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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
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 May 10, 1999 is 12,006,222 shares, all of one class of $.01 par
value common stock.
1
<PAGE>
TABLE OF CONTENTS
Page
No.
PART I
Item 1. Financial Statements F1-F7
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 7-9
Item 2. Changes in Securities and Use of Proceeds 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security
Holders 9
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
2
<PAGE>
<TABLE>
<CAPTION>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
1999 1998
(Unaudited)
-------------- ----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,157,604 $ 1,281,552
Accounts receivable, net of allowance for doubtful
accounts of $ 32,998 and $ 32,356 2,125,109 2,584,651
Inventories 7,359,825 7,701,145
Prepaid expenses and sundry receivables 1,994,043 1,501,909
-------------- ----------------
Total Current Assets 12,636,581 13,069,257
-------------- ----------------
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation
of $ 903,911 and $ 581,077 6,250,621 6,010,378
-------------- ----------------
OTHER ASSETS
Loan receivable 17,093 20,005
Licensing agreement, net of accumulated amortization of 3,228,273 3,600,766
$ 1,738,302 and $ 1,365,809
Patents and trademarks, net of accumulated amortization of 207,184 230,614
$ 106,145 and $ 82,716
Software develompent costs, net of accumulated amortization of 373,641 455,318
$ 205,116 and $ 121,892
Security deposits 30,591 38,280
Note receivable - long-term, net of allowance of $ 30,733 and $ 30,733 513,643 513,643
Goodwill, net of accumulated amortization of $ 267,439 and $ 136,939 1,665,836 1,796,336
Debt issance costs on convertible debentures, net of accumulated
amortization of $ 259,166 and $ 60,000 51,834 180,000
-------------- ----------------
TOTAL OTHER ASSETS 6,088,095 6,834,962
-------------- ----------------
Total Assets $24,975,297 $ 25,914,597
-------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 183,638 $ 233,746
Notes payable - banks 4,229,644 3,551,091
Notes payable - short-term 2,740,000 -
Loan payable 130,590 125,029
Accounts payable 4,979,380 5,030,449
Accrued expenses 1,221,184 2,365,450
Restructuring 500,000 500,000
Customer deposits 34,348 176,583
Due to stockholders and officers - 2,206
-------------- ----------------
TOTAL CURRENT LIABILITIES 14,018,784 11,984,554
-------------- ----------------
CONVERTIBLE DEBENTURES 12,228,649 7,645,969
Conversion Benefit - (315,327)
-------------- ----------------
Net Convertible Debentures 12,228,649 7,330,642
-------------- ----------------
LONG-TERM DEBT, less current maturities 323,631 440,674
-------------- ----------------
COMMEN STOCK SUBJECT TO PUT 1,819,985 1,819,985
-------------- ----------------
STOCKHOLDERS' EQUITY
Common stock 117,114 41,426
Additional paid-in capital 61,775,419 58,074,793
Treasury Stock (540,000) -
Accumulated deficit (61,225,915) (50,481,713)
Accumulated other comprehensive loss (1,722,385) (1,475,779)
Comment stock subject to put (1,819,985) (1,819,985)
-------------- ----------------
TOTAL STOCKHOLDERS' EQUITY (3,415,752) 4,338,742
-------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24,975,297 $ 25,914,597
============== ================
</TABLE>
F1
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
Restated
Unaudited Unaudited
---------------- -----------------
<S> <C> <C>
NET SALES $ 3,119,629 $ 6,498,416
COST OF SALES 2,435,147 5,330,190
---------------- -----------------
GROSS PROFIT 684,482 1,168,226
---------------- -----------------
OPERATING EXPENSES
Officers and directors compensation 167,195 134,277
Salaries 1,103,721 1,333,463
Selling 650,984 721,891
Research and development 463,546 763,373
General and administrative 670,699 726,440
Other operating expenses 417,596 845,610
Bad debts - 510
Depreciation and amortization 302,095 247,981
---------------- -----------------
TOTAL OPERATING EXPENSES 3,775,836 4,773,545
---------------- -----------------
LOSS BEFORE OTHER INCOME (EXPENSES)
AND INCOME TAXES (3,091,354) (3,605,319)
Other income (expenses) 176,959 (955,347)
Interest expense (743,760) (1,960,362)
---------------- -----------------
OTHER INCOME (EXPENSES) (566,801) (2,915,709)
---------------- -----------------
NET LOSS $(3,658,155) $ (6,521,028)
================ =================
LOSS PER COMMON SHARE
NET LOSS $ (0.72) $(2.38)
================ =================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 5,087,116 2,744,155
</TABLE>
F2
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1999 1998
Restated
Unaudited Unaudited
------------------- -----------------
<S> <C> <C>
NET SALES $ 13,220,776 $ 17,800,994
COST OF SALES 10,404,489 13,921,137
------------------- -----------------
GROSS PROFIT 2,816,287 3,879,857
------------------- -----------------
OPERATING EXPENSES
Officers and directors compensation 564,089 384,824
Salaries 3,168,298 3,260,232
Selling 2,089,265 2,396,089
Research and development 1,307,135 2,185,855
General and administrative 1,381,517 1,610,038
Other operating expenses 978,603 1,110,008
Bad debts 7,383 (24,536)
Depreciation and amortization 892,857 684,627
------------------- -----------------
TOTAL OPERATING EXPENSES 10,389,147 11,607,137
------------------- -----------------
LOSS BEFORE OTHER INCOME (EXPENSES)
AND INCOME TAXES (7,572,860) (7,727,280)
Other income (expenses) (182,037) (799,202)
Interest expense (2,156,457) (6,377,276)
------------------- -----------------
OTHER INCOME (EXPENSES) (2,338,494) (7,176,478)
------------------- -----------------
LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEMS (9,911,353) (14,903,758)
Extraordinary income (expenses) (832,849) (304,923)
------------------- -----------------
NET LOSS $ (10,744,202) $(14,598,835)
=================== =================
LOSS PER COMMON SHARE
Loss from continuing operations (2.09) (6.17)
Extraordinary items (0.08) 0.13
------------------- -----------------
NET LOSS (2.27) (6.04)
=================== =================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 4,752,041 2,415,901
</TABLE>
F3
<PAGE>
<TABLE>
<CAPTION>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
March 31,
1999 1998
Unaudited Restated
Unaudited
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITES
Net loss $ (10,744,202) $(14,598,835)
Adjustment to reconcile net loss to net
cash used by operating activities
Depreciation and amortization 1,000,667 719,075
Provision for bad debts 643 (89,075)
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 1,007,818 6,015,697
Early extinguishment of debt (gain) 832,849 (304,923)
(Increase) decrease in operating assets:
Accounts receivable 458,899 2,038,072
Inventories 341,319 (4,535,233)
Prepaid expenses and sundry receivables (492,132) (287,096)
Increase (decrease) in operating liabilities:
Accounts payable (51,069) 1,357,429
Accrued expenses (1,144,266) 88,337
Customers deposits (142,235) (170,436)
--------------- ---------------
NET CASH USED BY OPERATING ACTIVITIES (8,931,709) (9,287,592)
--------------- ---------------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property and equipment (563,077) (1,505,207)
Patents and trademarks - (41,131)
Other intangibles (1,546) (184,760)
Asset Purchase net of cash received - (591,108)
Security deposits 7,689 (16,192)
Loans receivable 2,911 (2,578)
--------------- ---------------
NET CASH USED BY INVESTING ACTIVITIES (554,023) (2,340,976)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 18,545,444 5,185
Proceeds from long-term borrowings - 455,921
Principal payment of short-term borrowings (11,024,348) (1,974,718)
Principal payment of long-term borrowings (117,043) -
Issuance of common stock for cash 2,671,169 12,342,620
Purchase of Treasury Stock (540,000) -
Payment to stockholders and officers (2,207) (70,590)
--------------- ---------------
CASH PROVIDED BY FINANCING ACTIVITIES 9,533,015 10,758,418
--------------- ---------------
EFFECT OF EXCHANGE RATE ON CASH (171,231) 77,468
--------------- ---------------
NET DECREASE IN CASH (123,948) (792,682)
CASH AND CASH EQUIVALENT - beginning of period 1,281,552 3,091,307
--------------- ---------------
CASH AND CASH EQUIVALENTS - end of period $ 1,157,604 $ 2,298,625
=============== ===============
F4
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999
(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-K for the fiscal year ended June 30, 1998.
(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, 1999 and the results of operations and cash
flows for the interim period presented. Operating results for the six months
ended March 31, 1999 are not necessarily indicative of the results to be
expected for the full year ending June 30, 1999.
(3) INVENTORIES
Inventories are summarized by major classification as follows:
March 31, June 30,
---------------------------
1999 1998
---------- ----------
Raw materials, parts and supplies $6,588,837 $7,047,001
Work in process 123,720 160,064
Finished goods 647,268 494,080
---------- ----------
$7,359,825 $7,701,145
========== ==========
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.
F5
<PAGE>
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
ddR 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 ddR-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
At the recent annual conference of the Radiological Society of North
America (RSNA 98), the Company announced that its premier product, the
AddOn-Multi-System has been renamed ddR-Multi-System. The recent name change is
much more in line with the overall system concept and strategy of the Company.
RESULTS OF OPERATIONS
(a) THREE-MONTH PERIOD ENDED MARCH 31, 1999 COMPARED TO THREE-
MONTH PERIOD ENDED MARCH 31, 1998
Net sales amounted to $3,119,629 for the three-month period ended March
31, 1999, compared to $6,498,416, an decrease of $3,378,787, or 52% form the
three-month period ended March 31, 1999. Net sales of $6,498,416 for the
three-month period ended March 31, 1998 includes sales of the film and processor
business of Empower, which has been sold on June 30, 1998, of $1,608,002.
Net sales without the film and processor business of Swissray Empower
decrease for the three-month period ended March 31, 1999 by $1,770,785 or 27.3%.
This decrease is manly due to the fact that for certain products of its
OEM-Business a new production badge had to be initialized with deliveries
starting April 1999
3
<PAGE>
Gross profit decreased by $483,744 or 41.4% to $684,482 for the
three-month period ended March 31, 1999 from $1,168,226 for the three-month
period ended March 31, 1999. Gross profit as a percentage of net revenues
increase to 21.9% for the three-month period ended March 31, 1999 from 18% for
the three-month period ended March 31, 1998.
Operating expenses decreased by $997,709, or 20.9% to $3,775,836, or
121% of net revenues, for the three-month period ended March 31, 1999, from
$4,773,545, or 73.5% of net revenues for the three-month period ended March 31,
1998. The principle items were salaries (net of officers and directors
compensation) of $1,103,721 or 35.4% of net sales for the three-month period
ended March 31, 1999 compared to $1,333,463 or 20.5% of net sales for the
three-month period ended March 31, 1998 and general and administrative expenses
of $670,699 or 21.5% of net sales for the three-month period ended March 31,
1999 compared to $726,440 or 11.2% of net sales for the three-month period ended
March 31, 1998 Research and development expenses were $463,546 or 14.9% of net
sales for the three-month period ended March 31, 1999 compared to $763,373 or
11.7% of net sales for the three-month period ended March 31, 1998.
Interest expenses decreased to $743,760 for the three month ended March
31, 1999 compared to $1,960,361 for the three month ended March 31, 1998. This
decrease is primarily due the decrease of interest expense for amortization of
Debenture issuance cost and Conversion Benefit.
(b) NINE-MONTH PERIOD ENDED MARCH 31, 1999 COMPARED TO NINE-MONTH
PERIODS ENDED MARCH 31, 1998
RESULTS OF OPERATIONS
Net sales amounted to $13,220,776 for the nine-month period ended March
31, 1999, compared to $17,800,997, an decrease of $4,580,218, or 25.7% form the
nine-month period ended March 31, 1998.Net sales of $17,800,994 for the
nine-month period ended March 31, 1998 includes sales of the film and processor
business of Empower, which has been sold on June 30, 1998, of $5,557,8564.
Net sales without the film and processor business of Swissray Empower
increase for the nine-month period ended March 31, 1999 by $977,638 or 8%.
Gross profit decreased by $1,063,570, or 27.4% to $2,816,287 for the
nine-month period ended March 31, 1999 from $3,879,857 for the nine-month period
ended March 31, 1998. Gross profit as a percentage of net revenues decrease to
21.3% for the nine-month period ended March 31, 1999 from 21.8% for the
six-month period ended March 31, 1998.
Operating expenses decreased by $1,217,990, or 10.5% to $10,389,147, or
78.6% of net revenues, for the nine-month period ended March 31, 1999, from
$11,607,137, or 65.2% of net revenues for the nine-month period ended March 31,
1998. The principle items were salaries (net of officers and directors
compensation) of $3,168,298 or 24% of net sales for the nine-month period ended
March 31, 1999 compared to $3,260,232 or 18.3% of net sales for the nine-month
period ended March 31, 1998 and selling expenses of $2,089,265 or 15.8% of net
sales for the nine-month period ended March 31, 1999 compared to $2,396,089 or
13.5% of net sales for the nine-month period ended March 31, 1998 Research and
development expenses were $1,307,135 or 9.9% of net sales for the nine-month
period ended
4
<PAGE>
March 31, 1999 compared to $2,185,855 or 12.3% of net sales for the nine-month
period ended March 31, 1998.
Interest expenses decreased to $2,156,457 for the nine-month ended
March 31, 1999 compared to $6,377,276 for the nine-month ended March 31, 1998.
This decrease is primarily due the decrease of interest expense for amortization
of Debenture issuance cost and Conversion Benefit.
Loss on extinguishment of Debt was $832,849 for the nine-month ended
March 31, 1999 compared to a gain of $304,923 for the nine-month ended March 31,
1998. The extingushment gain or loss resulted from refinancing of Convertible
debentures.
FINANCIAL CONDITION
March 31, 1999 compared to June 30, 1998
Total assets of the Company on March 31, 1999 decreased by $939,298 to
$24,975,298 from $25,914,597 on June 30, 1998, primarily due to the decrease of
Other Assets. Other Assets decreased $746,865 to $6,088,096 on March 31, 1999
from $6,834,961 on June 30, 1998. The decrease is primarily attributable to the
amortization of the licensing agreement, patents & trademark, software
development cost and the goodwill. Current Assets decreased $432,676 to
$12,636,581 on March 31, 1999 from $13,069,257 on June 30, 1998. The decrease in
current assets is primarily attributable to the decrease of Accounts receivable
of $459,542, the decrease of inventory of $341,320 and the decrease in Cash and
cash equivalents of $123,948 which was partially offset by the increase in
prepaid expenses and sundry receivables of $492,133. and of.
On March 31, 1999, the Company had total liabilities of $28,391,050
compared to $21,575,856 on June 30, 1998. On March 31, 1999, current liabilities
were $14,018,787 compared to $11,984,554 on June 30, 1998. Working capital at
March 31, 1999 was $(1,382,203) compared to $1,084,703 at June 30, 1998.
CASH FLOW AND CAPITAL EXPENDITURES NINE MONTHS PERIOD ENDED MARCH 31, 1999
COMPARED TO NINE MONTHS PERIOD ENDED MARCH 31, 1998
Cash used for operating activities for the nine-months ended March 31,
1999 was $8,931,709 compared to $9,287,592 for the nine-months ended March 31,
1998. Cash used for investing activities was $554,023 for the nine-months ended
March 31, 1999 compared to $2,340,976 for the nine-months ended March 31, 1998.
Cash flow from financing activities for the nine-months ended March 31, 1999 was
$9,533,015 compared to $10,758,418 for nine-months ended March 31, 1998.
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 production of the planned
increase of sales, the continuation of the strengthening and expansion of the
Company's marketing organization and, to a lesser degree, ongoing research and
development projects. The Company expects that funding for these expenditures
will be available out of the Company's, future cash flow and/or issuance of
equity and/or debt securities. However, the availability of a sufficient future
cash flow will depend to a significant extent on the marketability of the
Company's ddR-Multi-System. Accordingly, the Company may be required to issue
additional convertible debentures or equity securities to finance such capital
expenditures and working capital requirements. There can be no assurance whether
or not such financing will be available on terms satisfactory to management.
5
<PAGE>
On August 31, 1998 the Company issued a principal aggregate total
amount of $6,143,849 of 5% convertible debentures ("Convertible Debentures"),
convertible into Common Stock of the Company at a conversion price of 82% of the
average closing bid price for the ten trading days preceding the date of
conversion as follows: (a) The Company issued $3,832,849 aggregate principal for
which the Company received no cash; investors having paid the holders of
$3,000,000 in Convertible Debentures (originally issued in March 1998) together
with 25% premium and accrued interest; and (b ) the Company issued new
Convertible Debentures convertible into shares of Company Common Stock. After
deducing fees directly attributable to such offering the Company received a net
amount of $ 2,000,000. 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. Any Convertible Debentures not so converted are subject
to mandatory conversion by the Company on the 24th anniversary of the date of
issuance of the Convertible Debentures. As of March 31, 1999 an unconverted
balance of $5,784,421 remains outstanding.
On October 6, 1998 the Company issued a principal aggregate amount of
$2,940,000 of 5% convertible debentures ("Convertible Debentures"), convertible
into Common Stock of the Company at a conversion price of 82% of the average
closing bid price for the ten trading days preceding the date of conversion.
After deducting fees directly attributable to such offering (including the
Company's repurchase of 1,465,000 pre-split shares of its common stock for a
cash consideration of $540,000) the Company received a net amount of $
2,100,000. 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. Any Convertible Debentures not so converted are subject to
mandatory conversion by the Company on the 24th anniversary of the date of
issuance of the Convertible Debentures. None of these Convertible Debentures
have been converted as of March 31, 1999.
The Registrant received gross proceeds of $1,080,000 in December 1998
pursuant to promissory notes bearing interest at the rate of 8% per annum for
the first 90 calendar days (through March 13, 1999) with the Company having the
option to extend the notes for an additional 60 days with interest increasing 2%
per annum during the 60 day period. The Company exercised its extension option.
As further consideration for the loan, the Company issued Lenders Warrants to
purchase up to 50,000 shares of the Company's common stock exercisable, in whole
or in part, for a period of up to 5 years at $.375 (the bid price for Company
shares on the date of closing). The notes are secured by a second mortgage on
land and building as well as certain Company inventory. In the event that the
promissory notes are not paid by their due date then the terms of a Contingent
Subscription Agreement, Debenture and Registration Rights Agreement shall apply.
In that respect the convertible debentures are to bear interest at the rate of
5% per annum (payable in stock or cash at the Company's option) and are
convertible, at any time at the lesser of (a) 82% of the 10 day average bid
price for the 10 consecutive trading days immediately preceding the conversion
date or (b) $1.00 per share. The documents also provide for certain Company
redemption rights at percentages ranging from 115% of the face amount of the
Debenture to 125% of the face amount of the debenture dependent upon redemption
date, if any.
On January 29, 1999 the Company issued a principal aggregate amount of
$1,170,000 of convertible debentures ("Convertible Debentures"), convertible
into Common Stock of the Company at a conversion price of 82% of the average
closing bid price for the ten trading days preceding the date of conversion
together with accrued interest of 3% for the first 90 days, 3.5% for 91-120 days
and 4% for 120 days and thereafter. After deducing fees directly
6
<PAGE>
attributable to such offering the Company received a net amount of $ 1,020,000.
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.
Any Convertible Debentures not so converted are subject to mandatory conversion
by the Company on the 24th anniversary of the date of issuance of the
Convertible Debentures. None of these Convertible Debentures have been converted
as of March 31, 1999.
On March 2, 1999, the Company entered into a second promissory note
(contingent convertible debenture financing) with the same lenders as the
December 1998 transaction described directly above with terms and conditions
identical to those set forth above excepting (a) gross proceeds amounted to
$1,110,000, (b) the initial due date of such notes are May 31, 1999, (c) the
potential 60 day extension date on such promissory notes is July 30, 1999, (d)
the conversion price is 80% of the 10 day average closing bid price for the 10
consecutive trading days preceding conversion date and (e) Warrants were issued
(similarly exercisable over 5 years) to purchase up to 50,000 shares of common
stock at 125% of the average 5 day closing bid price of the Company's common
stock immediately preceding the date of closing but in no event at less than
$1.00 per share. In all other respects the terms and conditions of each of the
documents executed with respect to this transaction are identical to those
described above with respect to the December 1998 promissory notes in all
material respects.
On March 26, 1999 the Company entered into a third promissory note
(contingent convertible debenture financing) with terms and conditions identical
to those set forth in the March 2, 1999 promissory note financing referred to
directly above excepting (a) the lender is different, (b) gross proceeds
amounted to $550,000, (c) the initial due date of such note is June 25, 1999,
(d) the potential 60 day extension date on such promissory note is August 24,
1999, (e) Warrants were issued (similarly exercisable over 5 years) to purchase
up to 27,500 shares of common stock at 125% of the average 5 day closing bid
price of the Company's common stock immediately preceding the date of closing
but in no event at less than $1.00 per share. In all other respects the terms
and conditions of each of the documents executed with respect to this
transaction are identical to those described in the above referenced March 2,
1999 transaction.
EFFECT OF CURRENCY ON RESULTS OF OPERATIONS
The result of operations and the financial position of the
Company'ssubsidiaries 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
Item 1. Legal Proceedings
A. 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
7
<PAGE>
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 denied the allegations, vigorously defended the
litigation and thereafter settled such litigation and all outstanding matters
with respect thereto in July 1998 for $60,000.
B. Dispute with Gary J. Durday ("Durday"), Kenneth R. Montler ("Montler") and
Michael E. Harle ("Harle"). On July 17, 1998, two legal proceedings were
commenced by Swissray, and two of its subsidiaries against Durday, Montler and
Harle. Harle and Montler are former Chief Executive Officers of Swissray Medical
Systems Inc. and Swissray Healthcare Inc., respectively, and Durday is the
former Chief Financial Officer of both of those companies. Each of them was
employed pursuant to an Employment Agreement dated October 17, 1997. In
addition, these three individuals were owners of a company by the name of
Service Support Group LLC ("SSG"), the assets of which were sold to Swissray
Medical Systems Inc. pursuant to an Asset Purchase Agreement dated as of October
17, 1997. whereby Messrs. Durday, Montler and Harle received, among other
consideration, 33,333 shares of Swissray's common stock, together with a put
option entitling these individuals to require Swissray to purchase any or all of
such shares at a purchase price equal to $45.00 per share (on or after June 30,
1998 and until April 16, 1999, subject to certain adjustments set forth in the
Asset Purchase Agreement).
On July 17, 1998, Swissray and its subsidiaries, Swissray Medical
Systems Inc. and Swissray Healthcare Inc. commenced an arbitration proceeding
before the American Arbitration Association in Seattle, Washington (Case No. 75
489 00196 98) alleging that Messrs. Durday, Montler and Harle fraudulently
induced Swissray and its subsidiaries to enter into the above referenced Asset
Purchase Agreement and otherwise breached that Agreement. The relief sought in
the arbitration proceeding was the recovery of damages suffered as a result of
this alleged wrongful conduct and a rescission of the put option provided for in
the Asset Purchase Agreement. Messrs. Durday, Montler and Harle responded to the
allegations made in the arbitration proceeding and asserted counterclaims
against Swissray and its subsidiaries claiming a breach by them of their
obligations under the Asset Purchase Agreement and other relief. The arbitration
took place in Seattle on January 8-10, 1999; the proceeding concluded on January
27, 1999 after the submission of post-hearing briefs. On February 23, 1999, the
Arbitrator issued his ruling, awarding Messrs. Durday, Montler and Harle
$1,500,000 and ordering them to surrender all rights to 33,333 shares of
Swissray common stock. On February 26, 1999, Swissray and Swissray Medical
Systems Inc. filed a petition in Supreme Court, New York County (Index No.
99/104017) to vacate the above referenced arbitration award.
In addition to the above referenced arbitration proceeding, Swissray
and its subsidiaries commenced an action against Messrs. Durday, Montler and
Harle which is currently pending in the Supreme Court of the State of New York,
County of New York, alleging that these individuals breached the obligations
undertaken by them in their respective Employment Agreements. Further, Messrs.
Durday, Montler and Harle commenced an action in state court in Pierce County,
Washington, and asked that Court to adjudicate the issues raised in the above
referenced New York State Court action. Swissray filed applications in both the
Washington and New York litigations urging that, because the action was first
filed in New York, the New York court, rather than the Washington court, should
decide where the litigation
8
<PAGE>
should proceed. Messrs. Durday, Montler and Harle initially opposed that
position and urged the Washington State court to adjudicate all issues, but
subsequently withdrew their opposition to Swissray's application and consented
to a stay of all further proceedings in the Washington State court action until
after the New York court had reached a decision as to whether it or the
Washington court is the proper forum for litigation of the parties' dispute. The
New York court has not yet rendered a decision on this issue.
It is Swissray's management's intention to contest these matters
vigorously since Swissray believes that its claims are meritorious, and that it
has meritorious defenses to the claims asserted against them, notwithstanding
the above referenced arbitration ruling.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
As indicated in the Company's Form 10-K for fiscal year ended June 30,
1998, the Company held a Special Meeting of Stockholders on August 31, 1998, at
which time Company stockholders were asked to consider and act upon proposals to
(1) reverse stock split the currently issued and outstanding shares of Company
Common Stock on the basis of no less than 1 : 4 and no greater than 1 for 10;
the exact number, (if any) within such parameter to be determined by the Board
of Directors in its discretion and (2) authorize the creation of a class of
Preferred Stock. The number of shares of Common Stock voted at the Special
Meeting approximated 75 % of all issued and outstanding securities as of the
record date and approximately 88 % of those shares voted in favor of the
aforesaid reverse stock split proposal (while the Company did not receive a
sufficient number of affirmative votes for the creation of a class of Preferred
Stock).
At a Special Meeting of the Board of Directors on September 21, 1998, a
reverse stock split on the basis of 1 for 10 was approved with an effective date
of October 1, 1998.
The Company has tentatively established that its Annual Meeting of
Stockholders will be held on July 22, 1999 and in that regard intends to utilize
the record date of June 10, 1999 and a mailing date of June 21, 1999. In that
regard, Proxy, Notice of Meeting, Proxy Statement and exhibits thereto have all
been preliminarily filed with the Securities and Exchange Commission.
Item 5. OTHER INFORMATION
On March 29, 1999 the Company entered into a one year Consulting
Agreement (with option to extend for an additional period of one year) with
Liviakis Financial Communications, Inc. In accordance with the terms and
conditions of the Consulting Agreement, the Consultant agreed to provide certain
specified consulting services in a diligent and thorough manner in return for
which and as full and complete compensation thereunder, the Company is required
to compensate the Consultant through its issuance and delivery of 3,000,000
shares of the Company's restrictive common stock. As regards such shares of
common stock, Consultant has agreed that throughout the period of time that it
retains beneficial ownership of all or any portion of such shares that it shall
(a) vote such shares in favor of Ruedi G.
9
<PAGE>
Laupper continuing to maintain his current position(s) with the Company and (b)
give Ruedi G. Laupper and/or his designee the right to vote Consultant's shares
at all Company shareholder meetings. In the event that the Company, in its sole
discretion, exercises its option to extend the Agreement for an additional
period of one year, remuneration for such second year has been set at $630,000
to be paid in restrictive shares of Company common stock (with the number of
shares to be determined based upon the ten day average closing bid price for the
ten consecutive trading days preceding March 29, 2000). The foregoing does not
purport to set forth each of the terms and conditions of the aforesaid
Consulting Agreement but rather is designed to summarize what management
considers to be pertinent portions thereof.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - NONE
(b) Reports on Form 8-K - NONE
10
<PAGE>
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 10, 1999
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001002137
<NAME> SWISSRAY INTERNATIONAL INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,157,604
<SECURITIES> 0
<RECEIVABLES> 2,158,107
<ALLOWANCES> 32,998
<INVENTORY> 7,359,825
<CURRENT-ASSETS> 12,636,581
<PP&E> 7,154,532
<DEPRECIATION> 903,911
<TOTAL-ASSETS> 24,975,298
<CURRENT-LIABILITIES> 12,636,581
<BONDS> 12,228,659
0
0
<COMMON> 117,114
<OTHER-SE> (3,298,638)
<TOTAL-LIABILITY-AND-EQUITY> 24,975,298
<SALES> 13,220,776
<TOTAL-REVENUES> 13,220,766
<CGS> 10,966,488
<TOTAL-COSTS> 10,404,488
<OTHER-EXPENSES> 10,389,147
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,156,457
<INCOME-PRETAX> (9,911,353)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,911,353)
<DISCONTINUED> 0
<EXTRAORDINARY> (832,849)
<CHANGES> 0
<NET-INCOME> (10,744,202)
<EPS-PRIMARY> (1.51)
<EPS-DILUTED> (1.51)
</TABLE>
