 100,000
May 16, 1996 4.75 6.76 35,000 - 35,000
---------- ---------- ----------
335,000 - 335,000
========== ========== ==========
</TABLE>
NOTE 27 - SIGNIFICANT CUSTOMER AND GEOGRAPHIC AREAS
The Company derives all of its revenues from its subsidiaries
located in the United States, Switzerland and Germany. Sales by
geographic areas for the years ended June 30, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
United States $ 2,000,608 $ -
Switzerland 2,184,161 2,002,374
Germany 1,393,072 4,976,503
Other export sales 7,573,860 3,920,345
----------- -----------
$13,151,701 $10,899,222
=========== ===========
</TABLE>
The following summarizes customers sales in excess of 10% or more
of the total revenues for the years ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Largest customers:
Sales $4,288,697 $4,499,893
Percentage 33% 41%
Number of customers 2 3
Single largest customer:
Sales $2,389,613 $1,603,631
Percentage 18% 15%
</TABLE>
F(18)
<PAGE> 90
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 27 - SIGNIFICANT CUSTOMER AND GEOGRAPHIC AREAS (CONTINUED)
The accounts receivable balance at June 30, 1997 from the two
largest customers amounted to approximately $1,150,800 representing
approximately 22% of total trade accounts receivable with the
single largest customer balance of approximately $835,700
representing approximately 16% of total trade receivables. The
accounts receivable balance at June 30, 1996 from the three largest
customers amounted to approximately $1,650,000 representing
approximately 48% of total trade accounts receivable with the
single largest customer balance of approximately $1,500,000
representing approximately 44% of total trade accounts receivable.
The following summarizes operating losses before provision for
income tax by geographic areas for the years ended June 30, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
United States $ (175,254) $ --
Switzerland (11,555,827) (8,986,555)
Germany (333,397) (63,673)
------------ -----------
$(12,064,478) $(9,050,228)
============ ===========
</TABLE>
The following summarizes identifiable assets by geographic area:
<TABLE>
<CAPTION>
June 30,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
United States $ 2,028,307 $ --
Switzerland 22,011,388 18,129,362
Germany 748,539 664,076
----------- -----------
$24,788,234 $18,793,438
=========== ===========
</TABLE>
NOTE 28 - COMMITMENTS
The Company leases various facilities and vehicles under operating
lease agreements expiring through September 2002. The Company has
excluded all vehicle leases in the schedule below because they are
deemed to be immaterial. The facilities lease agreements provide
for a base monthly payment of $20,767 per month. Rent expense for
the years ended June 30, 1997 and 1996 was $297,926 and $242,658,
respectively.
Future minimum annual lease payments, based on the exchange rate in
effect on June 30, 1997, under the facilities lease agreements are
as follows:
<TABLE>
<CAPTION>
Year Ended
June 30,
----------
<S> <C>
1998 $249,212
1999 179,612
2000 165,512
2001 110,869
2002 98,525
Thereafter 24,631
</TABLE>
F(19)
<PAGE> 91
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 28 - COMMITMENTS (CONTINUED)
On January 1, 1996, the Company entered into a long-term purchase
agreement with a major vendor to supply the camera module for a
product the Company sells. At June 30, 1997, future minimum
payments under this contract, which is cancelable with four months
notice, are as follows:
<TABLE>
<CAPTION>
Years Ending
June 30,
-------------
<S> <C>
1998 $ 4,337,130
1999 5,250,210
2000 1,902,250
-----------
Total minimum contract payments $11,489,590
===========
</TABLE>
The Company's total purchases under this agreement was $1,534,646
for the year ended June 30, 1997.
NOTE 29 - LITIGATION
On or about July 7, 1995, the Company commenced litigation against
a former officer and director of a corporate predecessor alleging
certain improprieties on the part of such officer and seeking
monetary compensation as a result thereof. Such defendant responded
(in September 1995) by filing certain affirmative defenses and
counterclaims against the Company and others and subsequently
brought (together with certain of his family members) an action
against the Company in the same court which action raised issues
and claims substantially similar to those raised in the aforesaid
counterclaims. The two actions were assigned to the same judge and
the Company moved successfully to dismiss both the counterclaims
and the second action. Leave to replead both claims were granted
and amended counterclaims and an amended complaint were served and
filed and the Company again successfully moved to dismiss both
pleadings. Following the most recent dismissal, counsel for the
Company and the aforesaid former officer entered into settlement
discussions. Both the Company and defendant have dismissed all
claims and counter claims against each other.
NOTE 30 - SUBSEQUENT EVENTS
From July 1997 to February 1998, 169,000 non-statutory stock
options were exercised for $123,370 ($.73 per share).
On July 31, 1997, the Company issued $4,262,500 of 7% convertible
debentures in exchange for $4,262,500 (including interest of
$262,500) of 6% convertible debentures dated May 15, 1997 and June
13, 1997. (See Note 17 - Convertible Debentures.) The Company did
not receive any cash proceeds from this transaction. The
debentures, due July 31, 2000, are convertible into common shares
at a price equal to eighty (80%) of the average closing bid price
for the five (5) trading days preceding the date of conversion.
One-half of the debentures are convertible at the earlier of a
registration effective date or September 14, 1997. The remainder
are convertible 30 days thereafter. Any debenture not so converted
is subject to mandatory conversion on July 31, 2000.
On August 19, 1997, the Company issued $5,000,000 of convertible
debentures due August 19, 2000 with interest at 6% per annum. The
debentures are convertible into common shares at a price equal to
eighty (80%) of the average closing bid price for the five (5)
trading days preceding the date of conversion. One-half of the
debentures are convertible at the earlier of a registration
effective date or November 3, 1997. The remainder are convertible
30 days thereafter. Any debenture not so converted is subject to
mandatory conversion in August 19, 2000. The Company received cash
proceeds of $4,293,750, net of related costs of $706,250.
F(20)
<PAGE> 92
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 30 - SUBSEQUENT EVENTS (CONTINUED)
On or about October 15, 1997, the Company and Swissray Healthcare,
Inc. were served with a complaint by a company engaged in the
business of providing services related to imaging equipment
alleging benefit from breach of fiduciary and contractual duties
and misappropriation of trade secrets by certain former employees
of such competitor. Such company also obtained a preliminary
injunction and a temporary restraining order against the Company
and Swissray Healthcare, Inc. On November 10, 1997, the preliminary
injunction and the temporary restraining order were vacated. The
Company denies the allegations, intends to vigorously defend the
litigation, and believes the ultimate outcome thereof will not have
a material adverse effect upon the Company's results of operations
or financial position. The Company believes that the complaint is
without merit.
On October 17, 1997, the Company acquired substantially all of the
assets and assumed certain liabilities of Service Support Group,
LLC (SSG) located in Gig Harbor, Washington pursuant to an asset
purchase agreement. SSG is in the business of selling diagnostic
imaging equipment and related services in markets on the West Coast
of the United States. The purchase price consisted of (1) cash in
the amount of $621,892, (2) 333,333 shares of the Company's common
stock, (3) an amount equal to fifty percent of certain accounts
receivable net of certain accounts payable and (4) the assumptions
of certain other liabilities. As a result of these transactions,
the Company recorded goodwill of approximately $2,000,000. The
contract requires the Company to repurchase the 333,333 common
shares at $4.50 per share during the period June 30, 1998 to April
17, 1999 at the option of the former owners of SSG.
Between November 26, 1997 and December 11, 1997, the Company issued
$5,848,285 of 8% convertible debentures, due twenty-four (24)
months from the date of issuance. The Company received cash
proceeds in the amount of $3,000,000 net of related costs of
$690,000. The Company refinanced $1,850,000 of the August 19, 1997
debentures (including accrued interest) with the remaining
$2,158,285 in debentures. The debentures are convertible into
common shares at a price equal to seventy-five (75%) of the average
closing bid price for the five (5) trading days preceding the date
of conversion. Twenty-five percent (25%) of the debentures are
convertible at the earlier of a registration effective date or
March 21, 1998. The remainder are convertible in additional
twenty-five percent (25%) portions every 30 days thereafter. Any
debenture not so converted is subject to mandatory conversion
twenty-four (24) months from the date of issuance.
On December 18, 1997, the United States Food and Drug
Administration approved the Add On-Multi-System for marketing in
the United States.
On December 18, 1997, the Company entered into employment
agreements ranging in term from three to five years with various
management employees of the Company.
On December 26, 1997, the Company amended its certificate of
incorporation to change the number of authorized common shares from
30,000,000 to 50,000,000 of $.01 par value common shares.
The Company, on December 23, 1997, adopted a 1997 non-statutory
stock option plan and reserved 2,000,000 shares for issuance to
eligible full and part-time employees, officers, directors and
consultants. Options are non-transferrable and are exercisable
during a term of not more than ten (10) years from the grant date.
The options are issuable in such amounts and at such prices as
determined by the Board of Directors, except that each option price
of each grant will not be less than the fair market value of such
shares on the date the options are granted.
Effective February 4, 1998, the Company restructured its Swiss
operations. A newly formed company, Teleray Research and
Development AG, was founded as a spin-off of the development
department of Teleray AG. SR Medical AG, a wholly-owned subsidiary
of the Company which was renamed SR Medical Holding AG, sold all of
the assets and liabilities of the sales and service department to
Teleray AG, a wholly-owned subsidiary of the Company which was
renamed SR Medical AG.
On February 11, 1998, the Company signed a letter of intent with
E.M. Parker, Inc. for the sale of Empower, Inc.'s film and x-ray
accessories business. The terms of the transaction are currently
being negotiated and the Company expects to complete the
transaction during the current fiscal year.
F(21)
<PAGE> 93
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 31 - RESTATEMENT
The accompanying financial statements have been restated to properly
record the accounting treatment of certain beneficial conversion
features and debt issuance costs of convertible debentures issued
during the year ended June 30, 1997 and the accounting for the value
of stock options granted during the years ended June 30, 1997 and
1996.
The effect of such restatements on the Company's 1997 and 1996
financial statements follow:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------- ---------------------------------------
As As As As
Reported Adjustments Restated Reported Adjustments Restated
-------- ----------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Adjustments:
Assets $ 24,352,915 $ 435,319 $ 24,788,234 $18,793,438$ -- $ 18,793,438
Liabilities 17,784,487 (689,441) 17,095,046 8,138,182 -- 8,138,182
Stockholders' equity 6,568,428 1,124,760 7,693,188 10,655,256 -- 10,655,256
Statement of Operations
Adjustments:
Operating expenses $ 15,165,898 $ 1,161,462 $ 16,327,360 $ 8,591,679 $ 6,374,468 $ 14,966,147
Other income (expenses) 67,720 (511,125) (443,405) 810,003 -- 810,003
Loss from operations (10,502,114) (1,672,587) (12,174,701) (2,311,112) (6,374,468) (8,685,580)
Net loss (10,889,628) (1,672,587) (12,562,215) (1,891,612) (6,374,468) (8,266,080)
Net loss per common share $ (.69) $ (.10) $ (.79) $ (.15) $ (.49) $ (.64)
</TABLE>
Stockholders' equity has been restated to reflect the following:
<TABLE>
<CAPTION>
Additional Accumulated
Paid-in Capital Deficit
--------------- -------------
<S> <C> <C>
As originally reported, June 30, 1996 $ 19,268,400 $ (7,918,948)
Value of stock options granted 6,374,468 (6,374,468)
------------ ------------
As restated, June 30, 1996 $ 25,642,868 $(14,293,416)
============ ============
As originally reported, June 30, 1997 $ 26,608,594 $(18,808,576)
Effect of 1996 restatement 6,374,468 (6,374,468)
------------ ------------
32,983,062 (25,183,044)
Beneficial conversion feature 1,000,000 (310,559)
Debt issuance cost 635,885 (200,566)
Value of stock options granted 1,161,462 (1,161,462)
------------ ------------
$ 35,780,409 $(26,855,631)
============ ============
</TABLE>
F(22)
<PAGE> 94
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 32 - UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
The following unaudited proforma condensed combined statements of
operations for the years ended June 30, 1997 and 1996 give
retroactive effect of the acquisition of Empower, Inc. on April 1,
1997, which has been accounted for as a purchase. The unaudited
proforma condensed combined statements of operations give
retroactive effect to the foregoing transaction as if it had
occurred at the beginning of each year presented. The proforma
statements do not purport to represent what the Company's results
of operations would actually have been if the foregoing
transactions had actually been consummated on such dates or project
the Company's results of operations for any future period or date.
The proforma statements should be read in conjunction with the
historical financial statements and notes thereto.
SWISSRAY INTERNATIONAL, INC
UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Swissray Proforma
International, Inc. Empower, Inc. Adjustments As Adjusted
------------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 11,133,745 $ 8,071,824 $ -- $ 19,205,569
Loss before
extraordinary
items $(12,115,767) $ (235,736) $(36,000)(1) $(12,387,503)
Net loss $(12,503,281) $ (235,736) $(36,000)(1) $(12,775,017)
Loss per share $ (.80)
Weighted average number
of shares outstanding 15,877,571
</TABLE>
SWISSRAY INTERNATIONAL, INC.
UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Swissray Proforma
International, Inc. Empower, Inc. Adjustments As Adjusted
------------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 10,899,222 $8,813,949 $ -- $ 19,903,871
Income (loss) before
extraordinary
items $ (8,685,580) $ 30,536 $(36,000)(1) $ (8,691,044)
Net income (loss) $ (8,266,080) $ 30,536 $(36,000)(1) $ (8,271,544)
Loss per share $ (.63)
Weighted average number
of shares outstanding 13,054,749
</TABLE>
(1) Adjustment to record amortization of goodwill
F(23)
<PAGE> 95
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
----------------------------------------
Unaudited) (Restated)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,298,625 $ 3,091,307
Accounts receivable, net of allowance for doubtful
accounts of $ 92,276 (March 1998) and $ 148,390 (June 1997) 3,294,331 5,154,794
Inventories 8,446,340 3,911,107
Prepaid expenses and sundry receivables 2,223,234 1,936,138
----------------------------------------
Total Current Assets 16,262,530 14,093,346
----------------------------------------
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation
of $ 520,334 (March 1998) and $ 320,110 (June 1997) 5,641,600 4,336,617
----------------------------------------
OTHER ASSETS
Due from stockholders 351 69,587
Loan receivable 19,974 17,396
Accounts receivable - long-term, net of allowance of $ 781,216
(March 1998) and $ 814,178 (June 1997) for doubtful account 152,378 240,912
Licensing agreement, net of accumulated amortization of 3,724,931 4,097,424
$ 1,241,644 (March 1998) and $ 869,151 (June 1997)
Patents and trademarks, net of accumulated amortization of 226,615 206,003
$ 75,459 (March 1998) and $ 54,941 (June 1997)
Capitalized computer software, net of accumulated amortization of 443,196 317,524
$ 93'599.17 (March 1998) and $ 34,512 (June 1997)
Organisation cost, net of accumulated amortization of 4,900 5,921
$ 3,485 (March 1998) and $ 2,464 (June 1997)
Security deposits 59,920 43,728
Note receivable - long-term 513,643 513,643
Goodwill, net of accumulated amortization of $ 88,843 (March 1998
and $ 9,023 (June 1997) 2,264,269 410,814
Debt issuance costs on convertible debentures, net of accumulated
amortization of $ 694,989 (March 1998) and $ 200,566 (June 1997) 610,011 435,319.00
----------------------------------------
TOTAL OTHER ASSETS 8,020,189 6,358,271
----------------------------------------
Total Assets $29,924,319 $24,788,234
========================================
</TABLE>
FS-1
<PAGE> 96
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S> <C> <C>
Current maturities of long-term debt $ 76,496 $ 243,135
Notes payable - banks 2,031,760 3,834,706
Notes payable - short-term 5,185 --
Loan payable 127,875 133,008
Accounts payable 6,694,178 5,336,749
Accrued expenses 1,490,275 1,401,938
Customer deposits -- 170,436
Due to stockholders and officers -- 139,826
---------------------------------
TOTAL CURRENT LIABILITIES 10,425,769 11,259,798
---------------------------------
CONVERTIBLE DEBENTURES 12,473,285 6,000,000
Conversion Benefit (1,041,084) (689,441)
---------------------------------
Net Convertible Debentures 11,432,201 5,310,559
---------------------------------
LONG-TERM DEBT, less current maturities 918,343 524,689
---------------------------------
STOCKHOLDERS' EQUITY
Common stock 291,956 196,944
Additional paid-in capital 49,171,682 35,780,409
Accumulated deficit (41,454,466) (26,855,631)
Accumulated other comprehensive loss (861,167) (1,428,534)
---------------------------------
TOTAL STOCKHOLDERS' EQUITY 7,148,006 7,693,188
---------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 29,924,319 $ 24,788,234
=================================
</TABLE>
FS-2
<PAGE> 97
<TABLE>
<CAPTION>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Nine Month Ended Three Month Ended
March 31, March 31,
---------------------------------------------------------------
1998 1997 1998 1997
Revised
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 17,800,994 $ 9,117,390 $ 6,498,416 $ 3,044,971
COST OF SALES 13,921,137 4,901,693 5,330,190 1,883,445
---------------------------------------------------------------
GROSS PROFIT 3,879,857 4,215,697 1,168,226 1,161,526
---------------------------------------------------------------
OPERATING EXPENSES
Officers and directors compensation 384,824 388,043 134,277 107,713
Salaries 3,260,232 1,599,868 1,333,463 491,983
Selling 2,396,089 869,710 721,891 312,966
Research and development 2,185,855 2,297,965 763,373 460,132
General and administrative 1,610,038 1,598,460 726,440 373,361
Other operating expenses 1,110,008 1,172,798 845,610 296,714
Bad debts (24,536) -- 510 --
Depreciation and amortization 684,627 556,648 247,981 200,712
---------------------------------------------------------------
TOTAL OPERATING EXPENSES 11,607,137 8,483,492 4,773,545 2,243,581
---------------------------------------------------------------
LOSS BEFORE OTHER INCOME (EXPENSES)
AND INCOME TAXES (7,727,280) (4,267,795) (3,605,319) (1,082,055)
Other income (expenses) (799,202) 235,466 (955,347) 339,699
Interest expenses (6,377,276) (171,416) (1,960,362) (33,939)
---------------------------------------------------------------
OTHER INCOME (EXPENSES) (7,176,478) 64,050 (2,915,709) 305,760
---------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEMS (14,903,758) (4,203,745) (6,521,028) (776,295)
Income Tax provision (Benefit) -- -- -- --
Early extinguishment of Debt 304,923 -- -- --
NET LOSS $(14,598,835) $ (4,203,745) $ (6,521,028) $ (776,295)
================================================================
LOSS PER COMMON SHARE
Loss from continuing operations (0.62) (0.28) (0.23) (0.05)
Extraordinary items 0.01 0.00 0.00 0.00
---------------------------------------------------------------
NET LOSS (0.60) (0.28) (0.23) (0.05)
================================================================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 24,159,014 14,769,274 27,441,552 15,685,122
</TABLE>
FS-3
<PAGE> 98
<TABLE>
<CAPTION>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
March 31,
----------------------------------
1998 1997
----------------------------------
Revised
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(14,598,835) $ (4,203,745)
Adjustment to reconcile net loss to net
cash from operating activities
Depreciation and amortization 719,075 556,649
Provision for bad debts (89,075) (23,312)
Financing costs incurred 338,948 --
Issuance of common stock in lieu of
interest payments 140,448 --
Interest expense on Debt issuance cost and
conversion benefit 6,015,697 --
Early extinguishment of Debt (gain) (304,923) --
Operating expenses through issuance of Common Stock -- 588,846
(Increase) decrease in operating assets:
Accounts receivable 2,038,072 137,122
Inventories (4,535,233) (3,407,392)
Prepaid expenses and sundry receivables (287,096) (472,891)
Increase (decrease) in operating liabilities:
Accounts payable 1,357,429 (1,250,804)
Accrued expenses 88,337 330,749
Customers deposits (170,436) 125,931
----------------------------------
NET CASH USED BY OPERATING ACTIVITIES (9,287,592) (7,618,847)
----------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property and equipment (1,505,207) (169,254)
Patents and trademarks (41,131) (34,927)
Other intangibles (184,760) (378,958)
Asset Purchase net of cash received (591,108) --
Collection of note receivable -- 100,000
Security deposits (16,192) 2,639
Loans receivable (2,578) --
Repayments from (advances to) affiliates -- 25,145
----------------------------------
NET CASH USED BY INVESTING ACTIVITIES (2,340,976) (455,355)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 5,185 3,943,887
Proceeds from long-term borrowings 455,921 --
Principal payment of short-term borrowings (1,974,718) (2,092,883)
Principal payment of long-term borrowings -- (511,101)
Issuance of common stock for cash 12,342,620 6,440,648
Repayment from (payment to) stockholders and officers (70,590) 3,602
----------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 10,758,418 7,784,153
----------------------------------
EFFECT OF EXCHANGE RATE ON CASH 77,468 (1,091,406)
----------------------------------
NET INCREASE (DECREASE) IN CASH (792,682) (1,381,455)
CASH AND CASH EQUIVALENT - beginning of period 3,091,307 3,252,685
----------------------------------
CASH AND CASH EQUIVALENTS - end of period $ 2,298,625 $ 1,871,230
==================================
</TABLE>
FS-4
<PAGE> 99
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in
Shares Amount Capital
------------------------------------------------
<S> <C> <C> <C>
BALANCE JULY 1, 1997 19,694,433 $ 196,944 $ 35,780,409
For the nine months ended March 31,1998
Issuance of common stock for cash 8,841,802 88,418 6,713,214
Issuance of common stock for asset purchase 333,333 3,333 1,496,664
Issuance of common stock in lieu of
interest payments 157,061 1,571 138,877
Stock options exercised for cash 169,000 1,690 121,680
Beneficial conversion feature of convertible
debentures 5,317,713
Early extinguishment of Debt (396,875)
Foreign currency translation adjustment -- -- --
Net loss -- -- --
---------- ------------ ------------
BALANCE MARCH 31, 1998 29,195,629 $ 291,956 $ 49,171,682
========== ============ ============
<CAPTION>
Cumulative
Foreign
Accumulated Currency
Deficit Adjustment Total
----------------------------------------------
<S> <C> <C> <C>
BALANCE JULY 1, 1997 $(26,855,631) $ (1,428,534) $ 7,693,188
For the nine months ended March 31,1998
Issuance of common stock for cash -- -- 6,801,632
Issuance of common stock for asset purchase -- -- 1,499,997
Issuance of common stock in lieu of
interest payments -- -- 140,448
Stock options exercised for cash -- -- 123,370
Beneficial conversion feature of convertible
debentures 5,317,713
Early extinguishment of Debt (396,875)
Foreign currency translation adjustment -- 567,367 567,367
Net loss (14,598,835) -- (14,598,835)
------------ ------------ ------------
BALANCE MARCH 31, 1998 $(41,454,466) $ (861,167) $ 7,148,006
============ ============ ============
</TABLE>
FS-5
<PAGE> 100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998
(1)The financial statements included herein have been prepared by the
Registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Registrant believes that the disclosures are
adequate to make the information presented not misleading. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the Registrant's annual
report on Form 10-KSB/A3 for the fiscal year ended June 30, 1997.
(2)In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting of only a
normal and recurring nature, necessary to present fairly the financial position
of the Registrant as of March 31, 1998 and the results of operations and cash
flows for the interim period presented. Operating results for the nine months
ended March 31, 1998 are not necessarily indicative of the results to be
expected for the full year ending June 30, 1998.
(3)INVENTORIES
Inventories are summarized by major classification as follows:
<TABLE>
<CAPTION>
December 31, June 30,
---------------------------
1997 1997
---------- ----------
<S> <C> <C>
Raw materials, parts and supplies $5,480,743 $2,632,256
Work in process 808,587 468,204
Finished goods 2,157,010 810,647
---------- ----------
$8,446,340 $3,911,107
========== ==========
</TABLE>
Inventories are stated at lower of cost or market, with cost being determined on
the first-in, first-out (FIFO) method. Inventory cost include material,
labor, and overhead.
FS-6
<PAGE> 101
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
TABLE OF CONTENTS
PAGE
Available Information 3
Prospectus Summary 4
Risk Factors 8
The Company 14
Determination of Offering Price 15
Use of Proceeds 15
Market Prices and Dividend Policy 16
Capitalization 18
Dilution 18
Selected Consolidated Financial Data 19
Management's Discussion and Analysis Of Financial Condition and
Results of Operations 20
Business 33
Management 43
Stock Options Granted in 1997 47
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End
Option/SAR Values 48
Principal Stockholders 51
Certain Transactions 52
Selling Holders and Plan of Distribution 52
Description of Capital Stock 54
Legal Matters 58
Independent Auditors 58
Index to Consolidated Financial Statements 59
-53-
<PAGE> 102
SWISSRAY INTERNATIONAL, INC.
12,774,572 SHARES OF
COMMON STOCK
PROSPECTUS
, 1998
<PAGE> 103
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SECURITIES AND EXCHANGE COMMISSION REGISTRATION FEE $ *
PRINTING EXPENSES *
ACCOUNTING FEES AND EXPENSES *
LEGAL FEES AND EXPENSES *
TRANSFER AGENT AND REGISTRATION FEES *
BLUE SKY FEES AND EXPENSES *
MISCELLANEOUS EXPENSES *
----------
TOTAL $ *
==========
</TABLE>
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 721 of the New York Business Corporation Law provides that the
indemnification and advancement of expenses of directors and officers may be
provided by the certificate of incorporation or by-laws of a corporation, or
when authorized by the certificate of incorporation or by-laws, a resolution of
shareholders, a resolution of directors or an agreement providing for
indemnification (except in cases where a judgment or other final adjudication
establishes that such acts were committed in bad faith or were the result of
active or deliberate dishonesty and were material to the cause of action so
adjudicated or that a person personally gained in fact a financial profit or
other advantage to which he was not legally entitled).
Section 722 of the New York Business Corporation Law provides that a
corporation may indemnify any person made, or threatened to be made, a party of
an action or proceeding other than one by or in the right of the corporation to
procure a judgment in its favor, whether civil or criminal, including an action
by or in the right of any other corporation, partnership, joint venture, trust,
employee benefit plan or other entity which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he was a director or officer of the corporation or served such
other corporation, partnership, joint venture, trust, employee benefit plan or
other entity in any other capacity, against judgments, fines, amounts paid in
settlement and reasonable expenses if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or in the case of
service for any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, not opposed to, the best interests of the
corporation and, in criminal acts or proceedings, in addition, had no reasonable
cause to believe that his conduct was unlawful.
Section 722 of the New York Business Corporation Law also states that a
corporation may indemnify any person made, or threatened to be made, a party to
an action by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director or officer of the
corporation or any other corporation, partnership, joint venture, trust,
employee benefit plan or other entity at the request of the corporation, against
amounts paid in settlement and reasonable expenses actually and necessarily
incurred by him in connection with the defense or settlement of such action, or
in connection with an appeal therein if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or in the case of
service for any other corporation, partnership, joint venture, employee benefit
plan or other entity, not opposed to, the best interests of the corporation,
except that no indemnification shall be made in respect to a threatened or
pending action which is settled or otherwise disposed of, or any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation, unless the court determines the person is fairly and reasonably
entitled to indemnity for such portion of the settlement amount and expenses as
the court deems proper.
II-1
<PAGE> 104
Section 726 of the New York Business Corporation Law provides that a
corporation shall have the power to purchase and maintain insurance for
indemnification of directors and officers. However, no insurance may provide for
any payment, other than cost of defense, to or on behalf of any director or
officer for a judgment or a final adjudication adverse to the insured director
or officer if (i) a judgment or other final adjudication establishes that his
acts of active and deliberate dishonesty were material to the cause of action
adjudicated or that he personally gained a financial profit or other advantage
to which he was not legally entitled or (ii) if prohibited under the insurance
law of New York.
Section 724 of the New York Business Corporation Law provides that
indemnification shall be awarded by a court to the extent authorized under
Sections 722 and 723 (a) of the New York Business Corporation Law
notwithstanding the failure of a corporation to provide indemnification, and
despite any contrary resolution of the board or of the shareholders.
The By-Laws of the Registrant provide for indemnification as follows:
(a) Any person made a party to any action, suit or proceeding, by reason of
the fact that he, his testator or intestate representative is or was a director,
officer or employee of the Corporation, or of any Corporation in which he served
as such at the request of the Corporation, shall be indemnified by the
Corporation against the reasonable expenses, including attorney's fees, actually
and necessarily incurred by him in connection with the defense of such action,
suit or proceedings, or in connection with any appeal therein, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding, or in connection with any appeal therein that such officer, director
or employee is liable for negligence or misconduct in the performance of his
duties.
(b) The foregoing right of indemnification shall not be deemed exclusive of
any other rights to which any officer or director or employee may be entitled
apart from the provisions of this section.
(c) The amount of indemnity to which any officer or any director may be
entitled shall be fixed by the Board of Directors except that in any case where
there is no disinterested majority of the Board available, the amount shall be
fixed by arbitration pursuant to the then existing rules of the American
Arbitration Association.
The Certificate of Incorporation of the Registrant, as amended, provides
for indemnification as follows:
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for damages for any breach of duty in such
capacity, provided that nothing contained in this Article shall eliminate or
limit the liability of any director if a judgment or final adjudication adverse
to him establishes that his acts or omissions were in bad faith or involved
intentional misconduct or a knowing violation of law to which he was not legally
entitled or that his acts violated Section 719 of the New York Business
Corporation Law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On May 20, 1995, the Registrant issued 2,000,000 shares of Common Stock to
non-U.S. persons in reliance on Regulation S promulgated under the Securities
Act for an aggregate consideration of $4,250,000. Placement agents were
Interfinance Investment Co., Ltd., Berkshire Capital Management Corp. and Rolcan
Finance Ltd. Net proceeds received by the Company after costs related to the
financing were $4,000,000.
On December 10, 1995, the Registrant issued 1,000,000 shares of Common
Stock to non-U.S. persons in reliance on Regulation S. Placement agent was
Berkshire Capital Management Corp. Net proceeds received by the Company were
$4,500,000.
II-2
<PAGE> 105
On December 13, 1996, the Registrant issued $3,800,000 aggregate principal
amount of convertible debentures to non-U.S. persons in reliance on Regulation
S. The convertible debentures were all converted into shares of Common Stock at
a conversion price equal to 81% of the average closing bid price for the five
trading days preceding the date of conversion. The Registrant received net
proceeds of $2,774,000.
On January 10, 1997, the Registrant issued $3,500,000 aggregate principal
amount of convertible debentures to non-U.S. persons in reliance on Regulation
S. Placement agent was IS-Targas Trading Ltd. Such convertible debentures were
all converted into shares of Common Stock at a conversion price equal to 81% of
the average closing bid price for the five trading days preceding the date of
conversion. Any convertible debentures not so converted are subject to mandatory
conversion by the Registrant on the 36th monthly anniversary of the date of
issuance of the convertible debentures. Net proceeds received by the Registrant
were $3,085,000.
On March 5, 1997, the Registrant issued 1,000,000 shares of Common Stock
for an aggregate price of $2,000,000 to non-U.S. persons in reliance on
Regulation S under the Securities Act. The placement agent for such shares was
Rolcan Finance Ltd. The Registrant received net proceeds of $1,925,000.
On April 28, 1997, the Registrant issued $2,000,000 aggregate principal
amount of convertible debentures, which were all converted into shares of Common
Stock of the Registrant at a conversion price equal to the higher of 80% of the
average closing bid price on the date of conversion or $2.50 per share. The
Registrant received net proceeds of $1,822,500.
On each of May 15, 1997 and June 15, 1997, the Registrant issued $2,000,000
principal amount of 6% convertible debentures convertible into Common Stock on
terms similar to those of the April 28, 1997 issuance to accredited investors as
defined in Rule 501(a) of Regulation D. Placement agent for such convertible
debentures was Rolcan Finance Ltd. The aggregate offering price for such
convertible debentures was $4,000,000. After deducting underwriting discounts,
commissions and escrow fees in the aggregate amount of $528,610, the Registrant
received an aggregate net amount of $3,458,890. Such convertible debentures were
refinanced on July 31, 1997, with the proceeds of $4,262,500 principal amount of
convertible debentures issued to non-U.S. persons under Regulation S.
On July 31, 1997, the Registrant issued $4,262,500 of 7% convertible
debentures. The proceeds of such issuance were used to refinance $4,000,000
principal amount of 6% convertible debentures dated May 15, 1997 and June 13,
1997 plus interest. The Registrant did not receive any cash proceeds from this
transaction. Such convertible debentures, due July 31, 2000, were all converted
into shares of Common Stock at a price equal to 80% of the average closing bid
price for the five (5) trading days preceding the date of conversion.
On August 19, 1997, the Registrant issued $5,000,000 aggregate principal
amount of 6% convertible debentures, convertible into Common Stock of the
Registrant. Placement Agent for such convertible debentures was Rolcan Finance
Ltd. The aggregate offering price of such convertible debentures was $5,000,000.
After deducting underwriting discounts, commissions and escrow fees in the
aggregate amount of $681,250 the Registrant received a net amount of $4,318,750.
All such convertible debentures were issued to accredited investors as defined
in Rule 501(a) of Regulation D promulgated under the Act ("Regulation D") and
the Registrant has received written representations from each investor to that
effect. Fifty percent of the face amount of such convertible debentures were
convertible into shares of Common Stock of the Registrant at any time after
November 3, 1997 and the remaining 50% of the face value of such convertible
debentures were convertible into shares of Common Stock of the Registrant after
December 3, 1997, in each case at a conversion price equal to 80% of the average
closing bid price for the five trading days preceding the date of conversion.
Any such convertible debentures not so converted are subject to mandatory
conversion by the Registrant on the 36th monthly anniversary of the date of
issuance of such Convertible Debentures. All conversions have been completed (or
rolled over as indicated below).
II-3
<PAGE> 106
Between November 26, 1997 and December 11, 1997, the Company issued
$2,158,285 aggregate principal amount of 8% convertible debentures (the
"Convertible Debentures") including a 15% premium, and accrued interest,
convertible into Common Stock of the Company. The Registrant did not receive any
cash proceeds from the offering of the Convertible Debentures. An amount of
$2,158,285 was paid by investors to holders of the Company's Convertible
Debentures issued on August 19, 1997 holding $1,850,000 of such Convertible
Debentures as repayment in full of the Company's obligations under such
Convertible Debentures. During the same period the Company issued $3,690,000
aggregate principal amount of 8% Convertible Debentures, convertible into Common
Stock of the Company. After deducting fees, commissions and escrow fees in the
aggregate amount of $690,000 the Company received a net amount of $3,000,000.
All Convertible Debentures were issued to accredited investors as defined in
Rule 501(a) of Regulation D promulgated under the Act ("Regulation D") and the
Company has received written representation from each investor to that effect.
Twenty-five percent of the face amount of both Convertible Debentures are
convertible into shares of Common Stock of the Company as at the effective date
of a Registration Statement covering the underlying shares of Common Stock, to
wit: March 12, 1998. An additional twenty-five percent of the face amount of
both Convertible Debentures may be converted each 30 days thereafter, in each
case at a conversion price equal to 75% of the average closing bid price for the
five trading days preceding the date of the conversion. Any Convertible
Debenture not so converted are subject to mandatory conversion by the Company on
the 24th monthly anniversary of the date of issuance of the Convertible
Debentures. As of June 26, 1998 an unconverted balance of $145,969 remained
outstanding.
In March of 1998, the Company issued $5,500,000 aggregate principal
amount of 6% convertible debentures (the "Convertible Debentures"), convertible
into Common Stock of the Company. After deducting fees directly attributable to
such offering the Company received a net amount of $4,915,000. All Convertible
Debentures were issued to accredited investors as defined in Rule 501(a) of
Regulation D promulgated under the Act ("Regulation D") and the Company has
received written representations from each investor to that effect. One Hundred
percent of the face amount of the Convertible Debentures are convertible into
shares of Common Stock of the Company at the earlier of May 15, 1998 or the
effective date of this Registration Statement at a conversion price equal to
80% of the average closing bid price for the ten trading days preceding the
date of conversion. Any Convertible Debentures not so converted are subject to
mandatory conversion by the Company on the 24th monthly anniversary of the date
of issuance of the Convertible Debentures. None of these Debentures had been
converted as of June 26, 1998.
In June of 1998, the Company issued $2,000,000 aggregate principal amount
of 6% convertible debentures (the "Convertible Debentures"), convertible into
Common Stock of the Company. After deducting fees directly attributable to such
offering the Company received a net amount of $1,760,000. All Convertible
Debentures were issued to accredited investors as defined in Rule 501(a) of
Regulation D promulgated under the Act ("Regulation D") and the Company has
received written representation from each investor to that effect. One Hundred
percent of the face amount of the Convertible Debentures are convertible into
shares of Common Stock of the Company at the earlier of August 14, 1998 or the
effective date of this Registration Statement at a conversion price equal to
80% of the average closing bid price for the ten trading days preceding the
date of conversion. Any Convertible Debentures not so converted are subject to
mandatory conversion by the Company on the 24th monthly anniversary of the date
of issuance of the Convertible Debentures.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
NO. DESCRIPTION
2.1 Acquisition Agreement, dated May 1995, by and between Registrant, a New
York corporation (now Swissray International, Inc.); Berkshire
International Finance, Inc., SR-Medical AG (a Swiss corporation),
Teleray AG (a Swiss corporation) and others (Incorporated by reference
to Exhibit 6(a) of the Registrant's Registration Statement on Form
10SB, Registration No . 0-26972, effective February 14, 1996).
2.2 Exchange Agreement, dated as of November 22, 1996 by and between the
Registrant and Douglas Maxwell ("Maxwell"); Registration Rights
Agreement, dated as of March 13, 1997, between the Registrant and
Maxwell; Assignment and Assumption Agreement, dated March 13, 1997,
between the Registrant and Maxwell; Option Agreement, dated January 24,
1997, granting options for 125,000 shares of the Registrant to Maxwell
(Incorporated by reference to Exhibit 2.2 of the Registrant's Annual
Report for the fiscal year ended June 30, 1997 on Form 10-KSB filed on
September 30, 1997).
3.1 Registrant's Certificate of Incorporation, dated December 20, 1967
(Incorporated by reference to Exhibit 2(a) of the Registrant's
Registration Statement on Form 10SB, Registration No. 0- 26972,
effective February 14, 1996).
3.2 Amendment to Registrant's Certificate of Incorporation, dated September
19, 1968 (Incorporated by reference to Exhibit 2(b) of the Registrant's
Registration Statement on Form 10SB, Registration No. 0-26972,
effective February 14, 1996).
3.3 Amendment to Registrant's Certificate of Incorporation, dated September
8, 1972 (Incorporated by reference to Exhibit 2(c) of the Registrant's
Registration Statement on Form 10SB, Registration No. 0-26972,
effective February 14, 1996).
II-4
<PAGE> 107
EXHIBIT
NO. DESCRIPTION
3.4 Amendment to Registrant's Certificate of Incorporation, dated October
30, 1981 (Incorporated by reference to Exhibit 2(d) of the Registrant's
Registration Statement on Form 10SB, Registration No. 0-26972,
effective February 14, 1996).
3.5 Certificate of Merger of Direct Marketing Services, Inc. and CGS Units
Incorporated into CGS Units Incorporated, dated June 16, 1994
(Incorporated by reference to Exhibit 2(e) of the Registrant's
Registration Statement on Form 10SB, Registration No. 0-26972,
effective February 14, 1996).
3.6 Amendment to Registrant's Certificate of Incorporation, dated August
10, 1994 (Incorporated by reference to Exhibit 3.6 of Registrant's
Annual Report for the fiscal year ended June 30, 1997 on Form 10-KSB,
filed September 30, 1997).
3.7 Certificate of Correction of Certificate of Merger of Direct Marketing
Services, Inc. and CGS Units Incorporated into CGS Units Incorporated,
filed August 5, 1994 (Incorporated by reference to Exhibit 2(f) of the
Registrant's Registration Statement on Form 10SB, Registration No.
0-26972, effective February 14, 1996).
3.8 Amendment to Registrant's Certificate of Incorporation, dated May 24,
1995 (Incorporated by reference to Exhibit 2(g) of the Registrant's
Registration Statement on Form 10SB, Registration No. 0-26972,
effective February 14, 1996)
3.9 Amendment to Registrant's Certificate of Incorporation, dated August
29, 1996 (Incorporated by reference to Exhibit 3.9 of Registrant's
Annual Report for the fiscal year ended June 30, 1997 on Form 10-KSB,
filed September 30, 1997).
3.10 Amendment to Registrant's Certificate of Incorporation, dated December
13, 1996 (Incorporated by reference to Exhibit 3.10 of Registrant's
Annual Report for the fiscal year ended June 30, 1997 on Form 10-KSB,
filed September 30, 1997).
3.11 Amendment to Registrant's Certificate of Incorporation, dated March 12,
1997 (Incorporated by reference to Exhibit 3.11 of Registrant's Annual
Report for the fiscal year ended June 30, 1997 on Form 10-KSB, filed
September 30, 1997).
3.12 Registrant's By-Laws (Incorporated by reference to Exhibit 2 (h) of the
Registrant's Registration Statement on Form 10SB, Registration No.
0-26972, effective February 14, 1996).
3.13 Amendment to Registrant's Certificate of Incorporation, dated December
26, 1997. (Incorporated by reference to Exhibit 3.13 of Registrant's
Form S-1 Registration Statement, Registration No. 333-43401, effective
March 12, 1998).
5.1 Opinion of GARY B. WOLFF, P.C., counsel to the Registrant.*
10.1 License Agreement, dated June 24, 1995, by and between the Registrant
and Hans-Jurgen Behrendt (Incorporated by reference to Exhibit 6(b) of
Registrant's Registration Statement on Form 10SB, Registration No.
0-26972, effective February 14, 1996)
II-5
<PAGE> 108
EXHIBIT
NO. DESCRIPTION
10.2 1996 Swissray International Corporation, Inc. Non-Statutory Stock
Option Plan. (Incorporated by reference to Exhibit 10.2 of Registrant's
Amendment No. 1 to Form S-1 Registration Statement, Registration No.
333-38229, filed December 17, 1997).
10.3 Agreement, dated June 11, 1996 between the Registrant and Philips
Medical Systems (Incorporated by reference to Exhibit 10.3 of
Registrant's Annual Report for the fiscal year ended June 30, 1997 on
Form 10-KSB, filed September 30, 1997).
10.4 License Agreement, dated as of July 18, 1997, by and between the
Registrant and Agfa-Gevaert N.V., certain portions of which are filed
under a request for confidential treatment pursuant to Rule 24b-2
promulgated pursuant to the Securities Exchange Act of 1934, as
amended, and Rule 80(b)(4) of Organization; Conduct and Ethics; and
Information and Requests adopted under the Freedom of Information Act,
under Rule 406 of the Securities Act of 1933, as amended, and the
Freedom of Information Act (Incorporated by reference to Exhibit 10.4
of Registrant's Annual Report for the fiscal year ended June 30, 1997
on Form 10-KSB/A2, filed December 3, 1997).
10.5 Agreement, dated July 14, 1995, by and between Teleray AG and Optische
Werke G. Roderstock, certain portions of which are filed under a
request for confidential treatment pursuant to Rule 24b-2 promulgated
pursuant to the Securities Exchange Act of 1934, as amended, and Rule
80(b)(4) of Organization; Conduct and Ethics; and Information and
Requests adopted under the Freedom of Information Act, under Rule 406
of the Securities Act of 1933, as amended, and the Freedom of
Information Act (Incorporated by reference to Exhibit 10.5 of
Registrant's Annual Report for the fiscal year ended June 30, 1997 on
Form 10-KSB/A2, filed December 3, 1997).
10.6 Agreement, dated as of June 30, 1997, between the Registrant and Ruedi
G. Laupper. (Incorporated by reference to Exhibit 10.2 of Registrant's
Amendment No. 1 to Form S-1 Registration Statement, Registration No.
333-38229, filed December 17, 1997).
10.7 Form of Registration Rights Agreement, dated as of August , 1997, by
and between Swissray International, Inc. and the person named on the
signature page hereto. (Incorporated by reference to Exhibit 10.2 of
Registrant's Amendment No. 1 to Form S-1 Registration Statement,
Registration No. 333-38229, filed December 17, 1997).
10.8 Form of Debenture of Swissray International, Inc. (Incorporated by
reference to Exhibit 10.2 of Registrant's Amendment No. 1 to Form S-1
Registration Statement, Registration No. 333-38229, filed December 17,
1997).
10.9 Asset Purchase Agreement, dated as of October 17, 1997 by and among
Swissray Medical Systems, Inc., Swissray International, Inc., Service
Support Group LLC, Gary Durday, Michael Harle and Kenneth Montler
(Incorporated by reference to Exhibit 2.1 of the Registrant's Current
Report on Form 8-K, filed November 4, 1997).
10.10 Registration Rights Agreement, dated as of October 17, 1997, by and
among Swissray International, Inc., Service Support Group, LLC, Gary
Durday, Michael Harle and Kenneth Montler (Incorporated by reference to
Exhibit 2.2 of the Registrant's Current Report on Form 8-K, filed
November 4, 1997).
II-6
<PAGE> 109
EXHIBIT
NO. DESCRIPTION
10.11 Employment Agreement between the Registrant and Ruedi G. Laupper, dated
as of December , 1997 (Incorporated by reference as Exhibit 10.11 to
Registrant's initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29, 1997).
10.12 Employment Agreement between the Registrant and Josef Laupper, dated as
of December , 1997 (Incorporated by reference as Exhibit 10.12 to
Registrant's initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29, 1997).
10.13 Employment Agreement between the Registrant and Herbert Laubscher,
dated as of December , 1997 (Incorporated by reference as Exhibit 10.13
to Registrant's initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29, 1997).
10.14 Employment Agreement between the Registrant and Ueli Laupper, dated as
of December , 1997 (Incorporated by reference as Exhibit 10.14 to
Registrant's initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29, 1997).
10.15 Form of Registration Rights Agreement, dated as of November , 1997
(Incorporated by reference as Exhibit 10.15 to Registrant's initial
filing of Form S-1 Registration Statement, Registration No. 333-43401
filed December 29, 1997).
10.16 Form of Debenture of Swissray International, Inc., dated November ,
1997 (Incorporated by reference as Exhibit 10.16 to
Registrant's initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29, 1997).
10.17 Form of Subscription Agreement, dated November , 1997 (Incorporated by
reference as Exhibit 10.17 to Registrant's initial filing of Form S-1
Registration Statement, Registration No. 333-43401 filed December 29,
1997).
10.18 Form of Registration Rights Agreement (rollover), dated as of November
, 1997 (Incorporated by reference as Exhibit 10.18 to
Registrant's initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29, 1997).
10.19 Form of Debenture of Swissray International, Inc. (rollover), dated
November , 1997 (Incorporated by reference as Exhibit 10.19 to
Registrant's initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29, 1997).
10.20 Form of Subscription Agreement (rollover), dated November , 1997
(Incorporated by reference as Exhibit 10.20 to Registrant's initial
filing of Form S-1 Registration Statement, Registration No. 333-43401
filed December 29, 1997).
10.21 Agreement Regarding August, 1997 Regulation D offering (Incorporated by
reference as Exhibit 10.21 to Registrant's initial filing of Form S-1
Registration Statement, Registration No. 333-43401 filed December 29,
1997).
10.22 Form of Subscription Agreement dated March , 1998 (Incorporated by
reference as Exhibit 10.22 to Registrant's initial filing of Form S-1
Registration Statement, Registration No. 333-50069 filed April 14,
1998).
10.23 Form of Registration Rights Agreement dated March , 1998
(Incorporated by reference as Exhibit 10.23 to Registrant's initial
filing of Form S-1 Registration Statement, Registration No. 333-50069
filed April 14, 1998).
10.24 Form of Debenture dated March , 1998 (Incorporated by reference as
Exhibit 10.24 to Registrant's initial filing of Form S-1 Registration
Statement, Registration No. 333-50069 filed April 14, 1998).
10.25 Empower, Inc. (Incorporated by reference as Exhibit 10.25 to
Registrant's current report on Form 8-K as filed __________ , 1998.*
10.26 Form of Subscription Agreement dated June, 1998.
10.27 Form of Registration Rights Agreement dated June, 1998.
10.28 Form of Debenture dated June, 1998.
21.1 List of Subsidiaries (Incorporated by reference to Exhibit 21 of
Registrant's Annual Report for the fiscal year ended June 30, 1997 on
Form 10-KSB, filed September 30, 1997).
23.1 Consent of Bederson & Company LLP
23.2 Consent of GARY B. WOLFF, P.C. (included in Exhibit 5.1).*
27 FINANCIAL DATA SCHEDULES
- --------------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(a) The undersigned Registrant hereby undertakes:
II-7
<PAGE> 110
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to the Registration
Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price, set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-offering amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-8
<PAGE> 111
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Hitzkirch, Country of Switzerland, on July 21, 1998.
SWISSRAY INTERNATIONAL, INC.
By: /Ruedi G. Laupper/
----------------------------
Name: Ruedi G. Laupper
Title: Chairman of the Board of
Directors, President &
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/Reudi G. Laupper/ Chairman of the Board of Dated: July 21, 1998
- -------------------- Directors, President & Chief
Ruedi G. Laupper Executive Officer
/Josef Laupper/ Secretary, Treasurer and a Dated: July 21, 1998
- -------------------- Director
Josef Laupper
/Herbert Laubscher/ Chief Financial Officer Dated: July 21, 1998
- --------------------
Herbert Laubscher
/Ueli Laupper/ Vice President and a Director Dated: July 16, 1998
- --------------------
Ueli Laupper
/Dr. Erwin Zimmerli/ Director Dated: July 21, 1998
- --------------------
Dr. Erwin Zimmerli
Chief Operating Officer Dated: July , 1998
- ---------------------
Erich A. Kalbermatter
/Dr. Sc. Dov Maor/ Director Dated: July 16, 1998
- --------------------
Dr. Sc. Dov Maor
<PAGE> 112
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
2.1 Acquisition Agreement, dated May 1995, by and between Registrant, a New
York corporation (now Swissray International, Inc.); Berkshire
International Finance, Inc., SR-Medical AG (a Swiss corporation),
Teleray AG (a Swiss corporation) and others (Incorporated by reference
to Exhibit 6(a) of the Registrant's Registration Statement on Form
10SB, Registration No . 0-26972, effective February 14, 1996).
2.2 Exchange Agreement, dated as of November 22, 1996 by and between the
Registrant and Maxwell; Registration Rights Agreement, dated as of
March 13, 1997, between the Registrant and Maxwell; Assignment and
Assumption Agreement, dated March 13, 1997, between the Registrant and
Maxwell; Option Agreement, dated January 24, 1997, granting options for
125,000 shares of the Registrant to Maxwell (Incorporated by reference
to Exhibit 2.2 of the Registrant's Annual Report for the fiscal year
ended June 30, 1997 on Form 10-KSB filed on September 30, 1997).
3.1 Registrant's Certificate of Incorporation, dated December 20, 1967
(Incorporated by reference to Exhibit 2(a) of the Registrant's
Registration Statement on Form 10SB, Registration No. 0-26972,
effective February 14, 1996).
3.2 Amendment to Registrant's Certificate of Incorporation, dated September
19, 1968 (Incorporated by reference to Exhibit 2(b) of the Registrant's
Registration Statement on Form 10SB, Registration No. 0-26972,
effective February 14, 1996).
3.3 Amendment to Registrant's Certificate of Incorporation, dated September
8, 1972 (Incorporated by reference to Exhibit 2(c) of the Registrant's
Registration Statement on Form 10SB, Registration No. 0-26972,
effective February 14, 1996).
3.4 Amendment to Registrant's Certificate of Incorporation, dated October
30, 1981 (Incorporated by reference to Exhibit 2(d) of the Registrant's
Registration Statement on Form 10SB, Registration No. 0-26972,
effective February 14, 1996).
3.5 Certificate of Merger of Direct Marketing Services, Inc. and CGS Units
Incorporated into CGS Units Incorporated, dated June 16, 1994
(Incorporated by reference to Exhibit 2(e) of the Registrant's
Registration Statement on Form 10SB, Registration No. 0-26972,
effective February 14, 1996).
3.6 Amendment to Registrant's Certificate of Incorporation, dated August
10, 1994 (Incorporated by reference to Exhibit 3.6 of Registrant's
Annual Report for the fiscal year ended June 30, 1997 on Form 10-KSB,
filed September 30, 1997).
3.7 Certificate of Correction of Certificate of Merger of Direct Marketing
Services, Inc. and CGS Units Incorporated into CGS Units Incorporated,
filed August 5, 1994 (Incorporated by reference to Exhibit 2(f) of the
Registrant's Registration Statement on Form 10SB, Registration No.
0-26972, effective February 14, 1996).
<PAGE> 113
EXHIBIT
NO. DESCRIPTION
3.8 Amendment to Registrant's Certificate of Incorporation, dated May 24,
1995 (Incorporated by reference to Exhibit 2(g) of the Registrant's
Registration Statement on Form 10SB, Registration No. 0-26972,
effective February 14, 1996)
3.9 Amendment to Registrant's Certificate of Incorporation, dated August
29, 1996 (Incorporated by reference to Exhibit 3.9 of Registrant's
Annual Report for the fiscal year ended June 30, 1997 on Form 10-KSB,
filed September 30, 1997).
3.10 Amendment to Registrant's Certificate of Incorporation, dated December
13, 1996 (Incorporated by reference to Exhibit 3.10 of Registrant's
Annual Report for the fiscal year ended June 30, 1997 on Form 10-KSB,
filed September 30, 1997).
3.11 Amendment to Registrant's Certificate of Incorporation, dated March 12,
1997 (Incorporated by reference to Exhibit 3.11 of Registrant's Annual
Report for the fiscal year ended June 30, 1997 on Form 10-KSB, filed
September 30, 1997).
3.12 Registrant's By-Laws (Incorporated by reference to Exhibit 2 (h) of the
Registrant's Registration Statement on Form 10SB, Registration No.
0-26972, effective February 14, 1996).
3.13 Amendment to Registrant's Certificate of Incorporation, dated December
26, 1997. (Incorporated by reference to Exhibit 3.13 of Registrant's
Form S-1 Registration Statement, Registration No. 333-43401, effective
March 12, 1998).
5.1 Opinion of Gary B. Wolff, P.C., counsel to the Registrant.*
10.1 License Agreement, dated June 24, 1995, by and between the Registrant
and Hans-Jurgen Behrendt (Incorporated by reference to Exhibit 6(b) of
Registrant's Registration Statement on Form 10SB, Registration No.
0-26972, effective February 14, 1996)
10.2 1996 Swissray International Corporation, Inc. Non-Statutory Stock
Option Plan. (Incorporated by reference to Exhibit 10.2 of Registrant's
Amendment No. 1 to Form S-1 Registration Statement, Registration No.
333-38229, filed December 17, 1997).
10.3 Agreement, dated June 11, 1996 between the Registrant and Philips
Medical Systems (Incorporated by reference to Exhibit 10.3 of
Registrant's Annual Report for the fiscal year ended June 30, 1997 on
Form 10-KSB, filed September 30, 1997).
10.4 License Agreement, dated as of July 18, 1997, by and between the
Registrant and Agfa-Gevaert N.V., certain portions of which are filed
under a request for confidential treatment pursuant to Rule 24b-2
promulgated pursuant to the Securities Exchange Act of 1934, as
amended, and Rule 80(b)(4) of Organization; Conduct and Ethics; and
Information and Requests adopted under the Freedom of Information Act,
under Rule 406 of the Securities Act of 1933, as amended, and the
Freedom of Information Act (Incorporated by reference to Exhibit 10.4
of Registrant's Annual Report for the fiscal year ended June 30, 1997
on Form 10-KSB/A2, filed December 3, 1997).
<PAGE> 114
EXHIBIT
NO. DESCRIPTION
10.5 Agreement, dated July 14, 1995, by and between Teleray AG and Optische
Werke G. Roderstock, certain portions of which are filed under a
request for confidential treatment pursuant to Rule 24b-2 promulgated
pursuant to the Securities Exchange Act of 1934, as amended, and Rule
80(b)(4) of Organization; Conduct and Ethics; and Information and
Requests adopted under the Freedom of Information Act, under Rule 406
of the Securities Act of 1933, as amended, and the Freedom of
Information Act (Incorporated by reference to Exhibit 10.5 of
Registrant's Annual Report for the fiscal year ended June 30, 1997 on
Form 10-KSB/A2, filed December 3, 1997).
10.6 Agreement, dated as of June 30, 1997, between the Registrant and Ruedi
G. Laupper (Incorporated by reference to Exhibit 10.6 of Registrant's
Amendment No. 1 to Form S-1 Registration Statement, Registration No.
333-38229, filed December 17, 1997).
10.7 Form of Registration Rights Agreement, dated as of August __, 1997, by
and between Swissray International Inc. and the person named on the
signature page hereto (Incorporated by reference to Exhibit 10.7 of
Registrant's Amendment No. 1 to Form S-1 Registration Statement,
Registration No. 333-38229, filed December 17, 1997).
10.8 Form of Debenture of Swissray International, Inc. (Incorporated by
reference to Exhibit 10.8 of Registrant's Amendment No. 1 to Form S-1
Registration Statement, Registration No. 333-38229, filed December 17,
1997).
10.9 Asset Purchase Agreement, dated as of October 17, 1997 by and among
Swissray Medical Systems, Inc., Swissray International, Inc., Service
Support Group LLC, Gary Durday, Michael Harle and Kenneth Montler
(Incorporated by reference to Exhibit 2.1 of the Registrant's Current
Report on Form 8-K, filed November 4, 1997).
10.10 Registration Rights Agreement, dated as of October 17, 1997, by and
among Swissray International, Inc., Service Support Group, LLC, Gary
Durday, Michael Harle and Kenneth Montler (Incorporated by reference
to Exhibit 2.2 of the Registrant's Current Report on Form 8-K, filed
November 4, 1997).
10.11 Employment Agreement between the Registrant and Ruedi G. Laupper, dated
as of December , 1997 (Incorporated by reference as Exhibit 10.11 to
Registrant's initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29 1997).
10.12 Employment Agreement between the Registrant and Josef Laupper, dated as
of December , 1997 (Incorporated by reference as Exhibit 10.12 to
Registrant's initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29 1997).
.
10.13 Employment Agreement between the Registrant and Herbert Laubscher,
dated as of December __, 1997 (Incorporated by reference as Exhibit
10.13, to Registrant's initial filing of Form S-1 Registration
Statement Registration No. 333-43401 filed December 29 1997).
10.14 Employment Agreement between the Registrant and Ueli Laupper, dated as
of December , 1997 (Incorporated by reference as Exhibit 10.14 to
Registrant's initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29 1997).
.
10.15 Form of Registration Rights Agreement, dated as of November , 1997
(Incorporated by reference as Exhibit 10.15 to Registrant's initial
filing of Form S-1 Registration Statement, Registration No. 333-43401
filed December 29 1997).
10.16 Form of Debenture of Swissray International, Inc., dated November ,
1997 (Incorporated by reference as Exhibit 10.16 to
Registrant's initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29 1997).
.
10.17 Form of Subscription Agreement, dated November , 1997 (Incorporated by
reference as Exhibit 10.17 to Registrant's initial filing of Form S-1
Registration Statement, Registration No. 333-43401 filed December 29
1997).
10.18 Form of Registration Rights Agreement (rollover), dated as of
November , 1997 (Incorporated by reference as Exhibit 10.18 to
Registrant's initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29 1997).
<PAGE> 115
EXHIBIT
NO. DESCRIPTION
10.19 Form of Debenture of Swissray International, Inc. (rollover), dated
November , 1997 (Incorporated by reference as Exhibit 10.19 to
Registrant's initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29 1997).
10.20 Form of Subscription Agreement (rollover), dated November , 1997
(Incorporated by reference as Exhibit 10.20 to Registrant's initial
filing of Form S-1 Registration Statement, Registration No. 333-43401
filed December 29 1997).
10.21 Agreement Regarding August, 1997 Regulation D offering (Incorporated by
reference as Exhibit 10.21 to Registrant's initial filing of Form S-1
Registration Statement, Registration No. 333-43401 filed December 29
1997).
10.22 Form of Subscription Agreement dated March , 1998 (Incorporated by
reference as Exhibit 10.22 to Registrant's initial filing of Form S-1
Registration Statement, Registration No. 333-50069 filed April 14,
1998).
10.23 Form of Registration Rights Agreement dated March , 1998
(Incorporated by reference as Exhibit 10.23 to Registrant's initial
filing of Form S-1 Registration Statement, Registration No. 333-50069
filed April 14, 1998).
10.24 Form of Debenture dated March , 1998 (Incorporated by
reference as Exhibit 10.24 to Registrant's initial filing of Form S-1
Registration Statement, Registration No. 333-50069 filed April 14,
1998).
10.25 Empower, Inc. (Incorporated by reference as Exhibit 10.25 to
Registrant's current report on Form 8-K as filed ___________, 1998.*
10.26 Form of Subscription Agreement dated June, 1998.
10.27 Form of Registration Rights Agreement dated June, 1998.
10.28 Form of Debenture dated June, 1998.
21.1 List of Subsidiaries (Incorporated by reference to Exhibit 21 of
Registrant's Annual Report for the fiscal year ended June 30, 1997 on
Form 10-KSB, filed September 30, 1997).
23.1 Consent of Bederson & Company LLP
23.2 Consent of Gary B. Wolff, P.C. (included in Exhibit 5.1).*
27 FINANCIAL DATA SCHEDULES
- ---------------------------
* To be filed by amendment.
<PAGE> 1
Exhibit 10.26
-----------------------------
SWISSRAY INTERNATIONAL, INC.
-----------------------------
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BE APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Maximum Offering: $2,000,000
This offering consists of $2,000,000 of Convertible Debentures of
Swissray International, Inc.
------------------------
SUBSCRIPTION AGREEMENT
------------------------
1
<PAGE> 2
SUBSCRIPTION PROCEDURES
Convertible Debentures of SWISSRAY INTERNATIONAL, INC.. (the "Company")
are being offered in an aggregate amount not to exceed $2,000,000. The
Debentures will be transferable to the extent that any such transfer is
permitted by law. This offering is being made in accordance with the exemption
from registration under Section 4(2) of the Securities Act of 1933, as amended
(the "Act") and Rule 506 of Regulation D promulgated under the Act (the
"Regulation D Offering").
The Investor Questionnaire is designed to enable the Investor to
demonstrate the minimum legal requirements under federal and state
securities laws to purchase the Debentures. The Signature Page for the
Investor Questionnaire and the Subscription Agreement contain
representations relating to the subscription.
Also included is an Internal Revenue Service Form W-9: "Request for
Taxpayer Identification Number and Certification" for U.S. citizens
or residents of the U.S. for U.S. federal income tax purposes only.
(Foreign investors should consult their tax advisors regarding the
need to complete Internal Revenue Service Form W-9 and any other
forms that may be required).
If you are a foreign person or foreign entity, you may be subject to a
withholding tax equal to 30% of any dividends paid by the Company. In order to
eliminate or reduce such withholding tax you may submit a properly executed
I.R.S. Form 4224 (Exemption from Withholding of Tax on Income Effectively
Connected with the Conduct of a Trade or Business in the United States) or
I.R.S. Form 1001 (Ownership Exemption or Reduced Trade Certificate), claiming
exemption from withholding or eligibility for treaty benefits in the form of a
lower rate of withholding tax on interest or dividends.
Payment must be made by wire transfer as provided below:
Immediately available funds should be sent via wire transfer to the escrow
account stated below and the completed subscription documents should be
forwarded to the Escrow Agent. Your subscription funds will be deposited into a
non-interest bearing escrow account of Joseph B. LaRocco, Esq., Escrow Agent, at
First Union Bank of Connecticut, Stamford, Connecticut. In the event of a
termination of the Regulation D Offering or the rejection of this subscription,
all subscription funds will be returned without interest. The wire instructions
are as follows:
2
<PAGE> 3
First Union Bank of Connecticut
Executive Office
300 Main Street, P.O. Box 700
Stamford, CT 06904-0700
ABA#: 021101108
Swift #: FUNBUS33
Account #: 20000-2072298-4
Acct. Name: Joseph B. LaRocco, Esq. Trustee Account
3
<PAGE> 4
SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BE APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
To: Swissray International. Inc.
This Subscription Agreement is made between Swissray International, Inc.,
("Company" or "Seller") a New York corporation, and the undersigned prospective
purchaser ("Purchaser") who is subscribing hereby for the Company's Convertible
Debentures (the "Debentures"). The Debentures being offered will be separately
transferable, to the extent that any such transfer is permitted by law. The
conversion terms of the Debentures are set forth in Section 4. This subscription
is submitted to you in accordance with and subject to the terms and conditions
described in this Subscription Agreement dated June __, 1998, together with any
Exhibits thereto, relating to an offering (the "Offering") of up to $2,000,000
of Debentures. This Offering is comprised of an offering of the Debentures to
accredited investors (the "Regulation D Offering") in accordance with the
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended (the "Act"), and Rule 506 of Regulation 0 promulgated under the Act
("Regulation D").
1. SUBSCRIPTION.
(a) The undersigned hereby irrevocably subscribes for and agrees to
purchase $_________________ of the Company's Debentures. The Debentures shall
pay an 6% cumulative interest payable annually, in cash or in freely trading
Common Stock of the Company, at the Company's option, at the time of each
conversion. If paid in Common Stock, the number of shares of the Company's
Common Stock to be received shall be determined by dividing the dollar amount of
the dividend by the then applicable Market Price, as of the interest payment
date. "Market Price" shall mean 80% of the 10-day average closing bid price, as
4
<PAGE> 5
reported by Bloomberg, LP, for the ten (10) consecutive trading days immediately
preceding the date of conversion. If the interest is to be paid in cash, the
Company shall make such payment within 5 business days of the date of
conversion. If the interest is to be paid in Common Stock, said Common Stock
shall be delivered to the Purchaser, or per Purchaser's instructions, within 5
business days of the date of conversion. The Debentures are subject to automatic
conversion at the end of two years from the date of issuance at which time all
Debentures outstanding will be automatically converted based upon the formula
set forth in Section 4(d). The closing shall be deemed to have occurred on the
date the funds are received by the Company or its designated attorney (the
"Closing Date").
(b) Upon receipt by the Company of the requisite payment for the
Debentures being purchased the Debentures so purchased will be forwarded by the
Escrow Agent, Joseph B. LaRocco, to the Purchaser and the name of such Purchaser
will be registered on the Debenture transfer books of the Company as the record
owner of such Debentures. The Escrow Agent shall not be liable for any action
taken or omitted by him in good faith and in no event shall the Escrow Agent be
liable or responsible except for the Escrow Agent's own gross negligence or
willful misconduct. The Escrow Agent has made no representations or warranties
in connection with this transaction and has not been involved in the negotiation
of the terms of this Agreement or any matters relative thereto. Seller and
Purchaser each agree to indemnify and hold harmless the Escrow Agent from and
with respect to any suits, claims, actions or liabilities arising in any way out
of this transaction including the obligation to defend any legal action brought
which in any way arises out of or is related to this Agreement. The Escrow Agent
is not rendering securities advice to anyone with respect to this proposed
transaction; nor is the Escrow Agent opining on the compliance of the proposed
transaction under applicable securities law.
2. REPRESENTATIONS AND WARRANTIES.
The undersigned hereby represents and warrants to, and agrees with, the
Company as follows:
(a) The undersigned has been furnished with, and has carefully read
the applicable form of Debenture included herein as Exhibit A and the form
of Registration Rights Agreement annexed hereto as Exhibit B (the
"Registration Rights Agreement"), and is familiar with and understands the
terms of the Offering. With respect to tax and other economic
considerations involved in his investment, the undersigned is not relying
on the Company. The undersigned has carefully considered and has, to the
extent the undersigned believes such discussion necessary, discussed with
the undersigned's professional legal, tax, accounting and financial
advisors the suitability of an investment in the Company, by purchasing
the Debentures, for the undersigned's particular
5
<PAGE> 6
tax and financial situation and has determined that the investment being
made by the undersigned is a suitable investment for the undersigned.
(b) The undersigned acknowledges that all documents, records and
books pertaining to this investment which the undersigned has requested
includes Form 10-KSB for the fiscal year ended June 30, 1997 inclusive of
10-KSB/A1, 10-KSB/A2 and 10-KSB/A3 and Form 10-Q for the quarters ended
September 30, 1997, December 31, 1997 and March 31, 1998 inclusive of
10-Q/A1 for September 30, 1997 and December 31, 1997 (the "Disclosure
Documents") have been made available for inspection by the undersigned or
the undersigned has access to the Disclosure Documents.
(c) The undersigned has had a reasonable opportunity to ask
questions of and receive answers from a person or persons acting on behalf
of the Company concerning the Offering and all such questions have been
answered to the full satisfaction of the undersigned.
(d) The undersigned will not sell or otherwise transfer the
Debentures without registration under the Act or applicable state
securities laws or an exemption therefrom. The Debentures have not been
registered under the Act or under the securities laws of any states. The
Common Stock underlying the Debentures is to be registered by the Company
pursuant to the terms of the Registration Rights Agreement attached hereto
as Exhibit B and incorporated herein and made a part hereof. Without
limiting the right to convert the Debentures and sell the Common Stock
pursuant to the Registration Rights Agreement, the undersigned represents
that the undersigned is purchasing the Debentures for the undersigned's
own account, for investment and not with a view to resale or distribution
except in compliance with the Act. The undersigned has not offered or sold
any portion of the Debentures being acquired nor does the undersigned have
any present intention of dividing the Debentures with others or of
selling, distributing or otherwise disposing of any portion of the
Debentures either currently or after the passage of a fixed or
determinable period of time or upon the occurrence or nonoccurrence of any
predetermined event or circumstance in violation of the Act. Except as
provided in the Registration Rights Agreement, the Company has no
obligation to register the Common Stock issuable upon conversion of the
Debentures.
(e) The undersigned recognizes that an investment in the Debentures
involves substantial risks, including loss of the entire amount of such
investment. Further, the undersigned has carefully read and considered the
schedule entitled Pending Litigation matters attached hereto as Exhibit C.
6
<PAGE> 7
(f) Legends.
(i) The undersigned acknowledges that each certificate
representing the Debentures unless registered pursuant to the
Registration Rights Agreement, shall be stamped or otherwise
imprinted with a legend substantially in the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, (ii) TO THE EXTENT APPLICABLE,
RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) IF AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
NOTWITHSTANDING THE FOREGOING, THE COMMON STOCK INTO WHICH THE
SECURITIES EVIDENCED BY THIS CERTIFICATE ARE CONVERTIBLE ARE ALSO
SUBJECT TO THE REGISTRATION RIGHTS SET FORTH IN EACH OF THAT CERTAIN
SUBSCRIPTION AGREEMENT AND REGISTRATION RIGHTS AGREEMENT BY AND
BETWEEN THE HOLDER HEREOF AND THE COMPANY, A COPY OF EACH IS ON FILE
AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICE.
(ii) The Common Stock issued upon conversion shall contain the
following legend if converted prior to effectiveness of Registration
Statement:
"No sale, offer to sell or transfer of the securities represented by
this certificate shall be made unless a registration statement under
the Federal Securities Act of 1933, as amended, with respect to such
securities is then in effect or an exemption from the registration
requirement of such Act is then in fact applicable to such
securities."
(iii) Common Stock issued upon conversion and subsequent to
effective date of Registration Statement
7
<PAGE> 8
(pursuant to which shares underlying conversion are registered)
shall not bear any restrictive legend.
(g) If this Subscription Agreement is executed and delivered on
behalf of a corporation, (i) such corporation has the full legal right and
power and all authority and approval required (a) to execute and deliver,
or authorize execution and delivery of, this Subscription Agreement and
all other instruments (including, without limitation, the Registration
Rights Agreement) executed and delivered by or on behalf of such
corporation in connection with the purchase of the Debentures and (b) to
purchase and hold the Debentures: (ii) the signature of the party signing
on behalf of such corporation is binding upon such corporation; and (iii)
such corporation has not been formed for the specific purpose of acquiring
the Debentures, unless each beneficial owner of such entity is qualified
as an accredited investor within the meaning of Rule 501(a) of Regulation
D and has submitted information substantiating such individual
qualification.
(h) The undersigned shall indemnify and hold harmless the Company
and each stockholder, executive, employee, representative, affiliate,
officer, director, agent (Including Counsel) or control person of the
Company, who is or may be a party or is or may be threatened to be made a
party to any threatened, pending or contemplated action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of or arising from any actual or alleged misrepresentation or
misstatement of facts or omission to represent or state facts made or
alleged to have been made by the undersigned to the Company or omitted or
alleged to have been omitted by the undersigned, concerning the
undersigned or the undersigned's subscription for and purchase of the
Debentures or the undersigned's authority to invest or financial position
in connection with the Offering, including, without limitation, any such
misrepresentation, misstatement or omission contained in this Subscription
Agreement, the Questionnaire or any other document submitted by the
undersigned, against losses, liabilities and expenses for which the
Company, or any stockholder, executive, employee, representative,
affiliate, officer, director, agent (including Counsel) or control person
of the Company has not otherwise been reimbursed (including attorneys'
fees and disbursements, judgments, fines and amounts paid in settlement)
actually and reasonably incurred by the Company, or such officer, director
stockholder, executive, employee, agent (including Counsel),
representative, affiliate or control person in connection with such
action, suit or proceeding.
(i) The undersigned is not subscribing for the Debentures as a
result of, or pursuant to, any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or meeting.
8
<PAGE> 9
(j) The undersigned or the undersigned's representatives, as the
case may be, has such knowledge and experience in financial, tax and
business matters so as to enable the undersigned to utilize the
information made available to the undersigned in connection with the
Offering to evaluate the merits and risks of an investment in the
Debentures and to make an informed investment decision with respect
thereto.
(k) The Purchaser is purchasing the Debentures for its own account
for investment, and not with a view toward the resale or distribution
thereof. Purchaser is neither an underwriter of, nor a dealer in, the
Debentures or the Common Stock issuable upon conversion thereof and is not
participating in the distribution or resale of the Debentures or the
Common Stock issuable upon conversion thereof.
(l) There has never been represented, guaranteed, or warranted to
the undersigned by any broker, the Company, its officers, directors or
agents, or employees or any other person, expressly or by implication (i)
the percentage of profits and/or amount of or type of consideration,
profit or loss to be realized, if any, as a result of the Company's
operations; and (ii) that the past performance or experience on the part
of the management of the Company, or of any other person, will in any way
result in the overall profitable operations of the Company.
3. SELLER REPRESENTATIONS.
(a) Concerning the Securities. The issuance, sale and delivery of
the Debentures have been duly authorized by all required corporate action on the
part of Seller, and when issued, sold and delivered in accordance with the terms
hereof and thereof for the consideration expressed herein and therein, will be
duly and validly issued and enforceable in accordance with their terms, subject
to the laws of bankruptcy and creditors' rights generally. At least 4,000,000
shares of Common Stock issuable upon conversion of all the Debentures issued
pursuant to this offering have been duly and validly reserved for issuance, or
alternative arrangements agreed to in writing to cover the contingency of their
being insufficient reserved shares and, upon issuance shall be duly and validly
issued, fully paid, and non-assessable (the "Reserved Shares"). From time to
time, the Company shall keep such additional shares of Common Stock reserved so
as to allow for the conversion of all the Debentures issued pursuant to this
offering.
Prior to conversion of all the Debentures, if at anytime the conversion of
all the Debentures outstanding would result in an insufficient number of
authorized shares of Common Stock being available to cover all the conversions,
then in such event, the Company will move to call and hold a shareholder's
meeting within 60 days of such event for the purpose of authorizing additional
shares of Common Stock to facilitate the conversions. In such an event the
Company shall recommend to all shareholders to vote their shares in favor of
increasing the authorized number of shares of Common Stock. Seller represents
and warrants that under no circumstances will it deny or
9
<PAGE> 10
prevent Purchaser's right to convert the Debentures as permitted under the terms
of this Subscription Agreement or the Registration Rights Agreement. Nothing in
this Section shall limit the obligation of the Company to make the payments set
forth in Section 4(h).
(b) Authority to Enter Agreement. This Agreement has been duly
authorized, validly executed and delivered on behalf of Seller and is a valid
and binding agreement in accordance with its terms, subject to general
principals of equity and to bankruptcy or other laws affecting the enforcement
of creditors' rights generally.
(c) Non-contravention. The execution and delivery of this Agreement
and the consummation of the issuance of the Debentures, and the transactions
contemplated by this Agreement do not and will not conflict with or result in a
breach by Seller of any of the terms or provisions of, or constitute a default
under, the articles of incorporation or by-laws of Seller, or any indenture,
mortgage, deed of trust, or other material agreement or instrument to which
Seller is a party or by which it or any of its properties or assets are bound,
or any existing applicable law, rule, or regulation of the United States or any
State thereof or any applicable decree, judgment, or order of any Federal or
State court, Federal or State regulatory body, administrative agency or other
United States governmental body having jurisdiction over Seller or any of its
properties or assets.
(d) Company Compliance. The Company represents and warrants that the
Company and its subsidiaries are: (i) in full compliance, to the extent
applicable, with all reporting obligations under either Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; (ii) not in violation of any term or
provision of its Certificate of Incorporation or by-laws; (iii) not in default
in the performance or observance of any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence of indebtedness or
in any mortgage, deed of trust, indenture or other instrument or agreement to
which they are a party, either singly or jointly, by which it or any of its
property is bound or subject. Furthermore, the Company is not aware of any other
facts, which it has not disclosed which could have a material adverse effect on
the business, condition, (financial or otherwise), operations, earnings,
performance, properties or prospects of the Company and its subsidiaries taken
as a whole.
(e) Pending Litigation. Except as otherwise disclosed in Exhibit C,
there is (i) no action, suit or proceeding before or by any court, arbitrator or
governmental body now pending or, to the knowledge of the Company, threatened or
contemplated to which the Company or any of its subsidiaries is or may be a
party or to which the business or property of the Company or any of its
subsidiaries is or may be bound or subject, (ii) no law, statute, rule,
regulation, order or ordinance that has been enacted, adopted or issued by any
Governmental Body or that, to the knowledge of the Company, has been proposed by
any Governmental Body adversely affecting the Company or any of its
subsidiaries, (iii) no injunction, restraining order or order of any nature by a
federal, state or foreign court or Governmental Body of competent jurisdiction
to which the Company or any of its subsidiaries is subject issued that, in the
case of clauses (i), (ii) and (iii) above, (x) is
10
<PAGE> 11
reasonably likely, singly or in the aggregate, to result in a material adverse
effect on the business, condition, (financial or otherwise), operations,
earnings, performance, properties or prospects of the Company, and its
subsidiaries taken as a whole or (y) would interfere with or adversely affect
the issuance of the Debentures or would be reasonably likely to render this
Subscription Agreement or the Debentures, or any portion thereof, invalid or
unenforceable.
(f) Issuance of the Debentures. No action has been taken and no law,
statute, rule, regulation, order or ordinance has been enacted, adopted or
issued by any Governmental Body that prevents the issuance of the Debentures or
the Common Stock issuable upon conversion or exercise thereof; no injunction,
restraining order or order of any nature by a federal or state court of
competent jurisdiction has been issued that prevents the issuance of the
Debentures or the Common Stock issuable upon conversion or exercise thereof or
suspends the sale of the Debentures or the Common Stock issuable upon conversion
thereof in any jurisdiction; and no action, suit or proceeding is pending
against or, to the best knowledge of the Company, threatened against or
affecting, the Company, any of its subsidiaries or, to the best knowledge of the
Company, before any court or arbitrator or any Governmental Body that, if
adversely determined, would prohibit, materially interfere with or adversely
affect the issuance or marketability of the Debentures or the Common Stock
issuable upon conversion or exercise thereof or render the Subscription
Agreement or the Debentures, or any portion thereof, invalid or unenforceable.
(g) The Company shall indemnify and hold harmless the Purchaser and
each stockholder, executive, employee, representative, affiliate, officer,
director or control person of the Purchaser, who is or may be a party or is or
may be threatened to be made a party to any threatened, pending or contemplated
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of or arising from any actual or alleged
misrepresentation or misstatement of facts or omission to represent or state
facts made or alleged to have been made by the Company to the Purchaser or
omitted or alleged to have been omitted by the Company, concerning the Purchaser
or the Purchaser's subscription for and purchase of the Debentures or the
Purchaser's authority to invest or financial position in connection with the
Offering, including, without limitation, any such misrepresentation,
misstatement or omission contained in this Subscription Agreement, the
Questionnaire or any other document submitted by the Company, against losses,
liabilities and expenses for which the Purchaser, or any stockholder, executive,
employee, representative, affiliate, officer, director or control person of the
Purchaser has not otherwise been reimbursed (including attorneys' fees and
disbursements, judgments, fines and amounts paid in settlement) actually and
reasonably incurred by the Purchaser, or such officer, director, stockholder,
executive, employee, representative, affiliate or control person in connection
with such action, suit or proceeding.
(h) No Change. Other than filings required by the Blue Sky or
federal securities law and/or NASDAQ Rules and Regulations, no consent, approval
or authorization of or designation, declaration or filing with any governmental
or other
11
<PAGE> 12
regulatory authority on the part of the Company is required in connection with
the valid execution, delivery and performance of this Agreement. Any required
qualification or notification under applicable federal securities laws and state
Blue Sky laws of the offer, sale and issuance of the Debentures, has been
obtained on or before the date hereof or will have been obtained within the
allowable period thereafter, and a copy thereof will be forwarded to Counsel for
the Purchaser.
(i) True Statements. Neither this Agreement nor any of the
"Disclosure Documents", as hereinafter defined, contains any untrue statement
of a material fact or omits to state any material fact necessary in order to
make the statements contained herein or therein not misleading in the light of
the circumstances under which such statements are made. There exists no fact or
circumstances which, to the knowledge of the Company, materially and adversely
affects the business, properties or assets, or conditions, financial or
otherwise, of the Company, which has not been set forth in this Subscription
Agreement or disclosed in such documents.
(j) The Purchaser has been advised that the Company has not retained
any independent professionals to review or comment on this Offering or otherwise
protect the interests of the Purchaser. Although the Company has retained its
own counsel, neither such counsel nor any other firm, including Joseph B.
LaRocco, Esq., has acted on behalf of the Purchaser, and the Purchaser should
not rely on the Company's legal counsel or Joseph B. LaRocco, Esq. with respect
to any matters herein described.
(k) Prior Shares Issued Under Regulation S or Regulation D. In the
past six months the Company raised $11,348,285 in Regulation S and Regulation D
offerings.
(l) Current Authorized Shares. As of June 5, 1998, there were
50,000,000 authorized shares of Common Stock of which approximately 38,123,179
shares of Common Stock were deemed issued and outstanding on a fully diluted
basis.
(m) Disclosure Documents. The Disclosure Documents are all the
documents (other than preliminary materials) that the Company has been required
to file with the SEC from June 30, 1997, to the date hereof. As of their
respective dates, and/or dates of amended filings with respect thereto, none of
the Disclosure Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, and no material event has occurred since the
Company's initial filing on Form 10-KSB for the year ended June 30,1997 (or the
filing of necessary amendments thereto so as to restate certain financial
statements for fiscal years ended June 30, 1997 and 1996) so as to properly
record the accounting treatment of certain beneficial conversion features and
debt issuance cost of convertible debentures issued during the year ended June
30, 1997 and the auditing for the value of stock options granted during the
years June 30, 1997 and 1996, which could make any of the disclosures contained
therein (as sussequently amended and restated) misleading The financial
statements of the Company included in the Disclosure Documents have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the
12
<PAGE> 13
periods involved (except as may be indicated in the audit adjustments) the
consolidated financial position of the Company and its consolidated subsidiaries
as at the dates thereof and the consolidated results of their operations and
changes in financial position for the periods then ended.
(n) Information Supplied. The information supplied by the Company to
Purchaser in connection with the offering of the Debentures does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements, in the light of the circumstances in which they were
made, not misleading. There exists no fact or circumstances which, to the
knowledge of the Company, materially and adversely affects the business,
properties, assets, or conditions, financial or otherwise, of the Company, which
has not been set forth in this Agreement or disclosed in such documents.
(o) Delivery Instructions. On the Closing Date the Debentures being
purchased hereunder shall be delivered to Joseph B. LaRocco, Esq. as Escrow
Agent, who will simultaneously wire to the Company's counsel the funds being
held in escrow, less placement fees, at which time the Escrow Agent shall then
have the Debentures delivered to the Purchaser, per the Purchaser's
instructions.
(p) Non-contravention, The execution and delivery of this Agreement
by the Company, the issuance of the Debentures, and the consummation by the
Company of the other transactions contemplated by this Agreement, and the
Debentures do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under, the
(i) certificate of incorporation or by-laws of the Company, (ii) any indenture,
mortgage, deed of trust, or other material agreement or instrument to which the
Company is a party or by which it or any of its properties or assets are bound,
(iii) any material existing applicable law, rule, or regulation or any
applicable decree, judgment, or (iv) order of any court, United States federal
or state regulatory body, administrative agency, or other governmental body
having jurisdiction over the Company or any of its properties or assets, except
such conflict, breach or default which would not have a material adverse effect
on the transactions contemplated herein.
(q) No Default. Except as may be set forth in the Company's report
on form 10-KSB for the fiscal year ending June 30, 1997, as initially filed and
subsequently amended, the Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material instrument
or agreement to which it is a party or by which it or its property is bound, and
neither the execution of, nor the delivery by the Company of, nor the
performance by the Company of its obligations under, this Agreement or the
Debentures, other than the conversion provision thereof, will conflict with or
result in the breach or violation of any of the terms or provisions of, or
constitute a default or result in the creation or imposition of any lien or
charge on any assets or properties of the Company under, (i) any material
indenture, mortgage, deed of trust or other material agreement applicable to the
Company or instrument to which the Company is a party or by which it is bound,
(ii) any statute applicable to the Company or its property, (iii) the
Certificate of
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<PAGE> 14
Incorporation or By-Laws of the Company, (iv) any decree, judgment, order, rule
or regulation of any court or governmental agency or body having jurisdiction
over the Company regulation of any court or governmental agency or body having
jurisdiction over the Company or its properties, or (v) the Company's listing
agreement for its Common Stock.
(r) Use of Proceeds. The Company represents that the net proceeds of
this offering will be used for working capital.
(s) The Purchaser has been advised that the Company has entered into
a consulting agreement with Net Financial International, Ltd. pursuant to which
it will pay a fee of 10% of the gross proceeds of this offering.
4. TERMS OF CONVERSION.
(a) Debentures. Upon receipt by the Company or its designated
attorney of a facsimile or original of Purchasers signed Notice of Conversion
and the original Debenture to be converted in whole or in part, the Company
shall instruct its transfer agent to issue one or more Certificates representing
that number of shares of Common Stock into which the Debenture is convertible in
accordance with the provisions regarding conversion set forth in Exhibit D
hereto. The Seller's transfer agent or attorney shall act as Registrar and shall
maintain an appropriate ledger containing the necessary information with respect
to each Debenture.
(b) Conversion Procedures. The face amount of each Debenture may be
converted at the earlier of the effective date of the Registration Statement or
sixty (60) days following the Closing Date. Such conversion shall be effectuated
by surrendering to the Company, or its attorney, the Debentures to be converted
together with a facsimile or original of the signed Notice of Conversion which
evidences Purchasers intention to convert those Debentures indicated. The date
on which the Notice of Conversion is effective ("Conversion Date") shall be
deemed to be the date on which the Purchaser has delivered to the Company a
facsimile or original of the signed Notice of Conversion, as long as the
original Debentures to be converted are received by the Company or its
designated attorney within 5 business days thereafter. Unless otherwise notified
by the Company in writing via facsimile, the Company's designated attorney is
Gary B. Wolff, Esq., 747 Third Avenue, New York, NY 10017 (P) 212-644-6446 (f)
212-644-6498.
(c) Common Stock to be Issued. Upon the conversion of any Debentures
and upon receipt by the Company or its designated attorney of a facsimile or
original of Purchasers signed Notice of Conversion (see Exhibit D) Seller shall
instruct Seller's transfer agent to issue Stock Certificates without restrictive
legend or stop transfer instructions, if at that time the Registration Statement
has been deemed effective (or with proper restrictive legend if the Registration
Statement has not as yet been declared effective), in the name of Purchaser (or
its nominee) and in such
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<PAGE> 15
denominations to be specified at conversion representing the number of shares of
Common Stock issuable upon such conversion, as applicable. Seller warrants that
no instructions, other than these instructions, have been given or will be given
to the transfer agent and that the Common Stock shall otherwise be freely
transferable on the books and records of Seller, except as may be set forth
herein.
(d) (i) Conversion Rate. Purchaser is entitled, at its option, to
convert the face amount of each Debenture, plus accrued interest, at the earlier
of the effective date of the Registration Statement or sixty (60) days following
the Closing Date, at 80% of the 10 day average closing bid price, as reported by
Bloomberg, LP for the 10 consecutive trading days immediately preceding the
applicable Conversion Date (the "Conversion Price"). No fractional shares or
scrip representing fractions of shares will be issued on conversion, but the
number of shares issuable shall be rounded up or down, as the case may be, to
the nearest whole share.
(ii) Most Favored Financing. If after the Closing Date, but prior to
the Purchaser's conversion of all the Debentures, the Company raises money under
either Regulation D or Regulation S on terms that are more favorable than those
terms set forth in this Subscription Agreement, then in such event, the
Purchaser at its sole option shall be entitled to completely replace the terms
of this Subscription Agreement with the terms of the more beneficial
Subscription Agreement as to that balance, including accrued interest and any
accumulated liquidated damages, remaining on Purchaser's original investment.
The Debentures are subject to a mandatory, 24 month conversion feature at the
end of which all Debentures outstanding will be automatically converted, upon
the terms set forth in this section ("Mandatory Conversion Date").
(e) Nothing contained in this Subscription Agreement shall be deemed
to establish or require the payment of interest to the Purchaser at a rate in
excess of the maximum rate permitted by governing law. In the event that the
rate of interest required to be paid exceeds the maximum rate permitted by
governing law, the rate of interest required to be paid thereunder shall be
automatically reduced to the maximum rate permitted under the governing law and
such excess shall be returned with reasonable promptness by the Purchaser to the
Company.
(f) it shall be the Company's responsibility to take all necessary
actions and to bear all such costs to issue the Certificate of Common Stock as
provided herein, including the responsibility and cost for delivery of an
opinion letter to the transfer agent, if so required. The person in whose name
the certificate of Common Stock is to be registered shall be treated as a
shareholder of record on and after the conversion date. Upon surrender of any
Debentures that are to be converted in part, the Company shall issue to the
Purchaser a new Debenture equal to the unconverted amount, if so requested in
writing by Purchaser.
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<PAGE> 16
(g) Within five (5) business days after receipt of the documentation
referred to above in Section 4(b), the Company shall deliver a certificate in
accordance with Section 4(c) for the number of shares of Common Stock issuable
upon the conversion. It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the Common Stock as
provided herein, including the cost for delivery of an opinion letter to the
transfer agent, if so required. The person in whose name the certificate of
Common Stock is to be registered shall be treated as a shareholder of record on
and after the conversion date. Upon surrender of any Debentures that are to be
converted in part, the Company shall issue to the Purchaser a new Debenture
equal to the unconverted amount, if so requested in writing by Purchaser.
In the event the Company does not make delivery of the Common Stock, as
instructed by Purchaser, within 8 business days after delivery of the original
Debenture, then in such event the Company shall pay to Purchaser an amount, in
cash in accordance with the following schedule, wherein "No. Business Days Late"
is defined as the number of business days beyond the 8 business days delivery
period.
<TABLE>
<CAPTION>
Late Payment for Each
$10,000 of Debenture
No. Business Days Late Amount Being Converted
- ---------------------- ----------------------
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each
Business Day Beyond 10
</TABLE>
The Company acknowledges that its failure to deliver the Common Stock
within 8 business days after the Conversion Date will cause the Purchaser to
suffer damages in an amount that will be difficult to ascertain. Accordingly,
the parties agree that it is appropriate to include in this Agreement a
provision for liquidated damages. The parties acknowledge and agree that the
liquidated damages provision set forth in this section represents the parties'
good faith effort to qualify such damages and, as such, agree that the form and
amount of such liquidated damages are reasonable and will not constitute a
penalty. The payment of liquidated damages shall not relieve the Company from
its obligations to deliver the Common Stock pursuant to the terms of this
Agreement.
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 4(g) is due to the unavailability of authorized but
16
<PAGE> 17
unissued shares of Common Stock, the provisions of this Section 4(g) shall not
apply but instead the provisions of Section 4(h) shall apply.
The Company shall make any payments incurred under this Section 4(g) in
immediately available funds within five (5) business days from the Conversion
Date if late. Nothing herein shall limit a Purchaser's right to pursue actual
damages or cancel the conversion for the Company's failure to issue and deliver
Common Stock to the Holder within 8 business days after the Conversion Date.
(h) The Company shall at all times reserve (or make alternative
written arrangements for reservation or contribution of shares) and have
available all Common Stock necessary to meet conversion of the Debentures by all
Purchasers of the entire amount of Debentures then outstanding. If, at any time
Purchaser submits a Notice of Conversion and the Company does not have
sufficient authorized but unissued shares of Common Stock (or alternative shares
of Common Stock as may be contributed by stockholders) available to effect, in
full, a conversion of the Debentures (a "Conversion Default", the date of such
default being referred to herein as the "Conversion Default Date"), the Company
shall issue to the Purchaser all of the shares of Common Stock which are
available, and the Notice of Conversion as to any Debentures requested to be
converted but not converted (the "Unconverted Debentures"), upon Purchaser's
sole option, may be deemed null and void. The Company shall provide notice of
such Conversion Default ("Notice of Conversion Default") to all existing
Purchasers of outstanding Debentures, by facsimile, within three (3) business
day of such default (with the original delivered by overnight or two day
courier), and the Purchaser shall give notice to the Company by facsimile within
five business days of receipt of the original Notice of Conversion Default (with
the original delivered by overnight or two day courier) of its election to
either nullify or confirm the Notice of Conversion.
The Company agrees to pay to all Purchasers of outstanding Debentures
payments for a Conversion Default ("Conversion Default Payments") in the amount
of (N/365) x (.24) x the initial issuance price of the outstanding and/or
tendered but not converted Debentures held by each Purchaser where N = the
number of days from the Conversion Default Date to the date (the "Authorization
Date") that the Company authorizes a sufficient number of shares of Common Stock
to effect conversion of all remaining Debentures. The Company shall send notice
("Authorization Notice") to each Purchaser of outstanding Debentures that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of Purchaser's accrued Conversion Default Payments. The accrued
Conversion Default shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate, at the Purchaser's option, payable as follows: (i)
in the event Purchaser elects to take such payment in cash, cash payments shall
be made to such Purchaser of outstanding Debentures by the fifth day of the
following calendar month, or (ii) in the event Purchaser elects to take such
payment in stock, the Purchaser may convert such payment amount into Common
Stock at the conversion rate set forth in section 4(d) at anytime after the 5th
day of the calendar month following the month in which the
17
<PAGE> 18
Authorization Notice was received, until the expiration of the mandatory 24
month conversion period.
The company acknowledges that its failure to maintain a sufficient number
of authorized but unissued shares of Common Stock to effect in full a conversion
of the Debentures will cause the Purchaser to suffer damages in an amount that
will be difficult to ascertain. Accordingly, the parties agree that it is
appropriate to include in this Agreement a provision for liquidated damages. The
parties acknowledge and agree that the liquidated damages provision set forth in
this section represents the parties' good faith effort to quantify such damages
and, as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to deliver the Common Stock
pursuant to the terms of this Agreement.
Nothing herein shall limit the Purchaser's right to pursue actual damages
for the Company's failure to maintain a sufficient number of authorized shares
of Common Stock.
(i) The Company shall furnish to Purchaser such number of
prospectuses and other documents incidental to the registration of the shares of
Common Stock underlying the Debentures, including any amendment of or
supplements thereto.
5. LIMITS ON AMOUNT OF CONVERSION AND OWNERSHIP.
Other than the Mandatory Conversion provisions contained in this Agreement
which are not limited by the following, in no other event shall the Purchaser be
entitled to convert that amount of Debentures in excess of that amount upon
conversion of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Purchaser and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Debentures), and (2) the number of shares of Common
Stock issuable upon the conversion of the Debentures with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Purchaser and its affiliates of more than 4.9% of the
outstanding shares of Common Stock of the Company. For purposes of this
provision to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13 (d) of the Securities Exchange Act of
1934, as amended, and Regulation 13 D-G thereunder, except as otherwise provided
in clause (1) of such provision.
6. DELIVERY INSTRUCTIONS.
Prior to or on the Closing Date the Company shall deliver to the Escrow
Agent an opinion letter signed by counsel for the Company in the form attached
18
<PAGE> 19
hereto as Exhibit E. Also, prior to or on the Closing Date the Company shall
deliver to the Escrow Agent a signed Registration Rights Agreement in the form
attached hereto as Exhibit B. The Debentures being purchased hereunder shall be
delivered to Joseph B. LaRocco, Esq. as Escrow Agent, who will hold them in
escrow until funds have been wired to the Company or its Counsel at which time
the Escrow Agent shall then have the Debentures delivered to the Purchaser, per
the Purchaser's instructions.
7. UNDERSTANDINGS.
The undersigned understands, acknowledges and agrees with the Company as
follows:
FOR ALL SUBSCRIBERS:
(a) This Subscription may be rejected, in whole or in part, by the Company
in its sole and absolute discretion at any time before the date set for closing
unless the Company has given notice of acceptance of the undersigned's
subscription by signing this Subscription Agreement.
(b) No U.S. federal or state agency or any agency of any other
jurisdiction has made any finding or determination as to the fairness of the
terms of the Offering for investment nor any recommendation or endorsement of
the Debentures.
(c) The representations, warranties and agreements of the undersigned and
the Company contained herein and in any other writing delivered in connection
with the transactions contemplated hereby shall be true and correct in all
material respects on and as of the date of the sale of the Debentures, and as of
the date of the conversion and exercise thereof, as if made on and as of such
date and shall survive the execution and delivery of this Subscription Agreement
and the purchase of the Debentures.
(d) IN MAKING AN INVESTMENT DECISION, PURCHASERS MUST RELY ON THEIR
OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE
MERITS AND RISKS INVOLVED. THE DEBENTURES HAVE NOT BEEN RECOMMENDED BY ANY
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF ANY MEMORANDUM OR THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
(e) The Regulation D Offering is intended to be exempt from registration
under the Securities Act by virtue of Section 4(2) of the Securities Act
19
<PAGE> 20
and the provisions of Regulation D thereunder, which is in part dependent upon
the truth, completeness and accuracy of the statements made by the undersigned
herein and in the Questionnaire.
(f) It is understood that in order not to jeopardize the Offering's exempt
status under Section 4(2) of the Securities Act and Regulation D, any transferee
may, at a minimum, be required to fulfill the investor suitability requirements
thereunder.
(g) THE DEBENTURES MAY NOT BE TRANSFERRED, RESOLD OR OTHERWISE DISPOSED OF
EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. PURCHASERS SHOULD BE
AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME.
(h) NASAA UNIFORM LEGEND
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE
OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT
BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933 AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
9. Litigation.
(a) Forum Selection and Consent to Jurisdiction. Any litigation based
thereon, or arising out of, under, or in connection with, this agreement or any
course of conduct, course of dealing, statements (whether oral or written) or
actions of the Company or Holder shall be brought and maintained exclusively in
the courts of the State of New York. The Company hereby expressly and
irrevocably submits to the jurisdiction of the state and federal courts of the
State
20
<PAGE> 21
of New York for the purpose of any such litigation as set forth above and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Company further irrevocably consents to the
service of process by registered mail, postage prepaid, or by personal service
within or without the State of New York. The Company hereby expressly and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may have or hereafter may have to the laying of venue of any such litigation
brought in any such court referred to above and any claim that any such
litigation has been brought in any inconvenient forum. To the extent that the
Company has or hereafter may acquire any immunity from jurisdiction of any court
or from any legal process (whether through service or notice, attachment prior
to judgment, attachment in aid of execution or otherwise) with respect to itself
or its property, the Company hereby irrevocably waives such immunity in respect
of its obligations under this agreement and the other loan documents.
(b) Waiver of Jury Trial. The Holder and the Company hereby knowingly,
voluntarily and intentionally waive any rights they may have to a trial by jury
in respect of any litigation based hereon, or arising out of, under, or in
connection with, this agreement, or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Holder or the Company.
The Company acknowledges and agrees that it has received full and sufficient
consideration for this provision and that this provision is a material
inducement for the Holder entering into this agreement.
(c) Submission To Jurisdiction. Any legal action or proceeding in
connection with this Agreement or the performance hereof may be brought in the
state and federal courts located in the State of New York and the parties hereby
irrevocably submit to the non-exclusive jurisdiction of such courts for the
purpose of any such action or proceeding.
10. MISCELLANEOUS.
(a) All pronouns and any variations thereof used herein shall be deemed to
refer to the masculine, feminine, impersonal, singular or plural, as the
identity of the person or persons may require.
(b) Neither this Subscription Agreement nor any provision hereof shall be
waived, modified, changed, discharged, terminated, revoked or canceled, except
by an instrument in writing signed by the party effecting the same against whom
any change, discharge or termination is sought.
(c) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
or sent by registered mail, return receipt requested, addressed: (i) if to the
Company, at SWISSRAY International, Inc., 200 East 32nd Street, Suite 34B, New
York, New York 10017 with a copy to Gary B. Wolff, P.C., 747 Third
21
<PAGE> 22
Avenue, 25th Floor, New York, NY 10017 and (ii) if to the undersigned, at the
address for correspondence set forth in the Questionnaire, or at such other
address as may have been specified by written notice given in accordance with
this paragraph 9(c).
(d) This Subscription Agreement shall be enforced, governed and construed
in all respects in accordance with the laws of the State of New York, as such
laws are applied by New York courts to agreements entered into, and to be
performed in, New York by and between residents of New York, and shall be
binding upon the undersigned, the undersigned's heirs, estate, legal
representatives, successors and assigns and shall inure to the benefit of the
Company, its successors and assigns. If any provision of this Subscription
Agreement is invalid or unenforceable under any applicable statue or rule of
law, then such provisions shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof that may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof.
(e) This Subscription Agreement, together with Exhibits A, B, C, D and E
attached hereto and made a part hereof, constitute the entire agreement between
the parties hereto with respect to the subject matter hereof and may be amended
only by a writing executed by both parties hereto. An executed facsimile copy of
the Subscription Agreement shall be effective as an original.
11. SIGNATURE.
The signature of this Subscription Agreement is contained as part of the
applicable Subscription Package, entitled "Signature Page."
(BALANCE OF PAGE INTENTIONALLY LEFT BLANK)
22
<PAGE> 23
SWISSRAY INTERNATIONAL, INC.
CORPORATION QUESTIONNAIRE
Investor Name: __________
The information contained in this Questionnaire is being furnished in
order to determine whether the undersigned CORPORATION'S Subscription to
purchase the Debentures described in the Subscription Agreement may be accepted.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned CORPORATION understands, however, that the
Company may present this Questionnaire to such parties as it deems appropriate
if called upon to establish that the proposed offer and sale of the Debentures
is exempt from registration under the Securities Act of 1933, as amended.
Further, the undersigned CORPORATION understands that the offering is required
to be reported to the Securities and Exchange Commission, NASDAQ and to various
state securities and "blue sky" regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE, THE UNDERSIGNED CORPORATION
MUST COMPLETE FORM W-9 ATTACHED HERETO.
I. PLEASE CHECK EACH OF THE STATEMENTS BELOW THAT APPLIES TO THE CORPORATION.
|_|
1. The undersigned CORPORATION: (a) has total assets in excess of
$5,000,000; (b) was not formed for the specific purpose of acquiring
the Debentures and (c) has its principal place of business in _____.
|_|
2. Each of the shareholders of the undersigned CORPORATION is able
to certify that such shareholder meets at least one of the following
three conditions:
(a) the shareholder is a natural person whose individual net
worth* or joint net worth with his or her spouse exceeds
$1,000,000; or
(b) the shareholder is a natural person who had an
individual income* in excess of $200,000 in each of 1996
and 1997 and who reasonably expects an individual income
in excess of $200,000 in 1998; or
23
<PAGE> 24
(c) Each of the shareholders of the undersigned CORPORATION
is able to certify that such shareholder is a natural
person who, together with his or her spouse, has had a
joint income in excess of $300,000 in each of 1996 and
1997 and who reasonably expects a joint income in excess
of $300,000 during 1998; and the undersigned CORPORATION
has its principal place of business in ________________.
* For purposes of this Questionnaire, the term "net worth" means the excess of
total assets over total liabilities. In determining income, an investor should
add to his or her adjusted gross income any amounts attributable to tax-exempt
income received, losses claimed as a limited partner in any limited partnership,
deductions claimed for depletion, contributions to IRA or Keogh retirement plan,
alimony payments and any amount by which income from long-term capital gains has
been reduced in arriving at adjusted gross income.
|_|
3. The undersigned CORPORATION is:
(a) a bank as defined in Section 3(a)(2) of the Securities
Act; or
(b) a savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Securities Act whether
acting in its individual or fiduciary capacity; or
(c) a broker or dealer registered pursuant to Section 15 of
the Securities Exchange Act of 1934; or
(d) an insurance company as defined in Section 2(13) of the
Securities Act; or
(e) An investment company registered under the investment
Company Act of 1940 or a business development company as
defined in Section 2(a)(48) of the Investment Company Act of
1940; or
(f) a small business investment company licensed by the U.S.
Small Business Administration under Section 301 (c) or (d) of
the Small Business Investment Act of 1958; or
(g) a private business development company as defined in
Section 202(a) (22) of the Investment Advisors Act of 1940.
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<PAGE> 25
II. OTHER CERTIFICATIONS.
By signing the Signature Page, the undersigned certifies the following:
(a) That the CORPORATION'S purchase of the Debentures will be solely for
the CORPORATION'S own account and not for the account of any other person
or entity; and
(b) that the CORPORATION'S name, address of principal place of business,
place of incorporation and taxpayer identification number as set forth in
this Questionnaire are true, correct and complete.
III. GENERAL INFORMATION
(a) PROSPECTIVE PURCHASER (THE CORPORATION)
Name:
Principal Place of Business: ___________________________________________________
________________________________________________________________________________
Address for Correspondence (if different): SAME
_____________________________________
(Number and Street)
________________________________________________________________________________
(City) (State) (Zip Code)
Telephone Number________________________________________________________________
(Area Code) (Number)
Jurisdiction of Incorporation:__________________________________
Date of Formation: _____________________________________________________________
Taypayer Identification Number: ________________________________________________
Number of Shareholders: ________________________________________________________
(b) INDIVIDUAL WHO IS EXECUTING THIS QUESTIONNAIRE ON BEHALF OF THE
CORPORATION.
Name: __________________________________________________________________________
Position or Title: _____________________________________________________________
25
<PAGE> 26
SWISSRAY INTERNATIONAL, INC.
CORPORATION SIGNATURE PAGE
Your signature on this Corporation Signature Page evidences the agreement
by the Purchaser to be bound by the Questionnaire and the Subscription
Agreement.
1. The undersigned hereby represents that (a) the information contained in
the Questionnaire is complete and accurate and (b) the Purchaser will notify
SWISSRAY INTERNATIONAL, INC. immediately if any material change in any of the
information occurs prior to the acceptance of the undersigned Purchaser's
subscription and will promptly send SWISSRAY INTERNATIONAL, INC. written
confirmation of such change.
2. The undersigned officer of the Purchaser hereby certifies that he has
read and understands this Subscription Agreement.
3. The undersigned officer of the Purchaser hereby represents and warrants
that he has been duly authorized by all requisite action on the part of the
Corporation to acquire the Debentures and sign this Subscription Agreement on
behalf of __________________ and, further, that ________________ has all
requisite authority to purchase the Debentures and enter into this Subscription
Agreement.
___________________________________ ________________________________
Amount of Debentures subscribed for Date
________________________________
(Purchaser)
By:_____________________________
(Signature)
Name:___________________________
(Please Type or Print)
Title:__________________________
(Please Type or Print)
THE DEBENTURES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS SUCH SECURITIES ARE INCLUDED IN AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT.
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<PAGE> 27
COMPANY ACCEPTANCE PAGE
This Subscription Agreement accepted
and agreed to this ___ day of June, 1998
SWISSRAY INTERNATIONAL, INC.
BY ____________________________________________
Ruedi G. Laupper, its Chairman and President
duly authorized
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<PAGE> 28
Exhibit D
NOTICE OF CONVERSION
(To be Executed by the Registered owner in order to Convert
the Debentures
The undersigned hereby irrevocably elects, as of ____________, 199_ to
convert $_________ of Convertible Debentures into Common Stock of SWISSRAY
INTERNATIONAL, INC. (the "Company") according to the conditions set forth in the
Subscription Agreement dated June __, 1998.
Date of Conversion_________________________________________
Applicable Conversion Price________________________________
Number of Shares Issuable upon this conversion_____________
Signature__________________________________________________
[Name]
Address____________________________________________________
___________________________________________________________
Phone____________________ Fax______________________________
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<PAGE> 29
Exhibit E
_____________, 1998
Purchasers of [Company] [Describe Securities]
Re: [Company]
Ladies and Gentlemen:
We have acted as counsel to [Company], a corporation incorporated under
the laws of the State of ___________ (the "Company"), in connection with the
proposed issuance and sale of convertible debentures (the "Securities") pursuant
to the Distribution Agreement and the related Subscription Agreement (including
all Exhibits and Appendices thereto) (collectively the "Agreements").
In connection with rendering the opinions set forth herein, we have
examined drafts of the Agreement, the Company's Certificate of Incorporation,
and its Bylaws, as amended to date [other documents - describe], the proceedings
of the Company's Board of Directors taken in connection with entering into the
Agreements, and such other documents, agreements and records as we deemed
necessary to render the opinions set forth below.
In conducting our examination, we have assumed the following: (i) that
each of the Agreements has been executed by each of the parties thereto in the
same form as the forms which we have examined, (ii) the genuineness of all
signatures, the legal capacity of natural persons, the authenticity and accuracy
of all documents submitted to us as originals, and the conformity to originals
of all documents submitted to us as copies, (iii) that each of the Agreements
has been duly and validly authorized, executed and delivered by the party or
parties thereto other than the Company, and (iv) that each of the Agreements
constitutes the valid and binding agreement of the party or parties thereto
other than the Company, enforceable against such party or parties in accordance
with the Agreements' terms.
Based upon the subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of ___________, is duly
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<PAGE> 30
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions where the Company owns or leases properties, maintains employees
or conducts business, except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the Company, and has all
requisite corporate power and authority to own its properties and conduct its
business.
2. The authorized capital stock of the Company consists of _______ shares
of Common Stock, __________ par value per share, ("Common Stock") and
____________ Preferred Stock, par value $________ per share; [describe classes
if applicable]
3. The Common Stock is registered pursuant to Section 12(b) or Section
12(g) of the Securities Exchange Act of 1934, as amended and the Company has
timely filed all the material required to be filed pursuant to Sections 13(a) or
15(d) of such Act for a period of at least twelve months preceding the date
hereof;
4. When duly countersigned by the Company's transfer agent and registrar,
and delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of the Agreements, the
Securities [and any Common Stock to be issued upon the conversion of the
Securities] as described in the Agreements represented thereby will be duly
authorized and validly issued, fully paid and nonassessable;
5. The Company has the requisite corporate power and authority to enter
into the Agreements and to sell and deliver the Securities and the Common Stock
to be issued upon the conversion of the Securities as described in the
Agreements; each of the Agreements has been duly and validly authorized by all
necessary corporate action by the Company to our knowledge, no approval of any
governmental or other body is required for the execution and delivery of each of
the Agreements by the Company or the consummation of the transactions
contemplated thereby; each of the Agreements has been duly and validly executed
and delivered by and on behalf of the Company, and is a valid and binding
agreement of the Company, enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other laws
affecting creditors rights generally, and except as to compliance with federal,
state, and foreign securities laws, as to which no opinion is expressed;
6. To the best of our knowledge, after due inquiry, the execution,
delivery and performance of the Agreements by the Company and the performance of
its obligations thereunder do not and will not constitute a breach or violation
of any of the terms and provisions of, or constitute a default under or conflict
with or violate any provision of (i) the Company's Certificate of Incorporation
or By-Laws, (ii) any indenture, mortgage, deed of trust, agreement
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<PAGE> 31
or other instrument to which the Company is party or by which it or any of its
property is bound, (iii) any applicable statute or regulation or as other, (iv)
or any judgment, decree or order of any court or governmental body having
jurisdiction over the Company or any of its property.
7. The issuance of Common Stock upon conversion of the debentures in
accordance with the terms and conditions of the Agreements, will not violate the
applicable listing agreement between the Company and any securities exchange or
market on which the Company's securities are listed.
8. To the best of our knowledge, after due inquiry, there is no pending or
threatened litigation, investigation or other proceedings against the Company
[except as described in Exhibit A hereto].
9. The Company complies with the eligibility requirements for the use of
Form 5-3, under the Securities Act of 1933, as amended.
Note: Use this where Registration Rights were included in the offering and the
Company is S-3 eligible.
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred. This opinion is based solely upon the laws of the United States and
the State of _____________ and does not include an interpretation or statement
concerning the laws of any other state or jurisdiction. Insofar as the
enforceability of the Agreements may be governed by the laws of other states, we
have assumed that such laws are identical in all respects to the laws of the
State of _____________.
The opinions expressed herein are given to you solely for your use in
connection with the transaction contemplated by the Agreements and may not be
relied upon by any other person or entity or for any other purpose without our
prior consent.
Very truly yours,
By: _________________
31
<PAGE> 1
Exhibit 10.27
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of June ______, 1998, ("this
Agreement"), is made by and between SWISSRAY INTERNATIONAL, INC. a New York
corporation (the "Company"), and the person named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Subscription
Agreement, dated as of June ___, 1998, between the initial investor and the
Company (the "Subscription Agreement"), the Company has agreed to issue and sell
to the Initial Investor 6% Convertible Debentures of the Company (the
"Debentures"), which will be convertible into shares of the common stock, $.01
par value (the "Common Stock"), of the Company (the "Conversion Shares") upon
the terms and subject to the conditions of such Debentures; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investor hereby agrees as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the
following meaning:
(i) "Closing Date" means the date funds are received by the Company or its
designated attorney pursuant to the Subscription Agreement.
(ii) "Investor" means the Initial Investor and any transferee or assignee
who agrees to become bound by the provisions of this Agreement in accordance
with Section 9 hereof.
(iii) "Register," "Registered," and "Registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration
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<PAGE> 2
Statement by the United States Securities and Exchange Commission (the "SEC").
(iv) "Registrable Securities" means the Conversion Shares.
(v) "Registration Statement" means a registration statement of the Company
under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i) each
Investor (as defined above) and (ii) each person who is a permitted transferee
or assignee of the Registrable Securities pursuant to Section 9 of this
Agreement.
(c) Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Subscription Agreement.
2. Registration.
(a) Mandatory Registration. The Company shall prepare and file with the
SEC, no later than sixty (60) calendar days after the Closing Date, a
Registration Statement covering a sufficient number of shares of Common Stock
for the Initial Investors into which the $2,000,000 of Debentures, plus accrued
interest, in the total offering would be convertible. In the event the
Registration Statement is not filed within sixty (60) calendar days after the
Closing Date, then in such event the Company shall pay the Investor 2% of the
face amount of each Debenture for each 30 day period, or portion thereof, after
60 days following the Closing Date that the Registration Statement is not filed.
The Investor is also granted additional Piggy-back registration rights on any
other Registration Statement filings made by the Company. Such Registration
Statement shall state that, in accordance with the Securities Act, it also
covers such indeterminate number of additional shares of Common Stock as may
become issuable to prevent dilution resulting from Stock splits, or stock
dividends). If at any time the number of shares of Common Stock into which the
Debenture(s) may be converted exceeds the aggregate number of shares of Common
Stock then registered, the Company shall, within ten (10) business days after
receipt of written notice from any Investor, either (i) amend the Registration
Statement filed by the Company pursuant to the preceding sentence, if such
Registration Statement has not been declared effective by the SEC at that time,
to register all shares of Common Stock into which the Debenture(s) may be
converted, or (ii) if such Registration Statement has been declared effective by
the SEC at that time, file with the SEC an additional Registration Statement on
Form S-1 to register the shares of Common Stock into which the Debenture may be
converted that exceed the aggregate number of shares of Common Stock already
registered. The above damages shall continue until the obligation is fulfilled
and shall be paid within 5 business days after each 30 day period, or portion
thereof, until the Registration Statement is filed. Failure of the Company to
make payment within said 5 business days shall be considered a default.
2
<PAGE> 3
The Company acknowledges that its failure to file with the SEC, said
Registration Statement no later than sixty (60) days after the Closing Date will
cause the Initial Investor to suffer damages in an amount that will be difficult
to ascertain. Accordingly, the parties agree that it is appropriate to include
in this Agreement a provision for liquidated damages. The parties acknowledge
and agree that the liquidated damages provision set forth in this section
represents the parties' good faith effort to qualify such damages and, as such,
agree that the form and amount of such liquidated damages are reasonable and
will not constitute a penalty. The payment of liquidated damages shall not
relieve the Company from its obligations to register the Common Stock and
deliver the Common Stock pursuant to the terms of this Agreement, the
Subscription Agreement and the Debenture.
(b) Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors acting by majority in interest of the Registrable Securities subject
to such underwritten offering shall have the right to select one legal counsel
to represent their interests, and an investment banker or bankers and manager or
managers to administer the offering, which investment banker or bankers or
manager or managers shall be reasonably satisfactory to the Company. The
Investors who hold the Registrable Securities to be included in such
underwriting shall pay all underwriting discounts and commissions and other fees
and expenses of such investment banker or bankers and manager or managers so
selected in accordance with this Section 2(b) (other than fees and expenses
relating to registration of Registrable Securities under federal or state
securities laws, which are payable by the Company pursuant to Section 5 hereof)
with respect to their Registrable Securities and the fees and expenses of such
legal counsel so selected by the Investors.
(c) Payment by the Company. If the Registration Statement covering the
Registrable Securities required to be flied by the Company pursuant to Section
2(a) hereof is not declared effective by September ___, 1998, then the Company
shall pay the Initial Investor 2% of the purchase price paid by the Initial
Investor for the Registrable Securities pursuant to the Subscription Agreement
for every thirty day period following September ___, 1998, until the
Registration Statement is declared effective. Notwithstanding the foregoing, the
amounts payable by the Company pursuant to this provision shall not be payable
to the extent any delay in the effectiveness of the Registration Statement
occurs because of an act of, or a failure to act or to act timely by the Initial
Investor or its counsel. The above damages shall continue until the obligation
is fulfilled and shall be paid within 5 business days after each 30 day period,
or portion thereof, until the Registration Statement is declared effective.
Failure of the Company to make payment within said 5 business days shall be
considered a default.
The Company acknowledges that its failure to have the Registration
Statement declared effective by September ___, 1998, will cause the Initial
Investor to suffer damages in an amount that will be difficult to ascertain.
Accordingly, the
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<PAGE> 4
parties agree that it is appropriate to include in this Agreement a provision
for liquidated damages. The parties acknowledge and agree that the liquidated
damages provision set forth in this section represents the parties' good faith
effort to quantify such damages and, as such, agree that the form and amount of
such liquidated damages are reasonable and will not constitute a penalty. The
payment of liquidated damages shall not relieve the Company from its obligations
to register the Common Stock and deliver the Common Stock pursuant to the terms
of this Agreement, the Subscription Agreement and the Debenture.
3. Obligation of the Company. In connection with the registration of the
Registrable Securities, the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC within thirty (30) days of the
Closing Date, a Form S-1 Registration Statement with respect to not less than
the number of Registrable Securities provided in Section 2(a), above, and
thereafter use its best efforts to cause each Registration Statement relating to
Registrable Securities to become effective the earlier of (i) five business days
after notice from the Securities and Exchange Commission that the Registration
Statement may be declared effective, or (b) ninety (90) days after the Closing
Date, and keep the Registration Statement effective at all times until the
earliest (the "Registration Period") of (i) the date that is two years after the
Closing Date (ii) the date when the Investors may sell all Registrable
Securities under Rule 144 or (iii) the date the Investors no longer own any of
the Registrable Securities, which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) Furnish to each Investor whose Registrable Securities are included in
the Registration Statement and its legal counsel identified to the Company, (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other
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<PAGE> 5
documents, as such Investor may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Investor;
(d) Use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request and in
which significant volumes of shares of Common Stock are traded, (ii) prepare and
file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times during the
Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualification in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions:
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction,
(C) file a general consent to service of process in any such jurisdiction, (D)
provide any undertakings that cause more than nominal expense or burden to the
Company or (E) make any change in its articles of incorporation or by-laws or
any then existing contracts, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the Company and its
stockholders;
(e) As promptly as practicable after becoming aware of such event, notify
each Investor of the happening of any event of which the Company has knowledge,
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and uses its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
(f) As promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the SEC
of any notice of effectiveness or any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time;
(g) Use its commercially reasonable efforts, if eligible, either to (i)
cause all the Registrable Securities covered by the Registration Statement to be
listed on a national securities exchange and on each additional national
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<PAGE> 6
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation of all the Registrable Securities covered by the Registration
Statement as a National Association of Securities Dealers Automated Quotations
System (NASDAQ") "Small Capitalization" within the meaning of Rule 11Aa2-1 of
the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the quotation of the Registrable Securities on the NASDAQ Small Cap
Market; or if, despite the Company's commercially reasonable efforts to satisfy
the preceding clause (i) or (ii), the Company is unsuccessful in doing so, to
secure NASD authorization and quotation for such Registrable Securities on the
over-the-counter bulletin board and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such registrable securities;
(h) Provide a transfer agent for the Registrable Securities not later than
the effective date of the Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may reasonably
request and registration in such names as the Investors may request; and, within
five (5) business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) a form of appropriate
Instruction and opinion of such counsel acceptable for use for each conversion;
and
(j) Take all other reasonable actions necessary to expedite and facilitate
distribution to the Investor of the Registrable Securities pursuant to the
Registration Statement.
4. Obligations of the Investors. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations;
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall timely
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of
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<PAGE> 7
such Registrable Securities and shall timely execute such documents in
connection with such registration as the Company may reasonably request. At
least five (5) days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's Registrable
Securities included in the Registration Statement. If at least two (2) business
days prior to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then the Company may
file the Registration Statement without including Registrable Securities of such
Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investors Registrable Securities
from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(e) or 3(f),
above, such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed by
the Company, such investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
5. Expenses of Registration. All reasonable expenses, other than
underwriting discounts and commissions incurred in connection with
registrations, filing or qualifications pursuant to Section 3, but including,
without limitations, all registration, listing, and qualifications fees,
printers and accounting fees, the fees and disbursements of counsel for the
Company, shall be borne by the Company.
6. Indemnification. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims")
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<PAGE> 8
to which any of them may become subject under the Securities Act, the Exchange
Act or otherwise, insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations of the Registration
Statement or any post-effective amendment thereof, or any prospectus included
therein: (i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any post-effective amendment thereof
or any prospectus included therein or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). The Company shall reimburse the Investors, promptly as such
expenses are incurred and are due and payable, for any reasonable legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a) shall not
(i) apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(b) hereof; (ii) with respect to
any preliminary prospectus, inure to the benefit of any such person from whom
the person asserting any such Claim purchased the Registrable Securities that
are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 3(b) hereof, (iii) be available to the extent such Claim is
based on a failure of the Investor to deliver or cause to be delivered the
prospectus made available by the Company; or (iv) apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld. Each
Investor will indemnify the Company, its officers, directors and agents
(including Counsel) against any claims arising out of or based upon a Violation
which occurs in reliance upon and in conformity with information furnished in
writing to the Company, by or on behalf of such Investor, expressly for use in
connection with
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<PAGE> 9
the preparation of the Registration Statement, subject to such limitations and
conditions as are applicable to the Indemnification provided by the Company to
this Section 6. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9.
(b) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the Indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other Indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the reasonable fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. In such event, the Company shall pay for only one separate legal
counsel for the Investors; such legal counsel shall be selected by the Investors
holding a majority in interest of the Registrable Securities included in the
Registration Statement to which the Claim relates. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. Contribution. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
9
<PAGE> 10
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. Reports under Exchange Act. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to use its reasonable best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. Assignment of the Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of in excess of fifty
(50%) percent or more of the Registrable Securities (or all or any portion of
any Debenture of the Company which is convertible into such securities) only if:
(a) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i) the
name and address of such transferee or assignee and (ii) the securities with
respect to which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, and (d) at or before the time the
Company received the written notice contemplated by clause (b) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein. In the event of any delay in filing or
effectiveness of the Registration Statement as a result of such assignment, the
Company shall not be liable for any damages arising from such delay, or the
payments set forth in Section 2(c) hereof.
10
<PAGE> 11
10. Amendment of Registration Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and investors who hold a majority in interest of
the Registrable Securities. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. if
the Company received conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission, receipt
confirmed, or other means) or sent by certified mail, return receipt requested,
properly addressed and with proper postage pre-paid (i) if to the Company,
SWISSRAY International, Inc., 200 East 32nd Street, Suite 34B, New York, New
York 10016 with copy to Gary B. Wolff, P.C., 747 Third Avenue, 25th Floor, New
York, NY 10017; (ii) if to the initial Investor, at the address set forth under
its name in the Subscription Agreement, with a copy to its designated attorney
and (iii) if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b), and shall be
effective, when personally delivered, upon receipt and, when so sent by
certified mail, four (4) business days after deposit with the United States
Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York. Each of the parties consents to the
jurisdiction of the state and federal courts of the State of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non coveniens, to the bringing of any such proceeding in such
jurisdictions. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
11
<PAGE> 12
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not effect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
12
<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
SWISSRAY INTERNATIONAL, INC.
By:
-----------------------------------
Name: Ruedi G. Laupper
Title: Chairman and President
---------------------------------------
(Name of Initial Investor)
By:
-----------------------------------
Name:
Title:
13
<PAGE> 1
Exhibit 10.28
FORM OF DEBENTURE
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
<S> <C>
CONVERTIBLE DEBENTURE DUE June ,1998
June ,2000
$
Number JUNE-1998
</TABLE>
FOR VALUE RECEIVED, SWISSRAY INTERNATIONAL, INC., a New York corporation
(the "Company"), hereby promises to pay to __________________. or
registered assigns (the "Holder") on June ___, 2000, (the "Maturity
Date"), the principal amount of ____________ Dollars ($000,000) U.S., and
to pay interest on the principal amount hereof, in such amounts, at such
times and on such terms and conditions as are specified herein.
Article 1. Interest
The Company shall pay interest on the unpaid principal amount of this
Debenture (the "Debenture") at the rate of Six Percent (6.0%) per year, payable
at the time of each conversion until the principal amount hereof is paid in full
or has been converted. Interest shall be computed on the basis of a 360 day year
of 12, 30 day months. Each payment shall be paid in cash or in freely trading
Common Stock of the Company, at the Company's option. If paid in Common Stock,
the number of shares of the Company's Common Stock to be received shall be
determined by dividing the dollar amount of the interest by the then applicable
Market Price as of the interest payment date. "Market Price" shall mean 80% of
the average of the 10 day closing bid prices, as reported by Bloomberg, LP for
the ten (10) consecutive trading days immediately preceding
1
<PAGE> 2
the date of conversion, if the interest is to be paid in cash, the Company shall
make such payment within 5 business days of the date of conversion. If the
interest is to be paid in Common Stock, said Common Stock shall be delivered to
the Holder, or per Holder's instructions, within 5 business days of the date of
conversion. The Debentures are subject to automatic conversion at the end of two
years from the date of issuance at which time all Debentures outstanding will be
automatically converted based upon the formula set forth in Section 3.2. The
closing shall be deemed to have occurred on the date the funds are received by
the Company or its Counsel (the "Closing Date").
Article 2. Method of Payment
This Debenture must be surrendered to the Company in order for the Holder
to receive payment of the principal amount hereof. The Company shall have the
option of paying the interest on this Debenture in United States dollars or in
common stock upon conversion pursuant to Article 1 hereof. The Company may draw
a check for the payment of interest to the order of the Holder of this Debenture
and mail it to the Holder's address as shown on the Register (as defined in
Section 7.2 below). Interest and principal payments shall be subject to
withholding under applicable United States Federal Internal Revenue Service
Regulations.
Article 3. Conversion
Section 3.1. Conversion Privilege
(a) The Holder of this Debenture shall have the right, at its option, to
convert it into shares of common stock, par value $0.01 per share, of the
Company ("Common Stock") at any time which is before the close of business on
the Maturity Date, except as set forth in Section 3.1(c) below. The number of
shares of Common Stock issuable upon the conversion of this Debenture is
determined pursuant to Section 3.2 and rounding the result to the nearest whole
share.
(b) Less than all of the principal amount of this Debenture may be
converted into Common Stock if the portion converted is $5,000 or a whole
multiple of $5,000 and the provisions of this Article 3 that apply to the
conversion of all of the Debenture shall also apply to the conversion of a
portion of it. This Debenture may not be converted, whether in whole or in part,
except in accordance with Article 3.
(c) In the event all or any portion of this Debenture remains outstanding
on the second anniversary of the date hereof, the unconverted portion of such
Debenture will automatically be converted into shares of Common Stock on such
date in the manner set forth in Section 3.2.
Section 3.2. Conversion Procedure.
2
<PAGE> 3
(a) Debentures. Upon receipt by the Company or its designated
attorney of a facsimile or original of Holder's signed Notice of Conversion and
the original Debenture to be converted in whole or in part, the Company shall
instruct its transfer agent to issue one or more Certificates representing that
number of shares of Common Stock into which the Debenture is convertible in
accordance with the provisions regarding conversion set forth in Exhibit A
hereto. The Seller's transfer agent or attorney shall act as Registrar and shall
maintain an appropriate ledger containing the necessary information with respect
to each Debenture.
(b) Conversion Procedures. The face amount of this Debenture may be
converted at the earlier of the effective date of the Registration Statement or
sixty (60) days following the Closing Date. Such conversion shall be effectuated
by surrendering to the Company, or its attorney, this Debenture to be converted
together with a facsimile or original of the signed Notice of Conversion which
evidences Holder's intention to convert the Debenture indicated. The date on
which the Notice of Conversion is effective ("Conversion Date") shall be deemed
to be the date on which the Holder has delivered to the Company or its
designated attorney a facsimile or original of the signed Notice of Conversion,
as long as the original Debenture(s) to be converted are received by the Company
or its designated attorney within 5 business days thereafter. Unless otherwise
notified by the Company in writing via facsimile the Company's designated
attorney is Gary B. Wolff, Esq., 474 Third Avenue, 25th Floor, New York, New
York 10017, (P) 212-644-6448, (F) 212-644-6498.
(c) Common Stock to be Issued. Upon the conversion of any Debentures
and upon receipt by the Company or its attorney of a facsimile or original of
Holder's signed Notice of Conversion Seller shall instruct Seller's transfer
agent to issue Stock Certificates without restrictive legend or stop transfer
instructions, if at that time the Registration Statement has been deemed
effective (or with proper restrictive legend if the Registration Statement has
not as yet been declared effective), in the name of Holder (or its nominee) and
in such denominations to be specified at conversion representing the number of
shares of Common Stock issuable upon such conversion, as applicable. Seller
warrants that no instructions, other than these instructions, have been given or
will be given to the transfer agent and that the Common Stock shall otherwise be
freely transferable on the books and records of Seller, except as may be set
forth herein.
(d) (i) Conversion Rate. Holder is entitled, at its option to
convert the face amount of this Debenture, plus accrued interest, at the earlier
of the effective date of the Registration Statement or sixty (60) days following
the Closing Date, at 80% of the 10 day average closing bid price, as reported by
Bloomberg LP, for the ten (10) consecutive trading days immediately preceding
the applicable Conversion Date (the "Conversion Price"). No fractional shares or
scrip representing fractions of shares will be issued on conversion, but the
number of shares issuable shall be rounded up or down, as the case may be, to
the nearest whole share.
3
<PAGE> 4
(ii) if after the Closing Date, but prior to the Holder's conversion
of all the Debentures, the Company raises money under either Regulation D or
Regulation S on terms that are more favorable than those terms set forth in this
Debenture, then in such event, the Holder at its sole option shall be entitled
to completely replace the terms of this Debenture with the terms of the more
beneficial Debenture as to that balance, including accrued interest and any
accumulated liquidated damages, remaining on Holder's original investment. The
Debentures are subject to a mandatory, 24 month conversion feature at the end of
which all Debentures outstanding will be automatically converted, upon the terms
set forth in this section ("Mandatory Conversion Date").
(e) Nothing contained in this Debenture shall be deemed to establish
or require the payment of interest to the Holder at a rate in excess of the
maximum rate permitted by governing law. In the event that the rate of interest
required to be paid exceeds the maximum rate permitted by governing law, the
rate of interest required to be paid thereunder shall be automatically reduced
to the maximum rate permitted under the governing law and such excess shall be
returned with reasonable promptness by the Holder to the Company.
(f) It shall be the Company's responsibility to take all necessary
actions and to bear all such costs to issue the Certificate of Common Stock as
provided herein, including the responsibility and cost for delivery of an
opinion letter to the transfer agent, if so required. The person in whose name
the certificate of Common Stock is to be registered shall be treated as a
shareholder of record on and after the conversion date. Upon surrender of any
Debentures that are to be converted in part, the Company shall issue to the
Holder a new Debenture equal to the unconverted amount, if so requested in
writing by Holder.
(g) Within five (5) business days after receipt of the documentation
referred to above in Section 3.2(b), the Company shall deliver a certificate, in
accordance with Section 3(c) for the number of shares of Common Stock issuable
upon the conversion. It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the Common Stock as
provided herein, including the cost for delivery of an opinion letter to the
transfer agent, if so required. The person in whose name the certificate of
Common Stock is to be registered shall be treated as a shareholder of record on
and after the conversion date. Upon surrender of any Debentures that are to be
converted in part, the Company shall issue to the Holder a new Debenture equal
to the unconverted amount, if so requested in writing by Holder.
In the event the Company does not make delivery of the Common Stock, as
instructed by Holder, within 8 business days after delivery of this original
Debenture, then in such event the Company shall pay to Holder an amount, in cash
in accordance with the following schedule, wherein "No. Business Days
4
<PAGE> 5
Late" is defined as the number of business days beyond the 8 business days
delivery period.
<TABLE>
<CAPTION>
Late Payment for Each
$10,000 of Debenture
No. Business Days Late Amount Being Converted
- ---------------------- ----------------------
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each
Business Day Beyond 10
</TABLE>
The Company acknowledges that its failure to deliver the Common Stock
within 8 business days after the Conversion Date will cause the Holder to suffer
damages in an amount that will be difficult to ascertain. Accordingly, the
parties agree that it is appropriate to include in this Debenture a provision
for liquidated damages. The parties acknowledge and agree that the liquidated
damages provision set forth in this section represents the parties' good faith
effort to qualify such damages and, as such, agree that the form and amount of
such liquidated damages are reasonable and will not constitute a penalty. The
payment of liquidated damages shall not relieve the Company from its obligations
to deliver the Common Stock pursuant to the terms of this Debenture.
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 3.2(g) is due to the unavailability of authorized but
unissued shares of Common Stock, the provisions of this Section 3.2(g) shall not
apply but instead the provisions of Section 3.2(h) shall apply.
The Company shall make any payments incurred under this Section 3.2(g) in
immediately available funds within five (5) business days from the Conversion
Date if late. Nothing herein shall limit a Holder's right to pursue actual
damages or cancel the conversion for the Company's failure to issue and deliver
Common Stock to the Holder within 8 business days after the Conversion Date.
(h) The Company shall at all times reserve (or make alternative
written arrangements for reservation or contribution of shares) and have
available all Common Stock necessary to meet conversion of the Debentures by all
Holders of the entire amount of Debentures then outstanding. If, at any time
Holder submits a Notice of Conversion and the Company does not have sufficient
authorized but unissued shares of Common Stock (or alternative shares of Common
Stock as may be contributed by Stockholders) available to
5
<PAGE> 6
effect, in full, a conversion of the Debentures (a "Conversion Default", the
date of such default being referred to herein as the "Conversion Default Date"),
the Company shall issue to the Holder all of the shares of Common Stock which
are available, and the Notice of Conversion as to any Debentures requested to be
converted but not converted (the "Unconverted Debentures"), upon Holder's sole
option, may be deemed null and void. The Company shall provide notice of such
Conversion Default ("Notice of Conversion Default") to all existing Holders of
outstanding Debentures, by facsimile, within three (3) business day of such
default (with the original delivered by overnight or two day courier), and the
Holder shall give notice to the Company by facsimile within five business days
of receipt of the original Notice of Conversion Default (with the original
delivered by overnight or two day courier) of its election to either nullify or
confirm the Notice of Conversion.
The Company agrees to pay to all Holders of outstanding Debentures
payments for a Conversion Default ("Conversion Default Payments") in the amount
of (N/365) x (.24) x the initial issuance price of the outstanding and/or
tendered but not converted Debentures held by each Holder where N = the number
of days from the Conversion Default Date to the date (the "Authorization Date")
that the Company authorizes a sufficient number of shares of Common Stock to
effect conversion of all remaining Debentures. The Company shall send notice
("Authorization Notice") to each Holder of outstanding Debentures that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of Holder's accrued Conversion Default Payments. The accrued
Conversion Default shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate, at the Holder's option, payable as follows: (i) in
the event Holder elects to take such payment in cash, cash payments shall be
made to such Holder of outstanding Debentures by the fifth day of the following
calendar month, or (ii) in the event Holder elects to take such payment in
stock, the Holder may convert such payment amount into Common Stock at the
conversion rate set forth in section 4(d) at any time after the 5th day of the
calendar month following the month in which the Authorization Notice was
received, until the expiration of the mandatory 24 month conversion period.
The Company acknowledges that its failure to maintain a sufficient number
of authorized but unissued shares of Common Stock to effect in full a conversion
of the Debentures will cause the Holder to suffer damages in an amount that will
be difficult to ascertain. Accordingly, the parties agree that it is appropriate
to include in this Agreement a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set forth in this
section represents the parties' good faith effort to quantify such damages and,
as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to deliver the Common Stock
pursuant to the terms of this Debenture.
6
<PAGE> 7
Nothing herein shall limit the Holder's right to pursue actual damages for
the Company's failure to maintain a sufficient number of authorized shares of
Common Stock.
(i) The Company shall furnish to Holder such number of prospectuses
and other documents incidental to the registration of the shares of Common Stock
underlying the Debentures, including any amendment of or supplements thereto.
(j) The Holder is limited in the amount of this Debenture it may
convert and own. Other than the Mandatory Conversion provisions contained in
this Debenture which are not limited by the following, in no other event shall
the Holder be entitled to convert any amount of Debentures in excess of that
amount upon conversion of which the sum of (1) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Debenture, and (2) the number of shares of Common
Stock issuable upon the conversion of the Debentures with respect to which the
determination of this provision is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.9% of the outstanding
shares of Common Stock of the Company. For purposes of this provision to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13 D-G thereunder, except as otherwise provided in
clause (1) of such provision.
Section 3.3. Fractional Shares. The Company shall not issue fractional
shares of Common Stock, or scrip representing fractions of such shares, upon the
conversion of this Debenture. Instead, the Company shall round up or down, as
the case may be, to the nearest whole share.
Section 3.4. Taxes on Conversion. The Company shall pay any documentary,
stamp or similar issue or transfer tax due on the issue of shares of Common
Stock upon the conversion of this Debenture. However, the Holder shall pay any
such tax which is due because the shares are issued in a name other than its
name.
Section 3.5. Company to Reserve Stock. The Company shall reserve the
number of shares of Common Stock required pursuant to and upon the terms set
forth in Section 3(a) of the Subscription Agreement dated June of 1998, to
permit the conversion of this Debenture. All shares of Common Stock which may be
issued upon the conversion hereof shall upon issuance be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issuance thereof.
Section 3.6. Restrictions on Transfer. This Debenture has not been
registered under the Securities Act of 1933, as amended, (the "Acts") and is
being
7
<PAGE> 8
issued under Section 4(2) of the Act and Rule 506 of Regulation D promulgated
under the Act. This Debenture and the Common Stock issuable upon the conversion
thereof may only be offered or sold pursuant to registration under or an
exemption from the Act.
Section 3.7. Mergers, Etc. If the Company merges or consolidates with
another corporation or sells or transfers all or substantially all of its assets
to another person and the holders of the Common Stock are entitled to receive
stock, securities or property in respect of or in exchange for Common Stock,
then as a condition of such merger, consolidation, sale or transfer, the Company
and any such successor, purchaser or transferee shall amend this Debenture to
provide that it may thereafter be converted on the terms and subject to the
conditions set forth above into the kind and amount of stock, securities or
property receivable upon such merger, consolidation, sale or transfer by a
holder of the number of shares of Common Stock into which this Debenture might
have been converted immediately before such merger, consolidation, sale or
transfer, subject to adjustments which shall be as nearly equivalent as may be
practicable to adjustments provided for in this Article 3.
Article 4. Mergers
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless such person assumes in
writing the obligations of the Company under this Debenture and immediately
after such transaction no Event of Default exists. Any reference herein to the
Company shall refer to such surviving or transferee corporation and the
obligations of the Company shall terminate upon such written assumption.
Article 5. Reports
The Company will mail to the Holder hereof at its address as shown on the
Register a copy of any annual, quarterly or current report that it files with
the Securities and Exchange Commission promptly after the filing thereof and a
copy of any annual, quarterly or other report or proxy statement that it gives
to its shareholders generally at the time such report or statement is sent to
shareholders.
Article 6. Defaults and Remedies
Section 6.1. Events of Default. An "Event of Default" occurs if (a) the
Company does not make the payment of the principal of this Debenture when the
same becomes due and payable at maturity, upon redemption or otherwise, (b) the
Company does not make a payment, other than a payment of principal, for a period
of 5 business days thereafter, (c) the Company fails to comply with any of its
other agreements in this Debenture and such failure continues for the period and
after the notice specified below, (d) the Company pursuant to or within the
meaning of any Bankruptcy Law (as hereinafter defined): (i) commences a
8
<PAGE> 9
voluntary case; (ii) consents to the entry of an order for relief against it in
an involuntary case; (iii) consents to the appointment of a Custodian (as
hereinafter defined) of it or for all or substantially all of its property or
(iv) makes a general assignment for the benefit of its creditors or (v) a court
of competent jurisdiction enters an order or decree under any Bankruptcy Law
that: (A) is for relief against the Company in an involuntary case; (B) appoints
a Custodian of the Company or for all or substantially all of its property or
(C) orders the liquidation of the Company, and the order or decree remains
unstayed and in effect for 60 days, (e) the Company's Common Stock is no longer
listed on any recognized exchange including electronic over-the-counter bulletin
board. As used in this Section 6.1, the term "Bankruptcy Law" means Title 11 of
the United States Code or any similar federal or state law for the relief of
debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law. A default under clause (c) above
is not an Event of Default until the holders of at least 25% of the aggregate
principal amount of the Debentures outstanding notify the Company of such
default and the Company does not cure it within five (5) business days after the
receipt of such notice, which must specify the default, demand that it be
remedied and state that it is a "Notice of Default".
Section 6.2. Acceleration. If an Event of Default occurs and is
continuing, the Holder hereof by notice to the Company, may declare the
remaining principal amount of this Debenture to be due and payable. Upon such
declaration, the remaining principal amount shall be due and payable immediately
Article 7. Registered Debentures
Section 7.1. Series. This Debenture is one of a numbered series of
Debentures which are identical except as to the principal amount and date of
issuance thereof and as to any restriction on the transfer thereof in order to
comply with the Securities Act of 1933 and the regulations of the Securities and
Exchange Commission promulgated thereunder. Such Debentures are referred to
herein collectively as the "Debentures". The Debentures shall be issued in whole
multiples of $5,000.
Section 7.2. Record Ownership. The Company, or its attorney, shall
maintain a register of the holders of the Debentures (the "Register") showing
their names and addresses and the serial numbers and principal amounts of
Debentures issued to or transferred of record by them from time to time. The
Register may be maintained in electronic, magnetic or other computerized form.
The Company may treat the person named as the Holder of this Debenture in the
Register as the sole owner of this Debenture. The Holder of this Debenture is
the person exclusively entitled to receive payments of interest on this
Debenture, receive notifications with respect to this Debenture, convert it into
Common Stock and otherwise exercise all of the rights and powers as the absolute
owner hereof.
Section 7.3. Registration of Transfer. Transfers of this Debenture may be
registered on the books of the Company maintained for such purpose pursuant to
9
<PAGE> 10
Section 7.2 above (i.e., the Register). Transfers shall be registered when this
Debenture is presented to the Company with a request to register the transfer
hereof and the Debenture is duly endorsed by the appropriate person, reasonable
assurances are given that the endorsements are genuine and effective, and the
Company has received evidence satisfactory to it that such transfer is rightful
and in compliance with all applicable laws, including tax laws and state and
federal securities laws. When this Debenture is presented for transfer and duly
transferred hereunder, it shall be canceled and a new Debenture showing the name
of the transferee as the record holder thereof shall be issued in lieu hereof.
When this Debenture is presented to the Company with a reasonable request to
exchange it for an equal principal amount of Debentures of other denominations,
the Company shall make such exchange and shall cancel this Debenture and issue
in lieu thereof Debentures having a total principal amount equal to this
Debenture in such denominations as agreed to by the Company and Holder.
Section 7.4. Worn or Lost Debentures. If this Debenture becomes worn,
defaced or mutilated but is still substantially intact and recognizable, the
Company or its agent may issue a new Debenture in lieu hereof upon its
surrender. Where the Holder of this Debenture claims that the Debenture has been
lost, destroyed or wrongfully taken, the Company shall issue a new Debenture in
place of the original Debenture if the Holder so requests by written notice to
the Company actually received by the Company before it is notified that the
Debenture has been acquired by a bona fide purchaser and the Holder has
delivered to the Company an indemnity bond in such amount and issued by such
surety as the Company deems satisfactory together with an affidavit of the
Holder setting forth the facts concerning such loss, destruction or wrongful
taking and such other information in such form with such proof or verification
as the Company may request.
Article 8. Notices
Any notice which is required or convenient under the terms of this
Debenture shall be duly given if it is in writing and delivered in person or
mailed by first class mail, postage prepaid and directed to the Holder of the
Debenture at its address as it appears on the Register or if to the Company to
its principal executive offices, with a copy by fax to Gary B. Wolff, Esq. 747
Third Avenue, New York, NY 10017. The time when such notice is sent shall be the
time of the giving of the notice.
Article 9. Time
Where this Debenture authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period of time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
10
<PAGE> 11
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
performed in accordance with the terms of this Debenture. A "business day" shall
mean a day on which the banks in New York are not required or allowed to be
closed.
Article 10. Waivers
The holders of a majority in principal amount of the Debentures may waive
a default or rescind the declaration of an Event of Default and its consequences
except for a default in the payment of principal or conversion into Common
Stock.
Article 11. Rules of Construction
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender. The
numbers and titles of sections contained in the Debenture are inserted for
convenience of reference only, and they neither form a part of this Debenture
nor are they to be used in the construction or interpretation hereof. Wherever,
in this Debenture, a determination of the Company is required or allowed, such
determination shall be made by a majority of the Board of Directors of the
Company and if it is made in good faith, it shall be conclusive and binding upon
the Company and the Holder of this Debenture.
Article 12. Governing Law
The validity, terms, performance and enforcement of this Debenture shall
be governed and construed by the provisions hereof and in accordance with the
laws of the State of Delaware applicable to agreements that are negotiated,
executed, delivered and performed solely in the State of Delaware.
Article 13. Litigation
(a) Forum Selection and Consent to Jurisdiction. Any litigation based
thereon, or arising out of, under, or in connection with, this agreement or any
course of conduct, course of dealing, statements (whether oral or written) or
actions of the Company or Holder shall be brought and maintained exclusively in
the courts of the State of New York. The Company hereby expressly and
irrevocably submits to the jurisdiction of the state and federal courts of the
State of New York for the purpose of any such litigation as set forth above and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Company further irrevocably consents to the
11
<PAGE> 12
service of process by registered mail, postage prepaid, or by personal service
within or without the State of New York. The Company hereby expressly and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may have or hereafter may have to the laying of venue of any such litigation
brought in any such court referred to above and any claim that any such
litigation has been brought in any inconvenient forum. To the extent that the
Company has or hereafter may acquire any immunity from jurisdiction of any court
or from any legal process (whether through service or notice, attachment prior
to judgment, attachment in aid of execution or otherwise) with respect to itself
or its property, the Company hereby irrevocably waives such immunity in respect
of its obligations under this agreement and the other loan documents.
(b) Waiver of Jury Trial. The Holder and the Company hereby knowingly,
voluntarily and intentionally waive any rights they may have to a trial by jury
in respect of any litigation based hereon, or arising out of, under, or in
connection with, this agreement, or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Holder or the Company.
The Company acknowledges and agrees that it has received full and sufficient
consideration for this provision and that this provision is a material
inducement for the Holder entering into this agreement.
(c) Submission To Jurisdiction. Any legal action or proceeding in
connection with this Agreement or the performance hereof may be brought in the
state and federal courts located in the State of New York and the parties hereby
irrevocably submit to the non-exclusive jurisdiction of such courts for the
purpose of any such action or proceeding.
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of the
date first written above.
SWISSRAY INTERNATIONAL, INC.
By
-----------------------------
Name: Ruedi G. Laupper
Title: Chairman and President
12
<PAGE> 13
Exhibit A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debentures.)
The undersigned hereby irrevocably elects, as of _____________,199_ to
convert $__________________ of the Debentures into Shares of Common Stock (the
"Shares") of SWISSRAY INTERNATIONAL, INC. (the "Company") according to the
conditions set forth in the Subscription Agreement dated June, 1998.
Date of Conversion______________________________________________________________
Applicable Conversion Price_____________________________________________________
Number of Shares Issuable upon this conversion__________________________________
Signature_______________________________________________________________________
[Name]
Address_________________________________________________________________________
________________________________________________________________________________
Phone_________________________________ Fax_____________________________________
13
<PAGE> 14
Assignment of Debenture
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
- --------------------------------------------------------------------------------
(name, address and SSN or EIN of assignee)
Dollars ($ )
- --------------------------------------------------------------------------------
(principal amount of Debenture, $5,000 or integral multiples of $5,000)
of principal amount of this Debenture together with all accrued and unpaid
interest hereon.
Date: Signed:
---------------------------- ----------------------------------------
(Signature must conform in all respects
to name of Holder shown of face of
Debenture)
Signature Guaranteed:
14
<PAGE> 1
EXHIBIT 23.1
[BEDERSON & COMPANY LLP LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of both our reports (1) dated September 16, 1997,
except for notes 1, 17,20,22, 23, 25, 27, 29, 30 and 31, as to which date is
March 6, 1998 on our audits of the financial statement of Swissray
International, Inc. for the years ended June 30, 1997 and 1996 (2) dated
September 8, 1995, except for note 24, as to which the date is September 20,
1995 on our audits of the financial statement of Swissray International, Inc.
for the six months ended June 30, 1995 and the years ended December 31, 1994 and
1993 in Swissray International, Inc.'s Form S-1 filed July 24, 1998.
--------------------------
BEDERSON & COMPANY LLP
West Orange, New Jersey
July 24, 1998
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