UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________to_________________________
Commission file number 0-26972
SWISSRAY International, Inc.
(Exact name of registrant as specified in its charter)
New York 16-0950197
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 East 32nd Street, Suite 34-B, New York, New York 10016
(Address of principal executive offices) (Zip Code)
New York (212) 545 0095 Switzerland 011 41 41 914 12 00
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
<PAGE>
The number of shares outstanding of each of the issuer's class of common stock,
as of the latest practicable date.
The number of shares outstanding of each of the registrant's classes of common
stock, as of February 9, 1999 is 4,637,982 shares, all of one class of $.01 par
value common stock.
1
<PAGE>
TABLE OF CONTENTS Page
No. PART I
Item 1. Financial Statements F1-F5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 3-7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
PART II
Item 1. Legal Proceedings 8-9
Item 2. Changes in Securities and Use of Proceeds 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
2
<PAGE>
<TABLE>
<CAPTION>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
1998 June 30,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,224,828 $ 1,281,552
Accounts receivable, net of allowance for doubtful
accounts of $ 34,833 and $ 32,356 4,567,610 2,584,651
Inventories 8,321,841 7,701,145
Prepaid expenses and sundry receivables 1,338,067 1,501,909
------------- -------------
TOTAL CURRENT ASSETS 15,452,346 13,069,257
------------- -------------
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation
of $ 794,307 and $ 581,077 6,004,371 6,010,378
------------- ------------
OTHER ASSETS
Loan receivable 18,031 20,005
Licensing agreement, net of accumulated amortization of 3,352,438 3,600,766
$ 1,614,137 and $ 1,365,809
Patents and trademarks, net of accumulated amortization of 214,936 230,614
$ 98,394 and $ 82,716
Software development costs, net of accumulated amortization of 402,210 455,318
$ 175,000 and $ 121,892
Security deposits 31,146 38,280
Note receivable - long-term, net of allowance of $ 30,733 and $ 30,733 513,643 513,643
Goodwill, net of accumulated amortization of $ 223,939 and $ 136,939 1,709,336 1,796,336
Debt issance costs on convertible debentures, net of accumulated
amortization of $ 207,333 and $ 60,000 103,667 180,000
------------- -------------
TOTAL OTHER ASSETS 6,345,407 6,834,962
------------- -------------
TOTAL ASSETS $ 27,802,124 $ 25,914,597
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 215,486 $ 233,746
Notes payable - banks 4,756,527 3,551,091
Note payable 1,080,000 -
Loan payable 134,364 125,029
Accounts payable 6,846,261 5,030,449
Accrued expenses 1,501,005 2,365,450
Restructuring 500,000 500,000
Customer deposits 30,844 176,583
Due to stockholders and officers - 2,206
------------- ------------
TOTAL CURRENT LIABILITIES 15,064,487 11,984,554
------------- ------------
CONVERTIBLE DEBENTURES 12,229,818 7,645,969
Conversion Benefit - (315,327)
------------- ------------
Net Convertible Debentures 12,229,818 7,330,642
------------- ------------
LONG-TERM DEBT, less current maturities 367,725 440,674
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 46,380 41,426
Additional paid-in capital 59,657,215 58,074,793
Treasury stock (540,000) -
Accumulated deficit (57,567,759) (50,481,713)
Accumulated other comprehensive loss (1,455,742) (1,475,779)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 140,094 6,158,727
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,802,124 $ 25,914,597
============= =============
F 1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
December 31,
---------------------------------------
1998 1997
Restated
Unaudited Unaudited
----------- -----------
<S> <C> <C>
NET SALES $ 6,444,706 $ 6,043,675
COST OF SALES 5,132,428 5,277,856
----------- ------------
GROSS PROFIT 1,312,278 765,819
----------- -----------
OPERATING EXPENSES
Officers and directors compensation 241,707 154,812
Salaries 979,391 1,305,092
Selling 925,482 1,186,167
Research and development 437,551 948,643
General and administrative 260,178 671,418
Other operating expenses 296,518 128,521
Bad debts 7,383 (25,046)
Depreciation and amortization 297,013 237,923
---------- ---------
TOTAL OPERATING EXPENSES 3,445,223 4,607,530
---------- ---------
LOSS BEFORE OTHER INCOME (EXPENSES)
AND INCOME TAXES (2,132,945) (3,841,711)
----------- -----------
Other income (expenses) (175,628) 17,646
Interest expense (758,800) (1,722,761)
----------- -----------
OTHER EXPENSES (934,428) (1,705,115)
----------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS (3,067,373) (5,546,826)
Income tax provision (benefit) - (876)
Extraordinary income (expenses) (803,182) 154,215
------------ -----------
NET LOSS $ (3,870,555) $(5,391,735)
============ ===========
LOSS PER COMMON SHARE BASIC
Loss from continuing operations $ (0.66) $ (2.22)
Extraordinary items (0.18) 0.06
------------ -----------
NET LOSS $ (0.84) $ (2.16)
------------ -----------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 4,625,626 2,495,918
F 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended
December 31,
---------------------------------------
1998 1997
Restated
Unaudited Unaudited
----------- -----------
<S> <C> <C>
NET SALES $ 10,101,147 $ 11,302,578
COST OF SALES 7,969,342 8,590,947
----------- ------------
GROSS PROFIT 2,131,805 2,711,631
----------- -----------
OPERATING EXPENSES
Officers and directors compensation 396,894 250,547
Salaries 2,064,577 1,926,769
Selling 1,438,281 1,674,198
Research and development 843,589 1,422,482
General and administrative 710,818 883,598
Other operating expenses 561,007 264,398
Bad debts 7,383 (25,046)
Depreciation and amortization 590,762 436,646
---------- ---------
TOTAL OPERATING EXPENSES 6,613,311 6,833,592
---------- ---------
LOSS BEFORE OTHER INCOME (EXPENSES)
AND INCOME TAXES (4,481,506) (4,121,961)
----------- -----------
Other income (expenses) (358,995) 156,145
Interest expense (1,412,696) (4,416,914)
----------- -----------
OTHER EXPENSES (1,771,691) (4,260,769)
----------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS (6,253,197) (8,382,730)
Income tax provision (benefit) - -
Extraordinary income (expenses) (832,849) 304,923
------------ -----------
NET LOSS $ (7,086,046) $(8,077,807)
============ ===========
LOSS PER COMMON SHARE BASIC
Loss from continuing operations $ (1.35) $ (3.36)
Extraordinary items (0.18) 0.12
------------ -----------
NET LOSS $ (1.53) $ (3.24)
------------ -----------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 4,625,626 2,495,918
F 3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
December 31,
---------------------------------
1998 1997
Restated
Unaudited Unaudited
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITES
Net loss $ (7,086,046) $ (8,077,807)
Adjustment to reconcile net loss to net
cash used by operating activities
Depreciation and amortization 617,486 471,094
Provision for bad debts 2,477 (53,061)
Financing costs incurred - 240,347
Issuance of common stock in lieu of
interest payments - 93,254
Interest expense on debt issuance cost and
conversion benefit 1,297,158 4,033,747
Early extinguishment of debt (gain) 832,849 (304,923)
(Increase) decrease in operating assets:
Accounts receivable (1,985,436) (1,145,294)
Inventories (620,696) (2,027,483)
Prepaid expenses and sundry receivables 163,842 (356,224)
Increase (decrease) in operating liabilities:
Accounts payable 1,815,812 869,883
Accrued expenses (864,444) (77,558)
Customers deposits (145,739) (141,436)
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (5,972,737) (6,475,460)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property and equipment (207,223) (252,119)
Patents and trademarks - (37,430)
Other intangibles - (138,327)
Assets purchased net of cash acquired - (591,108)
Security deposits 7,134 9,478
Loans receivable 1,974 (3,463)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (198,115) (1,012,969)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 16,669,384 266,900
Proceeds from long-term borrowings - 477,892
Principal payment of short-term borrowings (11,188,135) (122,024)
Principal payment of long-term borrowings (72,950) -
Issuance of common stock for cash 1,500,000 6,996,370
Purchase of treasury stock (540,000) -
Payments to stockholders and officers (2,207) (70,590)
----------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES 6,366,092 7,548,547
----------- -----------
EFFECT OF EXCHANGE RATE ON CASH (251,964) 73,847
----------- -----------
NET INCREASE (DECREASE) IN CASH (56,724) 133,965
CASH AND CASH EQUIVALENT - beginning of period 1,281,552 3,091,307
----------- -----------
CASH AND CASH EQUIVALENTS - end of period $ 1,224,828 $ 3,225,272
----------- -----------
F 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SWISSRAY INTERNATIONAL, INC.
CONSOLITATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 1998 and 1997
Additional Accumulated
Common Stock Paid-in Common Stock Accumulated Other
----------------- Capital to be reissued Treasury Deficit Comprehensive Total
Shares Amount (Restated) (Restated) Stock (Restated) Loss (Restated)
-------- ---------- ------------ -------------- -------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - July, 1, 1997 1,969,443 $ 19,694 $35,957,659 $ 1,122,973 $ - $(27,978,604) $1,428,534) $ 7,693,188
COMPREHENSIVE LOSS:
Net loss - - - - - 8,077,807) - (8,077,807)
Foreign currency
translation
losses net of taxes $ -0- - - - - - - (80,616) (80,616)
-----------
TOTAL COMPREHENSIVE LOSS - - - - - - - (8,158,423)
-----------
Issuance of common stock
for cash 651,708 6,517 5,096,716 - - - - 5,100,233
Issuance of common stock
for asset purchase 33,333 333 1,499,664 - - - - 1,499,997
Stock options exercised
for cash 16,900 169 123,201 - - - - 123,370
Shares issued to officers for
services 48,259 483 1,122,490 (1,122,973) - - - -
Issuance of common stock
in lieu of interest payment 9,599 96 93,158 - - - - 93,254
Beneficial conversion feature of
convertible debentures - - 4,460,213 - - - - 4,460,213
Early extinguishment of debt - - (396,875) - - - - (396,875)
---------- -------- ---------- ------------ ---------- ------------ ----------- ------------
BALANCE - December 31, 1997 2,792,242 27,292 47,953,226 - - (36,056,411) (1,509,150) 10,414,957
BALANCE - July, 1, 1998 4,142,622 41,426 58,074,793 - - (50,481,713) (1,475,779) 6,158,727
COMPREHENSIVE LOSS:
Net loss - - - - - (7,086,046) - (7,086,046)
Foreign currency
translation
gain net of taxes $ -0- - - - - - - 20,037 20,037
-----------
TOTAL COMPREHENSIVE LOSS - - - - - - - (7,066,009)
-----------
Issuance of common stock
for cash 484,250 4,843 1,495,157 - - - - 1,500,000
Issuance of common stock
in lieu of interest payment 11,110 111 34,153 - - - - 34,264
Treasury stock - at cost - - - - (540,000) - - (540,000)
Beneficial conversion feature of
convertible debentures - - 53,112 - - - - 53,112
--------- --------- ---------- ----------- ----------- ------------ ------------ ----------
BALANCE - December 31, 1998 4,637,982 $46,380 $ 59,657,215 $ - $ (540,000) $(57,567,759) $(1,455,742) $ 140,094
--------- --------- ---------- ----------- ----------- ------------ ------------ ----------
F 5
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998
(1)The accompanying financial statements are unaudited. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted, although the Registrant believes that the disclosures are
adequate to make the information presented not misleading. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the Registrant's annual
report on Form 10-K for the fiscal year ended June 30, 1998.
(2)In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting of only a
normal and recurring nature, necessary to present fairly the financial position
of the Registrant as of December 31, 1998 and the results of operations and
cash flows for the interim periods presented. Operating results for the six
months ended December 31, 1998 are not necessarily indicative of the results to
be expected for the full year ending June 30, 1999.
(3)INVENTORIES
Inventories are summarized by major classification as follows:
<TABLE>
<CAPTION>
December 31, June 30,
---------------------------
1998 1998
---------- ----------
<S> <C> <C>
Raw materials, parts and supplies $7,199,118 $7,047,001
Work in process 287,008 160.064
Finished goods 835,715 494.080
---------- ----------
$8,321,841 $7,701,145
========== ==========
</TABLE>
Inventories are stated at lower of cost or market, with cost being determined on
the first-in, first-out (FIFO) method. Inventory cost include material,
labor, and overhead.
F 6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
All references herein to the "Registrant" refer to Swissray
International Inc. All references herein to the "Company" refer to Swissray
International, Inc. and its subsidiaries.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF
THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this discussion which are not historical facts may be
considered forward looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, including estimated cost savings to
be realized from restructuring activities and estimated proceeds from and timing
of facility sales. The words "believe," "expect," "anticipate," "estimate", and
similar expressions identify forward looking statements. Any forward looking
statements involve risks and uncertainties that could cause actual events or
results to differ, perhaps materially, from the events or results described in
the forward looking statements. Readers are cautioned not to place undue
reliance on these forward looking statements, which speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward looking statements, whether as a result of new information, future
events or otherwise. Risks associated with the Company's forward looking
statements include, but are not limited to, risks associated with the Company's
history of losses and uncertain profitability, need for market acceptance of the
AddOn Multi System, reliance on a single product, reliance on large customers,
risks associated with the Company's international operations, currency
fluctuations, the risk of new and different legal and regulatory requirements,
governmental approvals, tariffs and trade barriers, risks associated with
competition and technological innovation by competitors, dependence on patents
and proprietary technology, general economic conditions and conditions in the
healthcare industry, reliance on key management, limited manufacturing history
with respect to the AddOn-Multi-System, dependence on sole source suppliers,
future capital needs and uncertainty of additional financing, potential recalls
and product liability, dilution, effects of outstanding convertible debentures,
limited public market, liquidity, possible volatility of stock price, recently
adopted new listing standards for NASDAQ securities and environmental matters.
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements, related notes and other information
included in this quarterly report on Form 10-Q.
GENERAL
At the recent annual conference of the Radiological Society of North
America (RSNA 98), the Company announced thet its premier product, the AddOn-
Multi-System has been renamed ddr-Multi-System. The recent name change is much
more in line with the overall system concept and strategy of the Company.
3
<PAGE>
RESULTS OF OPERATIONS
(a)THREE-MONTH PERIOD ENDED DECEMBER 31, 1998 COMPARED TO
THREE-MONTH PERIOD ENDED DECEMBER 31, 1997
Net sales amounted to $6,444,706 for the three-month period ended
December 31, 1998, compared to $6,043,675, an increase of $401,031, or 6.6%
from the three-month period ended December 31, 1997. Net sales of $6,043,675
for the three month period ended December 31, 1997 includes sales of the film
and processor business of Empower which was sold on June 30, 1998, of
$1,973,557 Net sales without the film and processor business of Empower
increased for the three-month period ended December 30, 1998 by $2,374,588 or
58.3%.
Gross profit increased by $546,459 or 71.4% to $1,312,278 for the
three-month period ended December 31, 1998, from $765,819 for the three-month
period ended December 31, 1997. Gross profit as a percentage of net revenues
increased to 20.4% for the three-month period ended December 31, 1998 from
12.7% for the three-month period ended December 31, 1997.
Operating expenses decreased by $1,162,307, or 25.2% to $3,445,223, or
53.5% of net revenues, for the three-month period ended December 31, 1998,
from $4,607,530, or 76.2% of net revenues for the three-month period ended
December 31, 1997. The principal items were salaries (net of officers and
directors compensation) of $979,391 or 15.2% of net sales for the three-month
period ended Dcecember 31, 1998 compared to $1,305,092 or 21.6% of net sales for
the three-month period ended December 31, 1997 and selling expenses of
$925,483 or 14.4% of net sales for the three-month period ended December 31,
1998 compared to $1,186,167 or 19.6% of net sales for the three-month period
ended December 31, 1997. Research and development expenses were $437,551 or
6.8% of net sales for the three-month period ended December 31, 1998 compared
to $948,643 or 15.7% of net sales for the three-month period ended December
31, 1997.
Interest expense decreased to $758,800 for the three months ended
December 31, 1998 compared to $1,722,761 for the three months ended
December 31, 1997. This decrease is primarily due the decrease of interest
expense for amortization of Debenture issuance cost and Conversion Benefit.
Loss on extinguishment of debt was $803,182 for the three months ended
December 31, 1998 compared to a gain of $154,215 for the three months ended
December 31, 1997. The extinguishment gain or loss resulted from refinancing of
Convertible debentures.
4
<PAGE>
(b)SIX-MONTH PERIOD ENDED DECEMBER 31, 1998 COMPARED TO
SIX-MONTH PERIOD ENDED DECEMBER 31, 1997
Net sales amounted to $10,101,147 for the six-month period ended
December 31, 1998, compared to $11,302,578, a decrease of $1,201,431, or 10.6%
from the six-month period ended December 31, 1997. Net sales of $11,302,578
for the six month period ended December 31, 1997 includes sales of the film and
processor business of Empower which was sold on June 30, 1998, of $3,949,854.
Net sales without the film and processor business of Empower increased for the
six-month period ended December 30, 1998 by $2,748,423 or 37.4%.
Gross profit increased by $579,826 or 21.4% to $2,131,805 for the
six-month period ended December 31, 1998, from $2,711,631 for the six-month
period ended December 31, 1997. Gross profit as a percentage of net revenues
decreased to 21.1% for the six-month period ended December 31, 1998 from
24% for the six-month period ended December 31, 1997.
Operating expenses decreased by $220,281, or 3.2% to $6,613,311, or
65.5% of net revenues, for the six-month period ended December 31, 1998,
from $6,833,592, or 60.5% of net revenues for the six-month period ended
December 31, 1997. The principle items were salaries (net of officers and
directors compensation) of $2,064,577 or 20.4% of net sales for the six-month
period ended Dcecember 31, 1998 compared to $1,926,769 or 17% of net sales for
the six-month period ended December 31, 1997 and selling expenses of
$1,438,281 or 14.2% of net sales for the six-month period ended December 31,
1998 compared to $1,674,198 or 14.8% of net sales for the six-month period
ended December 31, 1997. Research and development expenses were $843,589 or
8.4% of net sales for the six-month period ended December 31, 1998 compared
to $1,422,482 or 12.6% of net sales for the six-month period ended December
31, 1997.
Interest expense decreased to $1,412,696 for the six months ended
December 31, 1998 compared to $4,416,914 for the six months ended
December 31, 1997. This decrease is primarily due the decrease of interest
expense for amortization of Debenture issuance cost and Conversion Benefit.
Loss on extinguishment of debt was $832,849 for the six months ended
December 31, 1998 compared to a gain of $304,923 for the six months ended
December 31, 1997. The extinguishment gain or loss resulted from refinancing of
Convertible debentures.
FINANCIAL CONDITION
December 31, 1998 compared to June 30, 1998
Total assets of the Company on December 31, 1998 increased by
$1,887,527 to $27,802,124 from $25,914,597 on June 30, 1998, primarily due to
the increase in current assets. Current assets increased $2,383,089 to
$15,452,346 on December 31, 1998 from $13,069,257 on June 30, 1998. The
increase in current assets is primarily attributable to the increase in
accounts rerceivable of $1,982,959 and the increase in inventory of $620,696
which was offset by the decrease in prepaid expenses and sundry receivables of
$163,842 and the decrease in cash and cash equivalents of $56,724. Other
assets decreased $489,555 to $6,345,407 on December 31, 1998 from $6,834,962 on
June 30, 1998. The decrease is primarily attributable to the amortization of
the licensing agreement, patents & trademark, software development cost and the
goodwill.
On December 31, 1998, the Company had total liabilities of $27,662,029
compared to $19,755,870 on June 30, 1998. On December 31, 1998, current
liabilities were $15,064,487 compared to $11,984,554 on June 30, 1998. Working
capital at December 31, 1998 was $387,859 compared to $1,084,703 at June 30,
1998.
5
<PAGE>
CASH FLOW AND CAPITAL EXPENDITURES SIX MONTH PERIOD ENDED
DECEMBER 31, 1998 COMPARED TO SIX MONTH PERIOD ENDED DECEMBER 31, 1997.
Cash used for operating activities for the six months ended December
31, 1998 was $5,972,737 compared to $6,475,460 for the six months ended
December 31, 1997. Cash used for investing activities was $198,115 for the
six months ended December 31, 1998 compared to $1,012,969 for the six months
ended December 31, 1997. Cash flow from financing activities for the six
months ended December 31, 1998 was $6,366,092 compared to $7,548,547 for six
months ended December 31, 1997.
The Company anticipates that its use of cash will be substantial for the
foreseeable future. In particular, management of the Company expects substantial
expenditures in connection with the production of the planned increase of sales,
the continuation of the strengthening and expansion of the Company's marketing
organization and, to a lesser degree, ongoing research and development projects.
The Company expects that funding for these expenditures will be available out of
the Company's, future cash flow and/or issuance of equity and/or debt
securities.
However, the availability of a sufficient future cash flow will depend to a
significant extent on the marketability of the Company's ddR-Multi-System.
Accordingly, the Company may be required to issue additional convertible
debentures or equity securities to finance such capital expenditures and working
capital requirements. There can be no assurance whether or not such financing
will be available on terms satisfactory to management.
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, 1999 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 per share. 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.
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.
6
<PAGE>
On or about December 11, 1998 the Company entered into Promissory Note
Agreements aggrerating $1,080,000 together with certain related Security
Agreements and Contingent Convertible Debentures, Subscription Agreements,
Registration Rights Agreements and exhibits thereto, pursuant to which it
borrowed $1,080,000 with interest at the rtae of eight percent (8%) per annum
(for the first ninety (90) calendar days) with the Company having the option to
extend the terms of the Promissory Note for an additional sixty (60) calendar
days (with the interest rate increasing to ten percent (10%) per annum). As
further consideration for such loans the Lenders received Warrants to purchase
an aggregate of 50,000 shares of the Company's common stock exercisable (for a
period of up to five (5) years) at the bid price for Company shares at the date
of the closing. In the event that the Company does not repay the above
referenced sum within the time period indicated (i.e. on or before May 7, 1999)
then in that event the terms and conditions of the above referenced Contingent
Convertible Debenture and related documents would go into effect, permitting
Lendedrs, at theuir option, to convert the face amount of each debenture at the
lesser of (a) eighty-two percent (82%) of the ten (10) day average closing bid
price for Company common stock for the ten (10) consecutive trading days
immediately preceding the applicable conversion date or (b) $1.00 per share.
The foregoing is a brief summary of what management considers to be certain
pertinent terms and conditions of thew above referenced summarized transaction
and does not purport to be a complete summary thereof (partially in view of the
fact that there is no certainty that the Contingent Convertible Debentures and
related documents will go into effect). In the event that the Company fails to
repay such indebtedness on or before its extended due date and the contingent
documents theresfter go into effec, each of such documents are intended to be
filed as exhibits to the Registration Statement which the Company would be
required to file (in accordance with the Registration Rights Agreement).
EFFECT OF CURRENCY ON RESULTS OF OPERATIONS
The result of operations and the financial position of the Company's
subsidiaries outside of the United States is reported in the relevant foreign
currency (primarily in Swiss Francs) and then translated into US dollars at the
applicable foreign exchange rate for inclusion in the Company's consolidated
financial statements. Accordingly, the results of operations of such
subsidiaries as reported in US dollars can vary significantly as a result of
changes in currency exchange rates (in particular the exchange rate between the
Swiss Franc and the US dollar).
7
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Onor about October 3, 1997, the Registrant and Swissray Healthcare, Inc. were
served with a complaint by a company engaged in the business of providing
services related to imaging equipment alleging that defendant received benefits
from breach of fiduciary duties and contract obligations and misappropriation of
trade secrets by certain former employees of such competitor. Such company also
obtained a temporary restraining order against the Registrant and Swissray
Healthcare, Inc. On November 10, 1997, the Court denied a Motion for a
preliminary injunction and the temporary restraining order was vacated. On
December 1, 1997 and January 30, 1998 the Registrant answered the Complaint and
Amended Complaint respectively by denying the allegations contained therein. The
Plaintiff in such action (on December 2, 1997) filed a Motion to reargue and
renew its prior denied Motion for a Preliminary Injunction and such Motion was
(by Order and Decision dated June 17, 1998) denied. The Company denied the
allegations, vigorously defended the litigation and thereafter settled such
litigation and all outstanding matters with respect thereto in July 1998 for
$60,000.
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 per share (on or after June 30, 1998
and until April 16, 1999, subject to certain adjustments set forth in the Asset
Purchase Agreement). The number of shares and purchase price indicated both
give retroactive effect to a reverse stock split of Company common stock which
occurred on October 1, 1998. See Part II, Item 4.
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
8
<PAGE>
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
Hearing has been concluded and under the rules of the American Arbitration
Association it is expected that the Arbitrator should render his Award on or
before March 1, 1999.
In addition to the above referenced arbitration proceeding, Swissray
and its subsidiaries commenced an action against Messrs. Durday, Montler and
Harle in the Supreme Court of the State of New York, County of New
York alleging that these individuals breached the obligations undertaken by them
in their respective Employment Agreements. Further, Messrs. Durday Montler and
Harle commenced an action in state court in Pierce County, Washington and asked
that Court to afjudicate the issues raised in the above referenced New York
State Court action. Swissray filed applications in both the Washington and New
York litigations urging that, because the action was first filed in New York,
the New York court, rather than the Washington court, should decide where the
litigation should proceed. Messrs. Durday, Montler and Harle initially
opposed that position and urged the Washington State court to adjudicate all
issues, but subsequently withdrew their opposition to Swissray's application and
consented to a stay of all further proceedings in the Washington State court
action until after the New York court has reached a decision as to whether it or
the Washington court is the proper forum for litigation of the parties dispute.
The New York court has not yet rendered a decision on this issue.
It is Swissray's management's intention to contest these matters vigorously
since Swissray believes that its claims are meritorious, and that it has
meritorious defenses to the claims asserted against them.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
As indicated in the Company's Form 10-K for fiscal year ended June 30, 1998
the Company held a Special Meeting of Stockholders on August 31, 1998, at
which time Company stockholders were asked to consider and act upon proposals to
(1) reverse stock split the currently issued and outstanding shares of Company
Common Stock on the basis of no less than 1 : 4 and no greater than 1 for 10;
the exact number, (if any) within such parameter to be determined by the Board
of Directors in its discretion and (2) authorize the creation of a class of
Preferred Stock. The number of shares of Common Stock voted at the Special
Meeting approximated 75 % of all issued and outstanding securities as of the
record date and approximately 88 % of those shares voted in favor of the
aforesaid reverse stock split proposal (while the Company did not receive a
sufficient number of affirmative votes for the creation of a
9
<PAGE>
class of Preferred Stock).
At a Special Meeting of the Board of Directors on September 21, 1998, a
reverse stock split on the basis of 1 for 10 was approved with an effective
date of October 1, 1998.
The Company has tentatively established that its Annual Meeting of
Stockholders will be held on March 24, 1999 and in that regard intends to
utilize the record date of February 17, 1999 and a mailing date of February 19,
1999. Proxy, Notice of Meeting, Proxy Statement and exhibits thereto were all
preliminarily filed with the securities and Exchange Commission on February 9,
1999.
Item 5. OTHER INFORMATION
Not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - NONE-
(b) Reports on Form 8-K 8-K 8-K and 8-K/A each with
date of report of November
3, 1998 filed November 6,
1998 and November 27, 1998
respectively,indicating
change of auditors
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SWISSRAY INTERNATIONAL, INC.
By: /s/ RUEDI G. LAUPPER
---------------------------------
Ruedi G. Laupper, Chairman of the
Board of Directors, President and
Chief Executive Officer
Date: February 10, 1999
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001002137
<NAME> SWISSRAY INTERNATIONAL, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,224,828
<SECURITIES> 0
<RECEIVABLES> 4,602,443
<ALLOWANCES> 34,833
<INVENTORY> 8,321,841
<CURRENT-ASSETS> 15,452,346
<PP&E> 6,798,678
<DEPRECIATION> 794,307
<TOTAL-ASSETS> 27,802,124
<CURRENT-LIABILITIES> 15,064,487
<BONDS> 12,229,818
0
0
<COMMON> 46,380
<OTHER-SE> 93,714
<TOTAL-LIABILITY-AND-EQUITY> 27,802,124
<SALES> 10,101,147
<TOTAL-REVENUES> 10,101,147
<CGS> 7,969,342
<TOTAL-COSTS> 7,969,342
<OTHER-EXPENSES> 6,613,311
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,412,696
<INCOME-PRETAX> (6,253,197)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,253,197)
<DISCONTINUED> 0
<EXTRAORDINARY> (832,849)
<CHANGES> 0
<NET-INCOME> (7,086,046)
<EPS-PRIMARY> (1.53)
<EPS-DILUTED> (1.53)
</TABLE>
