<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 2 to
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
TRANSITION REPORT UNDER 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 No.)
200 East 32nd Street, Suite 34-B, New York, New York 10016
(Address of Principal Executive Office) (Zip Code)
United States - 212-545-0095 Switzerland - 011 41 41 914 12 00
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the issuer; (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act 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.
Yes xx (1) No
---- ----
<PAGE>
Indicate by check mark if there is no disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
State issuer's revenues for its most recent fiscal year - $22,892,978.
The number of shares outstanding of each of the Registrant's classes of Common
Stock, as of September 24, 1998 is 4,638,976 shares (2), all of one class of
common stock, $.01 par value. Of this number a total of 4,190,717 shares having
an aggregate market value of $9,177,670, based on the closing price of the
Registrant's common stock of $2.19 on September 28, 1998 as quoted on the NASDAQ
Small Cap market, were held by non-affiliates* of the Registrant.
* Affiliates for the purpose of this item refers to the Registrant's officers
and directors and/or any persons or firms (excluding those brokerage firms
and/or clearing houses and/or depository companies holding Registrant's
securities as record holders only for their respective clienteles' beneficial
interest) owning 5% or more of the Registrant's Common Stock, both of record and
beneficially.
(1) Excepting for the fact that this Form 10-K should have been filed on or
before October 13, 1998 and the further fact that the Registrant has not yet
filed its Form 10-Q for quarter ended September 30, 1998.
(2) Unless otherwise indicated throughout this Form 10-K, all references to
number of shares, price per share and data of a similar and related nature
retroactively reflect and take into consideration a 1 to 10 reverse stock split,
as effective October 1, 1998.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes _____ No _____
Not Applicable
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 4,638,976 shares as of September 24,
1998.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-K (e.g., Part I, Part II, etc.) into which
the document is incorporated: (1) any annual report to security-holders; (2) any
proxy or information statement; and (3) any prospectus filed pursuant to Rule
424(b) or (c) of the Securities Act of 1933 ("Securities Act").
None
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S> <C> <C>
Item 1. Business 4
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters 12
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 26, 26A & F(1)-F(25)
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 27
PART III
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial Owners and
Management 32
Item 13. Certain Relationships and Related Transactions 33
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 33
SIGNATURES 34
SUPPLEMENTAL INFORMATION 35
</TABLE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements have been prepared in accordance
with the requirements of Regulation S-X and supplementary financial information
included herein, if any, has been prepared in accordance with Item 301 of
Regulation S-K.
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Swissray International, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of Swissray
International, Inc. and subsidiaries as of June 30, 1998 and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Swissray International, Inc.
and subsidiaries as of June 30, 1998, and the results of its operations, changes
in stockholders' equity and cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/ Feldman Sherb Ehrlich & Co., P.C.
Feldman Sherb Ehrlich & Co., P.C.
Certified Public Accountants
New York, New York
November 20, 1998
26
<PAGE>
[LETTERHEAD OF BEDERSON & COMPANY LLP]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Swissray International, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Swissray
International, Inc., and its subsidiaries, as of June 30, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of Swissray (Deutschland) Rontgentechnik
GmbH, a wholly-owned subsidiary, which statements reflect total assets of
$437,021 as of June 30, 1997 and total revenues of $1,255,140 for the year then
ended. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it related to the amounts included
for Swissray (Deutschland) Rontgentechnick GmbH, is based solely on the report
of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Swissray International, Inc., and
its subsidiaries, at June 30, 1997 and 1996 and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/s/ BEDERSON & COMPANY LLP
---------------------------
Bederson & Company LLP
West Orange, New Jersey
September 16, 1997
Except for Notes 17, 20 and 22, as of March 6, 1998, and Note 1, 16, 23, 25, 26,
27, 29 30, 31 and 32, as of November 16, 1998
Member of TAG International with offices in principal cities worldwide
Affiliated with the American Institute of CPAs Division for Firms
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of
Swissray (Duetschland) Rontegentechnik Gmbh
Wiesbaden, Germany
We have audited the balance sheet of Swissray (Duetschland) Rontegentechnik
Gmbh as of June 30, 1997 and the related statements of income and stockholder's
equity for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audit.
We conducted our audit in accordance to all laws governed by German
regulations and with generally accepted auditing standards promulgated by the
American Institute of Certified public accountants. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Swissray (Duetschland)
Rontegentechnik Gmbh as of June 30, 1997 and the results of its operations for
the year then ended.
/s/ Theo Lepper
Theo Lepper
Certified Public Accountant
Wiesbaden, Germany
August 8, 1997
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998 and 1997
ASSETS
<TABLE>
<CAPTION>
------------------------------
1998 1997
------------------------------
(Restated)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,281,552 $ 3,091,307
Accounts receivable, net of allowance for doubtful
accounts of $ 32,356 and $ 148,390 2,584,651 5,154,794
Inventories 7,701,145 3,911,107
Prepaid expenses and sundry receivables 1,501,909 1,936,138
------------------------------
TOTAL CURRENT ASSETS 13,069,257 14,093,346
------------------------------
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation
of $ 581,077 and $ 320,110 6,010,378 4,336,617
------------------------------
OTHER ASSETS
Due from stockholders -- 69,587
Loan receivable 20,005 17,396
Accounts receivable - long-term, net of allowance of $ 891,409
and $ 814,178 for doubtful account -- 240,912
Licensing agreement, net of accumulated amortization of 3,600,766 4,097,424
$ 1,365,809 and $ 869,151
Patents and trademarks, net of accumulated amortization of 230,614 206,003
$ 82,716 and $ 54,941
Software development costs, net of accumulated amortization of 455,318 317,524
$ 121,892 and $ 34,512
Organization cost, net of accumulated amortization of -- 5,921
$ 8,385 and $ 2,464
Security deposits 38,280 43,728
Note receivable - long-term, net of allowance of $ 30,733 and $ -0- 513,643 513,643
Goodwill, net of accumulated amortization of $ 136,939 and $ 9,023 1,796,336
410,814
Debt issance costs on convertible debentures, net of accumulated
amortization of $ 60,000 and $ 200,566 180,000 435,319
------------------------------
TOTAL OTHER ASSETS 6,834,962 6,358,271
------------------------------
TOTAL ASSETS $25,914,597 $24,788,234
==============================
</TABLE>
F 1
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL
CONSOLIDATED BALANCE SHEET (Continued)
JUNE 30, 1998 and 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 233,746 $ 243,135
Notes payable - banks 3,551,091 3,834,706
Loan payable 125,029 133,008
Accounts payable 5,030,449 5,336,749
Accrued expenses 2,365,450 1,401,938
Restructuring 500,000 --
Customer deposits 176,583 170,436
Due to stockholders and officers 2,206 139,826
---------------------------------
TOTAL CURRENT LIABILITIES 11,984,554 11,259,798
---------------------------------
CONVERTIBLE DEBENTURES 7,645,969 6,000,000
Conversion Benefit (315,327) (689,441)
---------------------------------
Net Convertible Debentures 7,330,642 5,310,559
---------------------------------
LONG-TERM DEBT, less current maturities 440,674 524,689
COMMON STOCK SUBJECT TO PUT 1,819,985 320,000
STOCKHOLDERS' EQUITY
Common stock 41,426 19,694
Additional paid-in capital 58,074,793 35,957,659
Common stock to be issued to officer
(48,259 shares in 1997) -- 1,122,973
Accumulated deficit (50,481,713) (27,978,604)
Accumulated other comprehensive loss (1,475,779) (1,428,534)
Common stock subject to put (1,819,985) (320,000)
---------------------------------
TOTAL STOCKHOLDERS' EQUITY 4,338,742 7,373,188
---------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,914,597 $ 24,788,234
=================================
</TABLE>
F 2
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED JUNE 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
----------------------------------------------------
1998 1997 1996
(Restated) (Restated)
----------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 22,892,978 $ 13,151,701 $ 10,899,222
COST OF SALES 18,081,786 8,445,414 5,793,306
----------------------------------------------------
GROSS PROFIT 4,811,192 4,706,287 5,105,916
----------------------------------------------------
OPERATING EXPENSES
Officers and directors compensation 569,816 1,816,879 612,776
Salaries 4,168,540 2,059,396 1,829,535
Selling 3,740,391 1,873,389 1,140,604
Research and development 3,542,149 5,786,158 1,731,502
General and administrative 2,612,262 2,879,257 7,535,759
Restructuring cost 500,000 -- --
Other operating expenses 1,735,877 1,645,800 1,098,346
Bad debts 133,196 619,160 491,487
Depreciation and amortization 1,745,498 770,294 526,138
----------------------------------------------------
TOTAL OPERATING EXPENSES 18,747,729 17,450,333 14,966,147
----------------------------------------------------
LOSS BEFORE OTHER INCOME (EXPENSES)
AND INCOME TAXES (13,936,537) (12,744,046) (9,860,231)
Other income (expenses) (281,227) 318,763 1,003,933
Interest expense (8,590,268) (762,168) (193,930)
----------------------------------------------------
OTHER INCOME (EXPENSES) (8,871,495) (443,405) 810,003
----------------------------------------------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS (22,808,032) (13,187,451) (9,050,228)
INCOME TAX PROVISION (BENEFIT) -- 110,223 (364,648)
----------------------------------------------------
LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEMS (22,808,032) (13,297,674) (8,685,580)
Extraordinary income (expenses) net of
taxes 304,923 (387,514) 419,500
----------------------------------------------------
NET LOSS $(22,503,109) $(13,685,188) $ (8,266,080)
====================================================
LOSS PER COMMON SHARE BASIC
Loss from continuing operations (8.48) (8.41) (6.69)
Extraordinary items 0.11 (0.24) 0.32
----------------------------------------------------
NET LOSS (8.37) (8.65) (6.37)
====================================================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 2,690,695 1,581,757 1,297,475
============ ========= =========
</TABLE>
F 3
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
----------------------------------------------------
1998 1997 1996
----------------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITES
Net loss $(22,503,109) $(13,685,188) $ (8,266,080)
Adjustment to reconcile net loss to net
cash used by operating activities
Depreciation and amortization 1,874,206 770,294 526,138
Provision for bad debts (38,803) 552,725 336,706
Write-off of affiliate receivable -- 166,384 --
Interest expense on Debt issuance cost and
conversion benefit 7,905,225 511,125 --
Operating expenses through issuance of stock
options and common stock to be issued 449,376 2,442,385 6,374,468
Early extinguishment of Debt (gain) (304,923) -- --
Gain on Sale of marketable securities -- -- (762,500)
(Increase) decrease in operating assets:
Accounts receivable 2,887,427 (1,857,662) (1,870,866)
Accounts receivable - affiliates -- 31,533 (31,533)
Accounts receivable - long-term 163,680 283,603 22,138
Inventories (3,790,038) (998,271) (1,420,393)
Prepaid expenses and sundry receivables 434,229 (860,457) (976,664)
Increase (decrease) in operating liabilities:
Accounts payable (306,300) 1,601,074 1,514,465
Accounts payable-affiliates -- (1,541) 1,541
Accrued expenses 1,463,512 266,245 855,041
Customers deposits 6,147 92,763 38,874
----------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES (11,759,371) (10,684,988) (3,658,665)
----------------------------------------------------
<PAGE>
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property and equipment (2,849,205) (3,431,375) (932,066)
Capitalized Computer Software (225,174) (352,036) --
Purchase of marketable securities -- -- (200,000)
Patents and trademarks (52,386) (12,925) (45,309)
Goodwill (802,107) (299,837) --
Organization costs -- -- (8,385)
Asset Purchase net of cash received (591,108) -- --
Collection of note receivable -- 448,857 --
Security deposits 5,448 (23,776) (19,952)
(Repayment of) loan receivable (2,608) 2,896 --
Repayments from (advances to) affiliates -- -- 34,592
----------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (4,517,140) (3,668,196) (1,171,120)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 10,342,060 9,198,821 2,069,828
Proceeds from long-term borrowings -- 248,987 --
Principal payment of short-term borrowings (3,852,075) (2,093,074) (2,711,086)
Principal payment of long-term borrowings (21,748) (442,681) (281,004)
Principal payment of long-term borrowings with stock (62,267) -- --
Issuance of common stock for cash 8,461,262 7,753,222 7,250,000
Repayment from (payment to) stockholders and officers (68,032) 87,653 141,054
Public offering expenses -- -- (680,098)
----------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 14,799,200 14,752,928 5,788,694
----------------------------------------------------
EFFECT OF EXCHANGE RATE ON CASH (332,444) (561,122) (383,050)
----------------------------------------------------
NET INCREASE (DECREASE) IN CASH (1,809,755) (161,378) 575,859
CASH AND CASH EQUIVALENT - beginning of period 3,091,307 3,252,685 2,676,826
----------------------------------------------------
CASH AND CASH EQUIVALENTS - end of period $ 1,281,552 $ 3,091,307 $ 3,252,685
====================================================
</TABLE>
F 4
The accompanying notes are an integral part of these financial statements
<PAGE>
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for the years ended June 30, 1998, 1997 and 1996,
include interest of $161,093, $122,427 and $193,930, respectively. Cash payments
for the years ended June 30, 1997 and June 30, 1996 included income taxes of
$56,562 and $-0-, respectively. No income taxes had to be paid in the fiscal
year ended June 30, 1998
NON-CASH OPERATING ACTIVITIES
In April of 1997, the Company issued options to an officer under
the 1996 non-statutory stock option plan. The excess of the then quoted market
price over the option price has been recorded as additional compensation
amounting to $25,000.
For the years ended June 30, 1997 and 1996, the Company issued
options to various individuals and companies for services rendered under the
1996 non-qualified stock option plan. The excess of the fair value over the
option price has been charged to operations in the amounts of $1,161,462 and
$6,374,468, for the years ended June 30, 1997 and 1996, respectively. No options
have been issued during the fiscal year ended June 30, 1998
For the years ended June 30, 1998 and June 30, 1997, the Company
issued 60,999 shares of common stock in the amount of $449,376 in lieu of
interest payments due on convertible debentures and 7,061 shares of common stock
in the amount of $132,950 in lieu of interest payments due on convertible
debentures respectively.
NON-CASH INVESTING AND FINANCING ACTIVITIES
For the year ended June 30, 1996 the Company received a note
receivable for $962,500 from the sale of marketable securities. No cash was
received.
On April 1, 1997, the Company acquired a subsidiary through the
issuance of 8,000 shares of common stock at the then quoted market price of
$120,000 ($15 per share). This transaction was accounted for as a purchase.
On May 15, 1997 and June 13, 1997, the Company issued convertible
debentures which were convertible into common shares at a price equal to eighty
(80%) of the average closing bid price for the five (5) trading days preceding
the date of the conversion. A beneficial conversion feature of $1,000,000 was
charged to additional paid-in capital and is being amortized over the period
from the date of issuance to the first available conversion date of the
respective debenture.
During 1997, pursuant to agreements with an officer of the Comany, dated
December 1996 and June 1997 (as described in Note 16), the Company was required
to issue 48,259 shares of common stock with a fair value of $1,122,973 in lieu
of cash compensation.
On July 31, 1997, the Company issued convertible debentures in
exchange for $4,262,500 (including interest of $262,500) of 6% convertible
debentures dated May 15, 1997 and June 13, 1997. The Company did not receive any
cash proceeds from this transaction. The debentures, due July 31, 2000, are
convertible into common shares at a price equal to eighty (80%) of the average
closing bid price for the five (5) trading days preceding the date of
conversion.
On August 19, 1997, the Company issued $5,000,000 of 6% convertible
Debentures which were convertible into common shares at a price equal to eighty
(80%) of the average closing bid price for the five (5) trading days preceding
the date of conversion. A beneficial conversion feature of $1,250,000 was
charged to additional paid-in capital and is being amortized over the period
from the date of issuance to the first available conversion date of the
respective debenture.
On October 17, 1997, the Company acquired substantially all of the
assets of Service Support Group LLC ("SSG") located in Gig Harbor, Washington,
in exchange for the payment of approximately $621,892 in cash and issuance of
33,333 shares of its Common.
F 5
<PAGE>
Between November 26, 1997 and December 11, 1997, the Company issued
$2,158,285 of convertible debentures including a 15% premium and accrued
interest, convertible into Common shares at a price equal to 75% of the average
closing bid price for the five (5) trading days preceding the date of
conversion. The registrant did not receive any cash proceeds from the offering
of the Convertible Debentures. An amount of $2,158,285 was paid by investors to
holders of the Company's Convertible Debentures issued on August 19,1997 holding
$1,850,000 of such Convertible Debentures as repayment in full of the Company's
obligations under such Convertible Debentures. During the same period the
Company issued $3,690,000 aggregate principal amount of convertible debentures,
convertible into Common shares at a price equal to 75% of the average closing
bid price for the five (5) trading days preceding the date of conversion A
beneficial conversion feature of $1,949,426 was charged to additional paid-in
capital and is being amortized over the period from the date of issuance to the
first available conversion date of the respective debenture.
On March 16, 1998, the Company issued $5,500,000 convertible
debentures convertible into Common shares at a price equal to 80% of the average
closing bid price for the ten (10) trading days preceding the date of
conversion. A beneficial conversion feature of $875,500 was charged to
additional paid-in capital and is being amortized over the period from the date
of issuance to the first available conversion date of the respective debenture.
On June 15, 1998, the Company issued $2,000,000 convertible
debentures convertible into Common shares at a price equal to 80% of the average
closing bid price for the ten (10) trading days preceding the date of
conversion. A beneficial conversion feature of $420,436 was charged to
additional paid-in capital and is being amortized over the period from the date
of issuance to the first available conversion date of the respective debenture.
F 6
<PAGE>
SWISSRAY INTERNATIONAL, INC.
CONSOLITATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Common
Additional Stock
Paid-in to be
Common Stock Capital issued
Shares Amount (Restated) (Restated) )
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE - July, 1, 1995 1,203,506 $ 12,035 $ 12,828,314 $ --
COMPREHENSIVE LOSS:
Net loss of the year -- -- -- --
Foreign currency translation losses net of taxes $ -0- -- -- -- --
TOTAL COMPREHENSIVE LOSS -- -- -- --
Issuance of common stock for cash 110,000 1,100 5,198,900 --
Stock options exercised for cash 105,000 1,050 2,048,950 --
Stock options granted for services 6,374,468 --
Public offering expenses (680,098) --
-----------------------------------------------------------
BALANCE - June 30, 1996 1,418,506 14,185 25,770,534 --
COMPREHENSIVE LOSS:
Net loss of the year -- -- -- --
Foreign currency translation losses net of taxes $ -0- -- -- -- --
TOTAL COMPREHENSIVE LOSS -- -- -- --
Issuance of common stock for cash 519,776 5,197 7,630,495 --
Stock options exercised for cash 16,100 161 117,369 --
Issuance of common stock in lieu of interest payment 7,061 71 132,879 --
Beneficial conversion feature of convertible debentures -- -- 1,000,000 --
Stock options granted as compensation -- -- 25,000 --
Stock options granted for services -- -- 1,161,462 --
Shares to be issued to officers for services -- -- -- 1,122,973
Purchase of subsidiary for stock 8,000 80 119,920 --
Common stock subject to put -- -- -- --
-----------------------------------------------------------
BALANCE - JUNE 30, 1997 1,969,443 19,694 35,957,659 1,122,973
COMPREHENSIVE LOSS:
Net loss of the year -- -- -- --
Foreign currency translation losses net of taxes $ -0- -- -- -- --
TOTAL COMPREHENSIVE LOSS -- -- -- --
Issuance of common stock for cash 2,013,688 20,137 13,581,739 --
Stock options exercised for cash 16,900 169 123,201 --
Shares issued to officers for services 48,259 483 1,122,490 (1,122,973)
Issuance of common stock in lieu of interest payment 60,999 610 448,766
--
Beneficial conversion feature of convertible debentures -- -- 5,738,149 --
Early extinguishment of Debt -- -- (396,875) --
Issuance of common stock for asset purchase 33,333 333 1,499,664 --
Common Stock subject to put -- -- -- --
-----------------------------------------------------------
BALANCE - JUNE 30, 1998 4,142,622 $ 41,426 $ 58,074,793 $ --
===========================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated Other
Deficit Comprehensive Common Stock Total
(Restated) Loss Subject to Put s (Restated)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE - July, 1, 1995 $ (6,027,336) $ (436,180) $ -- $ 6,376,833
COMPREHENSIVE LOSS:
Net loss of the year (8,266,080) -- -- (8,266,080)
Foreign currency transaction losses net of taxes $ -0- (399,867) -- (399,867)
--------------
TOTAL COMPREHENSIVE LOSS -- -- -- (8,665,947)
--------------
Issuance of common stock for cash -- -- -- 5,200,000
Stock options exercised for cash -- -- -- 2,050,000
Stock options granted for services -- -- -- 6,374,468
Public offering expenses -- -- -- (680,098)
------------------------------------------------------------
BALANCE - June 30, 1996 (14,293,416) (836,047) 0 10,655,256
COMPREHENSIVE LOSS:
Net loss of the year (13,685,188) -- -- (13,685,188)
Foreign currency transaction losses net of taxes $ -0- -- (592,487) -- (592,487)
--------------
TOTAL COMPREHENSIVE LOSS -- -- -- (14,277,675)
--------------
Issuance of common stock for cash -- -- -- 7,635,692
Stock options exercised for cash -- -- -- 117,530
Issuance of common stock in lieu of interest payment -- -- -- 132,950
Beneficial conversion feature of convertible debentures -- -- -- 1,000,000
Stock options granted as compensation -- -- -- 25,000
Stock options granted for services -- -- -- 1,161,462
Shares to be issued to officers for services -- -- -- 1,122,973
Purchase of subsidiary for stock -- -- -- 120,000
Common Stock subject to put -- -- (320,000) (320,000)
------------------------------------------------------------
BALANCE - JUNE 30, 1997 (27,978,604) (1,428,534) (320,000) 7,373,188
COMPREHENSIVE LOSS:
Net loss of the year (22,503,109) -- -- (22,503,109)
Foreign currency transaction losses net of taxes $ -0- (47,245) -- (47,245)
--------------
TOTAL COMPREHENSIVE LOSS -- -- -- (22,550,354)
Issuance of common stock for cash -- -- -- 13,601,876
Stock options exercised for cash -- -- -- 123,370
Shares issued to officers for services -- -- -- --
Issuance of common stock in lieu of interest payment -- -- -- 449,376
Beneficial conversion feature of convertible debentures -- -- -- 5,738,149
Early extinguishment of Debt -- -- -- (396,875)
Issuance of common stock for asset purchase -- -- -- 1,499,997
Common Stock subject to put -- -- (1,499,983) (1,819,985)
------------------------------------------------------------
BALANCE - JUNE 30, 1998 $(50,481,713) $ (1,475,779) $(1,819,985) $ 4,338,742
============================================================
</TABLE>
F 7
The accompanying notes are an integral part of these financial statements
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company was incorporated under the laws of the State of New York on January
2, 1968 under the name CGS Units Incorporated. On June 6, 1994, the Company
merged with Direct Marketing Services, Inc. and changed its name to DMS
Industries, Inc. In May of 1995 the Company discontinued the operations then
being conducted by DMS Industries, Inc. and acquired all of the outstanding
securities of SR Medical AG, a Swiss corporation engaged in the business of
manufacturing and selling X-ray equipment, components and accessories. On June
5, 1995 the Company changed its name to Swissray International, Inc. The
Company's operations are being conducted principally through its wholly owned
subsidiaries, SR Medical Holding AG (known as SR Medical AG until renamed in
February 1998), the latter's wholly owned subsidiaries, SR Medical AG (known as
Teleray AG until renamed in February 1998), a Swiss corporation, Swissray
(Deutschland) Roentgentechnik GmbH (formerly known as SR Medical GmbH), a German
limited liability company and Teleray Research and Development AG (a Swiss
corporation), as well as through the Company's other wholly owned subsidiaries,
SR Management AG (formerly SR Finance AG), a Swiss corporation, Swissray Medical
Systems, Inc. (formerly Swissray Corporation), a Delaware corporation, Swissray
Healthcare, Inc., a Delaware corporation, and Swissray Information Solutions,
Inc., a Delaware corporation and Empower, Inc. (whose assets were substantially
sold in June 1998), a New York corporation.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated. Investments which are recorded on a equity
method and have operated at a Loss in excess of equity are carried at a zero
value. See Note 9 Investments
BUSINESS ACQUISITION
On April 1, 1997, Swissray International, Inc. exchanged 8,000 shares of common
stock at the then quoted market price of $120,000 ($15 per share) for all the
outstanding shares of Empower, Inc.The consolidated financial statements
presented include the accounts of Empower, Inc.(whose assets were substantially
sold in June 1998), from April 1, 1997 (date of acquisition) to June 30, 1998.
The acquisition has been accounted under the purchase accounting method. The
contract requires the Company to repurchase the 8,000 shares of common stock at
$40 per share for a period of one year commencing two years from the date of the
contract at the option of the former owner of Empower, Inc. On October 17, 1997,
the Company acquired substantially all of the assets and assumed certain
liabilities of Service Support Group, LLC (SSG) located in Gig Harbor,
Washington pursuant to an asset purchase agreement. The acquisition has been
accounted under the purchase accounting method. SSG is in the business of
selling diagnostic imaging equipment and related services in markets on the West
Coast of the United States. The purchase price consisted of (1) cash in the
amount of $621,892, (2) 33,333 shares of the Company's common stock, (3) an
amount equal to fifty percent of certain accounts receivable net of certain
accounts payable and (4) the assumptions of certain other liabilities. As a
result of these transactions, the Company recorded goodwill of $1,933,275. The
contract requires the Company to repurchase the 33,333 common shares at $45 per
share during the period June 30, 1998 to April 17, 1999 at the option of the
former owners of SSG.
REVENUE AND INCOME RECOGNITION POLICIES
The Company maintains its records on the accrual basis of accounting.
Revenues from the sale of products is recorded when the products are shipped,
collection of the purchase price is probable and the Company has no significant
further obligations to the customer. Cost of remaining insignificant company
obligations, if any, are accrued as costs of revenue at the time of revenue
recognition.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles require management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during this period. Actual results
could differ from those estimates
F 8
<PAGE>
WARRANTY
The company accrues a warranty allowance at the time of sale. The warranty
allowance is based upon the companies experience and varies between 0.5 and 2%
of the net sales amount.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard No. 107 "Disclosures about Fair Value
of Financial Instruments" (SFAS 107) requires the disclosure of fair value
information about financial instruments whether or not recognized on the balance
sheet, for which it is practicable to estimate the value. Where quoted market
prices are not readily available, fair values are based on quoted market prices
of comparable instruments. The carrying amount of cash and equivalents, accounts
receivable and accounts payable approximates fair value because of the short
maturity of those instruments.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined on the first-in, first-out (FIFO) method. Inventory costs include
material, labor, and overhead.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the respective assets,
which are three years for Computers and Telecommunication Equipment, five to ten
years for Equipment, Office furniture and Equipment and Office and leasehold
improvements and thirty years for Buildings. Leasehold improvements are
amortized over the shorter of the estimated useful lives of the improvements, or
the term of the facility lease.
Expenditures for repairs and maintenance are charged to expense as incurred. The
cost of major renewals and betterment's are capitalized and depreciated over
their useful lives. Upon disposition, the cost and related accumulated
depreciation of property and equipment are removed from the accounts and any
resulting gain or loss is reflected in operations.
The Company is required to review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable, in accordance with the provisions of Statement of
Financial Accounting Standards No.121, "Accounting for Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of" ("SFAS 121"). Accordingly, when
indicators of impairment are present, the Company evaluates the carrying value
of property, plant, and equipment and intangibles using projected undiscounted
future cash flows and operating income for each subsidiary to determined whether
material impairment of these assets exists.
INTANGIBLE ASSETS
Excess of cost over fair value of net assets acquired ("goodwill") resulted from
the acquisition of Empower and SSG and is being amortized over ten years from
the date of acquisition using the straight-line method. Patents and Trademarks
are capitalized and are amortized using the straight-line method over their
estimated useful lives (10 year).Debt issuance costs are amortized using the
straight-line method over the term of the related debts, which range from two to
six months. Periods of amortization are evaluated periodically to determine
whether later events and circumstances warrant revised estimates of useful
lives. At each balance sheet date, the Company evaluates the recoverability of
unamortized goodwill based upon expectations of nondiscounted cash flows and
operating income. Impairments, if any, would be recognized in operating results
if a permanent diminution in value were to occur.
<PAGE>
Capitalization of software development costs begins upon the establishment of
technological feasibility of new or enhanced software products. Technological
feasibility of a computer software product is established when the Company has
completed all planning, designing, coding and testing that is necessary to
establish that the software product can be produced to meet design
specifications including functions, features and technical performance
requirements. All costs incurred prior to establishing technological feasibility
of a software product are charged to research and development as incurred. The
Company amortizes capitalized software development costs over the related sales
on a product-by-product basis at the greater of the amount computed using (a)
the ratio of current gross revenues for a product to the total of current and
anticipated future gross revenues or (b) the straight-line method over the
estimated remaining economic life of the software products, generally five to
eight years.
All cost incurred by the Company in connection with incorporation of
subsidiaries have been capitalized and are being amortized over a period up to
60 months.
ADVERTISING AND PROMOTION
Advertising and promotion cost are expensed as incurred and included in "Selling
Expenses". Advertising and promotion expense for the years ended June 30, 1998,
1997 and 1996 were $ 1,737,935, $ 781,189 and $ 740,044, respectively
RESEARCH AND DEVELOPMENT
Costs associated with research, new product development, and product cost
improvements are treated as expenses when incurred.
CONVERTIBLE DEBT
Convertible debt is recorded as a liability until converted into common stock,
at which time it is recorded as equity
INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
EXPENSES RELATED TO SALES AND ISSUANCE OF SECURITIES
All costs incurred in connection with the sale of the Company's common stock
have been capitalized and charged to additional paid-in capital.
NET LOSS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share",
which established new standards for computation of earnings per share. SFAS No.
128 requires the presentation on the face of the income statement of "basic"
earnings per share and "diluted" earnings per share.
Basic earnings per share is computed by dividing the net income (loss) available
to common shareholders by the weighted average number of outstanding common
shares. The calculation of diluted earnings per share is similar to basic
earnings per share except the denominator includes dilutive common stock
equivalents such as stock options and convertible debentures. Common stock
options and the common shares underlying the convertible debentures are not
included for the years ended June 30, 1998 ("Fiscal 1998"), June 30, 1997
("Fiscal 1997") and June 30, 1996 (`Fiscal 1996') as their effect would be
anti-dilutive.
<PAGE>
ACCOUNTING FOR STOCK OPTIONS
As permitted by Statement of Financial Accounting Standards No. 123 ("SFAS No.
123"), "Accounting for Stock Based Compensation", the Company applies Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for the Swissray International, Inc. 1996
Non-Statutory Stock Option Plan and the 1997 Stock Option Plan (the "Stock
Option Plans"). Accordingly, no compensation cost has been recognized for
options granted under the Stock Option Plans except for $1,186,462 for Fiscal
1997, and $6,374,468 for Fiscal 1996 related to the fair value of services
rendered in exchange for options granted to consultants. However, the Company
has disclosed in Note 16, Shareholders' Equity the pro forma effects had
compensation cost been determined based on the fair value of the options, not
including the options for which expense has been previously recognized, at the
grant date.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year's financial statements to
conform to the June 30, 1998 presentation.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of subsidiaries operating in foreign countries are
translated into U.S. dollars using both the exchange rate in effect at the
balance sheet date or historical rate, as applicable. Results of operations are
translated using the average exchange rates prevailing throughout the year. The
effects of exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are included in stockholders equity (Accumulated
other comprehensive loss), while gains and losses resulting from foreign
currency transactions are included in operations.
NEW ACCOUNTING PRONOUNCMENTS
The Company will adopt Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") for the year ended June 30, 1999. SFAS No. 131 requires the Company to
report selected information about operating segments in its financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. The application of the new
pronouncement is not expected to have a material impact on the Company's
disclosures.
The Company will adopt Statement of Financial Accounting Standards No. 132
("SFAS No. 132"), "Employers' Disclosures about Pensions and Other
Postretirement Benefits" for the year ended June 30, 1999. SFAS No. 132 revises
employers' disclosures about pension and other postretirement benefit plans. The
application of the new pronouncement is not expected to have a material impact
on the Company's financial statements.
The Company will adopt Statement of Financial Accounting Standard No. 133 ("SFAS
No. 133"), "Accounting for Derivative Instruments and Hedging Activities" for
the year ended June 30, 2000. SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing standards. The application of the new pronouncement is not
expected to have a material impact on the Company's financial statements.
<PAGE>
STOCK SPLIT
On October 1, 1998 the Company declared a 1 for 10 reverse stock split. The
financial statements for all periods presented have been retroactively adjusted
for the stock split.
NOTE 2 - NOTE RECEIVABLE
On June 20, 1996 the Company sold marketable securities for a 5% promissory note
in the amount of $962,500 originally due on October 20, 1996 of which $100,000
was paid on December 10, 1996. On January 15, 1997, the Company renegotiated the
terms of the unpaid balance. A new note in the amount of $862,500 was
renegotiated, with interest at 6% cumulative and payable when the note matures
on January 1, 2000. At June 30, 1997, principal payments of $348,857 were
received leaving a balance due of $513,643. Interest payments were also paid to
June 30, 1997. At June 30, 1998 no payments were received.
NOTE 3 - INVENTORIES
Inventories are summarized by major classification as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Raw materials, parts and supplies $7,047,001 $2,632,256
Work in process 160,064 468,204
Finished goods 494,080 810,647
-----------------------
$7,701,145 $3,911,107
========== ==========
</TABLE>
NOTE 4 - PREPAID EXPENSES AND SUNDRY RECEIVABLES
Prepaid expenses and sundry receivables consist of the following:
<TABLE>
<CAPTION>
June 30,
-----------------------
1998 1997
-----------------------
<S> <C> <C>
Prepaid expenses, deposits and advance payments $ 616,183 $ 681,742
Insurance claim for fire damage 165,655 352,996
Prepaid and refundable taxes 708,246 888,169
Employee loans 11,825 13,231
-----------------------
$1,501,909 $1,936,138
========== ==========
</TABLE>
<PAGE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
-----------------------
1998 1997
-----------------------
<S> <C> <C>
Land and building $4,956,328 $3,022,772
Equipment 1,305,092 1,223,572
Office furniture and equipment 328,258 161,223
Office and leasehold improvements 1,777 249,160
-----------------------
6,591,455 4,656,727
Less: Accumulated depreciation and amortization 581,077 320,110
-----------------------
$6,010,378 $4,336,617
=======================
</TABLE>
Depreciation and amortization expense, for property and equipment, for the years
ended June 30, 1998, 1997 and 1996 were $1,077,074, $233,040 and $ 103,176,
respectively.
NOTE 6 INTANGIBLE ASSETS
Intangible Assets at June 30, 1998 and 1997 consisted of the following
<TABLE>
<CAPTION>
June 30,
-----------------------
1998 1997
-----------------------
<S> <C> <C>
Excess of cost over fair value of net assets
acquired $1,933,275 $ 419,837
Licensing 4,966,575 4,966.575
Software development cost 577,210 352,036
Patents and Trademarks 313,330 260,944
Other 8,385 8,385
-----------------------
7,798,775 6,007,777
Less: Accumulated amortization 1,715,741 970,091
-----------------------
$6,083,034 $5,037,686
=======================
</TABLE>
Amortization expense, for Intangible Assets, for the years ended June 30, 1998,
1997 and 1996 were $1,227,719, $ 537,254, and $ 401,472, respectively.
NOTE 7 - ACCOUNTS RECEIVABLE - LONG-TERM
The Company sold merchandise to a customer in 1995. In June 1996,the Company
renegotiated payment terms with the customer and agreed that the customer would
pay the Company approximately $5,000 to $30,000 per month based on usage of the
merchandise for a period of 5 years. The amount due the Company at June 30, 1997
was $240,912 after a provision for doubtful collection in the total amount of
$814,178. The balance of the account receivable, totaling $ 124,697 was written
during Fiscal 1998.
NOTE 8 - LICENSING AGREEMENT
The Company entered into a licensing agreement in June of 1995 with an
unaffiliated individual. The agreement is for an exclusive field-of-use license
within the United States and Canada to use the proprietary information,
including the patent rights, for certain technology regarding the integration of
computer technology with diagnostic x-ray and radiology medical equipment
through digital imaging systems. The agreement required a fee of $5,000,000
consisting of $1,200,000 in cash and 66,000 shares of the Company's common
stock. The cash payment requirement consisted of $900,000 upon the signing of
the agreement and the $300,000 balance due on December 31, 1996. The fee has
been discounted at 7.5% for imputed interest of $33,425 resulting in a net
capitalized cost of $4,966,575.
<PAGE>
This agreement is for an indefinite term or until all of the proprietary
information becomes public knowledge and the patent
rights expire.
The Licensing Agreement is amortized over the related sales on a
product-by-product basis at the greater of the amount computed using (a) the
ratio of current gross revenues for a product to the total of current and
anticipated future gross revenues or (b) the straight-line method over the
estimated remaining economic life, generally ten years. At each balance sheet
date, the Company evaluates the recoverability of the unamortized License Fee
based upon expectations of nondiscounted cash flows and operating income of its
US-Operation. Impairments, if any, would be recognized in operating results if a
permanent diminution in value were to occur.
NOTE 9 - INVESTMENTS
The Company has made various investments which are recorded on the equity
method. These entities have operated at a loss in excess of equity, and
therefore, the Company is carrying these investments as follows:
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------- -------------
Ownership Carrying Carrying
% Cost Value Cost Value
--------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Swissray SR Medical GmbH, Willich 34% $ 16,892 $ -- $ 16,892 $ --
Swissray Medical, s.r.o., Bratislava 34% 6,757 -- 6,757 --
Swissray Medical, s.r.o., Brno 34% 6,757 -- 6,757 --
Teleray s.r.o., Willich 49% 38,403 -- 38,403 --
Teleray s.r.o., Brno 34% 6,757 -- 6,757 --
Digitec GmbH, Neuss 20% 59,641 -- 59,641 --
Total $135,207 $ -- $135,207 $ --
======== ======== ======== =======
</TABLE>
NOTE 10 - NOTES PAYABLE - BANKS
The Company has negotiated a revolving line-of-credit agreement with Migros Bank
of Switzerland, dated March 23, 1998, for up to $1,314,924. The company has also
negotiated an agreement for up to $1,314,924 for the issuance of guarantees and
letter of credit, both with a commission of 15 % per $ 1,000,000, quarterly
while outstanding. There were $ 971,644 outstanding guarantees and $ -0- of
letter of credits as of June 30, 1998 The Company also negotiated a fixed line
of credit for up to $2,630,000. All lines of credit are based on the Exchange
rate in effect on June 30, 1998
The Company had negotiated a line-of-credit agreement with the Union Bank of
Switzerland dated July 16, 1996 for borrowing availability up to $ 376,310 in
excess of cash balances on deposit with the bank, based on the
exchange rate in effect on June 30, 1997. As of October 31, 1997, the bank
reduced the line of credit to the cash balances on deposit with the bank.
The Company had negotiated a line-of-credit agreement with the Swiss Bank
Corporation for up to $1,505,240, based on the exchange rate in effect on June
30, 1997. This line of credit was terminated during Fiscal 1998.
The Company had negotiated a line-of-credit agreement with Cantonal Bank of
Lucerne for up to $ 1,368,400, based on the exchange rate in effect on June 30,
1997. The line of credit was terminated during Fiscal 1998.
<PAGE>
Empower, Inc., a subsidiary, had negotiated a line-of-credit agreement with the
State Bank of Long Island dated October 21, 1996 with a maximum borrowing base
of $450,000 as of June 30, 1997. The maximum borrowing base was reduced by
$25,000 per quarter beginning January 1, 1997. The full line of credit was
terminated during Fiscal 1998. .
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Migros Bank revolving line of credit, due on
demand,with interest at 4.75% per
annum, collateralized by certain accounts
receivable $ 408,786 $ --
Migros Bank, on demand with six week notice,
with interest at 4 % per annum, collateralized
by land and building 2,630,000 --
Union Bank of Switzerland, due on demand,
with interest at 8% per annum, collateralized
by the cash on deposit at Union Bank of Switzerland
and certain accounts receivable. Cash balances on
deposit at Union Bank of Switzerland at June 30,
1998 and 1997 were $627,625 and $2,805,747, respectively 512,305 1,421,075
Swiss Bank Corporation, due on demand, with interest
at 5.25% per annum, collaterized by the cash on
deposit at Swiss Bank Corporation and accounts
receivable of $ -0- and $ 853,065 as of June 30,
1998 and 1997, respectively. . Cash balances on deposit at
Swiss Bank Corporation at June 30, 1997 were $106,007 -- 695,231
State Bank of Long Island, due on demand, with
interest at prime plus 2.25%, (prime rate as June 30,
1997 was 8.5.%) collateralized by the assets of Empower,
Inc. and guaranteed by the Company Total assets of
Empower, Inc. were $1,983,502 at June 30, 1997 -- 350,000
Cantonal Bank of Lucerne, on demand with three months
notice, with interest at 5.25% payable quarterly,
collateralized by land and building -- 1,368,400
---------- ----------
$3,551,091 $3,834,706
========== ==========
</TABLE>
F 14
<PAGE>
NOTE 11 - LOAN PAYABLE
The Company has negotiated a 5% demand loan from a private foundation fund. The
loan balance payable at June 30, 1998 and 1997 was $125,029 and $133,008
respectively. Interest expenses for the years ended June 30, 1998, 1997 and 1996
were $3,223, $16,258 and $ -0-, respectively.
NOTE 12 - DUE FROM STOCKHOLDERS
The Company made unsecured advances to its former Chairman of the Board of
Directors (a principal stockholder) during the year ended June 30, 1997
requiring interest at 6% per annum. The balance at June 30, 1997 was $69,587 and
by June 30, 1998 had been repaid. Interest charged to the stockholder for the
year ended June 30, 1997 was $3,460. No interest had been charged to the
stockholder for the year ended June 30, 1998 because repayment took place on
July 1, 1997.
NOTE 13 - DUE TO STOCKHOLDERS AND OFFICERS
In June 1997, the President of the Company (a principal stockholder) made
non-interest bearing advances to the Company in the amount of $5,862. The amount
of the non-interest-bearing advance for June 30, 1998 was $2,207
Prior to the acquisition of Empower, Inc., the president of Empower, Inc.
advanced that company funds for operating expenses at 8.25% interest. As part of
the acquisition, the Company agreed to continue to pay this obligation. The
balance due the stockholder of the Company at June 30, 1997 was $112,013
including unpaid interest of $25,695. Interest payable to the stockholder for
the period from April 1, 1997 (date of acquisition) to June 30, 1997 was $2,315.
The whole amount was repaid during Fiscal 1998. The balance at June 30, 1998 was
$0
An officer of Swissray Corporation made non-interest bearing advances to the
subsidiary for operating expenses during 1997. The balance due at June 30, 1997
was $21,951. The amount was repaid and the balance was $0 at June 30, 1998.
Pursuant to agreements between the President of the Company and the Company,
dated as of December 1996 and June 1997, the Company incurred additional
compensation to the officer payable as 48,259 shares with a fair value of
$1,122,973. The compensation was in consideration of the officer's agreement for
the cancellation of 1,608,633 shares of common stock held by the officer or
companies controlled by him which allowed the Company to maintain a sufficient
number of shares of common stock to meet certain obligations of the Company to
issue common stock and to permit certain financings prior to the increase in the
number of authorized shares of common stock from 15,000,000 to 30,000,000
shares. The shares were issued by the Compny on July 22, 1997 and at June 30.
1997 are recorded as "Common Stock to be Issued to Officer" in the equity
section of the balance sheet.
<PAGE>
NOTE 14 - CONVERTIBLE DEBENTURES
Convertible debentures consist of the following:
<TABLE>
<CAPTION>
June 30,
1998 1997
----------- -----------
<S> <C> <C>
Convertible debenture dated April 28, 1997 and due April 28, 1998 with
interest at 6% per annum. The principle shall be convertible into common shares
one year from the issue date of the note at the greater of eighty (80%) percent
of bid price or $2.50 per share on the date of conversion. Interest due on the
note shall similarly be paid in common stock at the time of conversion $ 0 $ 2,000,000
2,000,000
Convertible debenture dated May 15, 1997 and due May 15, 2000 with interest at
6% per annum. The debentures are convertible into common shares at a price equal
to eighty (80%) of the average closing bid price for the five (5) trading days
preceding the date of conversion. One-half of the debentures are convertible at
the earlier of a registration effective date or August 7, 1997.
</TABLE>
<TABLE>
<S> <C> <C>
The remainder are convertible 30 days thereafter. Any debenture not so converted
is subject to mandatory conversion on May 15, 2000 Debt issuance cost was
$327,310, beneficial conversion feature was $500,000 0 2,000,000
Convertible debenture dated June 13, 1997 and due June 13, 2000 with interest
at 6% per annum. The debentures are convertible into common shares at a price
equal to eighty (80%) of the average closing bid price for the five (5) trading
days preceding the date of conversion. One-half of the debentures are
convertible at the earlier of a registration effective date or September 13,
1997. The remainder are convertible 30 days thereafter. Any debenture not so
converted is subject to mandatory conversion on June 13, 2000. Debt
issuance cost was $308,575, beneficial conversion feature was $500,000 0 2,000,000
2,000,000
<PAGE>
Convertible debenture dated December 11, 1997 and due December 11,
1999 with interest at 8% per annum. The debentures are convertible into common
shares at a price equal to seventy five (75%) of the average closing bid price
for the five (5) trading days preceding the date of conversion. Twenty five
percent (25%) of the debentures are convertible at the earlier of a registration
effective date or March 21, 1998. Additionally twenty five percent (25%) of the
debentures are convertible at the earlier of 30 days after the effective date of
the Registration Statement or April 20, 1998. Additionally twenty five percent
(25%) of the debentures are convertible at the earlier of 60 days after the
effective date of the Registration Statement or May 20, 1998. The remaining
twenty five percent (25%) are convertible at the earlier of 90 days after the
effective date of the Registration Statement or June 20, 1998. Any debenture not
so converted is subject to mandatory conversion on December 11, 1999. Debt
issuance cost was $690,000, beneficial conversion feature was $1,949,428 145,969 0
Convertible debenture dated March 14, 1998 and due March 14, 2000 with interest
at 6% per annum. The debentures are convertible into common shares at a price
equal to eighty (80%) of the average closing bid price for the ten (10) trading
days preceding the date of conversion. All of the debentures are convertible at
the earlier of a registration effective date or May 14, 1998. Any debenture not
so converted is subject to mandatory conversion on March 14, 2000 On July 21,
1998 and August 13, 1998 a total of $1,500,000 was converted into 484,254
shares. On August 31, 1998 the amount of $3,000,000 was refinanced (See Note 25
- - Subsequent Events) Debt issuance cost was $615,000, beneficial conversion
feature was $857,500 5,500,000 0
Convertible debenture dated June 15, 1998 and due June 15, 2000 with interest at
6% per annum. The debentures are convertible into common shares at a price equal
to eighty (80%) of the average closing bid price for the ten (10) trading days
preceding the date of conversion. All of the debentures are convertible at the
earlier of a registration effective date or August 15, 1998
Any debenture not so converted is subject to mandatory conversion on June 15,
2000. Debt issuance cost was $240,000, beneficial conversion feature was $420,436 2,000,000 0
----------- -----------
7,645,969 6,000,000
Less discount due to beneficial conversion features, net of accumulated
amortization of $105,109 and $310,559 respectively (315,327) (689,441)
(689,441)
----------- -----------
$ 7,330,642 $ 5,310,559
=========== ===========
</TABLE>
The Company is currently in violation of certain covenants in their debenture
agreements. Such covenants have been waived by the holders.
<PAGE>
NOTE 15 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Note payable - Edward Coyne, in weekly installments of $817, including principal
and interest at 8% per annum, maturing on October 9, 2002 $153,603 $182,617
Note payable - Thatcher Company of New York, in monthly installments of $855,
including interest at 10.25% per annum, maturing on October 3, 2001,
collateralized by various x-ray chemical mixing machines. The full note was
assumed by the purchaser of Empower during Fiscal 1998 -- 35,623
Note payable - Union Bank of Switzerland, related to the acquisition of
equipment sold to a customer (see Accounts Receivable -Long-Term), in monthly
installments of $12,589 With imputed interest at 6.0% per annum, maturing on
September 30, 2000 335,062 450,417
Capitalized leases related to the acquisition of various computer and office
equipment in payable monthly installments over periods ranging up to June 4,
2001 with interest imputed at rates ranging from 9.1% to 28.3%. These leases are
collaterlized by the specific equipment 13,377 30,747
Note payable - Dr. Zeman-Wiegand Helga,
due on demand, requires interest only
payments at 7% per annum with no current
amortization required. The note was repaid during Fiscal 1998 -- 68,420
Capitalized leases related to the acquisition of various computer and office
equipment in monthly installments over periods ranging up to April 2001 with
interest imputed at rates ranging from 18% - 21%. These leases are collaterlized
by the specific equipment 172,378 --
-------- --------
674,420 767,824
Less: Current portion (233,746) (243,135)
-------- --------
$440,674 $524,689
======== ========
</TABLE>
The aggregate long-term debt principal payment are as follows:
<TABLE>
<CAPTION>
Years Ending
June 30,
- -----------
<S> <C>
1999 $233,746
2000 247,275
2001 142,154
2002 40,006
2003 11,239
--------
$674,420
========
</TABLE>
F 17
<PAGE>
NOTE 16 - SHAREHOLDERS' EQUITY
Authorized Shares
On March 12, 1997, the Company amended its certificate of incorporation to
change the number of authorized common shares from 15,000,000 to 30,000,000 of
$.01 par value common shares. On December 26, 1997, the Company amended its
certificate of incorporation to change the number of authorized common shares
from 30,000,000 to 50,000,000 of $.01 par value common shares.
The Company's outstanding shares of common stock of $.01 par value at June 30,
1998 and 1997 were 4,142,622 and 1,969,443, respectively.
Common Stock
The Company issued 2,030,588 shares for $13,725,246 for the year ended June 30,
1998 (including 16,900 shares for $123,370 issued under stock option plan) and
535,876 shares for $7,753,222 (including 16,100 shares for $117,530 issued under
stock option plan) for the year ended June 30, 1997 and 215,000 shares for
$7,250,000 (includes 105,000 shares for $2,050,000 issued under stock option
plan) for the year ended June 30, 1996.
Stock Option
The Stock Option Plans provide for the grant of options to officers, directors,
employees and consultants. Options may be either incentive stock options or
non-qualified stock options, except that only employees may be granted incentive
stock options. The maximum number of shares of Common Stock with respect to
which options may be granted under the Stock Option Plans is 500,000 shares.
Options vest at the discretion of the Board of Directors. All options granted in
1997 and 1996 vested immediately. The maximum term of an option is ten years.
The 1996 Stock Option Plan will terminate in January, 2006, though options
granted prior to termination may expire after that date. The 1997 Stock Option
Plan will terminate at the discretion of the Board of Directors. In Fiscal 1998.
there were no grants or vesting of stock options. In Fiscal 1997 and 1996, had
compensation cost for the Stock Option Plans been determined based on the fair
value at the grant dates for awards under the Stock Option Plans, except for
grants to consultants for which compensation expense has been recognized
consistent with the method of SFAS No. 123, as discussed in Note 1, the
Company's net loss and net loss per share would have increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996
------------------------ ------------------------
As Pro As Pro
Reported Forma Reported Forma
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss (in thousands) $ (13,685) $ (13,959) $ (8,266) $ (8,365)
Basic and diluted
net loss per share $ (8.65) $ (8.82) $ (6.37) $ (6.45)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option-pricing method with the following weighted average
assumptions used for grants.
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Dividend yield 0% 0%
Expected volatility 61.6% 23.1%
Risk-free interest rate 6.25% 6.25%
Expected lives, in years 1 1
</TABLE>
A summary of the weighted-average fair market values and weighted-average
exercise prices, both as of the date of grant, is presented below. No options
were granted in Fiscal year 1998.
F 18
<PAGE>
<TABLE>
<CAPTION>
1997 1996
-------- -------- -------- -------
Weighted Weighted Weighted Weighted
Average Average Average Average
Fair Exercise Fair Exercise
Value Price Value Price
-------- ------- ------ ------
<S> <C> <C> <C> <C>
Options granted above fair value $ - $ - $ 7.20 $48.90
Options granted below fair value $22.80 $ 7.60 $29.20 $21.60
</TABLE>
A summary of the status of the Stock Option Plans at June 30, 1998, 1997 and
1996 and the changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ---------------------- -----------------------
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
Underlying Exercise Underlying Exercise Underlying
Exercise
Options Price Options Price Options Price
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 318,000 $ 23.40 238,500 $ 25.20 0
$ --
Granted -- $ -- 79,500 $ 17.80 238,500 $ 25.20
Exercised (16,900) $ 7.30
Outstanding at end of year 301,100 $ 24.30 318,000 $ 23.40 238,500 $ 25.20
======== ======== ========= ======== ======== ========
Exercisable at end of year 301,100 $ 24.30 318,000 $ 23.40 238,500 $ 25.20
======== ======== ========= ======== ======== ========
</TABLE>
The following table summarizes information about stock options under the Stock
Option Plans at June 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercisable
Exercise Price Outstanding Life Price Exercisable Price
-------------- ----------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 7.30 - $ 10.00 40,100 8.4 $ 8.00 40,100 $ 8.00
$20.00 - $ 40.00 227,500 7.8 $ 22.10 227,500 $ 22.10
$47.50 - $ 65.00 33,500 7.5 $ 58.70 33,500 $ 58.70
------- -------
301,100 301,100
======= ========
</TABLE>
<PAGE>
NOTE 17 - DEFINED CONTRIBUTION PLANS
The Swiss and German Subsidiaries, mandated by government regulations, are
required to contribute approximately five (5%) percent of all eligible, as
defined, employees' salaries into a government pension plan. The subsidiaries
also contribute approximately five (5%) percent of eligible employee salaries
into a private pension plan. Total contributions charged to operations for the
years ended June 30, 1998, 1997 and 1996, were $ 347,854, $274,009 and $198,722,
respectively.
Effective March 1, 1992, Empower, Inc., a U.S. subsidiary, adopted a qualified
401(k) retirement plan for the benefit of all its employees. Under the plan,
employees can contribute and defer taxes on compensation contributed. The
subsidiary matches, within prescribed limits, the contributions of the
employees. The subsidiary also has the option to make an additional contribution
to the plan. The subsidiary's contribution to the plan for the period April 1,
1997 (date of acquisition) to June 30, 1998 and 1997 was $ 10,260 and $4,185,
respectivly.
Effective April 3, 1992, Empower, Inc., a U.S. subsidiary, adopted a "Section
125" employee benefits plan, which is also referred to as a "Cafeteria" plan.
The subsidiary pays for approximately 85% of the employees' health coverage and
the employee pays approximately 15% of the cost of coverage. With the
implementation of the Cafeteria plan, the employees' payments for coverage are
on a pre-tax basis. A new employee has only a ninety (90) day waiting period
before he or she becomes eligible to participate in the group insurance plan and
the Cafeteria plan.
NOTE 18 - OTHER INCOME (EXPENSES)
<TABLE>
<CAPTION>
Year Ended June 30,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Interest income $ 58,902 $ 68,950 $ 131,166
Interest income - stockholder and officer -- 4,351 12,530
Foreign currency income (87,148) 484,846 377,587
Miscellaneous income 60,648 6,833 512
Loss from investments -- (246,217) --
Loss on sale of certain asset and Liabilities 313,629 -- --
Licensing income -- -- 482,138
---------- ---------- ----------
TOTAL OTHER INCOME (EXPENSES) $ (281,227) $ 318,763 $1,003,933
========== ========== ==========
</TABLE>
<PAGE>
NOTE 19 - INCOME TAXES
Deferred income tax assets as of June 30, 1998 of $9,500,000 as a result of net
operating losses, have been fully offset by valuation allowances. The valuation
allowances have been established equal to the full amounts of the deferred tax
assets, as the Company is not assured that it is more likely than not that these
benefits will be realized.
A reconciliation between the statutory United States corporate income tax rate
(34%) and the effective income tax rates based on continuing operations is as
follows:
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax (benefit) $(7,754,000) $(4,101,913) $(3,077,078)
Foreign income tax (benefit) in
excess of domestic rate 543,000 509,203 (325,715)
Benefit not recognized on operating loss 5,111,000 2,816,057 3,038,145
Permanent, timing and other differences 2,100,000 886,886 --
----------- ----------- -----------
$ -0- $ 110,223 $ (364,648)
=========== =========== ===========
</TABLE>
Net operating loss carryforwards at June 30, 1998 were approximately as follows:
United States (expiring through June 30, 2013) $15,200,000
Switzerland (expiring through June 30, 2008) 15,600,000
-----------
$30,800,000
===========
The income tax related to the extraordinary gain on sale of marketable
securities was approximately $343,000 for the year ended June 30, 1996.
F 20
<PAGE>
No income tax benefit has been recognized related to the extraordinary loss
incurred as a result of fire damage or the year ended June 30, 1997.
NOTE 20 - EXTRAORDINARY ITEMS
In June of 1996, the Company sold marketable securities for $962,500, at a cost
of $200,000, resulting in an extraordinary gain of $419,500 ($ 0.32 per share),
net of income taxes of approximately $343,000.
On April 12, 1997, the Company sustained significant fire damage at a leased
production and office facility in Hochdorf, Switzerland, resulting in an
extraordinary loss, net of insurance proceeds, of $387,514 ($ 0.24) per share),
net of income taxes of $-0-.
On July 31, 1997 the Company refinanced Convertible debentures issued in May and
June 1997. A gain on extinguishment of debt of $154,212 resulted from that
transaction net of income taxes of $-0-.
In December, 1997 the Company refinanced part of the Convertible debentures
issued in August 1997. A gain on extinguishment of debt of $150,711 resulted
from that transaction net of income taxes of $-0-.
Note 21 SIGNICIANT CUSTOMER AND CONCENTRATION OF CREDIT RISK
The company sells its products to various customers primarily in Europe and USA.
The company performs ongoing credit evaluations on its customers and generally
does not require collateral. Export sales are usually made under letter of
credit agreements. The company establishes reserves for expected credit losses
and such losses, in the aggregate, have not exceeded management's expectations.
The company maintains its cash balances with major Swiss, United States and
German financial institutions. Funds on deposit with financial institutions in
the United States are insured by the Federal Deposits Insurance Corporation
("FDIC) up to $ 100,000.
During the years ended June 30, 1998. 1997 and 1996 there were sales to four
customers that exceeded 10% of net consolidated sales. Sales to these customers
were: 1998 customer A, $ 0 (0%), customer B $7,647,354 (33%), customer C $0 (0%)
and customer D $1,209,390 (5%); 1997 customer A , $0 (0%), customer B $
1,899,084 (14%) customer C $0 (0%) and customer D $2,389,613 (18%); 1996
customer A $1,603,631 (15%), customer B $1,505,954 (14%), customer C $1,390,308
(13%) and customer D $0 (0%) The company operates in a single industry segment,
providing x-ray medical equipment.
The Company derives all of its revenues from its subsidiaries located in the
United States, Switzerland and Germany. Sales by geographic areas for the years
ended June 30, 1998, 1997 and 1996 were as follows:.
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
United States $ 9,127,569 $ 2,000,608 $ 0
Switzerland 12,851,115 2,184,161 2,002,374
Germany 914,294 1,393,072 4,976,503
Other export sales -- 7,573,860 3,920,345
----------- ------------ ------------
Total $22,892,978 $ 13,151,701 $ 10,899,222
</TABLE>
The following summarizes identifiable assets by geographic area:
<TABLE>
<CAPTION>
June 30,
1998 1997 1996
<S> <C> <C> <C>
United States $ 8,075,151 $ 2,008,307 $ --
Switzerland 17,454,379 22,031,388 18,129,362
Germany 385,067 748,539 664,076
------------ ----------- -----------
$ 25,914,597 $24,788,234 $ 18,793,438
============ =========== ===========
</TABLE>
F 21
<PAGE>
The following summarizes operating losses before provision for income tax:
<TABLE>
<CAPTION>
June 30,
1998 1997 1996
<S> <C> <C> <C>
United States $(13,962,842) $( 175,254) $ --
Switzerland ( 8,803,842) (12,678,800) (8,986,555)
Germany (42,184) (333,397) (63,673)
------------ ------------ ------------
$(22,808,032) $(13,187,451) $ (9,050,228)
============ ============ ============
</TABLE>
NOTE 22 - COMMITMENTS
The Company leases various facilities and vehicles under operating lease
agreements expiring through September 2003. The company has excluded all vehicle
leases in its presentation because they are deemed to be immaterial. The
facilities lease agreements provide for a base monthly payment of $22,285 per
month. Rent expense for the years ended June 30, 1998, 1997 and 1996 was
$324,726, $ 297,926 and $ 242,658 respectively Future minimum annual lease
payments, based on the exchange rate in effect on June 30, 1998, under the
facilities lease agreements are as follows: 1999 $267,422, 2000 $173,549, 2001
$162,526, 2002 $166,995, 2003 $137,994, Thereafter $0
On January 1, 1996, the Company entered into a long term purchase agreement with
a major vendor to supply the camera module for a product the Company sells. At
June 30, 1998, future minimum payments under this contract, which is cancelable
with four months notice, are as follows: 1999 $ 7,717,921. The Company's total
purchases under this agreement was for the year ended June 30, 1998 $1,685,611
respectively for the year ended June 30, 1997 $ 1,534,646.--. Due to a change of
the production plant of its vendor from Europe to the USA this contract is
presently in process to be renegotiated. The company believes that the outcome
of this renegotiations will have a positive impact to lower the existing
commitments into the future.
The Company has employment agreements with six of its executives. Minimum
compensation under these agreements are as follows:
<TABLE>
<CAPTION>
Year Ended
----------
<S> <C>
June 30, 1999 $ 963,000
June 30, 2000 843,000
June 30, 2001 500,000
June 30, 2002 273,000
June 30, 2003 147,000
----------
$2,726,000
==========
</TABLE>
<PAGE>
NOTE 23 - LITIGATION
In October 1997, the Registrant and Swissray Healthcare, Inc. were served with a
complaint by a company engaged in the business of providing services related to
imaging equipment alleging that defendant
received benefits from breach of fiduciary duties and contract obligations and
misappropriation of trade secrets by certain former employees of such
competitor. Such company also obtained a temporary restraining order against the
Registrant and Swissray Healthcare, Inc. On November 10, 1997, the Court denied
a Motion for a preliminary injunction and the temporary restraining order was
vacated. On December 1, 1997 and January 30, 1998 the Registrant answered the
Complaint and Amended Complaint respectively by denying the allegations
contained therein. The Plaintiff in such action (on December 2, 1997) filed a
Motion to reargue and renew its prior denied Motion for a Preliminary Injunction
and such Motion was (by Order and Decision dated June 17, 1998) denied. The
Company denied the allegations, vigorously defended the litigation and
thereafter settled such litigation and all outstanding matters with respect
thereto for $60,000 in July 1998.
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 Purchased Agreement dated as of October 17, 1997.
whereby Messrs. Durday, Montler and Harle received, among other consideration
33,333 shares of the Company'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 is 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 current status with respect to this matter is that an arbitration has been
selected, but no date has yet been set for a hearing.
In addition to the above referenced arbitration proceeding, Swissray and its
subsidiaries commenced an action against Messres Durday, Montler and Harle in
the Supreme Court of the State of New York, County of New York (Index
603512/98), alleging that these individuals breached the obligations undertaken
by them in their respective Employment Agreements. Messrs. Durday Montler and
Harle have removed this action to the United States District Court for the
Southern District of New York (File No. 98 Civ. 5895; Judge McKenna), where it
is now pending. Counsel for Messrs. Durday, Montler and Harle have since
acknowledged that the action was improperly removed to federal court and have
agreed to remand that action to the Supreme Court of the State of New York,
County of New York. Counsel for Messrs. Durday, Montler and Harle have also
indicated that it is their intention to attempt to dismiss or stay the New York
action in order to have the issues raised in the action consolidated with the
issues to be determined in the American Arbitration Association proceeding, but
no formal action has been taken in that regard.
<PAGE>
While the above may be considered to be in its early stage of litigation or
arbitration as indicated, it is the Company's management's intention to contest
each of these matters vigorously since Swissray believes that its claims are
meritorious, and that it has meritorious defenses to the claims asserted against
them.
NOTE 24 - RESTRUCTURING
During the year ended June 30, 1998 the Company recorded restructuring charges
of $500,000, as a result of its decision to relocate two facilities. The charges
consist primarily of the present value of the remaining lease obligations of
those facilities.
NOTE 25 - SUBSEQUENT EVENTS
On August 31, 1998 the Company issued $3,832,849 aggregate principal amount of
5% convertible debentures (the "Convertible Debentures") including a 25% premium
and accrued interest, convertible into Common Stock of the Company. The Company
did not receive any cash proceeds from the offering of the Convertible
Debentures. The full amount was paid by investors to holders of the Company's
Convertible Debentures issued on March 14, 1998 holding $3,000,000 of such
Convertible Debentures as repayment in full of the Company's obligations under
such Convertible Debentures. During the same period the Company issued
$2,311,000 aggregate principal amount of 5% Convertible Debentures, convertible
into Common Stock of the Company. After deducting fees, commissions and escrow
fees in the aggregate amount of $311,000 the Company received a net amount of
$2,000,000. The face amount of both Convertible Debentures are convertible into
shares of Common Stock of the Company commencing March 1, 1998 at a conversion
price equal to the lesser of 82% of the average closing bid price for the ten
trading days preceding the date of the conversion or $1.00. 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.
Subsequent to the closing of the Company's June 30, 1998 fiscal year, 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).
On October 6, 1998 the Company issued $2,940,000 aggregate principal amount of
5% convertible debentures (the "Convertible Debentures") including $540,000
repurchase of stock, convertible into Common Stock of the Company. After
deducting fees, commissions and escrow fees in the aggregate amount of $300,000
the Company received a net amount of $2,100,000. The face amount of the
Convertible Debentures is convertible into shares of Common Stock of the Company
any time after the closing date at a conversion price equal to the lesser of 82%
of the average closing bid price for the ten trading days preceding the date of
the conversion or $1.00. 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.
<PAGE>
NOTE 26 - RESTATEMENT
The accompanying financial statements have been restated to properly record the
accounting treatment of certain benefical conversion features and debt issuance
costs of convertible debentures issued during the year ended June 30, 1997, the
accounting for the value of stock options granted during the years ended June
30, 1997 and 1996, and the accounting for the value of common stock to be issued
to an officer as additional compensation during the year ended June 30, 1997.
The effect of such restatements on the Company's 1997 and 1996 financial
statements follow:
<TABLE>
<CAPTION>
1997 1996
----------------------------------------- -----------------------------------------
As As As AS
Reported Adjustments Restated Reported Adjustments
Restated
-------- ----------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Adjustments
Assets $24,352,915 $ 435,319 $24,788,234 $18,793,438 $ -- $18,793,438
Liabilities 17,784,487 (689,441) 17,095,046 8,138,182 -- 8,138,182
Stockholders' equity 6,568,428 1,124,760 7,693,188 10,655,256 -- 10,655,256
Statement of Operations
Adjustments
Operating expenses $15,165,898 $2,284,435 $17,450,333 $ 8,591,679 $6,374,468 $14,966,147
Other income (expenses) 67,720 (511,125) (443,405) 810,003 -- 810,003
Loss from operations (10,502,114) (2,795,560) (13,297,674) (2,311,112) (6,374,468) (8,685,580)
Net loss (10,889,628) (2,795,560) (13,685,188) (1,891,612) (6,374,468) (8,266,080)
Net loss per common share basic $ (.69) $ (.17) $ (.86) $ (.15) $ (.49)$ (.64)
</TABLE>
F 24
<PAGE>
Stockholders' equity has been restated to reflect the following:
<TABLE>
<CAPTION>
Additional Accumulated
Paid-in Capital Deficit
--------------- -----------
<S> <C> <C>
As originally reported, June 30, 1996 $19,268,400 $ (7,918,948)
Value of stock options granted 6,374,468 (6,374,468)
----------- -------------
As restated, June 30, 1996 $25,642,868 $(14,293,416)
=========== =============
As originally reported, June 30, 1997 $26,608,594 $(18,808,576)
Effect of 1996 restatement 6,374,468 (6,374,468)
----------- -------------
32,983,062 (25,183,044)
Beneficial conversion feature 1,000,000 (310,559)
Debt issuance cost 635,885 (200,566)
Value of stock options granted 1,161,462 (1,161,462)
value of common stock to be issued -- (1,122,973)
----------- -------------
$35,780,409 $(27,978,604)
=========== =============
</TABLE>
NOTE 27 - UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
The following unaudited proforma condensed combined statements of operations for
the years ended June 30, 1998 and 1997 give retroactive effect of the
acquisition of Empower, Inc. on April 1, 1997 and SSG on October 17, 1997, which
has been accounted for as a purchase. The unaudited proforma condensed combined
statements of operations give retroactive effect to the foregoing transaction as
if it had occurred at the beginning of each year presented. The proforma
statements do not purport to represent what the Company's results of operations
would actually have been if the foregoing transactions had actually been
consummated on such dates or project the Company's results of operations for any
future period or date.
The proforma statements should be read in conjunction with the historical
financial statements and notes thereto.
SWISSRAY INTERNATIONAL, INC
UNAUDITED PROFORMA CONDENSED COMBINED CONSOLIDATED STATEMENT
OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1998 AND JUNE 30, 1997
<TABLE>
<CAPTION>
Year Ended June 30
------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues $ 23,837,000 $ 21,223,000
Loss before extraordinary items (21,963,000) (13,568,000)
Net loss (22,403,000) (13,956,000)
Loss per share (8.33) (8.79)
Weighted average number of shares outstanding 2,690,695 1,587,757
</TABLE>
It was not practicable to include information for SSG for the year ended
June 30, 1997
F 25
<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 & Chief Executive Officer
Date: December 3, 1998
In accordance with the Exchange act, This report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Ruedi G. Laupper Chairman of the Board Dated: December 3, 1998
- ------------------------ of Directors, President &
Ruedi G. Laupper Chief Executive Officer
/s/ Josef Laupper Secretary and a Director Dated: December 3, 1998
- ------------------------
Josef Laupper
/s/ Dr. Sc. Dov Maor Director Dated: December 3, 1998
- -------------------------
Dr. Sc. Dov Maor
/S/ Ueli Laupper Vice President and a Director Dated: December 3, 1998
- ------------------------
Ueli Laupper
/s/ Dr. Erwin Zimmerli Director Dated: December 3, 1998
- ------------------------
Dr. Erwin Zimmerli
/s/ Erich A. Kalbermatter Chief Operating Officer Dated: December 3, 1998
- ------------------------
Erich A. Kalbermatter
/s/ Herbert Laubscher Chief Financial Officer Dated: December 3, 1998
- ------------------------ and Treasurer
Herbert Laubscher
</TABLE>
