<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(AMENDMENT NO. 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________to_________________________
Commission file number 0-26972
SWISSRAY International, Inc.
(Exact name of registrant as specified in its charter)
New York 16-0950197
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 East 32nd Street, Suite 34-B, New York, New York 10016
(Address of principal executive offices) (Zip Code)
New York (212) 545 0095 Switzerland 011 41 41 919 90 50
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the issuer's class of common stock,
as of the latest practicable date.
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 19, 1998 is 28,333,749 shares, all of one class of $.01 par
value common stock.
<PAGE> 2
TABLE OF CONTENTS Page
No. PART I
Item 1. Financial Statements F1-F6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 3-7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 7
PART II
Item 1. Legal Proceedings 7
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
2
<PAGE> 3
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS December 31, June 30,
1997 1997
----------- -----------
(Unaudited) (Restated)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,225,272 $ 3,091,307
Accounts receivable, net of allowance for doubtful
accounts of $ 93,663 (December 1997) and $ 148,390 (June 1997) 6,461,180 5,154,794
Inventories 5,938,590 3,911,107
Prepaid expenses and sundry receivables 2,292,362 1,936,138
----------- -----------
TOTAL CURRENT ASSETS 17,917,404 14,093,346
----------- -----------
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation
of $ 446,280 (December 1997) and $ 320,110 (June 1997) 4,462,566 4,336,617
----------- -----------
OTHER ASSETS
Due from stockholders 351 69,587
Loan receivable 20,859 17,396
Accounts receivable - long-term, net of allowance of $ 815,844
(December 1997) and $ 814,178 (June 1997) for doubtful account 132,880 240,912
Licensing agreement, net of accumulated amortization of
$ 1,117,480 (December 1997) and $ 869,151 (June 1997) 3,849,095 4,097,424
Patents and trademarks, net of accumulated amortization of
$ 68,504 (December 1997) and $ 54,941 (June 1997) 229,869 206,003
Capitalized computer software, net of accumulated amortization of
$ 71,699 (December 1997) and $ 34,512 (June 1997) 418,665 317,524
Organization cost, net of accumulated amortization of
$ 3,151 (December 1997) and $ 2,464 (June 1997) 5,234 5,921
Debt Issuance cost, net of accumulated amortization of $125,190
(December 1997) and $200,566 (June 1997) 564,810 435,319
Security deposits 34,250 43,728
Note receivable - long-term 513,643 513,643
Goodwill, net of accumulated amortization of $ 54,181 (December
1997) and $ 9,023 (June 1997) 2,298,931 410,814
----------- -----------
TOTAL OTHER ASSETS 8,068,588 6,358,271
----------- -----------
TOTAL ASSETS $30,448,558 $24,788,234
=========== ===========
</TABLE>
F1
<PAGE> 4
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 121,111 $ 243,135
Notes payable - banks 4,079,807 3,834,706
Notes payable - short-term 20,738 --
Loan payable 134,068 133,008
Accounts payable 6,206,632 5,336,749
Accrued expenses 1,324,380 1,401,938
Customer deposits 29,000 170,436
Due to stockholders and officers -- 139,826
------------ ------------
TOTAL CURRENT LIABILITIES 11,915,737 11,259,798
------------ ------------
CONVERTIBLE DEBENTURES 8,773,285 6,000,000
Conversion Benefit (1,595,735) (689,441)
------------ ------------
Net Convertible Debentures 7,177,550 5,310,559
------------ ------------
LONG-TERM DEBT, less current maturities 940,314 524,689
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 268,098 196,944
Additional paid-in capital 46,589,447 35,780,409
Accumulated deficit (34,933,438) (26,855,631)
Accumulated other comprehensive loss (1,509,150) (1,428,534)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 10,414,957 7,693,188
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 30,448,558 $ 24,788,234
============ ============
</TABLE>
F2
<PAGE> 5
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, December 31,
---------------------------- ----------------------------
1997 1996 1997 1996
Revised
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 11,302,578 $ 6,072,419 $ 6,043,675 $ 3,605,244
COST OF SALES 8,590,947 3,018,248 5,277,856 1,828,991
------------ ------------ ------------ ------------
GROSS PROFIT 2,711,631 3,054,171 765,819 1,776,253
------------ ------------ ------------ ------------
OPERATING EXPENSES
Officers and directors compensation 250,547 280,330 154,812 153,119
Salaries 1,926,769 1,107,885 1,305,092 605,721
Selling 1,674,198 556,744 1,186,167 362,365
Research and development 1,422,482 1,837,833 948,643 1,338,311
General and administrative 883,598 1,225,099 671,419 356,797
Other operating expenses 264,398 876,084 128,521 544,182
Bad debts (25,046) -- 14,918 --
Depreciation and amortization 436,646 355,936 237,923 182,978
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 6,833,591 6,239,911 4,647,494 3,543,473
------------ ------------ ------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSES)
AND INCOME TAXES (4,121,960) (3,185,740) (3,881,675) (1,767,220)
Other Income 156,145 (104,233) 57,610 (124,131)
Interest Expenses (4,416,914) (137,477) (1,722,761) (107,496)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES) (4,260,769) (241,710) (1,665,151) (231,627)
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEMS (8,382,730) (3,427,450) (5,546,826) (1,998,847)
Income Tax provision (Benefit) -- -- (876) --
Early extinguishment of Debt 304,923 -- 154,215 --
NET LOSS $ (8,077,807) $ (3,427,450) $ (5,393,487) $ (1,998,847)
============ ============ ============ ============
LOSS PER COMMON SHARE (0.32) (0.20) (0.22) (0.14)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 24,959,178 14,186,289 24,959,178 14,538,514
</TABLE>
F3
<PAGE> 6
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
December 31,
--------------------------
1997 1996
--------------------------
Revised
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(8,077,807) $(3,427,450)
Adjustment to reconcile net loss to net
cash from operating activities
Depreciation and amortization 471,094 355,936
Provision for bad debts (53,061) (9,968)
Financing costs incurred 240,347 --
Issuance of common stock in lieu of
interest payments 93,254 --
Interest expense on Debt issuance cost and
conversion benefit 4,033,747 --
Early extinguishment of Debt (gain) (304,923) --
Operating expenses through issuance of Common Stock -- 588,846
(Increase) decrease in operating assets:
Accounts receivable (1,145,294) 254,732
Inventories (2,027,483) (1,542,475)
Prepaid expenses and sundry receivables (356,224) (409,004)
Increase (decrease) in operating liabilities:
Accounts payable 869,883 66,252
Accounts payable - affiliates -- 771
Accrued expenses (77,558) 589,817
Customers deposits (141,436) (14,238)
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (6,475,460) (3,546,781)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property and equipment (252,119) (133,552)
Patents and trademarks (37,430) --
Other intangibles (138,327) (547,636)
Asset Purchase net of cash received (591,108) --
Collection of note receivable -- 161,412
Security deposits 9,478 (27)
Loans receivable (3,463) --
Repayments from (advances to) affiliates -- 234
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (1,012,969) (519,569)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 266,900 3,215,898
Proceeds from long-term borrowings 477,892 --
Principal payment of short-term borrowings (122,024) (2,069,828)
Principal payment of long-term borrowings -- (511,101)
Issuance of common stock for cash 6,996,370 1,533,000
Repayment from (advances to) stockholders and officers (70,590) 2,586
----------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES 7,548,547 2,170,555
----------- -----------
EFFECT OF EXCHANGE RATE ON CASH 73,847 106,385
----------- -----------
NET INCREASE (DECREASE) IN CASH 133,965 (1,789,410)
CASH AND CASH EQUIVALENT - beginning of period 3,091,307 3,252,685
----------- -----------
CASH AND CASH EQUIVALENTS - end of period $ 3,225,272 $ 1,463,275
=========== ===========
</TABLE>
F4
<PAGE> 7
<TABLE>
<CAPTION>
Cumulative
Common Stock Additional Foreign
------------------------ Paid-in Accumulated Currency
Shares Amount Capital Deficit Adjustment Total
---------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE JULY 1, 1997 19,694,433 $ 196,944 $35,780,409 $(26,855,631) $(1,428,534) $ 7,693,188
For the six month ended December 31,1997
Issuance of common stock for cash 6,517,079 65,171 5,035,062 -- -- 5,100,233
Issuance of common stock for asset purchase 333,333 3,333 1,496,664 -- -- 1,499,997
Issuance of common stock in lieu of
interest payments 95,991 960 92,294 -- -- 93,254
Stock options exercised for cash 169,000 1,690 121,680 -- -- 123,370
Beneficial conversion feature of
convertible debentures 4,460,213 4,460,213
Early extinguishment of Debt (396,875) (396,875)
Foreign currency translation adjustment -- -- -- -- (80,616) (80,616)
Net loss -- -- -- (8,077,807) -- (8,077,807)
BALANCE DECEMBER 31, 1997 26,809,836 $ 268,098 $46,589,447 $(34,933,438) $(1,509,150) $ 10,414,957
========== =========== =========== ============ =========== ============
</TABLE>
F5
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997
(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 December 31, 1997 and the results of operations and cash
flows for the interim period presented. Operating results for the six months
ended December 31, 1997 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 $3,767,005 $2,632,256
Work in process 903,444 468,204
Finished goods 1,268,141 810,647
---------- ----------
$5,938,590 $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.
F6
<PAGE> 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
All references herein to the "Registrant" refer to Swissray
International Inc. All references herein to the "Company" refer to Swissray
International, Inc. and its subsidiaries.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this discussion which are not historical facts may be
considered forward looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, including estimated cost savings to
be realized from restructuring activities and estimated proceeds from and timing
of facility sales. The words "believe," "expect," "anticipate," "estimate", and
similar expressions identify forward looking statements. Any forward looking
statements involve risks and uncertainties that could cause actual events or
results to differ, perhaps materially, from the events or results described in
the forward looking statements. Readers are cautioned not to place undue
reliance on these forward looking statements, which speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward looking statements, whether as a result of new information, future
events or otherwise. Risks associated with the Company's forward looking
statements include, but are not limited to, risks associated with the Company's
history of losses and uncertain profitability, need for market acceptance of the
AddOn Multi System, reliance on a single product, reliance on large customers,
risks associated with the Company's international operations, currency
fluctuations, the risk of new and different legal and regulatory requirements,
governmental approvals, tariffs and trade barriers, risks associated with
competition and technological innovation by competitors, dependence on patents
and proprietary technology, general economic conditions and conditions in the
healthcare industry, reliance on key management, limited manufacturing history
with respect to the AddOn-Multi-System, dependence on sole source suppliers,
future capital needs and uncertainty of additional financing, potential recalls
and product liability, dilution, effects of outstanding convertible debentures,
limited public market, liquidity, possible volatility of stock price, recently
adopted new listing standards for NASDAQ securities and environmental matters.
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements, related notes and other information
included in this quarterly report on Form 10-Q.
GENERAL
On October 17, 1997, the Company acquired substantially all of the
assets of Service Support Group LLC, located in Gig Harbor, Washington ("SSG").
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. On October 17, 1997, SSG's three
co-owners, Kenneth Montler, Michael Harle and Gary Durday signed three year
employment agreements with the Company. Kenneth Montler has been appointed Chief
Executive Officer of Swissray Medical Systems, Inc. Gary Durday has been
appointed Chief Financial Officer of Swissray Medical Systems, Inc. and Michael
Harle has been appointed Chief Executive Officer of Swissray Healthcare, Inc.,
which is intended to be engaged in providing maintenance management, capital
planning and other services to hospital imaging departments and imaging centers.
On February 11, 1998 the Company signed a letter of intent to sell substantially
all of the Assets and Liabilities of its Subsidiary Swissray Empower Inc. to
E.M. Parker Company Inc.
3
<PAGE> 10
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 Registrant, 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 Registrant, which was renamed SR Medical AG.
THREE-MONTH PERIOD ENDED DECEMBER 31, 1997 COMPARED TO THREE-MONTH PERIOD ENDED
DECEMBER 31, 1996
RESULTS OF OPERATIONS
Net sales amounted to $6,043,675 for the three-month period ended December 31,
1997 compared to $3,605,224, an increase of $2,438,451, or 67.6%, from the
three-month period ended December 31, 1996. The increase in net sales was
partially due to the acquisition of Empower on April 1, 1997. The Company also
increased sales in Swiss Francs made under the Philips OEM Agreement by
approximately 243%.
Gross profit decreased by $1,010,414, or 56.8%, to $765,819 for the
three-month period ended December 31, 1997 from $1,776,233 for the three-month
period ended December 31, 1996. Gross profit as a percentage of net revenues
decreased to 12.7% for the three-month period ended December 31, 1997 from 49.2%
for the three-month period ended December 31, 1996 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
three month ended December 31, 1997 compared to the comparative period ended
December 31, 1996 where Sales of high margin products and revenue from servicing
of x-ray equipment with high margin dominated.
Operating expenses increased by $1,104,020, or 31.2% to $4,647,493, or
76.9% of net revenues, for the three-month period ended December 31, 1997, from
$3,543,473, or 98.3% of net revenues for the three-month period ended December
31, 1996. The single largest items of operating expenses continued to be
officers and directors compensation and salaries of $1,459,904 or 24.2% of net
sales for the three-month period ended December 31, 1997 compared to $758,840 or
21% of net sales for the three-month period ended December 31, 1996. Selling
expenses were $1,186,167 or 19.6% for the three-month period ended December 31,
1997 compared to $362,365 or 10.1% for the three-month period ended December 31,
1996. The increase in selling expenses was partially due to the selling expenses
attributable to Empower, Inc. and Swissray Medical Systems, Inc., both of which
were not subsidiaries of the Company during the three-month period ended
December 31, 1996 as well as the efforts of the Company to market their digital
Add On System in the US. Research and development expenses decreased $389,668 to
$948,643 or 15.7% of net sales for the three-month period ended December 31,
1997 compared to $1,338,311 or 37.1% of net sales for the three-month period
ended December 31, 1996. Interest expenses increased to $1,722,761 for the three
month ended December 31, 1997 compared to $107,495 for the three month ended
December 31, 1996. This increase is primarily due to the interest expense for
amortization of Debenture issuance cost and Conversion Benefit. Gain on
extinguishment of Debt was $154,215 for the three month ended December 31, 1997
compared to $-0- for the three month ended December 31, 1996. The extinguishment
gain resulted from refinancing of Convertible debentures.
4
<PAGE> 11
SIX-MONTH PERIOD ENDED DECEMBER 31, 1997 COMPARED TO SIX-MONTH PERIOD ENDED
DECEMBER 31, 1996
RESULTS OF OPERATIONS
Net sales amounted to $11,302,578 for the six-month period ended
December 31, 1997 compared to $6,072,419, an increase of $5,230,159, or 86.13%,
from the six-month period ended December 31, 1996. The increase in net sales was
partially due to the acquisition of Empower on April 1, 1997 and the Asset
purchase of Service Support Group LLC. The Company could also increase sales in
Swiss Francs made under the Philips OEM Agreement by approximately 304%.
Gross profit decreased by $342,540, or 11.2%, to $2,711,631, for the
six-month period ended December 31, 1997 from $3,054,171 for the six-month
period ended December 31, 1996. Gross profit as a percentage of net revenues
decreased to 24% for the six-month period ended December 31, 1997 from 50% for
the six-month period ended December 31, 1996. 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 six
month ended December 31, 1997 compared to the comparative period ended December
31, 1996 where Sales of high margin products dominated.
Operating expenses increased by $593,680, or 9.5% to $6,833,591, or
60.5% of net revenues, for the six-month period ended December 31, 1997, from
$6,239,911, or 102.8% of net revenues for the six-month period ended December
31, 1996. The single largest items of operating expenses continued to be
officers and directors compensation and salaries of $2,177,316 or 19.3% of net
sales for the six-month period ended December 31, 1997 compared to $1,388,215 or
22.9% of net sales for the six-month period ended December 31, 1996. Selling
expenses were $1,674,198 or 14.8% for the six-month period ended December 31,
1997 compared to $556,744 or 9.2% for the six-month period ended December 31,
1996. The increase in selling expenses was partially due to the selling expenses
attributable to Empower, Inc. and Swissray Medical Systems, Inc., both of which
were not subsidiaries of the Company during the six-month period ended December
31, 1996, as well as the efforts of the Company to market their digital Add On
System in the US. Research and development expenses decreased $415,351 to
$1,422,482 or 12.6% of net sales for the six-month period ended December 31,
1997 compared to $1,837,833 or 30.3% of net sales for the six-month period ended
December 31, 1996. Interest expenses increased to $4,416,914 for the six month
ended December 31, 1997 compared to $137,477 for the six month ended December
31, 1996. 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 six month ended December 31, 1997
compared to $-0- for the six month ended December 31, 1996. The extinguishment
gain resulted from refinancing of Convertible debentures.
FINANCIAL CONDITION
December 31, 1997 compared to June 30, 1997
Total assets of the Company on December 31, 1997 increased by
$5,660,324 to $30,448,558 from $24,788,234 on June 30, 1997, primarily due to
the increase of Current Assets and Goodwill resulting from the purchase of
substantially all of the assets of Service Support Group LLC, located in Gig
Harbor, Washington ("SSG"). Current Assets increased $3,824,058 to $17,917,404
on December 31, 1997 from $14,093,346 on June 30, 1997. The increase in current
assets is primarily attributable to the increase in Accounts payable and
5
<PAGE> 12
inventory. Other Assets increased $1,710,317 to $8,068,588 on December 31, 1997
from $6,358,271 on June 30, 1997. The increase is primarily due to the increase
in Goodwill.
On December 31, 1997, the Company had total liabilities of $20,033,601
compared to $17,095,046 on June 30, 1997. On December 31, 1997, current
liabilities were $11,915,737 compared to $11,259,798 on June 30, 1997. Working
capital at December 31, 1997 was $6,001,667 compared to $2,833,548 at June 30,
1997.
CASH FLOW AND CAPITAL EXPENDITURES SIX MONTHS PERIOD ENDED DECEMBER 31, 1997
COMPARED TO SIX MONTHS PERIOD ENDED DECEMBER 31, 1996.
Cash used by operating activities for the six months ended December 31,
1997 increased to $6,475,460 from $3,546,781 for the six months ended December
31, 1996 and cash used by investing activities increased to $1,012,969 for the
six months ended December 31, 1997 from $519,569 for the six months ended
December 31, 1996. Cash flow from financing activities for the six months ended
December 31, 1997 was $7,548,547 compared to $2,170,555 for the period ended
December 31, 1996.
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
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 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 are 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 are 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 are subject to mandatory
conversion by the Company on the 36th monthly anniversary of the date of
issuance of the Convertible Debentures.
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 registrand 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 6,1997 holding $1,850,000 of such Convertible
Debentures as repayment in full of the Company's obligations under such
6
<PAGE> 13
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
representations 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 commencing 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 Debentures not so converted are subject to
mandatory conversion by the Company on the 24h monthly anniversary of the date
of issuance of the Convertible Debentures.
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 US 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 US dollars can vary significantly as a result of
changes in currency exchange rates (in particular the exchange rate between the
Swiss Franc and the US dollar).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
PART II OTHER INFORMATION
Item 1. Legal Proceedings
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 was 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 agreed to dismiss all claims and counterclaims against each
other, and formal written releases have been exchanged.
7
<PAGE> 14
On or about October 15, 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 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 Registrant
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.
Item 2. CHANGES IN SECURITIES
Not applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 23, 1997, at the Company's Annual Meeting of Shareholders,
the following matters were submitted to a vote of the holders of the Company's
common stock, $.01 par value per share:
1. For the following persons to serve as directors of the Company until
the next annual meeting of shareholders and until their respective successors
are duly elected and qualified:
<TABLE>
<CAPTION>
For Election Withheld Not Voted Total
<S> <C> <C> <C> <C>
Ruedi G. Laupper 15,446,044 9,837 1 15,455,882
Josef Laupper 15,445,488 10,393 1 15,455,882
Ueli Laupper 15,444,488 11,393 1 15,455,882
*Akbar Seddigh 15,446,044 9,837 1 15,455,882
*Daniel A. Wuersch 15,445,488 10,393 1 15,455,882
Erwin Zimmerli 15,444,488 11,393 1 15,455,882
</TABLE>
* These Individuals are no longer directors. Their resignations were not the
result of any disagreement whatsoever with the Registrant on any matter relating
to its operations, policies or practices.
2. To ratify the appointment by the Board of Directors of the Company
of STG Coopers & Lybrand AG as the independent auditors of the Company for the
fiscal year ending June 30, 1998:
<TABLE>
<CAPTION>
For the Against the
Total Votes Resolution Resolution Abstaining Not Voted
<S> <C> <C> <C> <C>
15,455,882 15,449,039 6,830 12 1
</TABLE>
3. To approve a proposal to increase the number of shares of Common
Stock the Company is authorized to issue from 30,000,000 to 50,000,000 (Proposal
3(a)) and a proposal to create a class of preferred stock (Proposal 3(b)):
8
<PAGE> 15
<TABLE>
<CAPTION>
For the Against the
Total Votes Resolution Resolution Abstaining
<S> <C> <C> <C> <C>
Proposal 3(a) 15,455,882 15,339,530 62,831 53,520
Proposal 3(b) 15,455,882 5,587,572 173,255 64,142
</TABLE>
<TABLE>
<CAPTION>
Not Voted
<S> <C>
Proposal 3(a) 1
Proposal 3(b) 9,630,913
</TABLE>
Because the affirmative vote of holders of a majority of the outstanding shares
of Common Stock of the Company would have been required to approve proposal
3(b), such proposal was not approved by the shareholders of the Company.
4. To approve the adoption of the Company's 1997 Stock Option Plan:
<TABLE>
<CAPTION>
For the Against the
Total Votes Resolution Resolution Abstaining Not Voted
<S> <C> <C> <C> <C>
15,455,882 5,609,685 153,756 61,528 9,630,913
</TABLE>
Item 5. OTHER INFORMATION
The financial statements for the fiscal year ended June 30, 1997 and the six
months ended December 31, 1996 (unaudited) have been restated to properly record
the accounting treatment of certain beneficial conversion features and debt
issuance cost of convertible debentures issued and the accounting for the value
of stock options granted during the year ended June 30, 1997 and six months
ended December 31, 1996 (unaudited). The net effect of such restatements on the
June 30, 1997 financial statements resulted in an increase in total assets of
$435,619, a decrease in total liabilities of $689,141, an increase in
stockholders equity of $1,124,760 and an increase in the net loss of $588,846
for the six months ended December 31, 1996 (unaudited).
On December 18, 1997, the Federal Food and Drug Administration approved the
AddOn-Multi-System for marketing in the United States.
On December 18, 1997, Ruedi G. Laupper entered into a five-year
employment agreement with Swissray Management AG, a wholly owned subsidiary of
the Registrant, 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. Such bonus shall be equal to 25% of EBIT (earnings before interest and
taxes) and is 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 Company's annual report on Form 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
9
<PAGE> 16
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 Company Registrant guarantees the
obligation of Swissray Management AG in the event of a default by it under such
agreement.
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 9,975 Swiss francs (or $6,964) respectively, $1,500 and 1,000
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 employee's 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, which agreement may be terminated
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 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.
On December 18, 1997, the Company entered into an OEM Agreement (the
"EMED Agreement") with Raytheon E-Systems Inc., ("EMED") which provides for the
manufacture by EMED of PACS systems to be marketed world-wide by the Company.
The term of the EMED Agreement ends on June 30, 2000 unless renewed prior
thereto.
On December 29, 1997, the Company filed a Registration Statement with
the Securities and Exchange Commission with respect to the sale of up to
6,221,580 shares of Common Stock by the holders of $5,848,285 principal amount
of 8% Convertible Debentures issued by the Company between November 26 and
December 5, 1997. The Registration Statement was declared effective on March 12,
1998.
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 Registrant, 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 Registrant, which was
renamed SR Medical AG.
On February 11, 1998 the Company signed a letter of intent to sell
substantially the entire business of Swissray Empower Inc. ("Empower") To E.M.
Parker Company Inc.
The Registrant has 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 the recent
economic problems in that country, management considers it doubtful that this
order will be filled in the current calendar year or at all.
10
<PAGE> 17
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 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).
2.2 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).
(b) Reports on Form 8-K
Form 8-K, dated November 4, 1997 with respect to the acquisition of
Service Support Group LLC.
Form 8-K, dated November 14, 1997, with respect to the change in the
Company's certified public accountants.
Amendment No. 1 to Form 8-K, dated November 14, 1997, with respect to
the change in the Company's certified public accountants, filed on November 20,
1997.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SWISSRAY INTERNATIONAL, INC.
By: /s/ RUEDI G. LAUPPER
---------------------------------
Ruedi G. Laupper, Chairman of the
Board of Directors, President and
Chief Executive Officer
Date: March 20, 1998
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,225,272
<SECURITIES> 0
<RECEIVABLES> 6,554,843
<ALLOWANCES> 93,663
<INVENTORY> 5,938,590
<CURRENT-ASSETS> 17,917,404
<PP&E> 4,908,846
<DEPRECIATION> 446,280
<TOTAL-ASSETS> 30,448,558
<CURRENT-LIABILITIES> 11,915,737
<BONDS> 8,117,864
0
0
<COMMON> 268,098
<OTHER-SE> 10,146,859
<TOTAL-LIABILITY-AND-EQUITY> 30,448,558
<SALES> 11,302,578
<TOTAL-REVENUES> 11,302,578
<CGS> 8,590,947
<TOTAL-COSTS> 8,590,947
<OTHER-EXPENSES> 6,833,591
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,416,914
<INCOME-PRETAX> (8,382,730)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,160,987)
<DISCONTINUED> 0
<EXTRAORDINARY> 304,923
<CHANGES> 0
<NET-INCOME> (8,077,807)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.22)
</TABLE>
