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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A-3
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
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.)
320 West 77th Street, Suite 1A, New York, New York 10024
(Address of Principal Executive Office) (Zip Code)
United States - 917-441-7841 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 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.
Yes xx No
---- ----
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Indicate by check mark if 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. [ ]
The number of shares outstanding of each of the Registrant's classes of Common
Stock, as of August 24, 1999 is 14,541,537 shares (1), all of one class of
common stock, $.01 par value. Of this number a total of 6,436,767 shares having
an aggregate market value of $16,690,536, based on the closing price of the
Registrant's common stock of $2.593 on August 24, 1999 as quoted on the
Electronic Over-the-Counter Bulletin Board ("OTC"), 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) 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.
APPLICABLE ONLY TO
REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the Registrant 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)
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date: 14,541,537 shares as of August
24, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if 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.
None
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TABLE OF CONTENTS
<TABLE>
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PART I
<S> <C> <C>
Item 1. Business 4
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 21
PART II
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters 21
Item 6. Selected Financial Data 24
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 26
Item 8. Financial Statements and Supplementary Data 48 & F(1)-F(25)
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 49
PART III
Item 10. Directors and Executive Officers of the Registrant 49
Item 11. Executive Compensation 52
Item 12. Security Ownership of Certain Beneficial Owners and
Management 58
Item 13. Certain Relationships and Related Transactions 60
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 60
SIGNATURES 61
SUPPLEMENTAL INFORMATION 62
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PART I
ITEM 1. BUSINESS
THE COMPANY
The Registrant was incorporated under the laws of the State of New York
on January 2, 1968 under the name CGS Units Incorporated. On June 15, 1994, the
Registrant merged with Direct Marketing Services, Inc. and changed its name to
DMS Industries, Inc. In May of 1995 the Registrant 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 Registrant changed its name to Swissray International, Inc. The
Registrant's operations are being conducted principally through its wholly owned
subsidiaries, Swissray Medical AG ( formerly known as SR Medical Holding AG and
SR Medical AG) a Swiss corporation and its wholly owned subsidiary Swissray
GmbH, a German limited liability company as well as through the Company's other
wholly owned subsidiaries, Swissray America, Inc., a Delaware
corporation,Swissray Healthcare ,Inc., a Delaware corporation and Swissray
Information Solutions,Inc. a Delaware corporation.
Swissray Medical AG (formerly SR Medical Holding AG and SR Medical AG
until renamed in June 1999 and February 1998) acquired all assets and
liabilities, effective July 1998, of its wholly owned subsidiaries,SR Medical AG
(known as Teleray AG until renamed in February 1998), a Swiss corporation
and Telray Research and Development AG, a Swiss corporation. Swissray Medical AG
also absorbed all assets and liabilities of the Company's other wholly owned
subsidiary SR Management AG (formerly SR Finance AG), a Swiss corporation.
Effective as of July 1, 1999 Swissray Medical Systems, Inc., a
Delaware corporation (formerly Swissray America Corporation) and Empower Inc.
a New York corporation, have been merged into Swissray America Inc., a
Delaware corporation. Unless otherwise specifically indicated, all references
hereinafter to the "Company" refer to the Registrant and its subsidiaries.
The Company and its predecessors have been in the business of
manufacturing and selling X-ray equipment in Switzerland and Germany since 1988.
Beginning in 1991, the Company's predecessors began to expand into other markets
in Europe, the Middle East and Asia. In 1992, the Company entered into a first
Original Equipment Manufacturing ("OEM") Agreement with Philips Medical Systems
GmbH ("Philips Medical Systems") providing for the manufacturing by the Company
of a Multi-Radiography System ("MRS"). In 1996, this agreement was replaced with
a new OEM Agreement ("Philips OEM Agreement") which provides for the
manufacturing of the Bucky Diagnost TS bucky table in addition to the MRS
System. Simultaneously, the Company developed the first SwissVision(TM) image
post-processing system, which was able to convert analog images obtained in
fluoroscopy into digital information. Beginning in 1993, the Company began the
development of direct digital X-ray technology for medical diagnostic purposes.
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Overview
The Company is active in the markets for diagnostic imaging devices for
the health care industry. Diagnostic imaging devices include X-ray equipment,
computer tomography ("CT") systems and magnetic resonance imaging ("MRI")
systems for three dimensional projections, nuclear medicine ("NM") imaging
devices and ultrasound devices.
The Company is primarily engaged in the business of manufacturing and
selling diagnostic X-ray equipment for all radiological applications other than
mammography and dentistry. In addition, the Company is in the business of
selling imaging systems and components and accessories for X-ray equipment
manufactured by third parties and providing services related to diagnostic
imaging.
X-rays were discovered in 1895 by Wilhelm Konrad Rontgen. Shortly
thereafter, X-ray imaging found numerous applications for medical diagnostic and
non-medical purposes. Today, medical X-ray imaging is a fundamental tool in bone
and soft tissue diagnosis. X-ray diagnosis is primarily used in orthopedics,
traumatology, gastro-enterology, angiography, urology, pulmology, mammography
and dentistry. The principal elements of a diagnostic X-ray system are the X-ray
generator, the X-ray tube and the bucky device. The generator generates high
tension, which is converted into X-rays in the X-ray tube. The X-rays so created
then penetrate a patient's body and subsequently expose a film contained in the
bucky device. Following exposure, the film is chemically processed and dried in
a dark room. A typical room used for general X-ray examinations (bucky room)
contains an X-ray system which includes a table with a bucky device for
examinations of recumbent patients (bucky table) and a wall stand with a second
bucky device for examinations of sitting and standing patients (bucky wall
stand).
The film used in conventional X-ray systems has certain inherent
disadvantages, including the significant amount of time and operating expenses
associated with the handling, processing and storage thereof, the need for
chemicals to develop films and the environmental concerns related to their
disposal. Additional expenses and inconveniences arise in connection with the
storage, duplication and transportation of conventional films. The following
X-ray systems have been developed to overcome these disadvantages: scanning
devices, phosphor plate or Computed Radiography(TM) ("CR") systems and direct
digital radiography ("ddR") systems. Scanning devices are used to convert
existing X-ray images into a digital form. While the use of scanning devices
permits the electronic storage, retrieval and transmission of X-ray images, they
do not eliminate the other inconveniences of conventional films and add time and
expenses associated with the scanning process. In a CR system the film cassette
is replaced with a phosophor plate which is electrically charged by X-rays. The
electrical charges on this phosphor plate are then converted into digital
information by a laser scanner. Although this system has the advantage that the
phosphor plates are reusable and the inconveniences related to the development
of X-ray films are eliminated, it does not achieve instant images and a
significant amount of time and operating expenses are required in connection
with the handling and scanning of the phosphor plates. Additional expenses arise
due to the fact that phosphor plates have a limited lifespan.
ddR technology is designed to eliminate the disadvantages and
significant operating costs associated with conventional X-ray systems and CR
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systems. With ddR technology digital information can be made available for
diagnostic purposes within a few seconds after an X-ray image is taken without
any additional steps, thereby reducing processing time and related operating
expenses. Direct digital X-ray technology uses either charge coupled devices
("CCD") arrays, amorphous silicon/selenium panels or selenium drums to convert
X-rays into digital information. To the Company's knowledge, no silicon or
selenium-based technology is currently available for purposes of general X-ray
diagnosis. To the Company's knowledge, the only CCD based direct digital
technology available for general diagnostic purposes is the Company's AddOn
Bucky(R). While other CCD based direct digital X-ray systems are used for dental
X- ray imaging and chest examinations, the Company believes that neither such
technologies nor the silicium based technology used in a chest examination
system offered by one of the Company's competitors can easily be adapted for
general diagnostic purposes because none is capable of providing the resolution
necessary to obtain digital information with sufficient diagnostic value on a
standard 14" by 17" X-ray image.
Products
The Company's marketing strategy is to offer its customers a complete
package of products and services in the field of radiology, including equipment,
accessories and related services such as consulting and after-sales services.
The Company's products include a full range of conventional X-ray equipment for
all diagnostic purposes other than mammography and dentistry, the direct digital
ddRMulti-System and the SwissVision(TM) line of DICOM 3.0 compatible
postprocessing work stations operating on a Windows NT platform. Currently, most
of the Company's X-ray equipment is manufactured and developed in Switzerland.
On March 8, 1999 Swissray Medical AG, the Company's Swiss research and
development, production and marketing subsidiary became ISO 9001 and EN 46001
certified. Appendix II for CE - Certification was completed in December 1999
thus allowing the Company to use the CE-Label, including the medical device
numbers for all products manufactured and/or sold through the Company. See also
"Products - Distribution of Agfa Products" and "Government Regulation".
Digital ddRMulti-System/SwissVision
The ddRMulti-System, which includes a SwissVision(TM) workstation for
the postprocessing of digital image data and the transfer of such data through
central networks or via telecommunications systems, is a complete multi-
functional direct digital X-ray system which combines the functions of a
conventional bucky table and a bucky wall stand. The Company's own estimates and
research into this area indicate that the ddRMulti-System is the first direct
digital radiography system available which allows for substantially all plane
X-ray examinations on the recumbent, upright and sitting patient necessary in
orthopedics, emergency rooms and chest examination rooms. The ddRMulti-System
uses the Company's AddOn Bucky(R) as the digital detector. The AddOn Bucky(R) is
able to make available an X-ray image in a direct digital way for diagnostic
study within 16 to 20 seconds. As a consequence, the efficiency and the
throughput of the bucky room can be increased. The Company believes that a
significant advantage of the Company's ddRMulti-System is the fact that a
variety of X-ray examinations can be made with the use of only one digital
detector, the most expensive part of an X-ray system using direct digital
technology.
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During the 100 years in which X-ray imaging has been used for medical
purposes, there has been a continuous trend to improve image quality, to reduce
the radiation dose and to improve the ergonomic features of X-ray equipment.
Management believes that the ddR technology developed by the Company will take
this development to the next level because the ergonomically advanced
ddRMulti-System provides excellent image quality with minimal radiation doses
and at the same time reduces operating expenses through the elimination of
films, phosphor plates or cassettes and the handling, development and storage
thereof.
The Company's line of SwissVision(TM) postprocessing workstations
permit the postprocessing of digital X-ray images, including section, zooming,
enlargement, soft tissue and bone structure imaging, accentuation of the
limitation of the joints, noise suppression, presentation of different fields of
interest within an area and archiving and transferring the data through central
networks and telecommunication systems. In addition, the SwissVision(TM)
post-processing workstations are able to analyze data stored with respect to a
particular patient. As a result, consistent image quality of different images of
the same patient can be achieved. The workstations operate on a Windows NT
platform and are DICOM 3.0 compatible. The Company is also offering products and
services related to networking, archiving and electronic distribution of digital
X-ray images, including PACS.
Conventional X-Ray Equipment, Imaging Systems, Components and Accessories
The Company manufactures and sells conventional diagnostic X-ray
equipment for all radiological applications other than mammography and
dentistry. The conventional X-ray equipment manufactured by the Company includes
X- ray generators, basic X-ray equipment, bucky table systems, mobile X-ray
systems, mobile C-arm systems, fluoroscopy systems, urology systems and remote
controlled examination systems. In addition, the Company sells components and
accessories for X-ray systems. In general, the components and accessories for
X-ray equipment sold by the Company are manufactured by third parties. In
Switzerland, the Company was the exclusive distributor of CT systems, MRI
systems and NM systems manufactured by Elscint. No sales were made under such
distributorship arrangement for the fiscal year ended June 30, 1998 while for
the fiscal year ended June 30, 1997 revenues under such agreement approximated
12% of total sales. The Company does not currently have any business
arrangements with Elscint in that such firm sold all or part of its company to
Picker International Inc. and GE Medical Systems in the later part of 1998.
Original Equipment Manufacturing (OEM)
On June 11, 1996, the Company entered into a new OEM Agreement (the
"Philips OEM Agreement") with Philips Medical Systems which replaced the
previous OEM Agreement with Philips Medical Systems, dated July 29, 1992. The
Philips OEM Agreement provides for the production of two conventional X-ray
systems, the Bucky Diagnost TS bucky table and a Multi Radiography System
("MRS"), which is approved by the World Health Organization ("WHO") as a World
Health Imaging System for Radiology ("WHIS-RAD"). As a result, the Company's MRS
system may be tendered in projects financed by the World Bank. Under the Philips
OEM Agreement these two products are marketed worldwide by Philips Medical
Systems through its existing distribution network. The initial term of the
Philips OEM Agreement expires on December 31, 2000.
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Services
The services offered by the Company include the installation and
after-sales servicing of imaging equipment sold by the Company, consulting
services and application training of radiographers. In the United States, the
Company offers consulting services to hospital imaging departments and imaging
centers, including maintenance management, and after-sales services of products
manufactured by the Company and third parties. Maintenance management services
for imaging equipment include the management of after-sales services with
respect to different kinds and brands of imaging equipment (multi-vendor and
multi-modality services).
Distribution of Agfa Products
In April of 1998 the Company entered into a OEM Agreement with Agfa for
the distribution of the latter's laser imagers, dry printers and computed
radiography systems. By virtue of having entered into such distribution
agreement, the Company is able to offer a complete solution for a total digital
radiology department. Both Company products and Agfa products are DICOM 3.0
compatible and can be used on a network or for ponit-to-point connections. Agfa,
a leading worldwide manufacturer of imaging products and systems, is part of the
Agfa-Gevaert Group, with Agfa-Gevaert being a wholly owned subsidiary of Bayer
AG.
Markets
Product Markets
The Company estimates that the global market for X-ray equipment and
accessories is approximately $5 billion, 45% of which is in the United States,
26% in Western Europe, 19% in Japan and 10% in the rest of the world (Sources:
National Electrical Manufacturers Association; Market Line). The Company's
principal markets for its X-ray equipment, components and accessories by country
are Switzerland, the United States and Germany constituting 73%, 23% and 4% of
the Company's sales during the fiscal year ended June 30, 1999 respectively. The
Company believes that because of the need to bring medical services to Western
standards, Eastern Europe continues to offer interesting opportunities as a
market for the Company's conventional X-ray equipment and accessories. The
Company has also been able to gain access to markets in Asia, the Middle East
and Africa. See "-- Sales and Marketing."
The Company believes that the principal markets for its direct digital
X-ray equipment are located in North America and Western Europe, where the first
sales of the ddRMulti-System have been made. The Company submitted both its
AddOn Bucky(R) and the ddRMulti-System to the FDA for Section 510(k) clearance.
On November 21, 1997, the Company's AddOn Bucky(R), the direct digital detector
of the ddRMulti-System, received FDA approval and on December 18, 1997 the
Company's ddRMulti-System received FDA approval; the Company thus receiving
authorization to market the ddRMulti-System in the United States. Having
obtained the required approval from the FDA, the Company intends to sell the
ddRMulti-System in the United States through its subsidiaries and other
channels. See "Risk Factors -- Government Regulation" and "Business --
Regulatory Matters."
The percentage of revenues for fiscal year ended June 30, 1999
attributed to product markets amounted to 81.84%.
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Service Markets
The Company estimates that the worldwide market for services related to
X-ray equipment, including maintenance management is approximately $44 billion,
of which approximately $40.5 billion (or 92%) relate to after-sales services.
The markets for maintenance management and capital planning amount to $3.4
billion or 8% of the total market for services related to X-ray equipment. The
principal markets for after-sales services are the United States (45%), Western
Europe (26%) and Japan (19%). The Company expects that as the installed base of
X-ray equipment grows, the market for after-sales services will also expand.
Additional growth may result from a general increase in the demand for such
services. To date, a significant market for maintenance management and capital
planning has only developed in the United States as a result of the impact of
managed care plans and health maintenance organizations ("HMOs") on the health
care industry. The Company expects that in the future there will be a similar
trend in Europe, which may lead to the development of a market for such services
in Europe. See "-- Products" and "-- Sales and Marketing."
The Company currently intends to continue to concentrate its marketing
efforts within Switzerland and U.S. wherein approximately 90% of all Company
sales were concluded during fiscal year ended June 30, 1999, with Switzerland
accounting for 73% of all sales and the U.S. accounting for 23% of such sales
(and with the balance of 4% of sales being conducted in Germany). See also Note
19 to audited financial statements.
The percentage of revenues for fiscal year ended June 30, 1999
attributed to services amounted to 18.16%.
Sales and Marketing
The Company's customers are universities, hospitals, clinics, imaging
centers and physicians. The Company markets its products and services primarily
through its own sales force in the United States, Switzerland, Germany and
Eastern Europe and through resellers in these and other markets in Europe,
Middle East, Africa, Asia, and Latin America. The Company also offers products
and services related to networking, electronic archiving and distribution,
including PACS, through the Swissray Information Solution division.
Two of the Company's products, the MRS system and the Bucky Diagnost TS
system, are distributed worldwide through Philips Medical Systems.
The Company believes that in the foreseeable future there will be a
continuous world-wide growth in the markets for complete X-ray systems,
components, accessories and related services because of the improvement of
health care services in developing countries and Eastern Europe and the
necessity to meet increasingly stricter regulations with respect to radiation
dosage and other safety features and environmental hazards in many
jurisdictions. With the transition from conventional to digital X-ray systems,
the demand for products and services related to networking, archiving and
electronic distribution of digital X-ray images will grow in industrialized
countries. In these markets the demand for conventional X-ray equipment,
accessories and related services will decrease over time. See "-- Markets."
In August of 1999 the Company signed a one year exclusive sales,
marketing and service agreement with Hitachi Medical Systems America, Inc.(HMSA)
, a subsidiary of Hitachi Medical Corporation. Under the terms of the agreement
HMSA will provide sales, marketing and service for the distribution of
Swissray's ddRMulti-System to end users within certain defined territories
within the United States. In addition HMSA will utilize and promote the Swissray
Information Solutions Services and products consisting of consulting imaging
informatics.
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The defined territories referred to consist of the entire U.S.
excepting for (a) the states of Alabama, Arizona, Connecticut, Mississippi,
Maine, Massachusetts, New York, Rhode Island, Vermont and New Hampshire, (b) a
portion of New Jersey that includes the Atlantic City Expressway and north, (c)
certain designated counties within the state of Pennsylvania, (d) the counties
Orange and San Diego within the state of California, and (e) the Panhandle of
Florida - Tallahassee west.
Additionally, the Agreement contains provisions whereby additional
exclusions exist with respect to various identified customers reserved to the
Company principally due to the Company's prior contact with and/or dealings with
such clientele.
In addition HMA will utilize and promote the Swissray Information
Solutions services and products consisting of consulting and product solutions
for medical imaging informatics.
Percentage of ddRMulti-Systems Sold Directly by Company as Compared To
Its Distributors
With respect to a total of 57 ddRMulti-Systems contracted for sale
since commencement of the Company's current fiscal year on July 1, 1999, 41
(72%) of same were made directly through the efforts of the Company's internal
staff and sales team while the balance of 16 (28%) were made through the efforts
of Company distributors. Hitachi Medical Systems America, Inc. was responsible
for nine of such 16 contracted for distributor sales with no other Company
distributor being responsible for more than two of such contracts.
Additional Sales Information
In the past, the Company has made a significant amount of sales of
its X-ray equipment to a few large customers. For the fiscal year ended June 30,
1999 sales to the Company's single largest customer accounted for approximately
54% of all revenues.
The Company considers the relationship with its largest customers to be
satisfactory. Historically, the identity of the Company's largest customers and
the volumes purchased by them has varied. The loss of the Company's current
single largest customer or a reduction of the volume purchased by it would have
an adverse effect upon the Company's sales until such time, if ever, as
significant sales to other customers can be made. The Company expects that as
sales of its ddRMulti-System increase, the Company's revenue will be less
dependent on a few large customers. See "Risk Factors -- Reliance on Large
Customers" and Notes to the Company's Consolidated Financial Statements.
In August 1998 the Company entered into a global distributorship
agreement for its ddRMulti-System with Elscint Ltd. of Haifa to sell and service
such product in 14 countries in Europe, Canada, South America and Africa. Soon
thereafter almost all of the assets of Elscint Ltd. were sold to Picker
International and GE Medical Systems respectively. Neither Picker International
nor GE Medical Systems have executed or honored the distributorship agreement as
of the date hereof and therefore the Company is unable to sell the anticipated
75 ddrMulti-Systems (partially anticipated to be sold through Elscint
Ltd.)within the fiscal year 98/99 as originally planned.
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Research and Development
During the fiscal year ended June 30, 1999, the Company incurred
expenses regarding to research and development of $1,808,107(accounting for 12%
of the Company's operating expenses) compared to $3,542,149 (accounting for 19%
of the Company's operating expenses) for fiscal year ended June 30, 1998 and
compared to $5,786,158 (accounting for 33% of the Company's operating expenses)
for fiscal year ended June 30, 1997. The decrease of the Company's research and
development expenses by 68% from the fiscal year ended June 30, 1997 to the
fiscal year ended June 30, 1999 resulted primarily from the fact that principal
costs associated with development of the direct digital detector, the unique
Add-On Bucky have been completed. See Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company will continue to have significant research and development
expenses associated with the development of new products (including diagnostic
hardware and software products and new digital X-ray products) and improvements
to existing products manufactured by the Company.
New products currently being developed by or on behalf of the Company
include a new digital chest examination system (ddRChest-System), a direct
digital universal radiography system (ddR Combi)and a multi-functional floating
table. Both the ddRChest-System and ddRCombi were unveiled (a) domestically in
the U.S. at the scientific assembly of the Radiological Society of North America
(RSNA) held in Chicago from November 28 - December 2, 1999 and (b)
internationally at the European Congress of Radiology (ECR 2000) held in Vienna,
Austria in early March 2000. The ddRChest-System is a dedicated chest unit
capable of taking all chest examinations in a direct digital format, while the
ddRCombi is a multi-functional system in combination with a ceiling suspend unit
able to perform examinations on the seated, upright and recumbent patient.
As of June 30, 1999, the Company employed 11 people in research and
development. The number of people employed in research and development has
increased by 10% since June 30, 1998. The Company is outsourcing certain
research and development activities and intends to continue this policy in the
future.
The Company has established a scientific advisory board to support its
research and development projects and to enable the Company to develop
technologically advanced products. The Company believes that the integration
of academic institutions and hospitals will allow the Company to save
research and development expenses and will provide it with access to clinical
and scientific experience and know-how.
Raw Materials and Suppliers
The Company has a policy of outsourcing the manufacturing of components
for its X-ray equipment whenever such outsourcing is more efficient and cost
effective than in-house production. In particular, components for which serial
production is available are produced by third-party manufacturers according to
Company specifications. Generally, the X-ray accessories sold by the Company are
manufactured by third parties.
There is virtually no stock of finished X-ray equipment on the
Company's premises for any extended period of time since X-ray equipment is
generally manufactured at a customer's request. At June 30, 1999 finished
products accounted for approximately 10% of inventory while raw material, parts
and supplies accounted for approximately 76% of inventory and work in process
for approximately 14%.
The percentage of Company revenues derived from products which included
components then only currently available from a single source supplier amounted
to 13.6% as of June 30, 1999. The agreement with the single source supplier of
certain cameras, electronics will be terminated on December 31, 1999.The Company
currently has 160 CCD cameras in stock which can be used for the next 40 ddR-
Systems. The Company is currently in negotiations with three different
comparable source suppliers and does not expect any material business
interruptions to occur regarding CCD camera availability in a timely manner nor
does it anticipate that change of supplier will have any effect upon quality
of its ddR-Systems. The agreement with the single source supplier of optics
expires in July 2002 and is subject to renegotiations.
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Backlog
Management estimates that as of the end of the fiscal year ended June
30, 1999, the Company had an order backlog of $12,000,000 which consisted of
$8,000,000 forconventional x-ray equipment and $4,000,000 digital (i.e.,
ddRMulti-Systems and information solutions) as compared to an order backlog of
$13,000,000 which consisted of $11,500,000 in conventional x-ray equipment and
$1,500,000 in ddRMulti-Systems as of the fiscal year ended June 30,1998. The
Company had previously reported an order backlog for its digital x-ray equipment
as of June 30, 1997 of $30,000,000; $29,000,000 of which related to a contract
with a purchaser located in South Korea, management currently does not expect
that such order will be filled (to any significant degree) in the current
calendar year (if at all) absent a dramatic positive change in such economic
conditions which currently is not expected to occur. Accordingly, the Company no
longer, for practicable purposes, considers such South Korea contract to be part
of its backlog. The Company believes that substantially the entire orders under
the Philips OEM Agreement)will be filled during the current fiscal year. While
the Company expects to continue to have a certain order backlog for conventional
X-ray equipment (exclusive of that indicated above) in the future because of the
Philips OEM Agreement, the order backlog for digital X-ray equipment is likely
to be substantially reduced in the future as the Company estimates that orders
for such equipment will typically be filled within three months.
Competition
X-Ray Equipment Market
The markets in which the Company operates are highly competitive. Most
of the Company's competitors are significantly larger than the Company and have
access to greater financial and other resources than the Company. The principal
competitors for the Company's X-ray equipment are General Electric, Siemens,
Toshiba, Trex Medical, Shimatsu, Picker and Philips. In general, it is the
Company's strategy to compete primarily based on the quality of its products. In
the market for conventional X-ray equipment, the Company's strategy is to focus
on niche products and niche markets.
To the Company's knowledge the only direct digital X-ray systems for
medical diagnostic purposes other than the ddRMulti-System currently available
are chest examination systems offered by Philips, IMIX and Odelft. In addition,
there are several direct digital X-ray systems available for dental purposes.
None of these systems is able to perform bone examinations on extremities. To
the best of management's knowledge the Company's ddRMulti-System is the only
multi-functional direct digital X-ray system currently available which allows
all plane X-ray examinations on the recumbent, upright and sitting patient
without the use of cassettes, films, chemicals or phosphor plates. A number of
companies, including certain of the Company's competitors in the markets for
conventional X-ray equipment, are currently developing direct digital X-ray
detectors or direct digital X-ray systems for specific applications (including
mammography). See "-- Products," "-- Markets," "Risk Factors -- Competition."
Service Market
In the markets for services related to imaging equipment the Company's
competitors are equipment manufacturers (including certain of the Company's
competitors in the X-ray equipment market) and independent service
organizations. In the service markets, it is the Company's strategy to build a
market position based on the confidence of its customers in the quality of its
products and service personnel. See "-- Products," "-- Markets," "Risk Factors
-- Competition."
Intellectual Property
The Company has obtained patent protection for certain aspects of its
conventional X-ray technology. The Company has filed patent applications
covering certain aspects of its direct digital technology in key markets in
Europe, North America and Asia, including the United States, Canada, Switzerland
and Germany. The Company has obtained for one of its two patents the European
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patent as well as the U.S. patent. Although the Company believes that its
products do not infringe patents or violate proprietary rights of others, it
is possible that infringement of proprietary rights of others has occurred or
may occur. In the event the Company's products infringe patents or
proprietary rights of others, the Company may be required to modify the
design of its products or obtain a license. There can be no assurance that the
Company will be able to do so in a timely manner, upon acceptable terms and
conditions or at all. The failure to do any of the foregoing could have a
material adverse effect upon the Company. In addition, there can be no
assurance that the Company will have the financial or other resources
necessary to enforce or defend a patent infringement action and the Company
could, under certain circumstances, become liable for damages, which also
could have a material adverse effect on the Company.
The Company also relies on proprietary know-how and employs various
methods to protect its concepts, ideas and technology. However, such methods may
not afford complete protection and there can be no assurance that others will
not independently develop such technology or obtain access to the Company's
proprietary know-how or ideas. Furthermore, although the Company has generally
entered into confidentiality agreements with its employees, consultants and
other parties, there can be no assurance that such arrangements will adequately
protect the Company. The Company has obtained licenses to use certain technology
which is essential for certain of the Company's products, including certain
software used for its line of SwissVision(TM) postprocessing systems. The
software license is a worldwide, non-exclusive, non-transferable license
recently extended to July 31, 2000 to use and distribute the Agfa software in
combination with the Add-On Bucky.
The Company considers the Swissray name as material to its business and
has obtained, or is in the process of obtaining, trademark protection in key
markets. The Company is not aware of any claims or infringement or other
challenges to the Company's rights to use this or any other trademarks used by
the Company. See "Risk Factors -- Dependence on Patents and Proprietary
Technology."
The Company has patented certain aspects of its proprietary technology
in certain markets and has filed patent applications for its direct digital
technology in key markets, including the United States. The European patent as
well as the U.S. patent for the Add-On Bucky have been granted and expire
January 2015. The duration of other patents range from 2000 to 2016. In many
instances where patents are filed the "applicant" is listed as a specific
individual (such as the Company's President) while the patent ownership is
listed in the Company's name thereby assuring that the exclusive patent holder
is the Company.
In May of 1999 the European Patent Office issued patent No. EP 0 804
853 and in July of 1999 the U.S. Patent Office issued patent No. 5,920,604 -
both for the Company's Radiography (ddR) detector, the Add-on-Bucky (R) which
patent relates to the optical arrangement and process for transmitting and
converting primary x-ray images, which is the first of two inventions for the
Add-on-Bucky(R). The second patent application for optical arrangement and
method for electronically detecting an x-ray image was granted in September 1999
as hereinafter indicated. The Add-on-Bucky(R) is incorporated in Swissray's
unique multifunctional ddRMulti-System.
On September 30, 1999 the Company announced that the U.S. Patent Office
issued patent No. US 005920604A for its direct digital Radiography (ddR)
detector, the Add-on Bucky(R). The U.S. patent was awarded to Swissray pursuant
to application submitted by inventors R. G. Laupper, Chairman and President, CEO
of Swissray International, Inc. and Peter Waegli (Bremgarten, Switzerland), for
the optical arrangement and process for transmitting and converting primary
x-ray images generated on a two dimensional primary image array. The Company had
previously been awarded, in May 1999 the European patent for the technology
indicated herein. A separate patent application for the mirror optics has been
submitted and is pending approval in both Europe and the U.S.
Regulatory Matters
The Company's X-ray equipment, components and related accessories are
subject to regulation by national or regional authorities in the markets in
which the Company operates. Pursuant to the Federal Food, Drug and Cosmetic Act,
X-ray equipment is a class II medical device which may not be marketed in the
United States without prior approval from the FDA.
The FDA review process typically requires extended proceedings
pertaining to the safety and efficacy of new products. A 510(k) application is
required in order to market a new or modified medical device. If specifically
required by the FDA, a pre-market approval ("PMA")may be necessary. Such
proceedings, which must be completed prior to marketing a new medical device,
are potentially expensive and time consuming. They may delay or hinder a
product's timely entry into the marketplace. Moreover, there can be no assurance
that the review or approval process for these products by the FDA or any other
applicable governmental authorities will occur in a timely fashion, if at all,
or that additional regulations will not be adopted or current regulations
amended in such a manner as will adversely affect the Company. Moreover, such
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pre-marketing clearance, if obtained, may be subject to conditions on the
marketing or manufacturing of the ddRMulti-System which could impede the
Company's ability to manufacture and/or market the product. The Company
submitted both its AddOn-Bucky(R) and the ddRMulti-System for Section 510(k)
clearance with the FDA. On November 21, 1997, the Company's AddOn Bucky(R), the
direct digital detector of the ddRMulti-System, received FDA approval and on
December 18, 1997 the Company's ddRMulti-System received FDA approval; the
Company thus receiving authorization to market the ddRMulti-System in the U.S.
The FDA also regulates the content of advertising and marketing materials
relating to medical devices. There can be no assurance that the Company's
advertising and marketing materials regarding its products are and will be in
compliance with such regulations.
The Company is also subject to other federal, state, local and foreign
laws, regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices. The electrical components of the
Company's products are subject to electrical safety standards in many
jurisdictions, including Switzerland, EU, Germany and the United States. The
Company believes that it is in compliance in all material respects with
applicable regulations. Failure to comply with applicable regulatory
requirements can result in, among other things, fines, suspensions of approvals,
seizures or recalls of products, operating restrictions and criminal
prosecutions. The effect of government regulation may be to delay for a
considerable period of time or to prevent the marketing and full
commercialization of future products or services that the Company may develop
and/or to impose costly requirements on the Company. There can also be no
assurance that additional regulations will not be adopted or current regulations
amended in such a manner as will materially adversely affect the Company. See
"Risk Factors -- Risks Associated With International Operations," "-- Government
Regulations," "Business -- Markets" and "-- Regulatory Matters." Company product
certifications may be briefly summarized as follows: On March 8, 1999 Swissray
Medical AG, the Company's Swiss research and development, production and
marketing subsidiary became ISO 9001 and EN 46001 certified. Appendix II for CE
- Certification was completed in December 1999 thus allowing the Company to use
the CE-Label, including the medical device numbers for all products manufactured
and/or sold through the Company. See also "Government Regulation".
Environmental Matters
The Company is subject to various environmental laws and regulations in
the jurisdictions in which it operates, including those relating to air
emissions, wastewater discharges, the handling and disposal of solid and
hazardous wastes and the remediation of contamination associated with the use
and disposal of hazardous substances. The Company owns or leases properties and
manufacturing facilities in Switzerland, the United States and Germany. The
Company, like its competitors, has incurred, and will continue to incur, capital
and operating expenditures and other costs in complying with such laws and
regulations in both the United States and abroad as may specifically apply to
it. The Company does not believe that it has been involved in utilization of
any types of substances and/or wastes which it considers to be hazardous and the
operation of its business (or former business), accordingly is not believed to
have created any potential liability involving environmental matters. Although
the Company believes that it is in substantial compliance with applicable
environmental requirements and the Company to date has not incurred material
expenditures in connection with environmental matters, it is possible that
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the Company could become subject to additional or changing environmental laws or
liabilities in the future that could result in an adverse effect on the
Company's financial condition or results of operations. See "Risk Factors --
Environmental Matters."
Employees
After giving effect to the Empower, Inc. transaction heretofore
initially referred to on page 5 of this Registration Statement, the Company had
99 employees worldwide, of which 25 were employed by subsidiaries in the United
States, 68 in Switzerland, and 6 in European countries other than Switzerland.
The Company believes that its relationship with employees is satisfactory. The
Company has not suffered any significant labor problems during the last five
years.
Acquisition of Substabtially All of the Assets of Service Support Group LLC
On October 17, 1997, the Company acquired substantially all of the
assets of Service Support Group LLC ("SSG") located in Gig Harbor, Washington
(in an arms-length transaction) principally in exchange for the payment of
approximately $622,000 in cash and issuance of 33,333 shares of its Common
Stock in equal thirds to each of SSG's then owners based upon certain
warranties and representations made by them. Counsel representing the
Company with respect to this transaction determined that such transaction was
not material, did not require stockholder approval and advised management which
acted upon reliance of such legal advice. Pursuant to the terms of the Asset
Purchase Agreement and related Registration Rights Agreement both dated
October 17, 1997 (Exhibits 10.9 and 10.10 hereto), the holders of such Company
shares were then given the right, commencing June 30, 1998 and terminating
April 16, 1999, to require the Company to purchase any or all of such shares at
$45.00 per share.Since its formation on October 16, 1996, SSG has been in the
business of selling diagnostic imaging equipment and providing services
related thereto in the markets on the West Coast of the United States.
Issues involving the aforesaid Company shares and a number of other related
matters became the subject of dispute and litigation. See "Legal Proceeding".
The three former SSG owners relationship with the Company (and certain Company
subsidiaries with whom such persons held positions as officers, to wit: Swissray
Medical Systems, Inc. and Swissray Healthcare, Inc.) was terminated on July 20,
1998. As a result of such termination Ueli Laupper has been appointed Chief
Executive Officer of both Swissray Medical Systems, Inc. and Swissray
Healthcare, Inc. (with Michael J. Baker being appointed Deputy Chief Executive
Officer of both subsidiaries).
Sale of Substantially All of the Assets of Empower
On April 1, 1997, the Company acquired Empower, Inc., a New York
corporation ("Empower") which since incorporation in 1985, had been engaged in
distributing and servicing diagnostic X-ray equipment and accessories in the New
York/New Jersey/Connecticut area. Certain details with respect to such
acquisition were reported in a Form 8-K and Form 8-K/A1 with date of report of
April 1, 1997. In February 1998 the Company entered into a letter of intent with
E.M. Parker Co., Inc., a Massachusetts corporation ("Parker") with respect to
the sale of Empower's film and x-ray accessories business. Thereafter, the
Company and its wholly owned subsidiary, Empower, Inc. ("Empower")entered into
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an Asset Purchase Agreement with Parker pursuant to which the Company and
Empower sold and Parker purchased substantially all of the assets of Empower
(excluding certain excluded assets as defined in the Agreement) in consideration
of: (i) the assumption by Parker of certain liabilities of Empower; (ii) the
cash purchase price of $250,000.00; and (iii) the payment by Parker of
approximately $376,000 to a banking institution in satisfaction of certain
outstanding indebtedness of Empower. Empower has been merged into Swissray
America, Inc. effective July 1, 1999. The Company is currently engaged in
litigation with the former CEO of Empower. For information regarding such
litigation reference is made to "Item 3 - Legal Proceedings".
Both the original purchase and subsequent sale referred to in the
preceding paragraph were contracted on an arms-length basis. The sale of
Empower's assets less than one year after acquisition of Empower related
primarily to the sale of film, chemical and certain servicing of conventional
x-ray equipment since these areas no longer constituted the Company's "core"
business which revolves around its ddRMulti-System and filmless digital
technology. The original purchase of Empower was for $120,000 (in stock) and the
subsequent sale referred to resulted in a gain of $55,000. Counsel representing
the Company with respect to this transaction determined that such transaction
was not material, did not require stockholder approval and advised management
which acted upon reliance of such legal advice.
Recent Developments
In May 1998 Swissray Medical Systems, Inc., a wholly owned subsidiary
of the Company, was awarded a contract from the Department of Veterans Affairs
("VA") estimated at $400,000 for the base year for its Diagnostic X-ray systems,
the ddRMulti-System, with the VA reserving its option to extend the term of the
contract up to March 31, 2001; the ddRMulti-System being the first ever FDA
approved multifunctional direct digital radiography (ddR) system to be offered
worldwide. With the official contract award in hand, management intends to
actively pursue sales to various VA hospitals, medical centers and outpatient,
community and outreach clinics throughout the United States. Since receipt of
such award the Company has contracted for the sale of 4 ddRMulti-Systems
(through August 24, 1999) to different VA institutions.
In July of 1998 the Company sold its multifunctional direct digital
radiography (ddR) system, the ddRMulti-System, to the largest Diagnostic Out
Patient Center in Warsaw, Poland, the Diagnostic Center Luxmed. This order
represents Swissray's first sale within the Eastern European Market,
complementing sales previously made in both Western Europe and the United
States.
In October 1998 the Company entered into a distribution agreement with
X-ray Inc. ("XRI"), Warwick, RI. XRI will distribute the Company's
ddRMulti-System in the territories of Connecticut, Rhode Island, Vermont, New
Hampshire, Massachusetts and Maine until termination of this one year contract
in October of 1999. The Company currently is conducting its own distribution
within these areas.
In November 1998 the Company reached an agreement with Data General
Corporation of Westborough, MA, effective January 20, 1999 which grants
authority to Data General to act as a reseller for the Company's family of
products. Data General will sell the Company's ddRMulti-System and Information
Solutions as a package with their PACS system. This agreement remains in effect
but may be terminated by either party (with or without cause) upon 30 day
notice. Management has no current intentions to terminate such agreement nor
does it anticipate that Data General will exercise such right as the parties
continue to maintain a good working relationship with each other.
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In February of 1999 the Company announced the sale of three of its
ddRMulti-System, to Houston, Texas based Kelsey-Seybold Clinic and to the
Federal Maximum Security Facility in Florence, Colorado. The two Kelsey- Seybold
systems are scheduled to be viewed in clinical use by attendees of the annual
Society for Computer Applications (SCAR) meeting in Houston in May 1999 while
the Colorado sale was made through the above indicated contract with the
Department of Veterans Affairs.
In February 1999 the Company announced entry into distribution
agreements with three medical equipment suppliers for distribution in both
domestic and international markets. These firms - Medika International Inc., of
San Juan, Puerto Rico, Radiographic Equipment Services (RES) of San Diego,
California, and H & H X-Ray Corporation of Lancaster, New York, have agreed to
distribute Swissray's direct digital radiography system, the ddrMulti-System.
H&H X-Ray, which was to oversee sales in New York, Pennsylvania and Ohio has
ceased business operations and the Company is currently conducting its own
distribution in such areas. Similarly, the Company's contract with RES has
terminated and the Company is conducting its own distribution within these
territories.
Medika, one of the largest medical equipment suppliers in the Southern
Hemisphere, will cover ddRMulti-Systems sales in Puerto Rico, the Caribbean,
Mexico and selected South American markets.
On March 29, 1999 the Company entered into a one year Consulting
Agreement (with option to extend for an additional period of one year) with
Liviakis Financial Communications, Inc.("LFC ") In accordance with the terms and
conditions of the Consulting Agreement, the Consultant agreed to provide certain
specified consulting services in a diligent and thorough manner in return for
which and as full and complete compensation thereunder, the Company is required
to compensate the Consultant through its issuance and delivery of 3,000,000
fully vested, and non-forfeitable shares of the Company's restrictive common
stock. As regards such shares of common stock, Consultant has agreed that
throughout the period of time that it retains beneficial ownership of all or any
portion of such shares that it shall (a) vote such shares in favor of Ruedi G.
Laupper continuing to maintain his current position(s) with the Company and (b)
give Ruedi G. Laupper and/or his designee the right to vote Consultant's shares
at all Company shareholder meetings. In the event that the Company, in its sole
discretion, exercises its option to extend the Agreement for an additional
period of one year, remuneration for such second year has been set at $630,000
to be paid in restrictive shares of Company common stock (with the number of
shares to be determined based upon the ten day average closing bid price for the
ten consecutive trading days preceding March 29, 2000). The foregoing does not
purport to set forth each of the terms and conditions of the aforesaid
Consulting Agreement but rather is designed to summarize what management
considers to be pertinent portions thereof.
In accordance with the terms of the aforementioned consulting agreement
,LFC has agreed that it will generally provide the following consulting services
: (a) advise and assist the Company in developing and implementing appropriate
plans and materials for presenting the Company in the financial community, and
creating the foundation for subsequent financial public relations efforts, (b)
advise and assist the Company in communicating appropriate information regarding
its plans, strategy and personnel to the financial community; (c) assist and
advise the Company with respect to its (i) stockholder and investor relations,
(ii) relations with brokers, dealers, analysts and other investment
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professionals, and (iii) financial public relations generally, (d) perform the
functions generally assigned to investor/stockholder relations and public
relations departments in major corporations, (e) upon the Company's approval,
(i) disseminate information regarding the Company to shareholders, brokers,
dealers, other investment community professionals and the general investing
public and (ii) conduct meetings with brokers, dealers, analysts and other
investment professionals to advise them of the Company's plans, goals and
activities and (f) otherwise perform as the Company's financial relations and
public relations consultant.
The agreement further provides that in the event LFC introduces SRMI
(a) to a lender or equity purchaser, not already having a preexisting
relationship with SRMI, with whom SRMI ultimately finances or causes the
completion of such financing, SRMI shall compensate LFC for such services with a
"finder's fee" in the amount of 2.5% of total gross funding provided by such
lender or equity purchaser or (b) to an acquisition candidate, either directly
or indirectly through another intermediary, not already having a preexisting
relationship with SRMI, with whom SRMI ultimately acquires or causes the
completion of such acquisition, SRMI shall compensate LFC for such services with
a "finder's fee" in the amount of 2% of total gross consideration provided by
such acquisition. The compensation to LFC is to be payable in cash and is to be
paid in full at the time the financing or acquisition is closed. It is
specifically understood that LFC is not nor does it hold itself out to be a
Broker/Dealer, but is rather merely a "Finder" in reference to the Company
procuring financing sources and acquisition candidates.
LFC, founded in 1985 by John Liviakis, its President, is a full service
investor relations firm, providing services principally to micro through mid-cap
public companies listed on the Nasdaq, American, New York Stock and OTCBB
Exchanges. Such services include financial community and media relations,
editorial services and interactive communications, as well as administrative,
consulting and advisory services. The overall purpose of LFC is to enhance its
corporate clients' recognition in the financial community, the media and among
shareholders. In furtherance of its agreement with the Company and in addition
to and/or in conjunction with those consulting services referred to above and in
the consulting agreement between the parties, LFC has performed the following
services on behalf of the Company in its efforts to assist and advise the
Company with respect to its stockholder and investor relations as well as its
relations with brokers, dealers, analysts and other investment professionals.
Specifically LFC has performed the following services:
1) pro-actively soliciting sponsorship for the Company's common stock from
stockholders, institutions, and analysts;
2) accepting incoming investor calls from brokers, shareholders and financial
institutions;
3) assisting the Company in packaging its investor relations materials;
4) assisting the Company in the writing and dissemination of its press releases;
5) assisting the Company in media relations; and
6) generally advising the Company, upon request, on matters of a corporate
financial nature.
Additionally, LFC has introduced the Company and subsequently entered
into an investment banking relationship with Raymond James & Associates in order
to assist the Company in evaluating strategic alternatives including, but not
limited to, identifying proposals from potential suitors or strategic partners
as well as supporting the Company's financing requirements.
Additionally, on March 29, 1999 the Company entered into a eighteen
month Consulting Agreement with Rolcan Finance Ltd. ("Rolcan"), pursuant to
which Rolcan agreed to provide certain business and consulting services outside
the United States and in return for which the Company became obligated to issue
as full and complete compensation thereunder, 800,000 fully vested, and
non-forfeitable restrictive shares of its common stock.
In accordance with terms of aforementioned consulting agreement, Rolcan
has agreed to facilitate the endeavors of the Company's medium and long term
business plans through services, including but not limited to, introducing
Company management (i) to potential financial partners, financial brokers, and
assist in developing market awareness within the financial community with an
emphasis upon introductions to offshore investors in Europe, the Middle East
and the Far East and to the extent practicable assisting the Company in having
its stock listed on various European exchanges and (ii) continuing to discuss
Company financial requirements and types of financing which may be available and
/or appropriateunder then existing circumstances.
Rolcan has advised that it is currently continuing to conduct due
diligence activities with respect to locating international banking enterprises
on behalf of the Company with a view towards obtaining financial backing in
areas of lines of credit, equipment leasing, receivable and inventory financing
and areas of a similar nature. Such efforts if successful, are intended to
alleviate cash flow difficulties that may arise as a result of substantial and
significant increase in the Company's business activities (and most specifically
in its recent major increase in contracting for the sale of 32 of its
ddRMulti-Systems to Romania. Rolcan, established in 1993 by its Managing
Director and control
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stockholder, Roland Kaufmann, is a business consulting firm primarily engaged in
the types of activities enumerated above with its principal activities being
conducted outside the U.S.
The issuance of the above referenced restrictive shares to LFC and
Rolcan was based upon the then bid price of $0.375 per share as quoted on the
date (March 22, 1999) that the parties each agreed to the terms and conditions
of their respective Consulting Agreements, notwithstanding the fact that when
such binding oral agreements were reduced to writing and executed on March 29,
1999 the closing bid price had risen to $0.906 per share. The factors considered
by the Company's Board in determining the 33% discount from the bid price of
$.375 per share when issuing the above reference shares to LFC and Rolcan was
based upon the Board's determination that there is a substantial and significant
difference between the valuation of free trading securities and restricted
shares. The principal differences considered relate to the facts that (a)
restricted shares may not be sold in the open market and (b) restrictive legend
appearing on such restricted shares may not be removed for a period of at least
one year absent registration and then only in accordance with Rule 144 (assuming
the Company continues to meet necessary reporting requirements for utilization
of Rule 144). The Board further considered the fact that even if the above
referenced Rule 144 requirements were met the holder of restricted shares
remained subject to specific volume limitations (usually 1% of outstanding
common stock) with respect to sales made within a 3 month period subsequent to 1
year holding period. In addition to all of the above, the Board also considered
the fact that the Company's shares have had a history of substantial and
significant volatility.
The foregoing summarizes certain pertinent terms and conditions
contained in the Agreements entered into by the Company with LFC and Rolcan but
does not purport to be a complete summary of such Agreements. Copies of such
Agreements are filed with the SEC in the Company's Form S-1 Registration
Statement under SEC file number 333-59829. Accordingly, further information may
be obtained through the Commission's World Wide Web site utilized for Issuers
(such as the Company) that file electronically with the Commission. The address
of such site is http:\\www.sec.gov.
In April of 1999 the Company entered into distribution agreements with
(a) Linear Medical Systems, Inc. for the territory of Arizona and (b) Capital
X-RAy, Inc. for the territories of Alabama and Mississippi.
In May 1999 the European Patent Office issued patent No. EP 0 804 853
and in July of 1999 the U.S. Patent Office issued patent No. 5,920,604-both for
the Company's Radiography (ddR) detector, the Add-On Bucky (R) which patent
relates to the optical arrangement and process for transmitting and converting
primary x-ray images, which is the first of two inventions for the Add-On Bucky
(R). The second patent application for optical arrangement and method for
electronically detecting an x-ray image was granted in September 1999 as
hereinafter indicated. The Add-on-Bucky(R) is incorporated in Swissray's unique
multifunctional ddRMulti-System.
In July of 1999 the Company signed an investment banking agreement with
Raymond James & Associates, Inc. (NYSE:RJE-news). Under the terms of the
agreement, Raymond James will assist Swissray in evaluating strategic
alternatives including, but not limited to, identifying and evaluating proposals
from potential suitors or strategic partners, as well as supporting the
Company's financing requirements.
In August of 1999 the Company signed a one year exclusive sales,
marketing and service agreement with Hitachi Medical Systems America, Inc.
(HMSA), a subsidiary of Hitachi Medical Corporation. Under the terms of the
agreement HMSA will provide sales, marketing, and service for the distribution
of Swissray's ddRMulti-System to end users within certain defined territories
within the United States. In addition HMSA will utilize and promote the Swissray
Information Solutions services and products consisting of consulting and product
solutions for medical imaging informatics.
ITEM 2. PROPERTIES
On April 12, 1997, the production facility rented by the Company in
Hochdorf, Switzerland was affected by a fire in an adjacent facility. On May 15,
1997, the Company purchased a new office and production facility of
approximately 43,000 square feet and moved its entire production to this
facility and has since moved the offices and other facilities formerly located
in its Hitzkirch facility to the new Hochdorf facility. The Company believes
that its new Hochdorf facility provides it with sufficient production and office
space to meet its demand in Switzerland in the foreseeable future.
The Company also leases office space in New York City, Brno,
Czech Republic, Gig Harbor, Washington and Wiesbaden, Germany.
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ITEM 3. LEGAL PROCEEDINGS
A. On or about October 3, 1997, the Registrant and Swissray Healthcare,
Inc. were served with a complaint by a company engaged in the business of
providing services related to imaging equipment alleging that defendant
received benefits from breach of fiduciary duties and contract obligations and
misappropriation of trade secrets by certain former employees of such competitor
Such company also obtained a temporary restraining order against the Registrant
and Swissray Healthcare, Inc. in the aforesaid action entitled Serviscope
Corporation v. Swissray International, Inc., and Swissray Healthcare, Inc.
commenced in the Supreme Court of the State of New York under Index No.
605091/97. On November 10, 1997, the Court denied a Motion for a preliminary
injunction and the temporary restraining order was vacated. On December 1, 1997
and January 30, 1998 the Registrant answered the Complaint and Amended Complaint
respectively by denying the allegations contained therein. The Plaintiff
in such action (on December 2, 1997) filed a Motion to reargue and renew
its prior denied Motion for a Preliminary Injunction and such Motion was
by Order and Decision dated June 17, 1998) denied. The Company denied the
allegations, vigorously defended the litigation and thereafter settled such
litigation and all outstanding matters with respect thereto in July 1998 for
$60,000.
B. Dispute with Gary J. Durday ("Durday"), Kenneth R. Montler ("Montler")
and Michael E. Harle ("Harle"). On July 17, 1998, two legal proceedings were
commenced by Swissray, and two of its subsidiaries against Durday, Montler and
Harle. Harle and Montler are former Chief Executive Officers of Swissray Medical
Systems Inc. and Swissray Healthcare Inc., respectively, and Durday is the
former Chief Financial Officer of both of those companies. Each of them was
employed pursuant to an Employment Agreement dated October 17, 1997. In
addition, these three individuals were owners of a company by the name of
Service Support Group LLC ("SSG"), the assets of which were sold to Swissray
Medical Systems Inc. pursuant to an Asset Purchase Agreement dated as of October
17, 1997. whereby Messrs. Durday, Montler and Harle received, among other
consideration, 33,333 shares of Swissray's common stock, together with a put
option entitling these individuals to require Swissray to purchase any or all of
such shares at a purchase price equal to $45.00 per share (on or after June 30,
1998 and until April 16, 1999).
On July 17, 1998, Swissray and its subsidiaries, Swissray Medical
Systems Inc. and Swissray Healthcare Inc. commenced an arbitration proceeding
before the American Arbitration Association in Seattle, Washington (Case No. 75
489 00196 98) alleging that Messrs. Durday, Montler and Harle fraudulently
induced Swissray and its subsidiaries to enter into the above referenced Asset
Purchase Agreement and otherwise breached that Agreement. The relief sought in
the arbitration proceeding was the recovery of damages suffered as a result of
this alleged wrongful conduct and a rescission of the put option provided for in
the Asset Purchase Agreement. Messrs. Durday, Montler and Harle responded to the
allegations made in the arbitration proceeding and asserted counterclaims
against Swissray and its subsidiaries claiming a breach by them of their
obligations under the Asset Purchase Agreement and other relief. The arbitration
took place in Seattle on January 8-10, 1999; the proceeding concluded on January
27, 1999 after the submission of post-hearing briefs. On February 23, 1999, the
Arbitrator issued his ruling, awarding Messrs. Durday, Montler and Harle
$1,500,000 and ordering them to surrender all rights to 33,333 shares of
Swissray common stock. On February 26, 1999, Swissray and Swissray Medical
Systems Inc. filed a petition in Supreme Court, New York County (Index No.
99/104017) to vacate the above referenced arbitration award. By order dated
July 8, 1999 such motion was denied and the court confirmed the aforesaid
arbitration award.
In addition to the above referenced arbitration proceeding, Swissray
and its subsidiaries commenced an action against Messrs. Durday, Montler and
Harle 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 Superior Court in Pierce County, Washington, (September
1998 under Cause No. 98-2-10701-0), and asked that Court to adjudicate the
issues raised in the above referenced New York State Court action. Swissray
filed applications in both the Washington and New York litigations urging that,
because the action was first filed in New York, the New York court, rather than
the Washington court, should decide where the litigation should proceed. Messrs.
Durday, Montler and Harle initially opposed that position and urged the
Washington State court to adjudicate all issues, but subsequently withdrew their
opposition to Swissray's application and consented to a stay of all further
proceedings in the Washington State court action until after the New York court
had reached a decision as to whether it or the Washington court is the proper
forum for litigation of the parties' dispute. By order dated June 1, 1999
filed in Supreme Court of the State of New York, County of New York (Index No.
603512/98) Messrs. Durday, Montler and Harle's motion for an order dismissing
Swissray's complaint (on the ground of forum non conveniens) was granted. The
aforesaid action commenced by Messrs. Durday, Montler and Harle in Pierce County
Washington remained pending.
- 20 -
<PAGE>
Parties to each of the aforesaid procedings thereafter entered into
settlement negotiations resulting in Swissray agreeing to pay $1,500,000 as and
for full settlement of all outstanding claims; such settlement agreement having
been executed August 31, 1999. In accordance with such settlement agreement the
Company was required and has since paid the sum of $1,000,000 and is further
obligated to pay (in accordance with the terms of an August 31, 1999 promissory
note and over a period of 24 consecutive months) an aggregate of $500,000 with
interest at the rate of 9% per annum. Payments with respect to such promissory
note have been and remain current.
C. Dispute with J. Douglas Maxwell. On or about July 1, 1999 an action
was commenced in the Supreme Court, State of New York, County of New York (Index
No. 113099/99) entitled J. Douglas Maxwell ("Maxwell") against Swissray
International, Inc. ("Swissray") whereby Maxwell is seeking judgement in the sum
of $380,000 based upon his interpretation of various terms and conditions
contained in an Exchange Agreement between the parties dated June 1, 1998.
Swissray has denied the material allegations of Maxwell's complaint and has
asserted three affirmative defenses and two separate counterclaims seeking
(amongst other matters) dismissal of the complaint and rescission of th settle-
ment agreement. It is Swissray's management's intention to contest this matter
vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Company security holders during
the fourth quarter of its fiscal year ended June 30, 1999.
The Company held its Annual Meeting of Stockholders for fiscal year
ended June 30, 1998 on July 23, 1999, at which time stockholders (i) elected
each of those five persons nominated to serve on the Company's Board of
Directors, (ii) approved the appointment of Feldman Sherb Horowitz & Co., P.C.
as the Company's independent accountants for fiscal year ended June 30, 1999,
(iii)voted in favor of adopting an amendment to its Certificate of Incorporation
so as to authorize the creation of a class of Preferred Stock; and (iv) approved
the proposal to adopt the Company's 1999 Stock Option Plan.
The proposal to re-incorporate the Company in Delaware was not approved not
withstanding the fact that approximately 74% of all votes cast voted in favor of
such proposal. Such votes only represented approximately 62% of all outstanding
shares while approval of the proposal required an affirmative vote of at least
two-thirds of all outstanding shares.
The number of shares of Common Stock voted at the Annual Meeting
approximated 84% of all issued and outstanding securities as of the record date.
The Company has not as yet established a date for holding its Annual
Meeting of Stockholders for fiscal year ended June 30, 1999. While specific
plans as to the agenda, proposed site and date of meeting have not yet been
finalized, it is management's intention to hold such Annual Meeting as soon as
practicable and prior to the end of the calendar year 1999.
PART II
ITEM 5. MARKET PRICES AND DIVIDEND POLICY
(A) The Registrant's common stock, $.01 par value (the "Common
Stock") was listed on the Nasdaq SmallCap Market and traded under the symbol
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<PAGE>
SRMI until October 26, 1998 delisting. Since January 1999 the Company's common
stock has been trading on the Electronic Over-the-Counter Bulletin Board under
the same symbol. The following table sets forth, for the periods indicated, the
range of high and low bid prices on the dates indicated for the Registrant's
securities indicated below for each full quarterly period within the two most
recent fiscal years (if applicable) and any subsequent interim period for which
financial statements are included and/or required to be included.
Fiscal Year Ended June 30, 1997 Quarterly Common Stock Price
By Quarter Ranges (1)(2)
Quarter Date High Low
1st September 30, 1996 $5.0625 $3.6875
2nd December 31, 1996 $4.000 $2.375
3rd March 31, 1997 $3.5625 $1.6875
4th June 30, 1997 $3.250 $1.4063
Fiscal Year Ended June 30, 1998 Quarterly Common Stock Price
By Quarter Ranges (1)(2)
Quarter Date High Low
1st September 30, 1997 $1.6375 $1.5625
2nd December 31, 1997 $1.250 $1.125
3rd March 31, 1998 $1.6875 $.750
4th June 30, 1998 $1.000 $.500
Fiscal Year Ended June 30, 1999 Quarterly Common Stock Price
By Quarter Ranges (1)(2)
Quarter Date High Low
1st September 30, 1998 (3) $.5625 $0.188
2nd December 31, 1998 $.1375 $0.875
3rd March 31, 1999 $1.25 $0.375
4th June 30, 1999 $2.812 $2.437
(1) The Registrant's Common Stock began trading on the Nasdaq SmallCap
market on March 20, 1996 with an opening bid of $47.50. The
following statement specifically refers to the Common Stock activity,
if any, prior to March 20, 1996 and subsequent to October 26, 1998
NASDAQ delisting. The existence of limited or sporadic quotations
should not of itself be deemed to constitute an "established
public trading market." To the extent that limited trading in the
Registrants's Common Stock took place, such transactions have been
limited to the over-the-counter market. Until March 20, 1996 and since
October 26, 1998, all prices indicated are as reported to the
Registrant by broker-dealer(s) making a market in its common stock in
the National Quotation Data Service ("pink sheets") and in the
Electronic Over-the-Counter Bulletin Board. During such dates the
Registrant's Common Stock was not traded or quoted on any automated
quotation system other than as indicated herein. The over-the-counter
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<PAGE>
market and other quotes indicated reflect inter-dealer prices without
retail mark-up, mark-down or commission and do not necessarily
represent actual transactions.
(2) All prices indicated hereinabove for quarters up to and excluding
quarter ending December 31, 1998 reflect price ranges as they existed
during the quarters indicated but do not retroactively reflect a 1 for
10 reverse stock split effective October 1, 1998.
(3) On the date of NASDAQ's delisting (October 26, 1998) the common stock
price was $.97 per share while on the date immediately prior to
effectiveness of the reverse stock split (October 1, 1998) the stock
price was $.118 per share.
(b) Holders. As of the close of business on August 24, 1999 there
were 674 stockholders of the Registrant's Common Stock and 14,541,537 shares
issued and outstanding.
(c) Dividends. The payment by the Registrant of dividends, if any, in
the future rests within the discretion of its Board of Directors and will
depend, among other things, upon the Company's earnings, its capital
requirements and its financial condition, as well as other relevant factors.
The Registrant has not paid or declared any dividends upon its Common Stock
since its inception and, by reason of its present financial status and its
contemplated financial requirements, does not contemplate or anticipate paying
any dividends upon its Common Stock in the foreseeable future.
(d) Recent NASDAQ Delisting. The Nasdaq Stock Market recently
adopted certain changes to the standards for issuers with securities listed on
Nasdaq. One of the changes included increasing the quantitative maintenance
requirements for continued listing in the Nasdaq SmallCap Market, on which the
Company's Common Stock was then listed and traded under the symbol SRMI until
October 26, 1998 delisting. In order to maintain continued listing on Nasdaq
the Company's Common Stock was required to maintain a closing bid price at least
equal to $1.00 per share. On October 26, 1998 NASDAQ determined to delist
Company's securities from The NASDAQ Stock Market effective with the close of
business October 26, 1998. The advise (accompanying the delisting letter)
indicated in pertinent part that (a) the bid price of Company's common stock
had fallen below $1.00 per share on October 26, 1998 despite the Company having
demonstrated ".. a closing bid price in excess of $1.00 for a period of 17
consecutive trading days" and (b) the Company's 15 day extension within which
to timely file its Form 10-K for fiscal year ended June 30, 1998 had expired
October 15, 1998 and, accordingly, "the Registrant is now deficient in filing
its 10-K for the fiscal year ended June 30, 1998".
The NASDAQ Listing and Hearing and Review Council("Council") may,on its
own motion, determine to review any NASDAQ Listing Qualifications Panel
("Panel") decision within 45 calendar days after issuance of a written decision.
The Council, by letter dated December 9, 1998, and on its own initiative, called
for review of the above referenced Panel's decision. The Council may affirm,
modify, reverse, dismiss, or remand the decision to the Panel. The Registrant
may also request the Council to review its decision and such request must be
made within 15 days of the date of this decision. The institution of a review,
whether by way of any request, or on the initiative of the Council, does not
operate as a stay of NASDAQ's October 26, 1998 delisting decision.
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<PAGE>
The Company formally requested a review of NASDAQ's decision in a
timely manner and such request was confirmed by NASDAQ on November 16, 1998
wherein NASDAQ indicated that the Company had until January 15, 1999 for its
submission of any additional information it may deem pertinent for purposes of
Review Council's consideration. The Company understands that the Review Panel is
prepared to and will consider any and all additional information supplied to it
by the Company that did not exist at the time of delisting and, accordingly, the
Company provided certain new and significant information (in a timely manner)
for NASDAQ's consideration; such information primarily consisting of the fact
that current bid price for common stock met NASDAQ standards and that the
Company was current with respect to its Exchange Act reporting requirements and
was accompanied by various literature describing the Company's products and
business prospects.
On April 1, 1999 the Council issued a Decision whereby it
reversed and remanded the decision of the NASDAQ Panel with instructions,
having found that the Company was not provided with adequate notice and
opportunity to respond to all of the basis upon which the Panel apparently
determined to delist the Company's securities.
The Council's instructions directs NASDAQ staff and Panel to determine
whether the Company complies with all continued listing requirements for the
Nasdaq SmallCap Market and demonstrates the ability to maintain compliance with
these requirements in the long term. Such Council's decision directs the staff
to conclude its review and provide its findings to the Panel within 45 days from
April 1, 1999. The decision further states that "If, at the time of the staff's
review, the staff finds that the Company meets all of the requirements for
continued listing on The Nasdaq SmallCap Market, demonstrates the ability to
maintain compliance with these requirements in the long term, and there are no
new adverse developments, the Panel should relist the Company on the SmallCap
Market. If, however, the staff finds that the Company does not meet all of the
continued listing requirements or does not demonstrate the ability to maintain
compliance with these requirements for the long term, the Panel must notify the
Company of which requirement(s) it fails to satisfy." (providing the Company
with 15 days to respond).
As of August 24, 1999 no final determination has been made regarding
the issues referred to above.
ITEM 6. SELECTED FINANCIAL DATA
Swissray International
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The selected consolidated financial data presented below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and related
notes thereto included elsewhere in this 10-K. The selected consolidated
financial data as of and for the fiscal years ended, June 30, 1995 (six-month
period), June 30, 1996, June 30, 1997, June 30, 1998 and June 30, 1999 are
derived from the audited consolidated financial statements of the Company.
- 24 -
<PAGE>
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------------------------
6/30/99 6/30/98 6/30/97* 6/30/96 6/30/95(1)
--------- -------- -------- -------- --------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales 17,296 22,893 13,151 10,899 3,806
Cost of sales 13,529 18,082 8,445 5,793 2,484
------ ------- ------ ------- -------
Gross profit 3,767 4,811 4,706 5,106 1,322
Gross profit margin (%) 22% 21% 36% 47% 35%
Selling, general and
administrative expenses 19,346 18,748 17,450 14,966 2,307
------ ------- ------ ------- -------
Operating loss (15,579) (13,937) (12,744) (9,860) (985)
Other expenses (income), net (40) 281 (319) (1,004) 3,054
Interest expense 5,639 8,590 762 194 122
----- ----- ----- ------ ------
Loss from continuing operations,
before income taxes (21,178) (22,808) (13,187) (9,050) (4,161)
Income tax provision (benefit) -- -- 110 (365) (339)
----- ------- ------ ------- -------
Loss from continuing operations (21,178) (22,808) (13,297) (8,685) (3,822)
======= ======= ======== ======= =======
Loss per share from continuing
operations - basic (3.24) (8.48) (8.41) (6.69) (4.80)
======== ======== ======== ========= ========
BALANCE SHEET DATA:
Total assets 23,511 25,915 24,788 18,793 13,027
Long-term liabilities 15,501 7,771 5,635 -- 705
Common stock subject to put 1,820 1,820 320 -- --
</TABLE>
(1) In 1995, the Registrant changed its fiscal year end from December 31 to
June 30. As a result, the Company had a fiscal year beginning on
January 1, 1995 and ending on June 30, 1995. Accordingly, the Summary
Financial Data for the period ended June 30, 1995 is for a six-month
period.
(2) 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 split.
* Restated
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
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.
The focus of the Company for the fiscal year ended June 30, 1999 was
mainly on the industrialization and commercialization of the newly developed
products AddOn-Multi-System and Bucky Diagnost TS and the building and
strengthening of its organization and distribution channels in the principal
markets USA and Europe.
In October 1997, the Company acquired substantially all of the assets
of Service Support Group LLC "SSG", a company active in the business of selling
diagnostic imaging equipment and providing services related thereto in the
markets on the West Coast of the United States. The Company also started its
activities, in the U.S. and later in Europe, the business of information
solutions by providing a comprehensive package of consulting, services and
products to enable the Healthcare providers to perform the transition into
filmless Radiology. Significant amounts of money were invested in the opening
of the market of the Company's direct digital ddR-Multi- Systems, both in the US
and in Europe.
During the start-up of the production of the Company's newly developed
products, the ddRMulti-System and the Bucky Diagnost TS, gross margins were
affected negatively because of the need of extra time for training the newly
hired production staff and implementation of the production run as well as
efforts made to improve and maintain the highest product quality. The Company
expects to lower costs and time needed for production of these systems in a
later stage of the learning curve due to positive impact of the optimized
production run. The sales of ddRMulti-System was slowed down by certain
governmental requirements for the sale of Healthcare products, which differ from
one country to the other. On July 26, 1998 SR Medical AG, the Company's Swiss
marketing subsidiary, was ISO 9002 and EN46002 certified. On March 8, 1999
Swissray Medical AG, the Company's Swiss research and development, production
and marketing subsidiary became ISO 9001 and EN 46001 certified. The Company
filed for CE approval of the ddRMulti-System in July 1998. Appendix II for
CE-Certification was received November 1999, which allows the Company to use the
CE-Label, including the medical device numbers for all products manufactured
and/or sold through the Company.
The Company started a restructuring process in the fourth quarter of
its fiscal year ended June 30, 1998. With the sale of Empower's Film, Processor
and Chemistry Business to E.M. Parker, the Company continued its focus on
digital Radiography. The process of restructuring is ongoing and includes mainly
internal reorganization to achieve lean structures and cost savings.
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<PAGE>
The process of restructuring also included the fact that during the
last quarter of fiscal year 1998, the Company decided to reorganize its U.S.
operations and other branch offices and also decided to close down its office in
Lusanne, Switzerland. The restructuring reserve for dissolving the office
consisted of remaining lease payments through the year 2001 totaling
approximately $90,000. Further, the Company decided to merge two of its branch
offices in Europe. A restructuring reserve of $10,000 was necessary for picking
up various commitments.
Additionally, the Company's U.S. operations consisted of three legal
entities doing business in the State of Washington. The plan for reorganization
consisted of the following: (i) merge existing entities into one legal entity,
(ii) reorganize the selling force and management teams, (iii)analyze all
customers and lines of business for profitability and long term strategies and
(iv) relocate the operations, including personnel, to the East Coast which would
require the Company to vacate its existing facility in Washington. The Company
planned on relocating in the 3rd quarter of Fiscal 1999 at which time the
present value of the remaining lease payments amounted to approximately $400,000
(which sum was accrued). The only change to the Plan so far is a delay in the
final negotiations with respect to certain lease terms for certain proposed East
Coast facilities which the Company may or may not lease dependent upon
successful completion of negotiated terms. All other facets of the Plan have
been completed.
YEAR 2000 POLICY STATEMENT
The Company has conducted an extensive program to check the status of
its equipment (information and non-infornation technology) related to the
millennium.
For relevant material (information and non-information technology)
delivered by third parties the Company received written assurances that their
year 2000 compliance's is under control. The Company is actually 100% compliant
and is ready for Y2K.
In fact, 100% of the Company's installed base equipment (information
and non-information technology) fulfills Year 2000 compliance.
The Year 2000 Statement of the Company has been published on its
website, http://www.swissray.com, and all our customers have been informed.
Contingency plans have been worked out by the Company.
YEAR 2000 COMPLIANT LISTS
All products of the Company (information and non-infornation technology)
fulfill the compliance for Year 2000 and belong to class A Systems. The products
listed have been tested on a stand alone basis; therefore an operational
environment's test results may differ. This information does not affect existing
warranties, warranty exclusions, exclusive warranty remedies or limitations of
liability.
Class A Systems: Year 2000 Compliant
GEN-X-Generators: Mobile Systems:
TURNOMAT 500
GEN-X 500 Eurabil 5 Eurabil C-Arm Standard
GEN-X 650 Eurabil 15 Eurabil C-Arm Plus
GEN-X 800 Eurabil 30 Eurabil C-Arm Top
Bucky Table Sustems:
GEN-X 1000 - Euramove 1
GEN-X 2000 - Euramove 2
GEN-X 3000 - Euramove 3
GEN-X 4000 - Euramove 4
MRS-GENERATOR - Eurastat 2
- Eurastat 4
Atlas Systems: - Bucky-Diagnost TS
Atlas-U - US 2000
Atlas-U - US 3000 Special Systems
Atlas-U - US 4000 - Euralem 1400
Atlas-BV-Tomo - Euralem 1500
MRS-Stativ - Euralem 1800
- Euralem Tomo
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<PAGE>
Urology Systems:
KU-100 Digital Bucky Systems:
KU-100 H - ddRMulti-System
KU-100 H Tomo
Fluoroscopy Systems:
Euroscop 3A
Euroscop 6, 6+, 6++
IT-Systems internally used
In its year 2000 project the Company has tested and asked for
statements about the year 2000 compliance. In fact 100% of IT-Systems
(Information Technology) within the Company are compliant and expected to
encounter no problems on January 1, 2000.
The operating system of the Company's IT-Systems are built on
Microsoft. (Windows 95 and/or Windows NT). SWISSRAY also uses the Microsoft
Office packages for its administration and therefore relies on the operating
system as well as the Microsoft Office package for the year 2000 compliance of
Microsoft for the above mentioned products.
IT-Systems Third Parties
The Company also asked all important partners (e.g. banks, suppliers,
sales channels) for statements about the year 2000 compliance. The Company has
not received any negative responses. All these important partners fulfill the
Year 2000 compliance.
YEAR 2000 PROJECT COSTS
The Company has separated its cost in the following parts:
<TABLE>
<CAPTION>
June 30, 1999
--------------
<S> <C>
Test & Survey own Products $ 50,000
Test & Survey Third Parties Products $ 20,000
Modification own Products $ 20,000
Administration (Communication with Third Parties) $ 5,000
Consultant $ 5,000
--------------
TOTAL YEAR 2000 Project costs $100,000
</TABLE>
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<PAGE>
YEAR ENDED JUNE 30, 1999 COMPARED TO YEAR ENDED JUNE 30, 1998
Results of operations
Net sales amounted to $17,295,882 for the year ended June 30, 1999
compared to $22,892,978, a decrease of $5,597,096, or 24.4% from the year ended
June 30, 1998. Sales for year ended June 30, 1998 include sales of the film and
processor business of Empower which was sold on June 30, 1998, of $7,134,938.
Net sales without the film and processor business of Empower increased for the
year ended June 30, 1999 by $1,537,842 or 9.8%. This increase is due to the
additional sales of ddRMulti-Systems.
Gross profit decreased by $1,044,611 or 21.7% to $3,766,581 for the
year ended June 30, 1999, from $4,811,192 for the year ended June 30, 1998.
Gross profit as a percentage of net revenues increased to 21.8% for the year
ended June 30, 199 from 21% for the year ended June 30, 1998. The increase in
gross profit percentage is due to production efficiencies.
Operating expenses increased by $598,210 or 3.2% to $19,345,939 or
111.9% of net revenues, for the year ended June 30, 1999, from $18,747,729, or
81.9% of net revenues for the year ended June 30, 1998. The principal items were
salaries (net of officers and directors compensation) of $3,784,305 or 21.9% of
net sales for the year ended June 30, 1999 compared to $4,168,540 or 18.2% of
net sales for year ended June 30, 1998 and officers compensation increasing
approximately $4,444,477, primarily from the issuance of common stock to its
President in exchange for extinguishment of certain bonus rights contained in
his employment agreement, selling expenses of $3,207,646 or 18.5% of net sales
for the year ended June 30, 1999 compared to $3,740,391 or 16.3% of net sales
for the year ended June 30, 1998. The decrease of depreciation and amortization
of $471,582 primarily due to the fact that the depreciable fixed assets were
less for 1999 since many of these assets were fully depreciated at June 30,
1998. The decrease in selling expenses was a result of the closing of Empower
which totaled approximately $476,000. Research and development expenses were
$1,808,107 or 10.5% of net sales for the year ended June 30, 1999 compared to
$3,542,149 or 15.5% of net sales for the year ended June 30, 1998. This decrease
is primarily due to the decrease in research and development related to
AddOn-Bucky. Other operating expenses decreased by approximately $670,000 from
the comparable period in 1998 primarily from the decrease due to the Empower
closing of $100,000 and the decrease in occupancy and insurance costs of
approximately $200,000. Principal costs associated with development of the
ddRMulti-System have now been accomplished and research and development costs
are expected to continue regarding upgrades and new product development with
respect to associated and related products relating to the ddRMulti-System.
Interest expense decreased to $5,638,928 for the year ended June 30,
1999 compared to $8,590,268 for the year ended June 30, 1998. This decrease is
primarily due to the increase of interest expense for accrual of penalty
interest on debenture registration and the decrease in amortization of Debenture
issuance cost and Conversion Benefit.
Loss on extinguishment of debt was $832,849 for the year ended June 30,
1999 compared to a gain of $304,923 for the year ended June 30, 1998. The
extinguishment gain or loss resulted from refinancing of Convertible debentures.
Financial Condition
June 30, 1999 compared to June 30, 1998
Total assets of the Company on June 30, 1999 decreased by $2,403,408 to
$23,511,149 from $25,914,597 on June 30, 1998, primarily due to the decrease in
current assets. Current assets decreased $1,139,876 to $11,929,381 on June 30,
1999 from $13,069,257 on June 30, 1998. The decrease in current assets is
primarily attributable to the decrease in inventories of $368,744 and the
decrease in prepaid expenses and sundry receivables of $635,105 primarily from
the collection of VAT receivable. Other assets decreased $1,536,194 to
$5,298,768 on June 30, 1999 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.
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<PAGE>
On June 30, 1999, the Company had total liabilities of $30,445,812
compared to $19,575,870. On June 30, 1998. On June 30, 1999, current
liabilities were $14,944,865 compared to $11,984,554 on June 30, 1998. Working
capital at June 30, 1999 was ($3,015,484) compared to ($1,084,703) at June 30,
1998.
CASH FLOW AND CAPITAL EXPENDITURES YEAR ENDED JUNE 30, 1999 COMPARED TO YEAR
ENDED JUNE 30, 1998.
Cash used for operating activities for the year ended June 30, 1999 was
$9,788,606 compared to $11,759,371 for the year ended June 30, 1998 primarily as
a result of losses sustained from operations, exclusive of non-cash
compensation. Cash used for investing activities was $879,303 for the year ended
June 30, 1999 compared to $4,517,140 for the year ended June 30, 1998 primarily
from the acquisitions of property and equipment. Cash flow from financing
activities for the year ended June 30, 1999 was $11,068,406 compared to
$14,799,200 for year ended June 30, 1998 as a result of the sale of common stock
and proceeds from the sale of debentures.
The Company does not have any material commitments for capital
expenditures as of June 30, 1999.
Liquidity
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 during the next 12 months and thereafter.
However, the availability of a sufficient future cash flow will depend
to a significant extent on the marketability of the Company's ddRMulti-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 March 16, 1998, the Company issued $5,500,000 aggregate principal
amount of 6% convertible debentures (the "Convertible Debentures"), convertible
into Common Stock of the Company to the following financing participants -
Atlantis Capital Fund, Ltd., Canadian Advantage Limited Partnership, Dominion
Capital Fund, Ltd. and Sovereign Partners LP. After deducting legal fees of
$35,000, and placement agent fees of $550,000 directly attributable to such
offering, the Company received a net amount of $4,915,000. All Convertible
Debentures were issued to accredited investors as defined in Rule 501(a) of
Regulation D promulgated under the Act ("Regulation D") and the Company has
received written representations from each investor to that effect. One Hundred
percent of the face amount of the Convertible Debentures are convertible into
shares of Common Stock of the Company at the earlier of May 15, 1998 or the
effective date of this Registration Statement at a conversion price equal to 80%
of the average closing bid price for the ten trading days preceding the date of
conversion. Any Convertible Debentures not so converted are subject to mandatory
conversion by the Company on the 24th monthly anniversary of the date of
issuance of the Convertible Debentures. All of these debentures have been
converted.
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<PAGE>
In June of 1998, the Company issued $2,000,000 aggregate principal
amount of 6% convertible debentures (the "Convertible Debentures"), convertible
into Common Stock of the Company to the following financing participants -
Canadian Advantage Limited Partnership, Dominion Capital Fund, Ltd. and
Sovereign Partners LP. After deducting fees directly attributable to such
offering the Company received a net amount of $1,760,000. All Convertible
Debentures were issued to accredited investors as defined in Rule 501(a) of
Regulation D promulgated under the Act ("Regulation D") and the Company has
received written representation from each investor to that effect. One Hundred
percent of the face amount of the Convertible Debentures are convertible into
shares of Common Stock of the Company at the earlier of August 14, 1998 or the
effective date of this Registration Statement at a conversion price equal to 80%
of the average closing bid price for the ten trading days preceding the date of
conversion. Any Convertible Debentures not so converted are subject to mandatory
conversion by the Company on the 24th monthly anniversary of the date of
issuance of the Convertible Debentures. None of these debentures have been
converted as of August 24, 1999.
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
to the following financing participants - Atlantis Capital Fund, Ltd., Canadian
Advantage Limited Partnership, Dominion Capital Fund, Ltd. and Sovereign
Partners LP. 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 16, 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 82% of the average closing bid price for the ten trading days
preceding the date of the conversion or $1.00 whichever is less. Any convertible
Debentures not so converted are subject to mandatory conversion by the Company
on the 24th monthly anniversary of the date of issuance of the Convertible
Debentures. As of August 24, 1999 an unconverted balance of $5,629,421 remains
outstanding.
On October 6, 1998 the Company issued $2,940,000 aggregate principal
amount of 5% convertible debentures (the "Convertible Debentures") including, as
part of the terms of this financing, $540,000 repurchase of stock (717,850 and
747,150 shares from Dominion Capital Fund, Ltd. and Sovereign Partners LP
respectively), convertible into Common Stock of the Company to the following
financing participants - Dominion Capital Fund, Ltd. and Sovereign Partners LP.
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 82% of the
average closing bid price for the ten trading days preceding the date of the
conversion or $1.00 whichever is less. 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. None of these
debentures have been converted as of August 24, 1999.
The Registrant received gross proceeds of $1,080,000 in December 1998
pursuant to promissory notes bearing interest at the rate of 8% per annum for
the first 90 calendar days (through March 13, 1999) with the Company having the
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<PAGE>
option to extend the notes for an additional 60 days with interest increasing 2%
per annum during the 60 day period. The Company exercised its extension option.
As further consideration for the loan, the Company issued Lenders Warrants to
purchase up to 50,000 shares of the Company's common stock exercisable, in whole
or in part, for a period of up to 5 years at $.375 (the bid price for Company
shares on the date of closing). The promissory notes (held by Dominion Capital
Fund, Ltd. and Sovereign Partners) were not paid by their due date and the terms
of a Contingent Subscription Agreement, Debenture and Registration Rights
Agreement automatically went into effect with debentures bearing interest at the
rate of 5% per annum (payable in stock or cash at the Company's option)
and being convertible, at any time at the lesser of (a) 82% of the 10 day
average bid price for the 10 consecutive trading days immediately preceding
the conversion date or (b) $1.00 per share. The documents also provide for
certain Company redemption rights at percentages ranging from 115% of the face
amount of the Debenture to 125% of the face amount of the debenture dependent
upon redemption date, if any as more specifically set forth in the last
paragraph to this subsection.
On January 29, 1999 the Company issued a principal aggregate amount of
$1,170,000 of convertible debentures ("Convertible Debenture"), convertible into
Common Stock of the Company to the following financing participants - Dominion
Capital Fund, Ltd., Dominion Investment Fund LLC and Sovereign Partners LP at a
conversion price of 82% of the average closing bid price for the ten trading
days preceding the date of conversion together with accrued interest of 3% for
the first 90 days, 3.5% for 91-120 days and 4% for 120 days and thereafter. As
further consideration for the loan, the Company issued Lenders Warrants to
purchase up to 58,500 shares of the Company's common stock exercisable, in whole
or in part, for a period of up to 5 years at $1.00 per share. After deducing
fees directly attributable to such offering the offering the Company received a
net amount of $1,020,000. All Convertible Debentures were issued to accredited
investors as defined in Rule 501(a) of regulation D promulgated under the Act
("Regulation D") and the Company received written representations from each
investor to that effect. Any Convertible Debenture not so converted are subject
to mandatory conversion by the Company on the 24th anniversary date of issuance
of the Convertible Debentures. None of these Convertible Debentures have been
converted as of August 24, 1999.
On March 2, 1999 the Company entered into a second promissory note
contingent convertible debenture financing with the same lenders as the December
1998 transaction described directly above (i.e., Dominion Investment Fund LLC
and Sovereign Partners LP) with terms and conditions identical to those set
forth above excepting (a) gross proceeds amounted to $1,110,000 (b) the initial
due date of such notes was May 31, 1999,(c) the potential 60 day extension date
on such promissory notes was July 30, 1999 but such extension right was never
utilized,(d)the conversion price is 80% of the 10 day average closing bid price
for the 10 consecutive trading days immediately preceding conversion date and
(e) Warrants were issued (similarly exercisable over 5 years)to purchase up to
50,000 shares of common stock at 125% of the average 5 day closing bid price
of the Company's common stock immediately preceding the date of closing but in
no event less than $1.00 per share. In all other respects the terms and
conditions of each of the documents executed with respect to this transaction
are identical in all material respects to those described above regarding
December 1998 transaction. The promissory notes were not paid by their due date
and the terms of the Contingent Subscription Agreement and Registration Rights
Agreement automatically went into effect.
On March 26, 1999 the Company entered into a third promissory note
(contingent convertible debenture financing) with terms and conditions identical
to those set forth in the March 2, 1999 promissory note financing referred to
directly above excepting (a) the lender is different, to wit: Aberdeen Avenue,
LLC, (b) gross proceeds amounted to $550,000, (c) the initial due date of such
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<PAGE>
note was June 25, 1999, (d) the potential 60 day extension date on such
promissory notes was August 24, 1999 but such extendion right was never utilized
(e) Warrants were issued (similarly exercisable over 5 years) to purchase up to
27,500 shares of common stock at 125% of the average 5 day closing bid price
of the Company's common stock immediately preceding the date of closing but in
no event at less than $1.00 per share. In all other respects the terms and
conditions of each of the documents executed with respect to this transaction
are identical to those described in the above March 2, 1999 transaction. The
promissory notes were not paid on their due date and the terms of the Contingent
Subscription Agreement and Registration Rights Agreement automatically went
into effect.
From May 14, 1999 to June 9, 1999 (in a single financing) the Company
issued a principal aggregate amount of $850,000 of convertible debentures
("Convertible Debentures"), convertible into Common Stock of the Company to the
following financing participants - Endeavour Capital Fund SA, Excaliber Limited
Partnership and Carbon Mesa Partners LLC at a conversion price of 80% of the
average closing bid price for the ten trading days preceding the date of
conversion together with accrued interest of 5%. After deducing fees directly
attributable to such offering the offering the Company received a net amount of
$772,727. All Convertible Debentures were issued to accredited investors as
defined in Rule 501(a) of regulation D promulgated under the Act ("Regulation
D") and the Company received written representations from each investor to that
effect. Any Convertible Debenture not so converted are subject to mandatory
conversion by the Company on the 24th anniversary date of issuance of the
Convertible Debentures. None of these Convertible Debentures have been converted
as of August 24, 1999.
On July 9, 1999 the Company entered into a fourth promissory note
(contingent convertible debenture financing) with terms and conditions identical
to those set forth in the March 2, 1999 promissory note financing referred to
directly above excepting (a) the lender is different, to wit: Southshore
Capital, Ltd. now assigned to Parkdale LLC (b) gross proceeds amounted to
$1,100,000, (c) the due date of such note is August 23, 1999 with no right to
extend and (d) the debenture holder did not receive any warrants. In all other
respects the terms and conditions of each of the documents executed with respect
to this transaction are identical to those described in the above referenced
March 2, 1999 transaction. The promissory notes were not paid by their due date
and the terms of a Contingent Subscription Agreement, Convertible Debenture and
Registration Rights Agreement automatically went into effect.
On August 11, 1999 the Company entered into a fifth promissory note
(contingent convertible debenture financing) with terms and conditions
substantially identical to those set forth in the March 2, 1999 promissory note
financing referred to directly above excepting (a) the lender is different, to
wit: Aberdeen Avenue, LLC, (b) gross proceeds amounted to $1,400,000, (c) the
due date of such note is November 11, 1999 with no right to extend and (d) the
debenture holder did not receive any warrants. In all other respects the terms
and conditions of each of the documents executed with respect to this
transaction are identical to those described in the above referenced March 2,
1999 transaction.The terms of the Contingent Subscription Agreement, Convertible
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<PAGE>
Debenture and Registration Rights Agreement have not gone into effect as the
promissory note is not in default and, accordingly, no shares are currently
being registered for this transaction.
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).
YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997
Net sales for the fiscal year ended June 30, 1998 were $22,892,978
compared to $13,151,701 for the fiscal year ended June 30, 1997.
The 74% increase in net sales was partially due to the acquisition of
Empower on April 1, 1997 (Sales of Empower were $7,134,938 for the fiscal year
ended June 30, 1998 compared to $2,000,603 for the fiscal year ended June 30,
1997), the Asset purchase of Service Support Group LLC on October 17, 1997
(Sales of Swissray Medical Inc. which started its selling activities after the
asset purchase of Service Support Group was $1,577,298 for the fiscal year ended
June 30, 1998 compared to $0 for the fiscal year ended June 30, 1997) and the
increase in sales made under the Philips OEM Agreement of $6,500,529. Also sales
to third parties in Switzerland almost doubled in the fiscal year ended June 30,
1998 compared with the previous fiscal year. These increases have been partially
offset by the decrease of $1,519,159 in sales of Elscint products and decreased
sales of $1,952,016 for Eastern Europe. The Company sold four of the
ddRMulti-System during the fiscal year ended June 30, 1998.
Gross profits amounted to $4,811,192 or 21% of net sales for the fiscal
year ended June 30, 1998, compared to $4,706,287 or 35.8% of net sales for the
fiscal year ended June 30, 1997. The decrease in gross profits as a percentage
of net revenues is primarily attributable to the fact that sales of lower-margin
products increased substantially compared to the fiscal years ended June 30,
1997. This is mainly attributable to increased sales of accessories, which are
generally low-margin products, as a result of the acquisition of Empower (net
sales of Empower contributed approximately 31% to the Company's net sales). The
Company also sold a significant number of units of newly developed products,
where the Company is at the beginning of the learning curve in the production
process, which results in higher production costs than in a later stage of the
learning curve. These products are the Bucky Diagnost TS produced under the OEM
Agreement with Philips (which contributed approximately 22% to the Company's net
sales) and the ddRMulti-System (which contributed approximately 6% to the
Company's net sales). The Company expects sales of accessories to be of a
smaller percentage of total sales for the fiscal year ending June 30, 1999
because of the sale of Empower's accessory business to E.M. Parker.
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<PAGE>
Operating expenses for the fiscal year ended June 30, 1998 were
$18,747,729 or 81.9% of net sales compared to $17,450,333 or 132.7% of net sales
for the fiscal year ended June 30, 1997. The principal items were selling
expenses of $3,740,391 or 16.3% of net sales compared to $1,873,389 or 14.2% of
net sales for the fiscal year ended June 30, 1997 and salaries (net of directors
and officers compensation) of $4,168,540 or 18.2% of net sales compared to
$2,059,396 or 15.6% of net sales for the fiscal year ended June 30, 1997.
Research and Development was $3,542,149 or 15.5% of net sales compared to
$5,786,158 or 44% of net sales for the fiscal year ended June 30, 1997.
General and administrative expenses for the year ended June 30, 1997
include the value of stock options granted in the amount of $1,161,462, whereas
no stock options were granted during the fiscal year ended June 30, 1998. The
Company made an accrual of $500,000 for planned restructuring of its
organization. No such costs were accrued in the fiscal year ended June 30, 1997.
The increase of 102% in Salaries was mainly due to the acquisition of
Empower Inc. on April 1, 1997 (with salaries included in the consolidated
statement of operation only for one quarter of the fiscal year ended June 30,
1997) and the takeover of all of the employees of Service Support Group on
October 17, 1997. Both acquisitions were within the Company's marketing strategy
to build a strong market position with its own organization in one of its
principle markets. The number of employees in Switzerland was increased by 21
mainly to handle the significant rise in production volume.
The increase of 100% in selling expenses is the result of additional
significant efforts on the part of the Company to build a strong market position
in the United States and in Germany, the biggest European market as well as the
costs incurred for successful market introduction of the Company's direct
digital ddRMulti-System. The Company also made efforts to lay the groundwork for
the market introduction of Swissray Information Solutions comprehensive package
of consulting, services and products.
Research and development expenses decreased by 39%. Management
considered the relative size of the research and development expenses for the
fiscal year ended June 30, 1997 as high. The main focus of the R&D was the
industrialization phase of the ddRMulti-System and the development of
communication interfaces (DICOM 3.0, HL 7, Dicom Worklist etc.) to extend the
connectivity of the ddRMulti-System to communication networks such as HIS, RIS,
and PACS. Another important task was to finalize the Tahoma TMSSM software and
go into beta-tests. The Tahoma TMSSM, technology management systems are based on
the premise that technology is a resource that can be managed to achieve
organizational objectives, like reducing operating expense and improving
clinical performance. Additional research and development expenses have also
been incurred to maintain the technological advantages of the Company's
conventional X-ray equipment. Significant research and development expenses will
continue to be incurred for the development of new technologically advanced
products and the continuing improvement of existing products.
The Company's operating loss increased to $13,936,537 for the fiscal
year ended June 30, 1998 from $12,744,046 for the fiscal year ended June 30,
1997. The increase in the Company's operating loss is due to the significant
expenses associated with the building of the Company's organization and market
position primarily in one of its principle markets, the USA. After taking into
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<PAGE>
account interest expense, other income, income tax benefits and extraordinary
items of income (loss) the resulting net loss of the Company for the fiscal year
ended June 30, 1998 increased to $22,503,109 from $13,685,188 for the fiscal
year ended June 30, 1997. The increase of net loss is mainly due to the
significant amount of interest expenses which resulted from the amortization of
issuance cost and beneficial Conversion features of Convertible debentures
issued for financing purposes, which amounted to $8,590,268 for the fiscal year
ended June 30, 1998 compared to $759,853 for the fiscal year ended June 30,
1997. Extraordinary income includes the gain on early extinguishment of Debt
which resulted from refinancing of Convertible debentures.
CASH FLOW AND CAPITAL EXPENDITURES
Cash used by operating activities for the fiscal year ended June 30,
1998 increased to $11,759,371 from $10,684,988 for the fiscal year ended June
30,1997 and cash used by investing activities increased to $4,517,140 for the
fiscal year ended June 30, 1998 from $3,668,196 for the fiscal year ended June
30, 1997. Cash flow from financing activities for the fiscal year ended June 30,
1998 was $14,799,200 compared to $14,752,928 for the fiscal year ended June 30,
1997.
The Company's capital expenditures totaled $2,849,205 for the fiscal
year ended June 30, 1998 compared to $3,431,375 for the fiscal year ended June
30, 1997. Capital expenditures were primarily for the improvements of the
Hochdorf facility and the purchase of equipment. The increased financing needs
resulted primarily from the building and strengthening of the Company's
organization and distribution channels in the US and Europe and the improvements
of the Hochdorf facility.
INFLATION
Inflation can affect the costs of goods and services used by the
Company. The competitive environment in which the Company operates limits
somewhat the Company's ability to recover higher costs through increasing
selling prices. Moreover, there may be differences in inflation rates between
countries in which the Company incurs the major portion of its costs and other
countries in which the Company sells its products, which may limit the Company's
ability to recover increased costs, if not offset by future increase of selling
prices. To date, the Company's sales to high-inflation countries have either
been made in Swiss Francs or US dollars. Accordingly, inflationary conditions
have not had a material effect on the Company's operating results.
SEASONALITY
The Company's business has historically experienced a slight amount of
seasonal variation with sales in the first fiscal quarter slightly lower than
sales in the other fiscal quarters due to the fact that the Company's first
quarter coincides with the summer vacations in certain of the Company's markets.
BACKLOG
Management estimates that as of the end of the fiscal year ended June
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30, 1999, the Company had an order backlog of $12,000,000 which consisted of
$8,000,000 in conventional x-ray equipment and $4,000,000 in digital (i.e.,
ddRMulti-Systems and information solutions )as compared to an order backlog of
$13,000,000 which consisted of $11,500,000 in conventional x-ray equipment and
$1,500,000 in ddRMulti-Systems as of the fiscal year ended June 30, 1998.
NEW ACCOUNTING PRONOUNCEMENTS
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 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.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Investment in the securities of the Company involves a high degree of
risk. In evaluating an investment in the Company's Common Stock, Company
stockholders and prospective investors should carefully consider the risk
factors discussed hereafter and the information detailed in this Annual Report
for the fiscal year ended June 30, 1999 on Form 10-K including, without
limitation, Item 1 "Business" and Item 6 "Management's Discussion and Analysis
of Financial Condition and Results of Operations", as well as information
contained in the Conmpany's other filings with the Securities and Exchange
Commission.
This Form 10-K includes forward-looking statements that reflect the
Company's current views with respect to future events and financial performance,
including capital expenditures, strategic plans and future cash sources and
requirements. These forward-looking statements are subject to certain risks and
uncertainties, including those identified below, which could cause actual
results to differ materially from historical results of those anticipated. The
words "believe", "expect", "anticipate", "estimate" and similar expressions
identify 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. The following risks could cause actual results to differ materially
from historical results or those anticipated.
RISK FACTORS
History of Increasing Losses; Profitability Uncertain
As of June 30, 1995 the Registrant had accumulated losses on a
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consolidated basis of approximately $6,000,000. A substantial part of such
losses resulted from activities unrelated to the Company's present operations.
Since June 30, 1995 and for the four fiscal years commencing July 1, 1995 and
concluding June 30, 1999, the Company incurred additional net losses aggregating
$66,465,122 ($22,010,750 of which was attributable to year ended June 30, 1999
as compared to $22,503,109 which was attributable to year end June 30, 1998).
Such additional losses primarily resulted from the significant expenses
associated with the development of the Company's products, primarily its direct
digital X-ray system, the ddRMulti-System, the building of the Company's
organization and market position as well as the costs of amortization of
debenture issuance costs and beneficial conversion feature (as well as the
absence of a significant increase in sales - during fiscal year ended June 30,
1998 - as a result of the delay in the market introduction of certain of the
Company's products, which delays were for the purpose of assuring product
quality prior to introduction to the industry). The likelihood of the success of
the Company must be considered in light of the problems, expenses, difficulties,
complications and past delays encountered in connection with the development of
any new products and the competitive environment in which the Company operates.
Although the Company is deriving operating revenue from its current operations,
such revenue has not been sufficient to make the Company's operations
profitable. There can be no assurance that the Company will be able to develop
significant additional sources of revenue or that it will become profitable.
Results of operations may fluctuate significantly and will depend upon further
successful introduction of the ddRMulti-System, further market acceptance of new
product introductions in the future and competition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Products," "-- Research and Development" and "-- Competition."
Need for Continued Market Acceptance of the ddRMulti-System
The Company's future performance will depend to a substantial degree
upon the continued market introduction and acceptance of the ddRMulti-System.
The Company's marketing efforts to date have generated considerable awareness
about the ddRMulti-System among radiologists. From October 1997 through June 30,
1999, the Company sold twelve ddRMulti-Systems in the United States and Europe.
During the first two months of its current fiscal year the Company has already
contracted sales of 10 ddRMulti-Systems which represents a 25% increase in sales
of such Systems over the entire preceding fiscal year (when eight Systems were
sold). The extent of, and rate at which, the market introduction, acceptance and
penetration can be achieved by the ddRMulti-System are functions of many
variables, including, but not limited to, obtaining the necessary governmental
approvals (see "Government Regulation" hereinafter), price, effectiveness,
acceptance by potential customers and manufacturing, training capacity and
marketing and sales efforts. There can be no assurance that the ddRMulti-System
will achieve or maintain acceptance in its target markets although management is
pleased with the degree of industry acceptance to date (especially reception and
feedback received at RSNA convention in Chicago in December 1998, ECR convention
in Vienna in March 1999 and the Computer convention (SCAR) held in Houston,
Texas in May 1999. Similar risks may confront other products developed by the
Company in the future. See "Business --Products" and "-- Regulatory Matters."
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<PAGE>
Reliance on a Single Product
The Company has concentrated its efforts primarily on the development
of the ddRMulti-System and will be dependent to a significant extent upon
acceptance of that product to generate additional revenues. There can be no
assurance that the ddRMulti-System will be successfully commercialized
notwithstanding its recent successful introduction both within and without the
United States (as heretofore and hereinafter indicated) and the fact that more
Systems (10) have been sold during the first two months of the Company's current
fiscal year than were sold for the entire preceding fiscal year. There can be no
assurance that the Company's competitors will not succeed in developing or
marketing technologies and products that are more commercially attractive than
the ddRMulti-System. See "Business -- Products" and "-- Competition."
During fiscal year ended June 30, 1999 11 ddRMulti-Systems were sold
in the U.S. while 1 ddRMulti-System was sold outside the U.S.
Future Capital Needs and Uncertainty of Additional Financing
There can be no assurance that the Company will not be required to seek
additional equity or debt capital to finance its operations in the future. In
addition, there can be no assurance that any such financings, if needed, will be
available to the Company or that adequate funds for the Company's operations,
whether from the Company's revenues, financial markets, collaborative or other
arrangements with corporate partners or from other sources, will be available
when needed or on terms attractive to the Company. The inability to obtain
sufficient funds may require the Company to delay, scale back or eliminate some
or all of its research and product development programs, sales and marketing
efforts, manufacturing and slide processing operations, clinical studies and/or
regulatory activities or to grant licenses to third parties to commercialize
products or technologies that the Company would otherwise seek to market and
sell itself.
There can be no assurance that any additional source of financing at
reasonable terms or otherwise (be it debt and/or equity financing) will be
available to the Company in the future (notwithstanding availability of such
financings as recently as August 1999) or that absent such financing the Company
will have sufficient cash flow to maintain operations in the manner
contemplated. See also risk factor directly below regarding shares issued since
May of 1995 as a result of debt or equity financing.
Significant Number of Shares Issued as a Result of Equity and Debt Financings
Pursuant to Regulation S and Regulation D
From May 1995 through August 24, 1999 the Company has engaged in a
significant number of equity (Regulation S) financings and debt (Regulation D)
financings. Appearing directly below is a chart indicating the number of shares
issued as a result of such finanicngs.
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<TABLE>
<CAPTION>
Type of Date of Closing Discount Number Of Proceeds Outstanding
Financing Financing Bid Price From Market Shares Issued(3) Received Balance
<S> <C> <C> <C> <C> <C> <C>
Reg S- Off-Shore May 20, 1995 (4) 2,000,000 $4,000,000 $ -0-
Reg S- Off-Shore Dec. 10, 1995 (4) 1,000,000 $4,500,000 $ -0-
Reg S- Convertible Sept. 11, 1996 $4.125 1,872,707 $3,800,000 $ -0-
Reg S- Convertible Jan. 10, 1997 $3.00 2,395,709 $3,500,000 $ -0-
Reg S- Off-Shore Mar. 5, 1997 $2.6875 1,000,000 $2,000,000 $ -0-
Reg S- Prom. Note Apr. 28, 1997 $1.96875 800,000 $2,000,000 $ -0-
Reg S- Convertible May 15, 1997 $2.40625 -- $2,000,000 $ -0-
Reg S- Convertible June 15, 1997 $3.0625 -- $2,000,000 $ -0-
Reg S- Convertible July 31, 1997 $2.750 4,077,878 $4,262,500 $ -0-(includes May and June 1997)(5)
Reg D- Convertible Aug. 19, 1997 $2.6875 20% 3,643,053 $5,000,000 $1,850,000 rolled over
Reg D- Convertible Nov. 26, 1997 $1.84375 25% 4,397,081 $2,158,285 $ -0-
Reg D- Convertible Dec. 11, 1997 $1.375 25% 7,735,099 $3,690,000 $ -0-
Reg D- Convertible Mar. 16, 1998 $1.00 20% 7,075,138 $5,500,000 $ -0-
Reg D- Convertible June 15, 1998 $.578 20% (1) $2,000,000 $2,000,000
Reg D- Convertible Aug. 31, 1998 $.281 18% (1) $6,143,849 $5,629,421
Reg D- Convertible Oct. 6, 1998 $.188 18% (1) $2,940,000 $2,940,000
Reg D- Convertible May 13, 1999 $.500 18% (1)(2) $1,080,000 $1,119,600
Reg D- Convertible Jan. 29, 1999 $.375 18% (1) $1,170,000 $1,170,000
Reg D- Convertible May 31, 1999 $.437 18% (1)(2) $1,110,000 $1,132,200
Reg D- Convertible May 14, 1999 $2.875 20% (1) $ 500,000 $ 500,000
Reg D- Convertible May 21, 1999 $3.00 20% (1) $ 200,000 $ 200,000
Reg D- Convertible June 9, 1999 $2.625 20% (1) $ 150,000 $ 150,000
Reg D- Convertible June 24, 1999 $.59375 18% (1)(2) $ 550,000 $ 561,000
Reg D- Convertible Aug. 23, 1999 $3.750 20% (1)(2) $1,100,000 $1,148,400
</TABLE>
(1) Utilizing the August 24, 1999 bid price for the Company's common stock
($2.593) and assuming indicated discount from market, if all convertible
debentures were converted the number of shares required to be issued (inclusive
of such shares as may be issued for interest earned) would amount to 8,638,126
shares. However, since (as indicated in preceding risk factor) the debenture
agreements do not contain any "floor" provisions, the number of shares as may
actually be issued in the future may significantly increase if there is a
further significant decline in the bid price of the Company's common stock.
(2) Such shares as may be issued result from conversion of promissory notes
into debentures when notes were not paid at or before their respective due dates
Outstanding balance amounts indicated include interest earned on promissory
notes as of due date, which due date then became date of convertible debenture
issuance. See also "Description of Capital Stock - Convertible Promissory Notes
Subsequently Converted Into Debentures - December 1998, March 2, 1999, March 26,
1999 and July 9, 1999".
- 40 -
<PAGE>
(3) In accordance with the terms of the debentures and related agreements,
2,437,740 of these shares have been issued with restrictive legends and are
included in the number of shares being registered pursuant to the Company's
Registration Statement.
(4) Date precedes initial NASDAQ listing when securities traded in "pink
sheets". While prices are not currently available some were determined in arms-
length negotiations at the time of such financings.
(5) The July 31, 1997 transaction represents a renegotiated replacement,
inclusive of interest, of those prior two transactions which occurred on May 15,
1997 and June 15, 1997 ($2,000,000 each).
(6) In each instance where a Regulation D financing was concluded the
Registrant was required to file a Form D with the SEC indicating to what extent,
if any, net proceeds were utilized as and for payments to "officers, directors
and affiliates" of the Registrant as opposed to "payment to others". Each of the
Forms D indicate that net proceeds received were entirely allocated as "payments
to others" and with a substantial majority of such funds being allocated to
working capital.
These persons and/or firms owning convertible debentures may profit
from "shorting" (selling without ownership of underlying shares) the
Registrant's common stock by covering such short positions with registered
shares of Company common stock received upon debenture conversion.
Dilution; Effect of Outstanding Convertible Debentures on Certain Shares
The Registrant has outstanding convertible debentures and options to
purchase Common Stock at prices that are below the per share price to purchasers
of the Registrant's Common Stock in the market. The discount from market,
dependent upon the specific convertible debenture, ranges from 18% to 20% except
for one instance where the discount from market was 25% on a $145,969 debenture
(since entirely converted into shares of Company common stock). The exercise of
such convertible debentures or options would have a dilutive effect on the
investment of a holder of the Registrant's Common Stock.As of August 24, 1999 if
all of the principal balance and interest earned on outstanding unconverted
convertible debentures and warrants were converted (based on calculation
contained in the Company's Registration Statement) the Registrant would be
required to issue 8,788,126 shares of its common stock thereby increasing total
outstanding from 14,541,537 to 23,329,663 and reducing percentage of all current
stockholders from 100% to 62%. Historically the Company has met (and intends to
continue to meet) its convertible debenture obligations through issuance of
stock as opposed to cash payments (i.e., interest earned from issuance of
debenture to date of conversion has been paid in stock).
As and when conversion occurs regarding outstanding convertible
debentures referred to herein (and in prior risk factor entitled "Significant
Number of Shares Issued..") a number of new significant holders of Company
common stock will necessarily exist.
The market price of the Registrant's Common Stock may also be adversely
affected by sales of substantial amounts of Common Stock in the public market,
including sales of Common Stock under Rule 144 or after the expiration of any
other applicable holding period (by contract and/or statute). The sale of such
stock could also adversely affect the ability of the Registrant to sell Common
Stock for its own account. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Management -- Compensation of
- 41 -
<PAGE>
Directors and Executive Officers," "Selling Holders and Plan of Distribution"
and "Description of Capital Stock."
Issuance of Significant Percentage of Securities Pursuant to Consulting Agree-
ment With Corresponding Dilution to Current Stockholders
In March 1999 the Registrant issued an aggregate of 3,800,000 shares of
restrictive common stock pursuant to two separate consulting agreements and in
lieu of cash payment. At the time of such issuance these shares represented
approximately 32% of all outstanding shares and currently represent
approximately 26% of all outstanding securities. Accordingly, upon issuance of
such 3,800,000 shares, current stockholders percentage of ownership (100%)
decreased (by 32%) to 68% of all then issued and outstanding shares. The
Registrant has no current plans to continue this practice. For further
information regarding terms and conditions relating to such consulting
agreements, reference is herewith made to "Business - Recent Developments".
Significant Portion of Company Assets Are Intangible Assets
As of June 30, 1999, and for the year then ended, the Company's
licensing agreement, patents and goodwill (aggregating approximately $4,900,000)
are all intangibles and account for approximately 21% of all Company assets.
Amortization of such intangibles amounts to approximately $821,000 or
approximately 5.3% of total operating expenses. The Company evaluates the
recoverability of unamortized intangible assets 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.
Reliance on Large Customers
In the past, the Company has made a significant amount of sales to a
few large customers. Historically, the identity of the Company's largest
customers and the volumes purchased by them has varied. The loss of one of the
Company's current two largest customers who accounted for 54% of Company sales
during fiscal year ended June 30, 1999 (as compared to the second largest
customer who only accounted for 1% of Company sales during fiscal year ended
June 30, 1999) or a reduction of the volume purchased by such customer would
have an adverse effect upon the Company's sales until such time, if ever, as
significant sales to other customers can be made. The Company considers the
relationship with its largest customers to be satisfactory. The Company expects
that as sales of its ddRMulti-System continues to increase, the Company's
revenue will be less dependent on one or a few large customers. See Note 19 to
the Consolidated Financial Statements of June 30, 1999, 1998 and 1997 and
"Business -- Sales and Marketing."
Risk of Currency Fluctuations
The Company is subject to risks and uncertainties resulting from
changes in currency exchange rates. Future currency fluctuations, to the extent
not adequately hedged, could have an adverse effect on the Company's business,
financial condition and results of operations. On occasion, the Company enters
- 42 -
<PAGE>
into currency forward contracts as a hedge against anticipated foreign currency
exposures and not for speculation purposes. Such contracts, which are types of
financial derivatives limit the Company's exposure to both favorable and
unfavorable currency fluctuations. In the past the Company has used forward
contracts exclusively in connection with the purchase of material in currencies
other than Swiss Francs or U.S. dollars. For a discussion of these risks, see
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Effect of Currency on Results of Operations."
Risks Associated With International Operations
The Company does business in numerous countries, including the United
States, Switzerland and Germany. Revenues from international operations outside
the United States amounted to approximately 76.7% of total sales for the fiscal
year ended June 30, 1999. In addition to the currency risks discussed above, the
Company's international operations are subject to the risk of new and different
legal and regulatory requirements in local jurisdictions, tariffs and trade
barriers, potential difficulties in staffing and managing local operations,
credit risk of local customers and distributors, potential inability to obtain
regulatory approvals, different requirements as to product standards, potential
difficulties in protecting intellectual property, risk of nationalization of
private enterprises, potential imposition of restrictions on investments or
transfer of funds, potentially adverse tax consequences, including imposition or
increase of withholding and other taxes on remittances and other payments by
subsidiaries, and local economic, political and social conditions, including the
possibility of hyper-inflationary conditions, in certain countries. Any adverse
change in any of these conditions could have a material adverse effect on the
Company's business or financial condition. See "-- Risk of Currency
Fluctuations," "-- Government Regulation," "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Taxes," "-- Effect of Currency
on Results of Operations" and "Business -- Regulatory Matters."
Highly Competitive Market, Rapid and Significant Technological Change
The highly competitive markets in which the Company operates are
characterized by rapid and significant technological change, evolving industry
standards and new product introductions. The Company competes with numerous
competitors, many of which are well-established in the Company's markets. Most
competitors are divisions of larger companies with potentially greater financial
and other resources than the Company.
The Company's competitors can be expected to continue to improve the
design and performance of their products and to introduce new products with
competitive price and performance characteristics. Although the Company believes
that it has certain technological and other advantages over its competitors,
realizing and maintaining these advantages will require continued investment by
the Company in research and development, sales and marketing and customer
service and support. There can be no assurance that the Company will have
sufficient resources to continue to make such investments or that the Company
will be successful in maintaining such advantages. If the Company's products or
technologies become non-competitive or obsolete, it will have a material adverse
effect on the Company. See "Business -- Competition."
- 43 -
<PAGE>
Dependence on Patents and Proprietary Technology
The Company has patented certain aspects of its proprietary technology
in certain markets and has filed patent applications for its direct digital
technology in key markets, including the United States. The European patent as
well as the U.S. patent for the Add-On Bucky have been granted and expire
January 2015. The duration of other patents range from 2000 to 2016. However,
there can be no assurance that other applications will be granted. There can be
no assurance that the Company's issued patents or other patents issued in the
future will afford protection from material infringement or that such patents
will not be challenged. The Company also relies on trade secrets and
proprietary and licensed know-how, which it protects, in part, through
confidentiality agreements with employees, consultants and other parties.
There can be no assurance that these agreements will not be breached, that the
Company would have adequate remedies for any breach or that the Company's trade
secrets will not otherwise become known to, or independently developed by,
competitors.
There also can be no assurance that the Company's technology will not
infringe upon the patents of others. In the event that any such infringement
claim is successful, there can be no assurance that the Company would be able to
negotiate with the patent holder for a license, in which case the Company could
be prevented from practicing the subject matter claimed by such patent. In
addition, there can be no assurance that the Company would be able to redesign
its products to avoid infringement. The inability of the Company to practice the
subject matter of patents claimed by others or to redesign its products to avoid
infringement could have a material adverse effect on the Company.
The Company obtained a non-exclusive license for a term of two years
ending July 24, 1999(recently extended to July 31, 2000) to use certain software
for its line of SwissVision(TM) postprocessing systems. There can be no
assurance that this license will not be granted to a competitor of the Company.
See "Business -- Intellectual Property."
Government Regulation
General
The Company's services, products and manufacturing activities are
subject to extensive and rigorous government regulation, including the
provisions of the Federal Food, Drug and Cosmetic Act. Commercial distribution
in certain foreign countries is also subject to government regulations. The
process of obtaining required regulatory approvals can be lengthy, expensive and
uncertain. Moreover, regulatory approvals, if granted, may include significant
limitations on the indicated uses for which a product may be marketed.
The Food and Drug Administration (the "FDA") actively enforces
regulations prohibiting marketing without compliance with the pre-market
approval provisions of medical devices. A Section 510(k) application is required
in order to market a new or modified medical device. If specifically required
by the FDA, a pre-market approval may be necessary. The FDA review process
typically requires extended proceedings pertaining to the safety and efficacy
of new products, which may delay or hinder a product's timely entry into the
marketplace.
- 44 -
<PAGE>
On November 21, 1997, the AddOn Bucky(R), the direct digital detector
of the ddRMulti-System received FDA approval. The Company also submitted the
ddRMulti-System for Section 510(k) approval with the FDA and such approval was
obtained on December 18, 1997 so that the ddRMulti-System may be marketed in
the United States.
The FDA also regulates the content of advertising and marketing
materials relating to medical devices. There can be no assurance that the
Company's advertising and marketing materials regarding its products are and
will be in compliance with such regulations. The Company is also subject to
other federal, state, local and foreign laws, regulations and recommendations
relating to safe working conditions, laboratory and manufacturing practices.
Failure to comply with applicable regulatory requirements can result in, among
other things, fines, suspensions of approvals, seizures or recalls of products,
operating restrictions and criminal prosecutions. Furthermore, changes in
existing regulations or adoption of new regulations could affect the timing of,
or prevent the Company from obtaining, future regulatory approvals. The effect
of government regulation may be to delay for a considerable period of time or to
prevent the marketing and full commercialization of future products or services
that the Company may develop and/or to impose costly requirements on the
Company. There can also be no assurance that additional regulations will not be
adopted or current regulations amended in such a manner as will materially
adversely affect the Company. See "-- Risks Associated With International
Operations," "Business -- Markets" and "-- Regulatory Matters."
The Company is in compliance with the following regulations:
Section 510(K) notification, 21CFR 892.1680, Reg. K973710
Quality Assurance QSR 21 CFR Part 820 and Part 820.72 (inspection)
General Labeling Provisions and 21 CFR Part 801.4, 801.5 and 801.6
ISO 9001/EN 46001 and Appendix II
BAG CH (Ministry of Health CH)
EWG 93/42
ENTELA (USA), UL/CSA (USA), CSA/UL (Canada)
Sales to Health Care Industry
The Company's products are used exclusively in the health care
industry, which is highly regulated. The health care industry in certain markets
for the Company's products, including the United States, has experienced
significant pressure to reduce costs, which has led in some jurisdictions to
substantial reorganizations and consolidations of health care providers or
payors. Cost reduction efforts by the Company's customers may adversely affect
the potential markets for the Company's products and services. It is also
possible that legislation could be adopted in any of these jurisdictions which
could increase such pressures or which could otherwise result in a modification
of the private or public health care system or both or impose limitations on the
ability of the Company to market its products in any such jurisdiction. Any such
event or condition could have an adverse impact on the Company's business,
financial condition or results of operations. See "Business -- Markets."
- 45 -
<PAGE>
Reliance on Key Management
The Company's business is highly dependent on the principal members of
its management, marketing, research and development and technical staffs, and
the loss of their services might impede the achievement of the Company's
business objectives. In addition, the Company's future success will depend in
part upon its ability to retain highly qualified management, scientific,
technical and marketing personnel. There can be no assurance that the Company
will be successful in retaining such qualified personnel or hiring additional
qualified personnel. Losses of key personnel could have a material adverse
effect on the Company's business. The Company has no key man life insurance
policies with respect to any of its senior executives. See "Business -- Research
and Development" and "Management -- Directors and Executive Officers of the
Company."
Limited Manufacturing History with Respect to ddRMulti-System
The Company has limited experience with the manufacture and assembly of
the ddRMulti-System in the volumes that will be necessary for the Company to
generate significant revenues from the sale of the ddRMulti-System. The Company
may encounter difficulties in scaling up its production or in hiring and
training additional personnel to manufacture the ddRMulti-System. Future
interruptions in supply or other production problems could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business - Products".
Dependence on Sole Source Suppliers
The Company has only single sources for certain essential components of
the ddRMulti-System. Interruptions in the supply of such components might
result in production delays, each of which could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"-- Reliance on A Single Product". To date no material interruptions have
occured.
The percentage of Company revenues derived from products which included
components then only currently available from a single source supplier amounts
to 13.6% as of June 30, 1999. The agreement with the single source supplier
of certain camera electronics will be terminated December 31, 1999. The Company
has 160 CCD cameras in stock which can be used for the next 40 ddR-Systems.
The Company is currently in negotiations with three different comparable
source suppliers and does not expect any material business interruptions to
occur regarding CCD camera availability in a timely manner nor does it
anticipate that change of supplier will have any affect upon quality of its
ddR-Systems. The agreement with the single source supplier of optics expires
in July 2002 and subject to renegotiations. This agreement may not be
terminated by either party without cause.
- 46 -
<PAGE>
Inability to Currently Determine Number of Shares Which May be Issued Upon
Debenture Conversion; Potential For New Significant Stockholders and Potential
Significant Percentage Dilution to Existing Stockholders Which Would Result From
Significant Increase in Outstanding Shares
Any additional convertible debenture financings will result in
additional dilution to present Company shareholders by reducing their percentage
of interest in the Company. In the past the Company has issued (and currently
intends to issue when, as and if necessary) debt convertible into common stock
without any limits on the amount that can be converted over any specific period
of time. Since such conversion occurs at a negotiated discount from market
price, such conversion can have a negative impact upon trading price of the
Company's common stock. Further, since there is no "floor" in the debt
convertibles (i.e., no bid price below which debentures may not be converted)
there is no specific limit on the number of shares that may be issued upon
conversion since such number of shares is dependent upon common share price at
of conversion. Additionally, debenture conversion may result in a larger number
of new significant stockholders to the Company.
Potential Recalls and Product Liability
Any of the Company's products may be subject to recall for unforeseen
reasons. The medical device industry has been characterized by significant
malpractice litigation. As a result, the Company faces a risk of exposure to
product liability, errors and omissions or other claims in the event that the
use of its X-ray equipment, components, accessories or related services or other
future potential products is alleged to have resulted in a false diagnosis and
there can be no assurance that the Company will avoid significant liability.
There also can be no assurance that the Company will be able to retain its
current insurance coverage or that such coverage will continue to be available
at an acceptable cost, if at all. Consequently, such claims could have a
material adverse effect on the business or financial condition of the Company.
As of the date hereof, the Company continues to maintain what it considers to be
adequate product liability insurance so as to enable it to be compensated for
certain losses incurred as a result of product recalls and product liability
claims (but remains "at risk" if and to the extent that awarded damages exceed
coverage).
Limited Public Market; Liquidity; Possible Volatility of Stock Price
The Common Stock was quoted on the Nasdaq SmallCap Market System under
the symbol "SRMI" until its delisting on October 26, 1998 and is currently
quoted on the Electronic Over-the-Counter Bulletin Board under the same symbol.
There can be no assurance that an established public market for the Common Stock
can be established and/or sustained. The market price of the Common Stock could
fluctuate significantly as a result of the Company's financial results,
regulatory approval filings, clinical studies, technological innovations or new
commercial products introduced by the Company or its competitors, developments
concerning patents or proprietary rights, trends in the health care industry or
in health care generally, litigation, the adoption of new laws or regulations or
new interpretations of existing laws or regulations and other factors.
Delisting Due To Non-Compliance With Certain NASDAQ Standards - See Part II,
Item 5(d).
- 47 -
<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.
INDEX TO FINANCIAL STATEMENTS
Page
Audited Financial Statements for Fiscal Years Ended
June 30, 1999, 1998 and 1997:
Independent Auditors' Report F-1-3
Consolidated Balance Sheets at June 30, 1999 and 1998 F-4-5
Consolidated Statements of Operations for the years ended
June 30, 1999, 1998 and 1997 F-6
Consolidated Statements of Cash flows for the years ended
June 30, 1999, 1998 and 1997 F-7-8
Consolidated Statements of Stockholders Equity for the years F-9-10
ended June 30, 1999, 1998 and 1997
Notes to Consolidated Financial Statements F-11-26
- 48 -
<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 sheets of Swissray
International, Inc. and subsidiaries as of June 30, 1999 and 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, 1999 and 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 Horowitz & Co., P.C.
Feldman Sherb Horowitz & Co., P.C.
(Formerly Feldman Sherb Ehrlich & Co., P.C.
Certified Public Accountants
New York, New York
August 6, 1999
Except for Notes 25,
as of July 21, 2000
F-1
<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 the
related consolidated statements of operations, stockholders' equity and cash
flows for the year 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 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
F-2
<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
F-3
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999 and 1998
ASSETS
<TABLE>
<CAPTION>
------------------------------
1999 1998
(Restated)
------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,281,297 $ 1,281,552
Accounts receivable, net of allowance for doubtful
accounts of $219,993 and $32,356 2,448,879 2,584,651
Inventories 7,332,401 7,701,145
Prepaid expenses and sundry receivables 866,804 1,501,909
------------------------------
TOTAL CURRENT ASSETS 11,929,381 13,069,257
------------------------------
PROPERTY AND EQUIPMENT 6,283,040 6,010,378
------------------------------
OTHER ASSETS
Loan receivable 15,948 20,005
Licensing agreement 3,104,109 3,600,766
Patents and trademarks 199,906 230,614
Software development costs 347,763 455,318
Security deposits 28,035 38,280
Note receivable - net of allowance of $544,376 and $30,733 --- 513,643
Goodwill 1,603,007 1,796,336
Debt issuance costs on convertible debentures --- 180,000
------------------------------
TOTAL OTHER ASSETS 5,298,768 6,834,962
------------------------------
TOTAL ASSETS $23,511,189 $25,914,597
==============================
</TABLE>
F-4
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL
CONSOLIDATED BALANCE SHEET (Continued)
JUNE 30, 1999 and 1998
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
------------------------------
1999 1998
(Restated)
------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 247,028 $ 233,746
Notes payable - banks 3,667,159 3,551,091
Notes payable - short-term 1,700,000 ---
Loan payable 126,006 125,029
Accounts payable 5,422,321 5,030,449
Accrued expenses 3,003,844 2,365,450
Restructuring 500,000 500,000
Customer deposits 278,507 176,583
Due to stockholders and officers --- 2,206
------------------------------
TOTAL CURRENT LIABILITIES 14,944,865 11,984,554
------------------------------
CONVERTIBLE DEBENTURES, net of conversion benefit 15,305,852 7,330,642
------------------------------
LONG-TERM DEBT, less current maturities 195,095 440,674
COMMON STOCK SUBJECT TO PUT 1,819,985 1,819,985
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 140,062 41,426
Additional paid-in capital 69,028,013 58,074,793
Treasury stock (540,000) ---
Deferred compensation (1,282,500) ---
Accumulated deficit (72,492,463) (50,481,713)
Accumulated other comprehensive loss (1,787,735) (1,475,779)
Common stock subject to put (1,819,985) (1,819,985)
------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (8,754,608) 4,338,742
------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 23,511,189 $ 25,914,597
==============================
</TABLE>
F-5
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED JUNE 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
----------------------------------------------------
1999 1998 1997
(Restated) (Restated)
----------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 17,295,882 $ 22,892,978 $ 13,151,701
COST OF SALES 13,529,301 18,081,786 8,445,414
----------------------------------------------------
GROSS PROFIT 3,766,301 4,811,192 4,706,287
----------------------------------------------------
OPERATING EXPENSES
Officers and directors compensation 5,014,293 569,816 1,816,879
Salaries 3,784,305 4,168,540 2,059,396
Selling 3,207,646 3,740,391 1,873,389
Research and development 1,808,107 3,542,149 5,786,158
General and administrative 2,484,756 2,612,262 2,879,257
Restructuring cost --- 500,000 ---
Other operating expenses 1,066,039 1,735,877 1,645,800
Bad debts 706,877 133,196 619,160
Depreciation and amortization 1,273,916 1,745,498 770,294
----------------------------------------------------
TOTAL OPERATING EXPENSES 19,345,939 18,747,729 17,450,333
----------------------------------------------------
LOSS BEFORE OTHER INCOME (EXPENSES)
AND INCOME TAXES (15,579,358) (13,936,537) (12,744,046)
Other income (expenses) 40,385 (281,227) 318,763
Interest expense (5,638,928) (8,590,268) (762,168)
----------------------------------------------------
OTHER EXPENSES (5,598,543) (8,871,495) (443,405)
----------------------------------------------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS (21,177,901) (22,808,032) (13,187,451)
INCOME TAX PROVISION --- --- 110,223
----------------------------------------------------
LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEMS (21,177,901) (22,808,032) (13,297,674)
Extraordinary income (expenses) (832,849) 304,923 (384,514)
----------------------------------------------------
NET LOSS $(22,010,750) $(22,503,109) $(13,685,188)
====================================================
LOSS PER COMMON SHARE BASIC
Loss from continuing operations (3.24) (8.48) (8.41)
Extraordinary items (0.13) 0.11 (0.24)
----------------------------------------------------
NET LOSS (3.37) (8.37) (8.65)
====================================================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 6,525,423 2,690,695 1,581,757
============ ========= =========
</TABLE>
F-6
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
----------------------------------------------------
1999 1998 1997
----------------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITES
Net loss $(22,010,750) $(22,503,109) $(13,685,188)
Adjustment to reconcile net loss to net
cash used by operating activities
Depreciation and amortization 1,327,395 1,874,206 770,294
Provision for bad debts 931,146 (38,803) 552,725
Write-off of affiliate receivable --- --- 166,384
Common stock and stock options issued for services 4,755,925 --- 2,309,435
Issuance of common stock in lieu of interest payments 128,107 449,376 132,950
Interest expense on debt issuance cost and
conversion benefit 3,070,784 7,905,225 511,125
Interest expense on option value per Black Scholes 91,763 --- ---
Early extinguishment of debt (gain) 832,849 (304,923) ---
(Increase) decrease in operating assets:
Accounts receivable (51,866) 2,887,427 (1,857,662)
Accounts receivable - others --- --- 31,533
Accounts receivable - long-term --- 163,680 283,603
Inventories 368,744 (3,790,038) (998,271)
Prepaid expenses and sundry receivables 635,106 434 229 (860,457)
Increase (decrease) in operating liabilities:
Accounts payable 391,873 (306,300) 1,601,074
Accounts payable-affiliates --- --- (1,541)
Accrued expenses (361,606) 1,463,512 266,245
Customers deposits 101,924 6,147 92,763
----------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES (9,788,606) (11,759,371) (10,684,988)
----------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property and equipment (692,954) (2,849,205) (3,431,375)
Capitalized computer software (1,518) (225,174) (352,036)
Patents and trademarks --- (52,386) (12,925)
Goodwill --- (802,107) (299,837)
Asset purchase net of cash received --- (591,108) ---
Increase in notes receivable (199,132) --- ---
Collection of note receivable --- --- 448,857
Security deposits 10,245 5,448 (23,776)
Increase(repayment)of loan receivable 4,056 (2,608) 2,896
----------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (879,303) (4,517,140) (3,668,196)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 20,191,413 10,342,060 9,198,821
Proceeds from long-term borrowings --- --- 248,987
Proceeds related to debentures not funded (227,273) --- ---
Principal payment of short-term borrowings (11,268,343) (3,852,075) (2,093,074)
Principal payment of long-term borrowings (245,580) (21,748) (442,681)
Principal payment of long-term borrowings with stock --- (62,267) ---
Issuance of common stock for cash 3,160,396 8,461,262 7,753,222
Purchase of treasury stock (540,000) --- ---
Repayment from (payment to) stockholders and officers (2,207) (68,032) 87,653
----------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 11,068,406 14,779,200 14,752,928
----------------------------------------------------
EFFECT OF EXCHANGE RATE ON CASH (400,752) (332,444) (561,122)
----------------------------------------------------
NET INCREASE (DECREASE) IN CASH (255) (1,809,755) (161,378)
CASH AND CASH EQUIVALENT - beginning of year 1,281,552 3,091,307 3,252,685
----------------------------------------------------
CASH AND CASH EQUIVALENTS - end of year $ 1,281,297 $ 1,281,552 $ 3,091,307
====================================================
</TABLE>
F-7
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------------------------
1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
Cash paid for interest $ 462,997 $ 161,093 $ 122,427
Cash paid for taxes --- --- 56,562
DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES
Stock options, warrants and common stock issued for services --- --- 2,287,935
Shares issued in lieu of interest paymnets 126,107 449,376 132,950
Stock issued for acquisition --- 1,499,997 120,000
Beneficial conversion feature recorded as additional paid-in
capital 1,633,164 5,738,149 1,000,000
</TABLE>
F-8
<PAGE>
SWISSRAY INTERNATIONAL, INC.
CONSOLITATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Common
Additional Stock
Paid-in to be
Common Stock Capital issued Treasury
Shares Amount (Restated) (Restated) ) Stock
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE - July 1, 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 -- --
COMPREHENSIVE LOSS:
Net loss of the year -- -- -- -- --
Foreign currency translation losses net of taxes $ -0- -- -- -- -- --
TOTAL COMPREHENSIVE LOSS -- -- -- -- --
Issuance of common stock for cash 3,861,287 38,613 3,121,784 -- --
Stock options exercised for services 1,000 10 7,290 -- --
Shares issued for services 3,801,500 38,015 1,673,110 -- --
Issuance of common stock in lieu of interest payment 199,830 1,998 126,109 -- --
Beneficial conversion feature of convertible debentures -- -- 1,633,164 -- --
Shares issued to officers for services 2,000,000 20,000 4,300,000 -- --
Treasury stock - at cost -- -- -- -- (540,000)
Interest expense on option value per Black Scholes -- -- 91,763 -- --
----------------------------------------------------------------------
BALANCE - JUNE 30, 1999 14,006,239 $ 140,062 $ 69,028,013 $ -- $(540,000)
======================================================================
F-9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated Other
Deficit Deferred Comprehensive Common Stock Total
(Restated) Compensation Loss Subject to Put (Restated)
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE - July 1, 1996 $(14,293,416) $ -- $ (836,047) $ -- $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
COMPREHENSIVE LOSS:
Net loss of the year (22,010,750) -- -- -- (22,010,750)
Foreign currency translation losses net of taxes $ -0- -- -- (311,956) -- (311,956)
--------------
TOTAL COMPREHENSIVE LOSS -- -- -- -- (22,322,706)
Issuance of common stock for cash -- -- -- -- 3,160,397
Stock options exercised for services -- -- -- -- 7,300
Shares issued for services -- (1,282,500) -- -- 426,625
Issuance of common stock in lieu of interest payment -- -- -- -- 128,107
Beneficial conversion feature of convertible debentures -- -- -- -- 1,633,164
Shares issued to officers for services -- -- -- -- 4,320,000
Treasury stock - at cost -- -- -- -- (540,000)
Interest expense on option value per Black Scholes -- -- -- -- 91,763
---------------------------------------------------------------------
BALANCE - JUNE 30, 1999 $(72,492,463) $(1,282,500) $(1,787,735) $(1,819,985) $(8,754,608)
======================================================================
</TABLE>
F-10
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
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 of DMS
Industries, Inc. and acquired all of the outstanding stock 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 conducted
principally through its wholly owned subsidiaries.
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 an equity
method and have operated at a loss in excess of equity are carried at a zero
value.
BUSINESS ACQUISITION
On April 1, 1997, the Company 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 for under the purchase method of accounting. 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 this transaction, 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.
In connection with the abovementioned acquisitions, the Company has recorded put
options totaling $1,819,985. Such amount is excluded from permanent equity. As
of June 30, 1999, both options were exercised and subject to dispute. (See
Litigation footnote)
REVENUE AND INCOME RECOGNITION POLICIES
Revenues from direct sales of products to end users are recorded when the
product is shipped, the product is installed and collection of the purchase
price is probable and the Company has no significant further obligations to the
customer. Revenues from direct sales of products to distributors are recorded
when the product is shipped, and 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
affect 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-11
<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") resulting
from the acquisition of SSG 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 debt, 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.
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
F-12
<PAGE>
Company amortizes capitalized software development costs over 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, 1999,
1998 and 1997 were $ 1,452,309, $ 1,737,935, and $ 781,189, 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 as their effect would be anti-dilutive.
ACCOUNTING FOR STOCK OPTIONS
The Company adopted Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock Based Compensation". SFAS 123 encourages the use of
a fair-value-based method of accounting for stock-based awards under which the
fair value of stock options is determined on the date of grant and expensed over
the vesting period. Under SFAS 123, companies may, however, measure compensation
costs for those plans using the method prescribed by Accounting Principles Board
Opinion No. 25, ("APB No.25"), "Accounting for Stock Issued to Employees."
Companies that apply APB No. 25 are required to include pro forma disclosures of
net earnings and earnings per share as if the fair-value-based method of
accounting had been applied. The Company elected to account for such plans under
the provisions of APB No. 25.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year's financial statements to
conform to the June 30, 1999 presentation.
F-13
<PAGE>
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 PRONOUNCEMENTS
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.
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. The $513,643 was written off during
the year ended June 30, 1999..
NOTE 3 - INVENTORIES
Inventories are summarized by major classification as follows:
<TABLE>
<CAPTION>
June 30,
---------------------------------------------
1999 1998
------------------- --------------------
<S> <C> <C>
Raw materials, parts and supplies $ 5,558,330 $ 7,047,001
Work in process 1,048,197 160,064
Finished goods 725,874 494,080
------------------- --------------------
$ 7,332,401 $ 7,701,145
=================== ====================
</TABLE>
NOTE 4 - PREPAID EXPENSES AND SUNDRY RECEIVABLES
Prepaid expenses and sundry receivables consist of the following:
<TABLE>
<CAPTION>
June 30,
------------------------------------
1999 1998
-------------- ---------------
<S> <C> <C>
Prepaid expenses, deposits and advance payments $ 229,236 $ 616,183
Insurance claim for fire damage 389,220 165,655
Prepaid and refundable taxes 240,368 708,246
Employee loans 7,980 11,825
-------------- ---------------
$ 866,804 $ 1,501,909
============== ===============
</TABLE>
F-14
<PAGE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
----------------------------------------
1999 1998
----------------- ----------------
<S> <C> <C>
Land and building $ 5,501,853 $ 4,956,328
Equipment 1,448,961 1,305,092
Office furniture and equipment 333,596 330,035
----------------- ----------------
7,284,410 6,591,455
Less: Accumulated depreciation and amortization 1,001,370 581,077
----------------- ----------------
$ 6,283,040 $ 6,010,378
================= ================
</TABLE>
Depreciation and amortization expense, for property and equipment, for the years
ended June 30, 1999, 1998 and 1997 were $ 547,693, $1,077,074 and $233,040
respectively.
NOTE 6 - INTANGIBLE ASSETS
Intangible Assets at June 30, 1999 and 1998 consisted of the following
<TABLE>
<CAPTION>
June 30,
---------------------------------------------
1999 1998
------------------- -----------------
<S> <C> <C>
Excess of cost over fair value of net
assets acquired $ 1,933,275 $ 1,933,275
Licensing 4,966,575 4,966,575
Software development cost 578,729 577,210
Patents and Trademarks 313,330 313,330
Other -- 8,385
------------------- -----------------
7,791,909 7,798,775
Less: Accumulated amortization 2,537,125 1,715,741
------------------- -----------------
$ 5,254,784 $ 6,083,034
=================== =================
</TABLE>
Amortization expense, for Intangible Assets, for the years ended June 30, 1999,
1998 and 1997 were $ 830,194, $ 1,227,719 and $ 537,254, respectively.
NOTE 7 - 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. 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 using 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.
F-15
<PAGE>
NOTE 8 - 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
letters of credit, both with a commission of 15% per $ 1,000,000, quarterly
while outstanding. There were $ 1,052,906 in outstanding guarantees and $ -0- in
letter of credits as of June 30, 1999. The Company also negotiated a fixed line
of credit for up to $2,630,000 with an agreed repayment of $65,750 per 180 days
first time applicable as of June 30, 1999. All lines of credit are based on the
Exchange rate in effect on June 30, 1999.
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
June 30,
----------------------------------------
1999 1998
------------- -------------------
<S> <C> <C>
Migros Bank revolving line of credit, due on demand,with interest at 4.75% per
annum, collateralized by certain accounts receivable, and a cash deposit at
Migros Bank as of June 30, 1999 of $485,367 $ 798,730 $ 408,786
Migros Bank, on demand with six week notice, with interest as of June 30, 1999
and 1998 at 3.7/8% and 4% per annum, collateralized by land and building 2,529,930 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 accounts
receivable. Cash balances on deposit at Union Bank of Switzerland at June 30,
1999 and 1998 were $332,812 and $627,625, respectively 338,499 512,305
------------- -------------------
$ 3,667,159 $ 3,551,091
============= ===================
</TABLE>
NOTE 9 - LOAN PAYABLE
The Company has negotiated a 5% demand loan from a private foundation fund. The
loan balance payable at June 30, 1999 and 1998 was $126,006 and $125,029
respectively.
NOTE 10 - SHARES ISSUED FOR COMPENSATION
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
F-16
<PAGE>
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 Company on July 22, 1997. In June 1999 the
Company incurred additional compensation to the President of the Company of
2,000,000 fully vested, nonforfeitable shares with a fair market value of
$4,320,000 (based on the bid price of $2.40 per share on the date of issuance
less a 10% discount for restrictions on the resale of such shares). The
compensation was in consideration of the President's agreement to extinguish his
rights contained in his employment agreement which entitled him to a 25% bonus
of the Company's earnings (as defined).
In 1999 the Company issued 3,800,000 fully vested, nonforfeitable shares of
common stock with a fair market value of $.45 per share or $1,710,000 (based on
the bid price of $.50 per share on the date of issuance less a 10% discount for
restrictions on the resale of such shares) to consultants for services to be
rendered over terms of one year to eighteen months. Such amount has been
deferred and is being amortized over the term of the consulting agreements.
NOTE 11 - CONVERTIBLE DEBENTURES
Convertible debentures consist of the following:
<TABLE>
<CAPTION>
June 30,
------------------------------------
1999 1998
----------------- ---------------
<S> <C> <C>
Convertible debenture dated December 11, 1997. The debenture was converted
into 327,101 shares in Fiscal 1999. $ - $ 145,969
Convertible debenture dated March 14, 1998. A total of $2,500,000 was converted
into 2,482,656 shares in Fiscal 1999. The remaining balance of $3,000,000 was
refinanced. (See August 31, 1998 debenture) - 5,500,000
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 2,000,000
Convertible debenture of $6,143,849 dated August 31, 1988 and due August
31, 2000 with interest of 5% per annum. The debentures are convertible into
common shares at a price equal to the lesser of eighty-two (82%) of the average
closing bid price for the ten trading days preceding the date of the conversion.
All debentures are convertible at the earlier of a registration effective
date or March 1, 1998. Any debenture not so converted is subject to mandatory
conversion on August 31, 2000. The company at its sole direction can redeem the
debenture at 115% of the face amount up to the fourth month, at 120% within the
fifth and sixth month and at 125% after the sixth month following the closing
date. $514.428 of the balance was converted into 1,051,529 shares in Fiscal 1999
. Debt issuance cost was $311,000, beneficial conversion feature was $-0-. 5,629,421 -
F-17
<PAGE>
Convertible debenture including $ 540,000 repurchase of stock dated October 6,
1988 and due October 6, 2000 with interest of 5% per annum.The debentures are
convertible into common shares at a price equal to the lesser of eighty-two
(82%) of the average closing bid price for the ten trading days preceding the
date of the conversion. All debentures are convertible at the earlier of
a registration effective date or October 6, 1998. Any debenture not so
converted is subject to mandatory conversion on October 6, 2000. The Company
at its sole direction can redeem the debenture at 115% of the face amount up to
the fourth month, at 120% within the fifth and sixth month and at 125% after the
sixth month following the closing date. Debt issuance cost was $300,000,
beneficial conversion feature was $53,112. 2,940,000 -
Convertible debenture dated January 29, 1999 and due January 29, 2001 with
interest of 3% per each 30 days for the first ninety days, 3.5% per each 30 days
for the ninety-first to the one hundred-twentieth day and 4% per each 30 days
from the hundred-twenty-first day until the earlier of conversion or redemption
The debentures are convertible into common shares at a price equal to the lesser
of eighty-two (82%) of the average closing bid price for the ten trading days
preceding the date of the conversion. All debentures are convertible at the
earlier of a registration effective date or January 29, 1999. Any debenture
not so converted is subject to mandatory conversion on January 29, 2001. The
Company at its sole direction can redeem the debentures at any time. Debt
issuance cost was $150,000, beneficial conversion feature was $-0-. 1,170,000 -
Convertible debenture dated May 13, 1999 and due May 13, 2001 with interest of
5% per annum. The debentures are convertible into common shares at a price
equal to the lesser of eighty (80%) of the average closing bid price for the ten
trading days preceding the date of the conversion. All debentures are
convertible at the earlier of a registration effective date or May 13, 1999.
Any debenture not so converted is subject to mandatory conversion on May
13, 2001. The company at its sole direction can redeem the debenture at 115%
of the face amount up to the fourth month, at 120% within the fifth and sixth
month and at 125% after the sixth month following the closing date. Debt
issuance cost was $80,000, interest rollover was $39,600, beneficial conversion
feature was $735,025. 1,119,600 -
Convertible debenture dated May 31, 1999 and due May 31, 2001 with interest of
5% per annum. The debentures are convertible into common shares at a price equal
to the lesser of eighty (80%) of the average closing bid price for the ten
trading days preceding the date of the conversion. All debentures are
convertible at the earlier of a registration effective date or May 31, 1999. Any
debenture not so converted is subject to mandatory conversion on May 31, 2001.
The company at its sole direction can redeem the debenture at 115% of the face
amount up to the fourth month, at 120% within the fifth and sixth month and at
125% after the sixth month following the closing date.Debt issuance cost was
$110,000, interest rollover was $22,200, beneficial conversion feature was
$140,049. 1,132,200 -
Convertible debenture dated June 26, 1999 and due June 26, 2001 with interest of
5% per annum. The debentures are convertible into common shares at a price
equal to the lesser of eighty (80%) of the average closing bid price for the ten
trading days preceding the date of the conversion. All debentures are
convertible at the earlier of a registration effective date or June 26, 1999.
Any debenture not so converted is subject to mandatory conversion on June
26, 2001. The company at its sole direction can redeem the debenture at 115%
of the face amount up to the fourth month, at 120% within the fifth and sixth
month and at 125% after the sixth month following the closing date.Debt issuance
cost was $50,000, interest rollover was $11,000, beneficial conversion feature
was $281,005. 561,000 -
F-18
<PAGE>
Convertible debenture dated May 5, May 24 and June 10, 1999 and due May 5, May
24 and June 10, 2001, respectively with interest of 5% 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 trading days preceding the date of the
conversion. The investor shall not be allowed to convert any portion of the
Debentures for 120 days from the Closing date, unless the bid price is greater
than $5.50. Every 30-day period after the Closing date, the investor shall
be allowed to convert and sell based upon if the bid price is over $1.50 then
15% of the original face amount can be converted, if the bid price is over
$7.50 then 20% of the original face amount can be converted. No conversion
can be made for 300 days if the bid price is below $1.50 All debentures
are convertible at the earlier of a registration effective date or May 5, May
24 and June 10, 1999, respectively. Any debenture not so converted is subject
to mandatory conversion on May 5, May 24 and June 10, 2001, respectively.
The company at its sole direction can redeem the debenture at 120% of the face
amount including interest. Debt issuance cost was $100,000, beneficial
conversion feature was $423,973. 850,000 -
----------------- ---------------
15,402,221 7,645,969
Less: discount due to beneficial conversion features, net of
accumulated amortization of $327,604 and $310,559
respectively (96,369) (315,327)
----------------- ---------------
$ 15,305,852 $ 7,330,642
================= ===============
</TABLE>
The Company is currently in violation of certain covenants in their debenture
agreements. Such covenants have been waived by the holders through July 1, 2001.
NOTE 12 - NOTES PAYABLE - SHORT-TERM
Notes payable - short-term consists of the following
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------
1999 1998
-------------------- ---------------------
<S> <C> <C>
Promissory note, dated June 11, 1999 $654,000,
due September 9, 1999, collateralized by inventory $ 600,000 $ --
Promissory note, dated April 1999, currently in default,
personally guaranteed by the Company's president and
collateralized by 428,259 shares owned by the Company's
president. Subsequent to June 30, 1999, the collateral
was transferred to the lenders. The Company agreed to
issue the president 535,324 shares to replace the
collateral shares. 1,100,000 --
-------------------- ---------------------
$ 1,700,000 $ --
==================== =====================
</TABLE>
F-19
<PAGE>
NOTE 13 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------
1999 1998
-------------------- ---------------------
<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 $ 122,175 $ 153,603
Note payable - Union Bank of Switzerland, related
to the acquisition of equipment sold to a customer,
in monthly installments of $12,589 with imputed interest at
6.0% per annum, maturing on September 30, 2000 188,907 335,062
Capitalized leases related to the acquisition of
various computer and office equipment in payable
monthly installments over periods through 2001,
with interest imputed at rates ranging from 9.1% to 28.3% 131,041 185,755
-------------------- ---------------------
442,123 674,420
Less: Current portion (247,028) (233,746)
-------------------- ---------------------
$ 195,095 $ 440,674
==================== =====================
</TABLE>
The aggregate long-term debt principal payment are as follows:
Year Ending June 30,
2000 $ 247,028
2001 144,578
2002 40,006
2003 10,511
NOTE 14 - 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.
Preferred Stock
In July 1999, the Company amended its Certificate of Incorporation to authorized
the issuance of 1,000,000 shares of preferred stock, $.01 par value per share.
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 1999
and 1997 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, 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
----------------------------------------
As Pro
Reported Forma
------------------- -------------------
<S> <C> <C>
Nel loss (in thousands) ($13,685) ($13,959)
Basic and diluted net loss per share ($8.65) ($8.82)
</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 in 1997; dividend yield 0%, expected volatility
61.6%, risk-free interest rate 6.25%, expected lives in years 1%.
The weighted average fair value of stock options granted during the year ended
June 30, 1997 was $22.80. No employee stock options were granted in fiscal 1999
and 1998.
F-20
<PAGE>
A summary of the status of the Stock Option Plans at June 30, 1999, 1998 and
1997 and the changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------ ------------------------------ ----------------------------
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 180,000 $23.40 196,900 $23.40 133,500 $25.20
of year
Granted 15,500 $.44 - $0.00 79,500 $17.80
Exercised (1,000) $7.30 (16,900) $7.30 (16,100) $0.00
-------------- --------------- -------------- -------------- -------------- ------------
Outstanding
at end of year 194,500 $24.30 180,000 $24.30 196,900 $23.40
============== =============== == ============== ============== ==== ============== ============
Exercisable at
end of year 194,500 $24.30 180,000 $24.30 196,900 $23.40
============== =============== == ============== ============== ==== ============== ============
</TABLE>
The following table summarizes information about stock options under the Stock
Option Plans at June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
----------------------------------------------------------------------------------
Weighted Average
Number Remaining Contractual Weighted Average
Range of Exercise Pr Outstanding Life Exercise Price
-------------------------------- ----------------- --------------------------- -----------------------
<S> <C> <C> <C> <C>
$.01 - $.44 15,500 9.5 $0.44
$7.30 - $10.00 18,000 8.4 $8.00
$20.00 - $40.00 127,500 7.8 $22.10
$47.50 - $65.00 33,500 7.5 $58.70
-----------------
194,500
=================
</TABLE>
Stock Warrants
In Fiscal 1999, the Company issued 462,500 warrants. The Company recognized
interest cost for the warrants issued of $92,000. Such value was determined
using the Black-Scholes method method with the following weighted average
assumptions; dividend yield 0%, expected volatility 70%, risk-free interest rate
7%, expected lives in years 1. The following table summarized information about
stock warrants at June 30, 1999:
<TABLE>
<CAPTION>
Warrants Outstanding and Exercisable
-- ------------------------------------------------------------------------------------------
Range of Exercise Price Number Outstanding Remaining Contractual Life Average Exercise Price
----------------------------- ------------------------ -------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
$.375 - $9.38 462,500 4.5 $.96
</TABLE>
NOTE 15 - 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, 1999, 1998 and 1997, were $ 509,959, $347,854 and $274,009,
respectively.
F-21
<PAGE>
NOTE 16 - OTHER INCOME (EXPENSES)
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------
1999 1998 1997
------------------- ------------------ ---------------
<S> <C> <C> <C>
Interest income $60 $58,902 $68,950
Interest income-stockholder and officer - - 4,351
Foreign currency income (9,097) (87,148) 484,846
Miscellaneous income 49,422 60,648 6,833
Loss from investments - - (246,217)
Loss on sale of certain asset and liabilities - (313,629) -
------------------- ------------------ ---------------
Total other income (expenses) $40,385 ($281,227) $318,763
=================== ================== ===============
</TABLE>
NOTE 17 - INCOME TAXES
Deferred income tax assets as of June 30, 1999 of $12,500,000 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,
1999 1998 1997
------------------ ----------------- -----------------
<S> <C> <C> <C>
Statutory federal income tax (benefit) $ (5,940,000) $ (7,754,000) $ (4,101,913)
Foreign income tax (benefit) in excess
of domestic rate 377,000 543,000 509,203
Benefit not recognized on operating 4,033,000 5,111,000 2,816,057
loss
Permanent and other differences 1,530,000 2,100,000 886,886
------------------ ----------------- -----------------
$ - $ - $ 110,233
================== ================= =================
</TABLE>
Net operating loss carryforwards at June 30, 1999 were approximately as follows:
United States (expiring through June 30, 2014) $ 21,000,000
Switzerland (expiring through June 30, 2009) 21,000,000
-------------------
$ 42,000,000
===================
F-22
<PAGE>
NOTE 18 - EXTRAORDINARY ITEMS
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-.
In Fiscal 1999 the Company recognized a loss from early extinguishment of debt
of $832,849, net of income taxes of $-0-.
NOTE 19 SIGNIFICANT CUSTOMER AND CONCENTRATION OF CREDIT RISK
The Company sells its products to various customers primarily in Europe and the
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, 1999 1998 and 1997 there were sales to customers
that exceeded 10% of net consolidated sales. Sales to these customers were: 1999
customer A, $9,253,480 (54%), 1998 customer A $ 7,647,354 (33%), 1997 customer
A, $1,899,084 (14%) customer B $2,389,613 (18%).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, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ----------------- ----------------
<S> <C> <C> <C>
United States $ 4,026,931 $ 9,127,569 $ 2,000,608
Switzerland 12,625,381 12,851,115 2,184,161
Germany 643,570 914,294 1,393,072
Other export sales - - 7,573,860
==================== ================= ================
$ 17,295,882 $ 22,892,978 $ 13,151,701
==================== ================= ================
</TABLE>
The following summarizes identifiable assets by geographic area:
<TABLE>
<CAPTION>
1999 1998
--------------------- -----------------
<S> <C> <C>
United States $ 7,270,543 $ 8,075,151
Switzerland 16,009,209 17,454,379
Germany 231,437 385,067
--------------------- -----------------
$ 23,511,189 $ 25,914,597
===================== =================
</TABLE>
F-23
<PAGE>
The following summarizes operating losses before provision for income tax:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------- -------------------
<S> <C> <C> <C>
United States $ (15,542,148) $ (13,962,842) $ (175,254)
Switzerland (5,392,436) (8,803,006) (12,678,800)
Germany (243,317) (42,184) (333,397)
------------------ ------------------- -------------------
$ (21,177,901) $ (22,808,032) $ (13,187,451)
================== =================== ===================
</TABLE>
NOTE 20 - 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, 1999, 1998 and 1997 was
325,000, $ 324,726 and $ 297,926 respectively. Future minimum annual lease
payments, based on the exchange rate in effect on June 30, 1999, under the
facilities lease agreements are as follows: 2000 $173,549, 2001 $162,526, 2002
$166,995, 2003 $137,994, Thereafter $0.
The Company has employment agreements with three of its executives. Minimum
compensation under these agreements are as follows:
Year Ended
June 30, 2000 $ 382,321
June 30, 2001 299,326
June 30, 2002 202,498
June 30, 2003 109,037
--------------------
$ $993,182
====================
NOTE 21 - LITIGATION
An arbitrator awarded judgement in favor of SSG in February of 1999, which order
was confirmed by the Supreme Court of the State of NY on July 8, 1999. The
judgement of $1,500,000 has been recorded in the financial statements and is
included in common stock subject to put.
On or about July 1, 1999 an action was commenced in the Supreme Cout, State of
New York, County of New York entitled J. Douglas Maxwell ("Maxwell") against the
Company, whereby Maxwell is seeking judgement in the sum of $380,000 based upon
his interpretation of various terms and conditions contained in an Exchange
Agreement between the parties dated July 22, 1996 and a subsequent Mutual
Release and Settlement Agreement between the parties dated June 1, 1998.
Swissray has denied the material allegations of Maxwell's complaint and has
asserted three affirmative defenses and two separate counteclaims seeking
(amongst other matters) dismissal of the complaint and and recision of the
settlement agreement. It is Swissray's management's intention to contest this
matter vigorously. The $380,000 has been recorded in the financial statements
and is included in common stock subject to put.
NOTE 22 - 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.
F-24
<PAGE>
NOTE 23 - 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
were accounted for as purchases. 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.
<TABLE>
<CAPTION>
SWISSRAY INTERNATIONAL, INC
UNAUDITED PROFORMA CONDENSED COMBINED CONSOLIDATED STATEMENT
OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998 AND JUNE 30, 1997
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 2,690,695 1,587,757
outstanding
</TABLE>
It was not practicable to include information for SSG for the year ended
June 30, 1997
NOTE 24-VALUATION AND QUALIFYING ACCOUNTS
Balance at Additions Balance at
Beginning Charged to End of
of Year Expenses Deductions Year
Allowance for doubtful acounts:
Year ended June 30, 1999 $ 32,356 $706,877 $519,240 $219,993
Year ended June 30, 1998 $148,390 $133,196 $249,230 $ 32,356
Year ended June 30, 1997 $109,843 $619,160 $580,613 $148,390
NOTE 25 - RESTATEMENT
The accompanying financial statements have been restated to properly record the
accounting for the value of common stock issued to an officer and consultants as
compensation during the year ended June 30, 1999.
The effect of such restatements on the Company's 1999 financial statement is as
follows:
As As
Reported Adjustments Restated
----------- ------------ ----------
Balance Sheet Adjustments
Assets $23,761,189 $ (250,000) $23,511,189
Liabilities 29,695,812 (250,000) 29,445,812
Statement of Operations
Adjustments
Operating expenses $15,581,217 $3,764,722 $19,345,939
Loss from continuing
operations (16,413,179) 4,764,722 (21,177,901)
Net loss (17,246,028) 4,764,722 (22,010,750)
Net loss per common
share basic $ (2.65) $ (0.73) $ (3.24)
F-25
<PAGE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Bederson & Company LLP ("Bederson") audited the books, records and
accounts of the Registrant for the fiscal year ended June 30, 1997. Bederson was
dismissed on November 7, 1997.
On November 7, 1997 the Board of Directors selected STG-Coopers &
Lybrand AG ("STG") as the Registrant's auditors for the fiscal year ending June
30, 1998 and this action was ratified by the stockholders at the Annual Meeting
held on December 23, 1997.
On November 2, 1998 (after having failed to complete the audit for
fiscal year ended June 30, 1998 in a timely manner or otherwise) STG advised the
Company that it had determined to cease to represent the Company. On November 6,
1998 the Company engaged Feldman Sherb Ehrlich & Co., P.C. ("FSE") as its new
independent accountants and such firm commenced and concluded its audit so that
the Company was able to file its Form 10-K on December 3, 1998. STG acknowledged
in its required letter to the SEC that there were no disagreements, as defined
by Rule 304 of Regulation S-K during the period that STG served as the Company's
auditors through the date of STG's resignation.
For further information with respect to change of auditors as indicated
in the preceding paragraph, reference is herewith made to the Company's Form 8-K
and 8-K/A with date of report of November 3, 1998 as filed with the Commission
on November 6, 1998 and November 27, 1998 respectively.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information concerning each current director
and executive officer of the Registrant, including age, position(s) with the
Registrant, present principal occupation and business experience during the past
five years.
Name Age Position(s) Held
Ruedi G. Laupper 49 Chairman of the Board of Directors,
President and Chief Executive Officer,
Josef Laupper 54 Secretary, Treasurer and Director
Ueli Laupper 29 Vice President and Director
Dr. Erwin Zimmerli 52 Director and Member of the Independent
Audit Committee
Erich A. Kalbermatter 43 Chief Operating Officer *
Dr. Sc. Dov Maor 52 Director and Member of the Independent
Audit Committee
Michael Laupper 26 Chief Financial Officer
* Until his resignation in February 1999.
- 49 -
<PAGE>
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have qualified.
Officers are appointed to serve until the meeting of the Board of Directors
following the next annual meeting of stockholders and until their successors
have been elected and have qualified.
Ruedi G. Laupper has been President, Chief Executive Officer and a
director of the Registrant since May 1995 and Chairman of the Board of Directors
since March 1997. In addition, he is Chairman of the Board of Directors and
President of the Company's principal operating subsidiaries. Ruedi G. Laupper is
the founder of the predecessors of the Company and was Chief Executive Officer
of SR Medical AG until May 1995. He has approximately 23 years of experience in
the field of radiology. Ruedi G. Laupper is the brother of Josef Laupper and the
father of Ueli and Michael Laupper.
Josef Laupper has been Secretary, Treasurer (until January 1998 and
recommencing January 1999) and a director of the Registrant since May 1995 (with
the exception of not having served as Secretary from December 23, 1997 to
February 23, 1998). He has held comparable positions with SR Medical Holding AG,
SR-Medical AG, and their respective predecessors since 1990. He is principally
in charge of the Company's administration. Josef Laupper has approximately 19
years of experience within the medical device business.
Ueli Laupper has overall Company responsibilities in the area of
international marketing and sales with approximately eight years of experience
within the international X-ray market. He has been a Vice President of the
Company since March 1997 and a director of the Registrant since March 1997. He
was Chief Executive Officer of SR Medical AG from July 1995 until June 30, 1997.
Since the beginning of July 1998 he has been in charge of the Company's U.S.
operations and currently serves as CEO of both Swissray America Inc. since its
formation in September 1998 and Swissray Healthcare, Inc..
Dr.Erwin Zimmerli has been a director of the Registrant since May 1995
and, since March 1998, a member of the Registrant's Independent Audit Committee.
Since receiving his Ph.D. degree in law and economics from the University of St.
Gall, Switzerland in 1979, Dr. Zimmerli has served as head of the White Collar
Crime Department of the Zurich State Police (1980-86), as an expert of a Swiss
Parliamentary Commission for penal law and Lecturer at the Universities of St.
Gall and Zurich (1980-87), Vice President of an accounting firm (1987-1990) and
Executive Vice President of a multinational aviation company (1990-92). Since
1992 he has been actively engaged in various independent consulting capacities
primarily within the Swiss legal community.
Erich A. Kalbermatter, commenced serving the Company in the position of
Chief Operating Officer in April 1998 and held such position until February
1999. Mr. Kalbermatter whose background is principally as an internationally
experienced manager with expertise in the areas of electronics and
telecommunications, has also served as managing director of Private & Business
Communications of ASCOM Ltd., Berne, Switzerland being responsible for the
turn-over of more than 1 billion Swiss Francs, with approximately 4,800
employees worldwide. In addition, he was a member of ASCOM's Group Management,
an international communications corporation.
- 50 -
<PAGE>
Dr. Sc. Dov Maor, was appointed as a member of the Registrant's Board
of Directors and a member of its Independent Audit Committee effective March 26,
1998. Dr. Sc. Dov Maor currently holds the position of Vice President for
Technology with ELBIT Medical Imaging, Haifa. Dr. Sc. Dov Maor is well
experienced in the field of Nuclear Medicine and medical imaging and has been
employed for over 10 years in a leading position in Research & Development.
Additionally, he was working in conjunction with the Max Planck Institute for
Nuclear Physics in Heidelberg within his field of experience. In addition to his
technical knowledge, Dr. Sc. Dov Maor is experienced in the commercial sector of
the industry.
Michael Laupper assumed the position of Interim Chief Financial Officer
of the Company effective January 1, 1999, having previously served as Controller
working in conjunction with the Company's former CFO and currently serves as the
Company's CFO.Michael Laupper completed his commercial education in the chemical
industry in 1991 in Switzerland and has additionally completed studies in
finance and accounting (in the United States during 1996-97). He has served the
Company in various management positions at SR Management AG and SR Medical AG,
Company subsidiaries, prior to assuming his current position.
The Board of Directors
The Board of Directors has responsibility for establishing broad
corporate policies and for overseeing the performance of the Registrant. Members
of the Board of Directors are kept informed of the Registrant's business by
various reports and documents sent to them in anticipation of Board meetings as
well as by operating and financial reports presented at Board meetings. The
Registrant pays its directors fees or compensation for services rendered in
their capacity as directors. The current Board of Directors was elected and
assumed office as of December 23, 1997 with the exception that Dr. Sc. Dov Maor
assumed his position on March 26, 1998.
The Board does not currently have a standing audit, nominating or
compensation committee or any committee or committees performing similar
functions, but acts, as a whole, in performing the functions of such committees
(except as may be indicated directly hereinafter). At a meeting of the Board of
Directors held on March 26, 1998, an Independent Audit Committee was
established.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors,
officers and persons who own more than 10% of a registered class of the
Company's equity securities, to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("the
Commission"). Such persons are required by the Commission to furnish the
Company with copies of all Section 16(a) forms they file. Based solely on its
review of the copies of Forms 3, 4 and 5 received by it, the Company believes
that, with the exception of those persons indicated below, all directors,
officers and 10% stockholders complied with such filing requirements.
According to the Company's records, the following filings appear not to
have been timely made: one initial statement of beneficial ownership on Form 3
and three statements of changes in beneficial ownership on Form 5 covering four
transactions (such Form 5 representing a delinquent Form 4) were not filed
timely by Reudi G. Laupper; one initial statement of beneficial ownership was
- 51 -
<PAGE>
not filed timelyby Uweli Laupper; one initial statement of beneficial ownership
on Form 3 and two statements of changes in beneficial ownership on Form 5
covering two transactions (such Form 5 representing a delinquent Form 4) were
not filed timely by Tomlinson Holding, Inc.; one initial statement of beneficial
ownership on Form 3 was not filed timely by Josef Laupper; one initial statement
of beneficial ownership was not filed timely by Ulrich Ernst; one initial state-
ment of beneficial ownership was not filed timely by Berkshire Capital
Management and one initial statement of beneficial ownership and one statement
of changes in beneficial ownership on Form 5 covering one transaction (such Form
5 representing a delinquent Form 4) were not filed timely by Erwin Zimmerli.
ITEM 11. EXECUTIVE COMPENSATION
Employment Agreements
Ruedi G. Laupper has entered into a five-year employment agreement with
Swissray Management AG, a wholly owned subsidiary of the Registrant, on December
18, 1997, which agreement will be automatically renewed for another five years
unless terminated by either party no later than December 31, 2001. Such
agreement provides for (i) an annual salary of 299,000 Swiss francs (or
$194,121), (ii) an annual bonus of 12,000 Swiss francs (or $8,377), and (iii) a
performance based bonus, based on the audited consolidated financial statements
of the Company as of the end of the fiscal year. The bonus shall be 25% of EBIT
(earnings before interest and taxes) payable in stock of Swissray International,
Inc. valued at the average of the closing prices during the five business days
following the filing of the 10-K. In addition, the agreement entitles Mr.
Laupper to a car allowance, five weeks of vacation, $698 per month for expenses
and a "Bel Etage" insurance which provides certain pension benefits not mandated
by Swiss law. If such employment agreement is terminated for reasons beyond the
employee's control, Ruedi Laupper will receive 2 million Swiss francs (or
$1,396,258) including any bonus. The Registrant guarantees the obligation of
Swissray Management AG in the event of a default.
Pursuant to June 30, 1999 Board meeting (attended by the Company's
President, Ruedi G. Laupper, who absented himself from the meeting prior to vote
upon and adoption of resolutions) the EBIT bonus provisions referred to above
were extinguished in exchange for (a) extending the duration of the employment
agreement to December 18, 2007 and (b) issuance to Ruedi G. Laupper of 2,000,000
fully vested, and non-forfeitable shares of restrictive Company common stock in
exchange for and in consideration of his agreeing to cancel the above referenced
EBIT provisions in his employment contract which otherwise would have entitled
him to receive 25% of all Company earnings before interest and taxes ("EBIT")
payable in shares of Company Common Stock during each year of such employment
contract, which contract expires December, 2007. EBIT, in thousands, for the
years ended June 30, 1997, 1998 and 1999 was $(12,425), $(14,218), and $(15,539)
respectively. Accordingly, no bonus was payable. Valuation assigned to the
aforesaid 2,000,000 fully vested, and non-forfeitable shares was based upon
Board members agreement that such price would be based upon 75% of bid price at
the time proposal was initially made and agreed to on March 12, 1999, i.e. 75%
of $0.50 bid price on March 12, 1999. The Board resolution approving the above
referenced transaction (and utilizing the aforesaid agreed to valuation date)
occurred on June 30, 1999, at which time the bid price of the common stock was
$2.625 and at which time the above referenced shares were issued to Mr. Laupper.
In accordance with SEC guidelines (and notwithstanding the percentage discount
from bid price discussed above) the Company's financial statements reflect a 10%
(as opposed to 25%) discount from bid price with respect to this transaction at
date of issuance.
Ueli Laupper and Josef Laupper have entered into three-year employment
agreements with Swissray Management AG on December 18, 1997, which agreements
will be automatically renewed for another three years unless notice is given six
months prior to the expiration date. Such agreements provide for salaries of
$94,924 and 119,700 Swiss francs (or $83,566) respectively with annual bonuses
of $7,077 and 9975 Swiss francs (or $6,964) respectively, $1,500 and 1000 Swiss
francs (or $698) per month for expenses respectively and 20 days and 25 days of
vacation respectively. The employment agreements of each of Ueli Laupper and
Josef Laupper also provide for a car allowance. If either of such employees is
terminated for reasons beyond the employees control he will receive 500,000
Swiss francs (or $349,065).
Mr. Kalbermatter in accordance with his Agreement with Swissray
Management AG assumed the position of Chief Operating Officer of the Company
effective April 14, 1998 at an annual salary equivalent to $153,333. Mr.
- 52 -
<PAGE>
Kalbermatter shall also receive (a) an expense allowance equivalent to $12,000,
(b) an automobile allowance equivalent to $11,333, (c) 25 days of vacation and
(d) a "Bel Etage" inusrance which provides certain pension benefits. U.S. dollar
equivalents indicated above are based upon a Swiss Francs (CHF) exchange rate of
$1.50. This Agreement was to expire in May 31, 1999 but Mr. Kalbermatter
resigned in February 1999.
All of these employment agreements are covered by Swiss law.
Summary Compensation Table
(A) The following Summary Compensation Table sets forth certain
information for the years ended June 30, 1997, 1998 and 1999 concerning the cash
and non-cash compensation earned by or awarded to the Chief Executive Oficer of
the Registrant, the three other most highly compensated executive officers of
the Registrant as of June 30, 1999 and the former Chairman of the Board of
Directors (the "Named Executive Officers").
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Fiscal Other Annual Stock All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation
------------------------------------ ----- ----------- ----- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ruedi G. Laupper 1999 $194,121 $8,377 $4,335,000(1)(8) -- ---
President and Chief Executive 1998 $173,587 $16,057 $15,000 (1) -- ---
Officer, Chairman of the 1998 --- --- $1,122,973 (1) -- ---
Board of Directors 1997 $146,983 --- $15,000 (1) 12,000(5) ---
Josef Laupper 1999 $ 83,566 $6,494 $12,000 (1) --- ---
Secretary, Treasurer 1998 $ 94,669 --- $12,000 (1) --- ---
1997 $ 96,861 --- $12,000 (1) --- ---
Ueli Laupper 1999 $ 94,924 $7,077 $10,000 (1) --- ---
Vice President International 1998 $ 95,685 --- $10,000 (1) --- ---
Sales (2) 1997 $ --- --- $ --- --- ---
Herbert Laubscher
Chief Financial Officer (2)(3) 1998 $ 79,244 --- $ --- --- ---
1997 $ --- --- $ --- --- ---
Ulrich R. Ernst (4)
1997 $ 96,979 --- $10,000 (1) --- ---
Erich A. Kalbermatter 1999 $153,439 --- $ --- --- ---
Chief Operating Officer (6) 1998 $ 33,652 --- $ --- --- ---
--------------------
</TABLE>
(1) Fees for service on the Board of Directors of the Company.
(2) Compensation did not exceed $100,000 in any fiscal year.
(3) Herbert Laubscher joined the Company in August of 1996 and served as
Treasurer from January 1998 until his resignation effective December
31, 1998.
(4) Ulrich R. Ernst was Chairman of the Board of Directors from May 1995
until March 18, 1997.
(5) The options, which were fully vested on date of grant (6/13/97), were
issued in exchange for services to the Company as Chairman of the Board
of Directors.
(6) Erich A. Kalbermatter joined the Company on April 14, 1998 and resigned
in February 1999.
(7) Compensation paid in equivalent of 48,259 post reverse split shares of
Common Stock for cancellation of Common Stock held by officer, as
follows:
Ruedi G. Laupper, the Company's President, surrendered for
cancellation an aggregate of 1,608,635 shares of common stock owned by
him in order for the Company to meet its obligations with respect to
various warrantees and representations made by it regarding
availability of a sufficient number of authorized but unissued shares
to timely meet convertible debenture conversions and avoid Company
default (regarding financings which occurred in or about September 1996
and January 1997). By surrendering such shares Ruedi G. Laupper lost
his holding period under Rule 144 which at that point would have
entitled him to utilize Rule 144 every three months to sell such
restrictive shares (as free trading) subject to volume limitation
imposed by Rule 144. In exchange for losing such valuable right and
once stockholders had increased the number of authorized shares of
Company common stock at a Special Meeting called for such purposes, Mr.
Laupper, as previously agreed to, received a number of shares equal to
30% (48,259 post reverse split shares) more than those previously
canceled (creating a brand new holding period for him for purposes of
Rule 144 transactions).At the time that the Company's President
surrendered his aforesaid 1,608,635 shares for cancellation (to wit:
March 7, 1997) the bid price of the Company's common stock was $2.6875
while at the time that such individual received the 48,259 post split
shares referred to above (on June 30, 1997) the bid price for the
Company's common stock was $2.421875.
(8) Dollar value assigned to the 2,000,000 shares of Common Stock issued
for relinquishment of EBIT bonus based upon Board members agreement
that such price would be based upon 90% of bid price at the time
proposal was initially made, i.e., 90% of the $2.40 average price on
June 30, 1999 - the date of the Board of Directors meeting.
- 53 -
<PAGE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following tables set forth certain information concerning the grant
of options to purchase shares of the Common Stock to each of the executive
officers of the Registrant, as well as certain information concerning the
exercise and value of such stock options for each of such individuals. Options
generally become exercisable upon issuance and expire no later than ten years
from the date of grant.
STOCK OPTIONS GRANTED IN FISCAL YEAR ENDED JUNE 30, 1997(1)
<TABLE>
<CAPTION>
Percent of
Total Potential
Options Realization Value at
Granted Assumed Annual Rates
Number of to Exercise of Stock Appreciation
Securities Employees or Market For Option Term
Underlying in Base Price on
Options Fiscal Price Date of Expiration
Name Granted Year Per Share Grant Date 0% 5% 10%
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ruedi G. Laupper 120,000(2) 30.4% $0.73(3) $2.94(4) 6/13/02 265,200 282,840 300,480
Josef Laupper(5) -- -- -- -- -- -- -- --
Ueli Laupper(5) -- -- -- -- -- -- -- --
Herbert Laubscher(5) -- -- -- -- -- -- -- --
Ulrich Ernst(5)(6) -- -- -- -- -- -- -- --
</TABLE>
(1) The options to purchase the Registrant's Common Stock were granted
under the Swissray International, Inc. 1996 Non-Statutory Stock Option
Plan.
(2) These options were owned indirectly through SR Medical Equipment Ltd.,
a corporation wholly owned by Mr. Laupper. They were immediately
exercisable on the date of grant but do not give effect to subsequent
October 1998 1 for 10 reverse stock split.
(3) The exercise price per share is contingent on purchase of the entire
amount of securities.
(4) The market price on date of grant was based on the average of the high
and low reported prices on the Nasdaq SmallCap Market on June 13, 1997.
On October 26, 1998 the Company's securities were delisted by NASDAQ.
(5) These individuals own no stock options of the Registrant.
(6) Mr. Ernst was Chairman of the Board of Directors from May 1995 until
March 18, 1997.
- 54 -
<PAGE>
STOCK OPTION GRANTS IN FISCAL YEAR ENDED JUNE 30, 1998
With respect to the Named Executive Officers there were no granting of
stock options under either the Company's 1996 or 1997 Stock Option Plans (the
"Plans") during the fiscal year ended June 30, 1998.
STOCK OPTION GRANTS IN FISCAL YEAR ENDED JUNE 30, 1999
With respect to the Named Executive Officers there were no granting of
stock options under either the Company's 1996, 1997 or 1999 Stock Option Plans
(the "Plans") during the fiscal year ended June 30, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options Options
Name At Fiscal Year-End(#) At Fiscal Year-End($)
(A) Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C>
Ruedi G. Laupper 12,000/0(3) $1.79/0
Josef Laupper(4) 0/0 0/0
Ueli Laupper(4) 0/0 0/0
Herbert Laubscher(4) 0/0 0/0
Ulrich R. Ernst(4)(5) 0/0 0/0
</TABLE>
(1) No options were exercised by a Named Executive Officer during the
fiscal year ended June 30, 1997 and 1998.
(2) Options are in-the-money if the fair market value of the underlying
securities exceeds the exercise price of the option.
(3) Includes 12,000 options which are owned indirectly by Mr. Laupper
through SR Medical Equipment Ltd., a corporation which is wholly owned
by Mr. Laupper.
(4) These individuals own no stock options of the Registrant.
(5) Mr. Ernst was Chairman of the Board of Directors from May 1995 until
March 18, 1997.
Stock Option Plans
On January 30, 1996, the Board of Directors adopted the Company's 1996
Non-Statutory Stock Option Plan (the "1996 Plan"). Substantially all of the
options under such 1996 Plan have been granted. Consequently, the Board of
Directors and the Registrant's stockholders approved the Swissray International,
Inc. 1997 Stock Option Plan (the "Stock Option Plans").
The purpose of the Stock Option Plans is to provide directors, officers
and employees of, and consultants to the Company and its subsidiaries with
- 55 -
<PAGE>
additional incentives by increasing their ownership interests in the Company.
Directors, officers and other employees of the Company and its subsidiaries are
eligible to participate in the Stock Option Plans. Options may also be granted
to directors who are not employed by the Company and consultants providing
valuable services to the Company and its subsidiaries. In addition, individuals
who have agreed to become an employee of, director of or a consultant to the
Company and its subsidiaries are eligible for option grants, conditional in each
case on actual employment, directorship or consultant status. Awards of options
to purchase Common Stock may include incentive stock options under Section 422
of the Internal Revenue Code ("ISOs") and/or non-qualified stock options
("NQSOs"). Grantees who are not employees of the Company or a subsidiary shall
only receive NQSOs.
The maximum number of options that may be granted under this Plan shall
be options to purchase 200,000 shares of Common Stock. As of August 24, 1999,
none of such options have been granted.
The Compensation Committee will administer the Stock Option Plans. The
Compensation Committee generally will have discretion to determine the terms of
any option grant, including the number of option shares, exercise price, term,
vesting schedule, the post-termination exercise period, and whether the grant
will be an ISO or NQSO. Notwithstanding this discretion: (i) the number of
shares subject to options granted to any individual in any calendar year may not
exceed 200,000; (ii) the term of any option may not exceed 10 years (unless
granted as an ISO to an individual or entity who possesses more than 10% of the
voting power of the Company, which term may not exceed five years); (iii) an
option will terminate as follows: (a) if such termination is on account of
permanent and total disability (as determined by the Compensation Committee),
such options shall terminate one year thereafter; (b) if such termination is on
account of death, such options shall terminate six months thereafter; (c) if
such termination is for cause (as determined by the Compensation Committee),
such options shall terminate immediately; (d) if such termination is for any
other reason, such options shall terminate three months thereafter; and (iv) the
exercise price of each share subject to an ISO shall be not less than 100%, or,
in the case of an ISO granted to an individual described in Section 422(b)(6) of
the Code, 110% of the fair market value (determined in accordance with Section
422 of the Code) of a share of the Stock on the date such option is granted.
Unless otherwise determined by the Compensation Committee, (i) the exercise
price per share of Common Stock subject to an option shall be equal to the fair
market value of the Common Stock on the date such option is granted; (ii) all
outstanding options become exercisable immediately prior to a "change in
control" of the Company (as defined in the Stock Option Plans) and (iii) each
option shall become exercisable in three equal installments on each of the
first, second and third anniversary of the date such option is granted.
The Stock Option Plans may be amended, altered, suspended, discontinued
or terminated by the Board of Directors without further stockholder approval,
unless such approval is required by law or regulation or under the rules of the
stock exchange or automated quotation system on which the Common Stock is then
listed or quoted. Thus, stockholder approval will not necessarily be required
for amendments which might increase the cost of the Stock Option Plans or
broaden eligibility. The Stock Option Plans will remain in effect until
terminated by the Board of Directors. No ISO may be granted more than ten years
after such date.
- 56 -
<PAGE>
Pursuant to February 1999 Board of Directors approval and subsequent
July 23, 1999 stockholder approval, the Registrant adopted its 1999 Non
Statutory Stock Option Plan, whereby it reserved for issuance up to 3,000,000
shares of its common stock. Thereafter in August 1999 the Registrant filed a
Registration Statement on Form S-8 (File No. 0-26972) so as to register those
shares of common stock underlying the aforesaid options. As of August 24, 1999
none of such options had been granted.
The Registrant currently has outstanding non-statutory stock options to
purchase an aggregate of 161,000 shares of Common Stock. See "Management --
Compensation of Directors and Executive Officers" and Notes to the
Consolidated Financial Statements June 30, 1999, 1998 and 1997.
Retirement and Long-Term Incentive Plans
The Swiss and German Subsidiaries, mandated by government regulations,
are required to contribute approximately five (5%) percent of 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, 1999, 1998 and 1997, were $509,959, $347,854 and $274,009,
respectively.
Director Compensation
Directors of the Registrant receive $10,000 annually for serving as
directors except for Josef Laupper, who receives $12,000 and Ruedi Laupper, the
Chairman of the Board of Directors, who receives $15,000. Ruedi Laupper also
received options to acquire 12,000 shares of the Registrant's Common Stock on
June 13, 1997 in accordance with applicable provisions of the Company's 1996
Non-Statutory Stock Option Plan. The exercise price for such options is $7.30
per share. The options were fully vested on the date of grant.
Compensation Committee Interlocks and Insider Participation
The Registrant had no Compensation Committee during the last completed
fiscal year. The Registrant's executive compensation was supervised by all
members of the Registrant's Board of Directors and the following directors were
concurrently officers of the Registrant in the following capacities: Ruedi G.
Laupper (Chairman of the Board of Directors, President and Chief Executive
Officer); Josef Laupper (Secretary and Treasurer), Ueli Laupper (Vice President
International Sales) and Ulrich R. Ernst (Chairman of the Board of Directors
from May 1995 until March 18, 1997). No executive officer of the Registrant
served as a member of the board of directors or compensation committee of any
entity which has one or more executive officers who serve on the Registrant's
Board of Directors.
While the Company did not issue any shares of its Common Stock to any
of its officers during fiscal year ended June 30, 1998 it did issue 48,259
shares of Common Stock to a company controlled by Ruedi G. Laupper pursuant to
an agreement between Ruedi G. Laupper and the Company in consideration of Mr.
Laupper's agreement to cancellation of 160,863 post split shares of Common Stock
held by Ruedi G. Laupper or companies controlled by him. See also footnote 7 to
Summary Compensation Table for additional material information regarding this
transaction.
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The Company did not issue any shares of its Common Stock to any of its
officers during fiscal year ended June 30, 1999 excepting for the issuance of
2,000,000 restrictive shares to Ruedi G. Laupper in exchange for and in
consideration of cancellation of certain bonus provisions contained in
employment contract.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of August 24, 1999 (except where otherwise
noted) with respect to (a) each person known by the Registrant to be the
beneficial owner of more than five percent of the outstanding shares of Common
Stock, (b) each director of the Registrant, (c) the Registrant's executive
officers and (d) all officers and directors of the Registrant as a group (except
as indicated in the footnotes to the table, all of such shares of Common Stock
are owned with sole voting and investment power):
No. Of Shares Percentage of
Beneficially Shs. Benficially
Name and Address of Beneficial Owner (1) Owned (2) Owned (2)
---------------------------------------- -------------- -------------
Ruedi G. Laupper (3) 2,509,824 17.25%
Josef Laupper (4) 50,000 *
Erwin Zimmerli (5) 5,000 *
Ueli Laupper --- *
Dov Maor --- *
Michael Laupper --- *
Thomson Kernaghan & Co. Ltd. %
Atlantis Capital Fund, Ltd. %
Dominion Capital Fund, Ltd. 3,221,131(6) 18.65%
Sovereign Partners LP 3,983,182(7) 22.35%
Canadian Advantage Limited Partnership 752,543(8) 5.11%
Liviakis Financial Communications, Inc. 3,000,000(9) 20.63%
Rolcan Finance Ltd. 800,000(10) 5.50%
All directors and officers as
a group (six persons) 2,564,824(11) 17.62%
---------------
o Represents less than 1% of the 14,541,537 shares outstanding as of
August 24, 1999.
(1) Unless otherwise indicated, the address for each named individual is in
care of SWISSRAY International, Inc., 320 West 77th Street, Suite 1A,
New York, New York 10024.
(2) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of the Common Stock beneficially owned by them. A person is
deemed to be the beneficial owner of securities which may be acquired
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by such person within 60 days from the date indicated above upon the
exercise of options, warrants or convertible securities.Each beneficial
owner's percentage ownership is determined by assuming that options,
warrants or convertible securities that are held by such person (but
not those held by any other person) and which are exercisable within 60
days of the date indicated above, have been exercised.
(3) Includes (i) 37,500 shares owned indirectly by Ruedi G. Laupper through
SR Medical Equipment Ltd., a corporation which is wholly owned by him;
(ii) 460,324 shares owned indirectly by Ruedi G. Laupper through
Tomlinson Holding Inc., a corporation which is wholly owned by him and
(iii) 12,000 shares which may be acquired upon exercise of immediately
exercisable options, which options are owned indirectly by Ruedi G.
Laupper through SR Medical Equipment Ltd., a corporation which is
wholly owned by him.
(4) Includes 50,000 shares owned indirectly by Josef Laupper through Lairy
Investment Inc., a corporation in which he is a majority shareholder.
(5) Includes 5,000 shares which may be acquired upon exercise of
immediately exercisable options.
As of the August 24, 1999, an aggregate principal outstanding balance
(exclusive of interest) for those Convertible Debentures referred
to below amounts to $13,132,631. None of these convertible
debentures are owned by officers and/or directors of the Company.
(6) Includes the 491,308 shares currently owned as wellas up to 2,729,823
shares which normally could be issued at any time, upon conversion
of previously issued convertible debentures (the "Convertible
Debentures") assuming conversion based on 80%-82% (dependent upon
debenture) of the last reported sales price on August 24, 1999. The
number of shares, if issued, would require disclosure of beneficial
ownership of in excess of 5%. However, pursuant to terms of Convertible
Debentures, the holders thereof may not beneficially own more than
4.99% of outstanding Company shares(other than as a result of mandatory
conversion provisions). The 4.99% limitation is only contractual in
nature.
(7) Includes the 703,018 shares currently owned as well as up to 3,280,164
shares which normally could be issued at any time, upon conversion
of previously issued convertible debentures (the "Convertible
Debentures") assuming conversion based on 80%-82% (dependent upon
debenture) of the last reported sales price on August 24, 1999. The
number of shares, if issued, would require disclosure of beneficial
ownership of in excess of 5%. However, pursuant to terms of
Convertible Debentures, the holders thereof may not beneficially own
more than 4.99% of outstanding Company shares (other than as a result
of mandatory conversion provisions). The 4.99% limitation is only
contractural in nature.
(8) Includes the 562,620 shares currently owned as wellas up to 189,923
shares which normally could be issued at any time, upon conversion
of previously issued convertible debentures (the "Convertible
Debentures") assuming conversion based on 80%-82% (dependent upon
debenture) of the last reported sales price on August 24, 1999.
The number of shares, if issued, would require disclosure of beneficial
ownership of in excess of 5%. However, pursuant to terms of Convertible
Debentures,the holders thereof may not beneficially own more than 4.99%
of outstanding Company shares (other than as a result of mandatory
conversion provisions). The 4.99% limitation is only contractural in
nature.
(9) Pursuant to a Voting Trust Agreement, the Registrant's President has
sole voting rights with respect to these shares.
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(10) Roland Kaufmann, a control person of this firm has voting control over
these shares.
(11) Includes 17,000 shares issuable upon option exercise.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is herewith made to Compensation Committee Interlock, second
paragraph regarding (a) 48,259 restrictive shares of Company common stock issued
to its President during fiscal year ended June 30, 1998 and (b) 2,000,000
restrictive shares issued to its President during fiscal year ended June 30,
1999. For further information with respect to the latter transaction reference
is herewith made to "Management - Employment Agreements", second paragraph. With
respect to both transactions referred to herein the Company's Board determined
same to be as fair to the Company as could have been made with unaffiliated
parties and both of such transactions were unanimously approved by its Board
with the Company's President abstaining from voting.
The Company made unsecured advances to its former Chairman of the Board
of Directors (a principal stockholder) during the fiscal year ended June 30,
1997 requiring interest at 6% per annum. The balance at June 30, 1997 was
$69,587. Interest charged to the stockholder for the fiscal year ended June 30,
1997 was $3,460. Such indebtedness was repaid in full in July 1997. See Notes
to the Consolidated Financial Statements June 30, 1999, 1998 and 1997.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Reference is herewith made to the consolidated financial
statements and notes thereto included in this Form 10-K.
(b) No exhibits are being filed with this Form 10-K.
(c) During the last quarter of the Company's fiscal year ended June
30, 1999, the following Forms 8-K were filed.
i) None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant certifies that it has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized,
SWISSRAY INTERNATIONAL, INC.
Dated: July 26, 2000 By:/s/Ruedi G. Laupper
Name: Ruedi G. Laupper
Title: Chairman of the Board of
Directors, President &
Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
on the dates indicated.
Signature Title Date
/s/ Reudi G. Laupper Chairman of the Board of Dated: July 26, 2000
--------------------
Reudi G. Laupper Directors, President &
Principal Executive Officer
/s/ Josef Laupper Secretary, Treasurer and a Dated: July 26, 2000
--------------------
Josef Laupper Director
/s/ Michael Laupper
-------------------- Principal Financial Officer Dated: July 26, 2000
Michael Laupper & Controller
/s/ Ueli Laupper Vice President and a Director Dated: July 26, 2000
---------------------
Ueli Laupper
/s/Dr. Erwin Zimmerli
-------------------- Director Dated: July 26, 2000
Dr. Erwin Zimmerli
-------------------- Director Dated: July , 2000
Dr. Sc. Dov Maor
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Supplemental Information
Supplemental Information to be Furnished With Reports Filed Pursuant
to Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to section 12 of the Act.
Not Applicable
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