<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1998
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 41 914 12 00
(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 April 30, 1998 is 32,011,137 shares, all of one class of $.01 par
value common stock.
1
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C>
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 8
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 8
</TABLE>
2
<PAGE> 3
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>
F1
<PAGE> 4
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>
F2
<PAGE> 5
<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>
F3
<PAGE> 6
<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
==================================
F4
</TABLE>
<PAGE> 7
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>
F5
<PAGE> 8
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.
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 February 13, 1998 the Company entered into a Letter of Intent with
E.M. Parker, Inc. with respect to sale of a subsidiary's (Empower, Inc.) film
and x-ray accessories business. Terms of the transaction are currently being
negotiated.
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, was renamed SR Medical Holding
AG and sold all of the assets and liabilities of its sales and service
department to Teleray AG, a wholly owned subsidiary of the Registrant, which was
then renamed SR Medical AG.
3
<PAGE> 10
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
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%.
4
<PAGE> 11
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.
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.
5
<PAGE> 12
CASH FLOW AND CAPITAL EXPENDITURES NINE MONTHS PERIOD ENDED MARCH 31, 1998
COMPARED TO NINE MONTHS PERIOD ENDED MARCH 31, 1998.
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 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
6
<PAGE> 13
Common Stock of the Company commencing March 12, 1998 (the effective date of the
Registration Statement covering the underlying shares of common stock). 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 24th monthly
anniversary of the date of issuance of the Convertible Debentures. As of April
30, 1998 the aggregate principal amount of $2,165,696.50 in Convertible
Debentures had been converted leaving an unconverted balance of $3,682,588.50
On March 16, 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 the effective date of
the Registration Statement or May 15, 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 Company on the 24th 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 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. 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 Registrant filed necessary
responsive papers. As of March 31, 1998 such Motion remains pending. The Company
denies the allegations, intends to vigorously defend the litigation, and
7
<PAGE> 14
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
Not applicable
Item 5. OTHER INFORMATION
The financial statements for the fiscal year ended June 30, 1997 and
the nine months ended March 31, 1997 (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 nine
months ended March 31, 1997 (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 nine months ended March 31, 1997 (unaudited).
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 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.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - NONE-
(b) Reports on Form 8-K 8K/A2 date of report Nov. 7, 1997
filed April 6, 1998
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: May 13, 1998
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 2,298,625
<SECURITIES> 0
<RECEIVABLES> 3,386,607
<ALLOWANCES> 92,276
<INVENTORY> 8,446,340
<CURRENT-ASSETS> 16,262,530
<PP&E> 6,161,934
<DEPRECIATION> 520,334
<TOTAL-ASSETS> 29,924,319
<CURRENT-LIABILITIES> 10,425,769
<BONDS> 12,350,644
0
0
<COMMON> 291,956
<OTHER-SE> 6,856,050
<TOTAL-LIABILITY-AND-EQUITY> 29,924,319
<SALES> 17,800,994
<TOTAL-REVENUES> 17,800,994
<CGS> 13,921,137
<TOTAL-COSTS> 13,921,137
<OTHER-EXPENSES> 11,607,137
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,377,276
<INCOME-PRETAX> (14,903,758)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,903,758)
<DISCONTINUED> 0
<EXTRAORDINARY> 304,923
<CHANGES> 0
<NET-INCOME> (14,598,835)
<EPS-PRIMARY> (.60)
<EPS-DILUTED> (.26)
</TABLE>
