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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission file number 0-26972
SWISSRAY INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
New York 16-0950197
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
80 Grasslands Road, Elmsford, New York, New York 10523
(Address of Principal Executive Office) (Zip Code)
United States - 914-345-3700 Switzerland - 011 41 41 914 12 00
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant; (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 past 90 days.
Yes xx No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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 September 12, 2000 is 23,667,129 shares (1), all of one class of
common stock, $.01 par value. Of this number a total of 14,216,791 shares having
an aggregate market value of $27,580,574, based on the closing price of the
Registrant's common stock of $1.94 on September 12, 2000 as quoted on the
Electronic Over-the-Counter Bulletin Board ("OTC"), were held by non-affiliates*
of the Registrant.
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* 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 for 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 Securities
Exchange Act of 1934 subsequent to 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 Registant's classes of
common stock, as of the latest practicable date: 23,667,129 shares as of
September 12, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and 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) under the Securities Act of 1933.
None excepting for the incorporation by reference of the Company's Form S-1
Registration Statement (under File Number 333-59829 as declared effective August
14, 2000) and in particular those sections therein entitled "Risk Factors"
(which is herewith incorporated by reference to Part I, Item 1, of this Form
10-K) and "Market Prices and Dividend Policy" subsection entitled "Nasdaq
Delisting" (which is herewith incorporated by reference into Part II, Item 5, of
this Form 10-K).
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TABLE OF CONTENTS
Page
Number
PART I
Item 1. Business 4
Item 2. Properties 21
Item 3. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 23
PART II
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters 24
Item 6. Selected Financial Data 26
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 27
Item 7a. Quantitative and Qualitative Disclosures About Market
Risk 35
Item 8. Financial Statements and Supplementary Data 35
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 36
PART III
Item 10. Directors and Executive Officers of the Registrant 36
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial Owners and
Management 43
Item 13. Certain Relationships and Related Transactions 46
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 47
SIGNATURES 48
SUPPLEMENTAL INFORMATION 49
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PART I
ITEM 1. BUSINESS
Background Summary
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 subsidiaries Swissray
GmbH (formerly known as Swissray (Deutschland) Rontgentechnik GmbH, SR Medical
GmbH), a German limited liability company and Swissray Romania SRL 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
Teleray 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, 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, SR Medical AG entered into a first
Original Equipment Manufacturing ("OEM") Agreement with Philips Medical Systems
GmbH ("Philips Medical Systems") providing for the manufacturing 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(R) 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. This is
currently the Company's primary focus (as opposed to the further development of
conventional x-ray equipment).
With respect to information regarding the Company acquisition of
Empower Inc. and Service Support Group LLC on April 1, 1997 and October 17, 1997
respectively and subsequent litigation resulting therefrom, reference is
herewith made to Item 1 subsections entitled "Sale of Substantially All of the
Assets of Empower, Inc." and "Acquisition of Substantially All of the Assets of
Service Support Group LLC" respectively and Item 3 "Legal Proceedings"
In October 1999 the Company was awarded a purchase order for 32 of its
unique direct digital Radiography System from the Romanian Ministry of Health
for its multifunctional ddRMulti-System, valued at over US$13,800,000.
Installation will be in various hospitals throughout Romania, The initial
payment
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aggregating 15% of the aforesaid total proceeds (i.e., $2,070,000) was received
by the Company in early March 2000. The Company sold 25 of the 32
ddRMulti-Systems through close of its fiscal year ended June 30, 2000 while the
balance of 7 Systems were sold during the first quarter of the Company's current
fiscal year. By virtue of the extent and nature of this contract, the Romanian
Ministry of Health is currently the Company's single largest customer.
The Company's primary focus is currently on direct digital radiography
("ddR") as opposed to conventional x-ray equipment. In that regard the Company's
German subsidiary (Swissray GmbH, Wiesbaden, Germany) sold its conventional
x-ray business division in March 2000 to an unaffiliated third party in order to
more extensively focus upon sales and marketing of ddR equipment. The dollar
amount of sales from conventional x-ray Systems for the fiscal years ended June
30, 2000 and June 30, 1999 were $1,803,716 and $2,664,722 respectively. The
dollar amount of sales from conventional OEM business for the fiscal years ended
June 30, 2000 and June 30, 1999 were $3,883,257 and $9,806,402 respectively.
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.
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ddR technology is designed to eliminate the disadvantages and
significant operating costs associated with conventional X-ray systems and CR
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 Add-on
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 Psilotum 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(R) 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 "Regulatory Matters".
Digital ddRMulti-System/SwissVision
The ddRMulti-System (which includes the ddRCombi and ddRChest) and a
SwissVision(R) 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 Add-on Bucky(R) as the
digital detector. The Add-on 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.
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, cassettes or phosphor plates and the handling, development and storage
thereof.
The Company's line of SwissVision(R) postprocessing workstations
permits the postprocessing of
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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(R) 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. See
also last paragraph to Item 1 - "Business - Background Summary".
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 Company continues to deal
directly with Philips with respect to its MRS and has established a Licensing
Agreement with respect to the Bucky Diagnost TS.
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 point-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.
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The software license with Agfa is a worldwide, non-exclusive, non-transferable
license to use and distribute the Agfa software in combination with the
AddOn-Bucky and is based upon certain minimum purchase requirements which the
Company continues to meet and exceed.
New Products
To compliment its ddRMulti-System, the Company developed two new ddR
Systems, each of which were initially introduced at the Radiological Society of
North America ("RSNA") annual assembly held in Chicago in November 1999 and
subsequently exhibited at the European Congress of Radiology ("ECR-2000") in
March 2000 in Vienna, Austria. The Systems are known as the (a) ddRChest-System
and (b) ddRCombi-System. Both Systems are based upon the patented technology of
the ddRMulti-System. The ddRChest-System is a dedicated chest unit capable of
taking all chest examinations in a direct digital format. The ddRCombi-System is
a multi-functional system able to perform examinations on the seated, upright
and recumbent patient, can be coupled with an automated or manual ceiling
suspension or may be combined with an existing ceiling suspension unit. It is
designed and suited for trauma and emergency room applications. Retail pricing
on each of these two units approximates 80% of retail pricing for the Company's
ddRMulti-System.
The initial installation of a ddRCombi occurred in August 2000. Four
additional ddRCombi-Systems are currently considered backlog with installation
scheduled for September/October 2000. As of September 12, 2000 the Company had
not contracted for the sale of any ddRChest-Systems.
See also "Business - Research and Development" hereinafter.
Markets
Product Markets
The Company estimates that the global market for X-ray equipment and
accessories is approximately $10 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.
Business conducted in the U.S., Switzerland and Germany accounted for
approximately 29.8%, 68.8% and 1.4% respectively of total sales during the
fiscal year ended June 30, 2000. Included in the 68.8% indicated in business
conducted in Switzerland is monies received as a result of contract entered into
with the Romanian Ministry of Finance due to the fact that the down payment
received of approximately $2,070,000 was guaranteed by the Swiss Export Risk
Guaranty ("ERG") with funding coming from ABN AMRO Bank, which financed the
agreement. 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
Add-on Bucky(R) and the ddRMulti-System to the FDA for Section 510(k) clearance.
On November 21, 1997, the Company's Add-on 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 now sells the
ddRMulti-System in the United States through its subsidiaries and other
channels. See" Business -- Regulatory Matters" hereinafter.
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The percentage of revenues for fiscal year ended June 30, 1999
attributed to product markets amounted to 81.84% while the percentage of
revenues for the fiscal year ended June 30, 2000 attributed to product markets
amounted to 91.97%.
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
the U.S. wherein approximately 98.6% of all Company sales were concluded during
fiscal year ended June 30, 2000 (as compared to approximately 96% for fiscal
year ended June 30, 1999), with Switzerland accounting for 68.8% of all sales
and the U.S. accounting for 29.8% of such sales (with the balance of 1.4% of
sales being conducted in Germany) as compared to 73%, 23% and 4% of Company
sales for Switzerland, U.S. and Germany for fiscal year ended June 30, 1999. See
also Note 17 to audited financial statements.
The percentage of revenues for fiscal year ended June 30, 1999
attributed to services amounted to 18.16% while the percentage of revenues for
the fiscal year ended June 30, 2000 attributed to service markets amounted to
8.03%.
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. See also "Distribution Agreements
- The Hitachi Agreement" as relates to Hitachi's distribution of SRMI's
ddRMulti-System to end users within certain defined territories within the U.S.
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 latter
pursuant to License Agreement.
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."
Contract with Department of Veteran Affairs
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") for its Diagnostic X-ray system, the
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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 has actively
pursued 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 5 ddRMulti-Systems (through September
12, 2000) to different VA institutions and has installed and sold 4 of such
ddRMulti-systems, leaving a backlog of 1.
Distribution Agreements
In October 1998 the Company entered into a distribution agreement with
X-ray Inc. ("XRI"), Warwick, RI, whereby XRI distributed 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.
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, 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.
Medika, will cover ddRMulti-Systems sales in Puerto Rico, the
Caribbean, Mexico and selected South American markets. The original contract
with Medika expired October 1999 and was automatically renewed through October
2000.
In April of 1999 the Company entered into distribution agreements with
(a) Linear Medical Systems, Inc. ("Linear") for the territory of Arizona and (b)
Capital X-Ray, Inc. ("Capital") for the territories of Alabama and Mississippi.
The Linear agreement expired in February 2000 and the Company is conducting its
own distribution within the territory indicated while the Capital agreement was
to have expired December 31, 1999, was initially renewed through July 31, 2000
and has been further renewed through July 31, 2001.
Representative sales of ddRMulti-System
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 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 were 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
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the above indicated contract with the Department of Veterans Affairs.
The Hitachi Agreement
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 has been providing sales, marketing, and service for the
distribution of Swissray's ddRMulti-System to end users within certain defined
territories within the United States.
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 HMSA will utilize and promote the Swissray Information
Solutions services and products consisting of consulting and product solutions
for medical imaging informatics.
In accordance with such agreement, the Company is required to provide
HMSA with service training, installation, technical support and spare parts. The
Company also warrants to the End-User that its product (exclusive of product
software) will be free from defects in material and workmanship at time of
delivery to End-User and for a period of 12 months from date of completion of
product installation.
While the HMSA Agreement was to have expired on August 12, 2000, same
remains in full force and effect in accordance with certain specific provisions
thereof which provide that if after August 12, 2000 the parties nevertheless
continue to do business then such Agreement will continue in effect subject to
the terms and conditions contained therein and will be terminable by either
party, with or without cause, upon 30 days written notice to the other party.
Neither party has exercised any termination rights and, in fact, are actively
engaged in negotiations with a view towards extending their relationship for an
additional period of time of no less than 1 year and possibly for a number of
years. It is anticipated, although no assurance can be given, that entry into a
new formal agreement will occur during calendar year 2000.
Percentage of ddRMulti-Systems Sold Directly by Company as Compared To
Its Distributors
With respect to a total of 64 ddRMulti-Systems contracted for sale
during fiscal year ended June 30, 2000, 47 (73%) of same were made directly
through the efforts of the Company's internal staff and sales team while the
balance of 17 (27%) were made through the efforts of Company distributors.
Hitachi Medical Systems America, Inc. was responsible for 10 of such 17
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, while for the fiscal year ended June 30, 2000 sales to the
Company single largest customer accounted for approximately 49.14% of all
revenues. The single largest customer for each year was a different entity.
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
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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.
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 was 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.
Research and Development
During the fiscal year ended June 30, 2000 the Company incurred
expenses regarding research and development of $1,914,065 (accounting for 11% of
the Company's operating expenses) compared to $1,808,107 (accounting for 9% of
the Company's operating expenses) for fiscal year ended June 30, 1999 and
compared to $3,542,149 (accounting for 19% of the Company's operating expenses)
for fiscal year ended June 30, 1998. The decrease of the Company's research and
development expenses by 49% from the fiscal year ended June 30, 1998 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 developed by or on behalf of the Company during fiscal
year ended June 30, 2000 include a new direct digital chest examination system
(ddRChest-System), a direct digital universal radiography system (ddRCombi) 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 September 12, 2000, the Company employed 13 people in research
and development. The number of people employed in research and development has
increased by 30% since June 30, 1999. 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,
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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, 2000 finished
products accounted for approximately 14.2% of inventory while raw material,
parts and supplies accounted for approximately 57.8% of inventory and work in
process for approximately 28%.
The percentage of Company revenues derived from products which included
components then only currently available from a single source supplier amounted
to 64.2% as of June 30, 2000 all of which related to both single source supplier
of certain camera electronics and single source supplier of optics (since both
items are included in the same product) as compared to 13.6% as of June 30,
1999. See below with respect to recent commencement of in-house production of
camera electronics.
(A) Information With Respect to In-house Production of Camera
Electronics
The agreement with the single source supplier of certain camera
electronics terminated December 31, 1999 due to the fact that its manufacturing
plant where the camera electronics had been manufactured permanently closed on
such date and Company management was not satisfied with proposals submitted to
it by such supplier regarding the latters intentions of establishing a new
manufacturing plant. Company agreement with its then new supplier of camera
electronics provided for availability of such camera electronics to the Company
commencing January 1, 2000. In January of 2000 the Company entered into a new
arms-length agreement with its CCD camera supplier Laboratories d'Electronique
Philips S.A.S. whereby the Company has purchased, from available working
capital, the production facility (including necessary tools equipment, diagrams
and related knowhow) for approximately 250,000 Swiss Francs (US$161,290) and it
is management's intention through such purchase) to have a sufficient number of
CCD cameras on hand (four per system) to cover in excess of those immediately
required to cover orders. Through in-house production of key camera components
the Company has eliminated its reliance upon its former supplier, looks forward
to reduction in camera costs because at a minimum the Company will no longer
have to fund its former suppliers profit margin and does not expect any material
business interruptions to occur regarding CCD camera availability in a timely
manner nor does it anticipate that such in-house production will have any affect
upon quality of its ddR-Systems.
(B) Agreement With Single Source Supplier of Optics
The agreement with the single source supplier of optics expires in July
2002, may not be terminated by either party without cause and is subject to
renegotiations which are expected to occur assuming contract fulfillment
continues to be concluded in a timely and satisfactory manner with price and
payment terms being comparable to those currently being utilized and meeting
Company capacity requirements. The percentage of revenues from this single
source supplier of optics amounted to approximately 13.6% at fiscal year ended
June 30, 1999 and 64.2% at fiscal year ended June 30, 2000. While management has
no current expectation or need to replace this supplier it does not envision
encountering any material difficulties in replacing such supplier (with a
different optics manufacturer having the ability to timely deliver comparable
optic quality) if necessary in the event of any unforeseen circumstances which
may require replacement.
Backlog
Management estimates that as of the end of fiscal year ended June 30,
2000 the Company had an order backlog of $8,800,000 which consisted of
$2,080,000 in conventional x-ray equipment and $6,720,000 in digital (i.e.
ddRMulti-Systems and information solutions) as compared to an order backlog of
$12,000,000 which consisted of $8,000,000 in conventional x-ray equipment and
$4,000,000 in digital during fiscal year ended June 30, 1999 and as further
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
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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. As a result
of certain recent economic problems 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
order backlog for conventional X-ray equipment 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 the same or increase in the future
as the Company estimates that orders for such equipment will increase due to the
Company's sales focus.
Competition
X-Ray Equipment Market
The markets in which the Company operates are highly competitive and
are characterized by rapid and significant technological change. 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 conventional 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. With respect
to such ddRMulti-System, management does not believe that it has any current
competition and is of the belief that the Company continues to enjoy a lead for
serial production units. Notwithstanding such beliefs the Company is aware of
the fact that 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). While, as aforesaid, management
of the Company believes that the Company enjoys a significant product lead over
its competitors as a result of its ddRMulti-System's industry acceptance, its
competitors may, at any time, have significant breakthrough(s) thereby reducing
and/or eliminating the Company's lead. Accordingly, no assurance can be given
that any established product leads will not be reduced or significantly
eliminated within the near future and if such were to occur the Company's
ability to position itself to capture the majority of what is estimated to be a
$10,000,000,000 total worldwide market would be materially reduced. See "--
Products," "-- Markets".
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".
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Intellectual Property and Patents
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 approval for one of its two patents, the
U.S. patent, while the European patent is still pending. 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, may occur or may be claimed. 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(R) postprocessing systems. The
software license is a worldwide, non-exclusive, non-transferable license to use
and distribute the Agfa software in combination with the Add-On Bucky and is
based upon certain minimum purchase requirements which the Company continues to
meet and exceed.
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 which it considers to have any merit whatsoever.
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 March 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 March 2000 in
the U.S., while in Europe the patent is still pending. 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, President and 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
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technology indicated herein. The second patent application for the optical
arrangement and method for electronical detecting an x-ray image has been
submitted and is pending approval in Europe while the U.S. patent therefore was
granted to the Company (Patent No. 6,038,286) in March 2000.
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. The Company
submitted both its Add-on-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.
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.
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, Germany, Czech
Republic and Romania. 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 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.
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Sale of Substantially All of the Assets of Empower, Inc.
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
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; and (iii) the payment by Parker of
approximately $376,000 to a banking institution in satisfaction of certain
outstanding indebtedness of Empower. Empower remains a wholly owned (but
currently inactive) subsidiary of the Company. 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, to wit: J. Douglas Maxwell. 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 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.
Acquisition of Substantially 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, 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 which was recently settled
on August 31, 1999. See Item 3 - "Legal Proceedings". 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.
Sale of Conventional X-Ray Division in Germany
The Company's primary focus is currently on direct digital radiography
("ddR") as opposed to conventional x-ray equipment. In that regard the Company's
German subsidiary (Swissray GmbH, Wiesbaden, Germany) sold its conventional
x-ray business division in March 2000 to an unaffiliated third
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party in order to more extensively focus upon sales and marketing of ddR
equipment. See also Item 1 - "Recent Developments" hereinafter.
Employees
After giving effect to the Empower, Inc. transaction hereinabove
referred to the Company has 114 employees worldwide, of which 20 were employed
by subsidiaries in the United States, 79 in Switzerland, and 15 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.
Restrictive Shares Issued In Accordance With Consulting Agreements
Consulting Agreement with Liviakis Financial Communications, Inc.
On March 29, 1999 the Company entered into a one year Consulting
Agreement 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 was required to and did 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, the Company's President, 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. Notwithstanding the fact that the March 29, 1999 agreement
permitted the Company to extend same (for an additional year) under the same
terms and conditions excepting for annual remuneration, the Company and LFC
agreed to renegotiate remuneration. As a result thereof the parties (on March
29, 2000) entered into a new one year "Consulting Agreement", which Agreement is
virtually identical to the initial Agreement (including but not limited to
voting rights on shares issued as referred to directly above) excepting that (a)
the "Remuneration" section provides for the issuance of 490,000 fully vested
non-forfeitable shares of the Company's common stock and further provides for
the issuance of 36,000 restrictive shares of Company common stock (based on
3,000 shares per month) throughout the period of Consultant's performance and
(b) LFC has agreed to "lock up" the original 3,000,000 shares issued to it and
not attempt to sell same through Rule 144 or otherwise despite being eligible to
do so with such "lock up" to continue to March 28, 2001 unless the current
consulting agreement is terminated or the Company is acquired by another entity
prior to March 28, 2001. Since both the initial Agreement referred to above and
the new Agreement entered into on March 29, 2000 are identical in all material
respects excepting as indicated above, such Consulting Agreements are
hereinafter referred to collectively as "Consulting Agreement". 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 certain 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
establishing an image for 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 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
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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 (since
terminated - see "Recent Developments" below) 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.
Consulting Agreement with Rolcan Finance Ltd.
Additionally, on March 29, 1999 the Company entered into an 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
and did 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
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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 appropriate under 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 the sale of 32 of its ddRMulti-Systems to
Romania. Rolcan, established in 1993 by its Managing Director and control
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 $0.50 per share as quoted on the
date (March 29, 1999) that the parties each entered into and executed their
respective Consulting Agreements. The factors considered by the Company's Board
in determining the 10% discount from the bid price of $0.50 per share when
issuing the above reference shares to LFC and Rolcan was based upon the Board's
determination that there is a 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 either 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.
Recent Developments
In July of 1999 the Company signed a one year investment banking
agreement with Raymond James & Associates, Inc. (NYSE:RJE - news). Under the
terms of the agreement, Raymond James was to 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. On August 2, 2000 the Company advised
Raymond James that it did not intend to renew the agreement and forwarded
necessary notice of termination. As of date of termination no monies were due to
Raymond James other than for certain out of pocket disbursements which Raymond
James claims are due to it.
In August of 1999 the Company signed a one year exclusive sales,
marketing and service agreement with Hitachi Medical Systems America, Inc.
(HMA), a subsidiary of Hitachi Medical Corporation. Under the terms of the
agreement HMA 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. For further and more specific
information with respect to this agreement, see "Sales and Marketing -
Distribution Agreements - The Hitachi Agreement". With respect to the current
status of the HMSA Agreement, reference is herewith made to Item 1 "Business -
Sales
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and Marketing - The Hitachi Agreement".
In October 1999 the Company was awarded a purchase order for 32 of its
unique direct digital Radiography Systems from the Romanian Ministry of Health
for its multifunctional ddRMulti-System, valued at over US$13,800,000.
Installation was made in various hospitals throughout Romania, The initial
payment aggregating 15% of the aforesaid total proceeds (i.e., approximately
$2,070,000) was received by the Company in early March 2000. The Company sold 25
of the 32 ddRMulti-Systems through close of its fiscal year ended June 30, 2000
while the balance of 7 Systems were sold during the first quarter of the
Company's current fiscal year.
In March 2000 the Company's German subsidiary sold its conventional
x-ray division to an unaffiliated third party in order to focus its attentions
upon sales and marketing efforts in the field of direct digital radiography. The
transaction principally consisted of the sale of inventory and equipment (at
costs approximating $53,000) and the purchaser's agreement to assume certain
fixed costs (approximating an additional $32,000). There was no gain or loss to
the Company as a result of this transaction. See also Item 1 "Business -
Background Summary".
Notwithstanding the above referenced March 2000 sale of the
conventional x-ray division, management of the Company does not have any current
plans to sell its conventional OEM business.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
As heretofore indicated on the cover page of this Form 10-K under the
heading "Documents Incorporated by Reference" certain portions of the Company's
recently declared effective (August 14, 2000) Registration Statement and in
particular, but not limited to, the section therein entitled "Risk Factors" have
been incorporated by reference. As a result thereof the following "Cautionary
Statement" should be taken into careful consideration.
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 information
contained in this Form 10-K for the fiscal year ended June 30, 2000 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 incorporated by reference from the Company's aforesaid Registration
Statement.
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, 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.
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 Hochdorf facility provides it with sufficient production and office
space to meet its demand in Switzerland in the foreseeable future.
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The Company also leases office space in Westchester, Brno, Czech
Republic, Wiesbaden, Germany and Bucharest, Romania.
ITEM 3. LEGAL PROCEEDINGS
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 in the Supreme Court of the State of New York, County of New York,
alleging that these individuals breached the obligations undertaken by them in
their respective Employment Agreements. Further, Messrs. Durday, Montler and
Harle commenced an action in Superior
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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 the 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.
Parties to each of the aforesaid proceedings 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 on 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 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
counterclaims seeking (amongst other matters) dismissal of the complaint and
recision of the settlement agreement. It is Swissray's management's intention to
contest this matter vigorously. An Order has been made on July 24, 2000 granting
Maxwell partial summary judgment on his claim for approximately $320,000 and the
balance of his claim has been severed for trial.
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, 2000.
The Company held its Annual Meeting of Stockholders for fiscal year
ended June 30, 1999 on July 12, 2000, at which time stockholders (i) elected
each of those five persons nominated to serve on the Company's Board of
Directors and (ii) approved the appointment of Feldman Sherb & Co., P.C. as the
Company's independent accountants for fiscal year ended June 30, 2000 - both by
an overwhelming majority approximating in excess of 98% of all votes cast.
Moreover stockholders approved (a) the proposal to adopt the Company's
2000 Stock Option Plan and (b) the proposal to increase authorized common shares
from 50,000,000 to 100,000,000. In each instance votes for such approvals were
in excess of 96% of all votes cast (excluding abstentions).
With respect to certain "shareholder ratification" proposals
(designated 3 and 4) - in excess of 96% of all votes cast, excluding
abstentions, voted in favor of ratifying the issuance of 2,000,000 restrictive
shares of Company common stock to its President in exchange for and in
consideration of cancellation of certain bonus provisions contained in
employment agreement while in excess of 95% of all votes cast, excluding
abstentions, voted in favor of issuance of certain other shares of Company
common stock (aggregating
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875,000 restrictive shares) to certain of its employees. In each instance those
persons who had received shares of Company common stock for which shareholder
ratification was sought abstained from voting. See Item 11 "Executive
Compensation" as relates to the aforesaid issuance of 2,000,000 to the Company's
President and Item 13 "Certain Relationships and Related Transactions" as
relates to the issuance of the aforesaid 875,000 restrictive shares of Company
common stock.
The number of shares of Common Stock voted at the Annual Meeting
approximated 95% of all issued and outstanding securities as of the record date.
The Company has established a tentative date of November 30, 2000 for
holding its Annual Meeting of Stockholders for fiscal year ended June 30, 2000
with the intention that same be held in Chicago, Illinois during the annual
Radiological Society of North America convention. Specific plans as to agenda
have not yet been finalized.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information
The Registrant's common stock, $.01 par value (the "Common Stock") was
listed on the Nasdaq SmallCap Market and traded under the symbol 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, 1999 Quarterly Common Stock Price
By Quarter Ranges (1)(2)
------------------------------- ----------------------------
Quarter Date High Low
1st September 30, 1998 (3) $0.5625 $0.188
2nd December 31, 1998 $1.375 $0.875
3rd March 31, 1999 $1.25 $0.375
4th June 30, 1999 $2.812 $2.437
Fiscal Year Ended June 30, 2000 Quarterly Common Stock Price
By Quarter Ranges (1)(2)
------------------------------- ----------------------------
Quarter Date High Low
1st September 30, 1999 $4.062 $1.875
2nd December 31, 1999 $7.40625 $2.71875
3rd March 31, 2000 $9.937 $3.375
4th June 30, 2000 $4.05 $2.187
(1) The Registrant's Common Stock began trading on the Nasdaq SmallCap market on
March 20, 1996 with an opening bid of $4.75. 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
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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 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 but 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 September 12, 2000 there were 516
stockholders of record of the Registrant's Common Stock and 23,667,129 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) Nasdaq Delisting
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 Nasdaq Listing and Hearing and Review Council ("Council") on its own
motion on December 9, 1998 determined to review the Nasdaq Listing
Qualifications Panel ("Panel") delisting decision. The Company, on its own
initiative also timely perfected its appeal. On April 1, 1999 the Council issued
a decision whereby it reversed and remanded the decision of the Nasdaq Panel
with certain instructions. The Panel, in a November 5, 1999 decision, opined
that the Company failed to evidence compliance with all requirements for
continued listing on the Nasdaq SmallCap Market and on June 1, 2000 the Council
affirmed the decision of the Panel indicating that it agreed with the Panel's
various conclusions. Thereafter and pursuant to NASD Rule 4850(a), the NASD
Board of Governors declined to call this decision for review and the Company was
so notified on July 28, 2000.
For detailed summarized information regarding certain pertinent
findings of both the Panel and Council from initial delisting through conclusion
of the Nasdaq appeal process, reference is herewith made to the Company's Form
S-1 Registration Statement as declared effective August 14, 2000 and in
particular to that portion thereof entitled "Market Prices and Dividend Policy"
subheading "Continued Nasdaq Delisting". See also cover page to this Form 10-K
under the heading "Documents Incorporated by Reference".
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ITEM 6. SELECTED FINANCIAL DATA
Swissray International
SELECTED CONSOLIDATED FINANCIAL 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 document. The selected consolidated
financial data as of and for the fiscal years ended June 30, 1996, June 30,
1997, June 30, 1998, June 30, 1999 and June 30, 2000 are derived from the
consolidated financial statements of the Company.
<TABLE>
<CAPTION>
Year Ended
June 30,
------------- --------------- ---------------- -------------- --------------
2000 1999* 1998 1997* 1996
------------ --------------- --------------- -------------- --------------
(in thosands, except per share data)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales 22,030 17,296 22,893 13,151 10,899
Cost of goods sold 16,500 13,529 18,082 8,445 5,793
------------ --------------- --------------- -------------- --------------
Gross profit 5,530 3,767 4,811 4,706 5,106
Gross profit margin (%) 25% 22% 21% 36% 47%
Selling, general and administrative 17,011 19,346 18,748 17,450 14,966
------------ --------------- --------------- -------------- --------------
Operating loss (11,481) (15,579) (13,937) (12,744) (9,860)
Other expense (income) (190) (40) 281 (319) (1,004)
Interest expense 10,347 5,639 8,590 762 194
------------ --------------- --------------- -------------- --------------
Loss from continuing operations
before income taxes (21,638) (21,178) (22,808) (13,187) (9,050)
Income tax provision (benefit) - - - 110 (365)
------------ --------------- --------------- -------------- --------------
Loss from continuing operations (21,638) (21,178) (22,808) (13,297) (8,685)
Loss from continuing operations
per common share (1.14) (3.24) (8.48) (8.41) (6.69)
============ =============== =============== ============== ==============
BALANCE SHEET DATA:
Total assets 25,383 23,511 25,915 24,788 18,793
Long-term liabilities 14,470 15,501 7,771 5,635 -
Common stock subject to put 320 1,820 1,820 320 -
</TABLE>
(1) 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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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
GENERAL
Throughout fiscal year ended June 30, 2000 the Company took a number of
important steps to strengthen its position in the field of radiology with
specific emphasis upon its direct digital radiography line and additions thereto
so as to expand its dedicated systems and so as to offer solutions to important
aspects of digital radiography.
Market penetration of the Company's flag ship product, the
ddRMulti-System, continued to increase as a result of the sales efforts of the
Company's internal sales staff as well as the sales and distribution efforts of
Hitachi Medical Systems America, Inc., the Company's principal distributor
within certain defined territories in the U.S. While initial market penetration
resulted in the sale of 12 ddRMulti-Systems during fiscal year ended June 30,
1999, fiscal year ended June 30, 2000 saw substantial and significant further
market penetration in that the Company contracted for the sale of 64
ddRMulti-Systems (29 of which were contracted for sale in the U.S. and with the
balance being contracted for sale outside the U.S., inclusive of 32
ddRMulti-Systems contracted for sale to the Government of Romania). A balance of
8 of such 64 ddR Systems currently remain on backlog. See below for updated
information with respect to sales to the Government of Romania.
As regards sales to Romania, the Company completed sale (primarily
during fiscal year ended June 30, 2000), of all 32 ddRMulti-Systems and the
entire contract, valued at $13,800,000, has been paid in full.
During its past fiscal year, the Company has continued to shift its
primary focus and emphasis from conventional x-ray equipment to direct digital
radiography, with its German subsidiary selling its conventional x-ray business
division (in March 2000) to an unaffiliated third party in order to more
extensively focus upon sales and marketing of ddR equipment. This shift in
emphasis has already proven successful with such German subsidiary having (in
September 2000) contracted for the sale of two ddRMulti-Systems and one ddRCombi
(see below) to outpatient radiology clinics in Germany.
With the introduction of two new products, the ddRChest-System, a
dedicated chest unit and the ddRCombi, a multifunctional unit perfectly suited
for Emergency Room applications, the Company has succeeded in positioning itself
with a high tech image and entered the new millennium with a substantial list of
potential ddR and informatics business opportunities. Both Systems are based
upon the patented technology of the ddRMulti-System. See also Item 1 - "Business
- New Products" for further information.
So as to no longer be in a position whereby it would have to rely upon
a single source supplier of certain camera electronics, the Company, in January
of 2000, entered into an agreement with a CCD camera supplier, whereby it
purchased a production facility (including necessary tools, equipment, diagrams
and related knowhow) with the intention of commencing in-house production of key
camera components concurrently with eliminating its reliance upon outside
suppliers and simultaneously reducing camera costs. In-house production has been
successful.
The Company's efforts were again recognized for the second consecutive
year (by unaffiliated third parties) as evidenced by its having been chosen (in
August of 2000) as one of the 50 fastest growing technology companies in the New
York City/Westchester/Rockland County areas. This program was sponsored by,
amongst others, NASDAQ/AMEX and Deloitte & Touche. Additionally, The Company
received two awards for its outstanding marketing campaign and presence at the
1999 RSNA meeting: the
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Pro-Comm 1999 and the 2000 BMA tower award, both sponsored by the Business
Marketing Association.
Ongoing efforts in the Company's research and development department
have recently led to the Company being issued patents in both the U.S. (in
September 1999) and in Europe (in May 1999) for the direct digital Radiography
(ddR) detector, the AddOn-Bucky. These patents relate to the optical arrangement
and process for transmitting and converting primary x-ray images generated on a
two dimensional primary image array. Furthermore, the patent for the mirror
optics has been approved in the U.S. in March 2000 for the optical arrangement
and method for electronically detecting an x-ray image while a similar patent
awaits European approval. For the aforesaid ddRCombi and ddRChest-System the
Company was granted a design protection in Switzerland. Additional patent
applications for the design protection for both Systems have been submitted in
Sweden, Germany, Benelux, France, Canada and the U.S. and are currently pending
approval.
The Company received its UL (July 1999) and CE (December 1999) label
for its ddRMulti-System. This certification is a public statement of compliance
with a known standard and an extremely stringent approval process involving
assessment and documentation of a product sample by an independent third party
organization followed by on-going periodic product inspections at the
manufacturing site.
Management of the Company believes that its unique technology and
vision for the future have set the stage for continued growth in the years to
come and anticipate a continued increase in demand for the Company's direct
digital radiography solutions, which belief is based upon results of clinical
successes in the U.S. as well as in Europe.
YEAR 2000 POLICY STATEMENT AND COSTS
The Company conducted an extensive program to check the status of its
equipment (information and non-information 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 was 100% compliant and was
ready for Y2K and 100% of the Company's installed base equipment (information
and non-information technology) fulfilled year 2000 compliance. Accordingly,
contingency plans worked out by the Company proved to be unnecessary.
Total year 2000 costs approximated $100,000 with approximately 50%
thereof being allocated towards testing and surveying of the Company own
products.
Neither Swissray nor any third party with whom it has material
relationships, suffered any significant adverse consequences resulting from the
transition to Year 2000 or thereafter.
YEAR ENDED JUNE 30, 2000 COMPARED TO YEAR ENDED JUNE 30, 1999
RESULTS OF OPERATIONS
Net sales amounted to $22,030,124 for the year ended June 30, 2000,
compared to $17,295,882 for the year ended June 30, 1999 an increase of
$4,734,242 or 27.4% from the year ended June 30, 1999. The 27.4% increase in net
sales was mainly due to the sale of ddRMulti-Systems increasing by 486.5% or
$11,728,441. This significant increase was slightly offset by a decrease in
conventional x-ray of 32.3% ($861,006) and conventional OEM-Business of 60.4%
($5,923,145). The decrease in conventional x-ray and conventional OEM-Business
is due to the Company's conscious effort of promoting sales of ddRMulti-Systems
with a corresponding decline of interest in sales of conventional x-ray and
conventional OEM-Business.
In the past the Company has been substantially reliant upon Philips
Medical Systems ("Philips") but
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at this stage of the Company's maturation process and as same continues to
develop, reliance upon Philips has correspondingly decreased. Additionally, the
Company's agreement with Philips relates to conventional x-ray equipment which
has been a low profit margin item. More and more this type of sale is being
replaced by (a) Company sale of conventional x-ray equipment directly to
purchasing country and/or hospital and/or to the ultimate user thereof and (b)
more significantly and importantly by Company's sales of its ddRMulti- System -
its flagship product.
Gross profit increased by $1,763,547 or 46.8% to $5,530,128 for the
year ended June 30, 2000, from $3,766,581 for the year ended June 30, 1999.
Gross profit as a percentage of net revenues increased to 25.1% for the year
ended June 30, 2000 from 21.8% for the year ended June 30, 1999. The increase in
gross profit as a percentage of net revenues is attributable to the fact that
the percentage of sales of ddRMulti-Systems to total sales increased to 64.2% of
total sales for the year ended June 30, 2000 from 13.9% for the year ended June
30, 1999.
Operating expenses decreased by $2,334,842 or 12.1% to $17,011,097, or
77.2% of net revenues, for the year ended June 30, 2000, from $19,345,939 or
111.9% of net revenues for the year ended June 30, 1999. The principal items
were officers and directors compensation of $2,831,662 or 12.9% of net sales for
the year ended June 30, 2000 compared to $5,014,293 or 29% of net sales for the
year ended June 30, 1999, salaries (net of officers and directors compensation)
of $3,762,009 or 17.1% of net sales for the year ended June 30,2000 compared to
$3,784,305 or 21.9% of net sales for the year ended June 30, 1999 and selling
expenses of $4,352,016 or 19.8% of net sales for the year ended June 30, 2000
compared to $3,207,646 or 18.5% of net sales for the year ended June 30, 1999.
Research and development expenses were $1,914,065 or 8.7% of net sales for the
year ended June 30, 2000 compared to $1,808,107 or 10.5% of net sales for the
year ended June 30, 1999. The increase is primarily due to the development of
the ddrCombi and the ddRChest unit. General and administrative expenses
decreased by $667,928 or 26.9% to $1,816,828 or 8.2% of net sales for the year
ended June 30, 2000 from $2,484,756 or 14.4% of net sales for the year ended
June 30, 1999. The decrease in officers and directors compensation of $2,182,631
or 43.5% is due to the fact that within fiscal 1999 common stock issued to the
President in exchange for extinguishment of certain bonus rights contained in
his employment agreement amounted to $4,320,000 whereas common stock issued
within fiscal year 2000 to directors and officers for services amounted to
$2,165,625. The decrease in selling and general administrative expenses is due
to overall savings, primarily on professional fees and services. Other operating
expenses decreased by $182,204 or 17.1% to $883,835 or 4% of net sales for the
year ended June 30, 2000 from $1,066,039 or 6.2% of net sales for the year ended
June 30, 1999. This decrease is primarily due to the decrease in rent and
insurance costs.
Interest expenses increased to $10,347,427 for the year ended June 30,
2000 compared to $5,638,928 for the year ended June 30, 1999. This increase is
primarily due to the increase of interest expense for accrual of penalty
interest on periodic payments required by terms of financing agreements and an
increase in amortization of Debenture issuance cost and Conversion Benefit.
Loss on extinguishment of debt was $0 for the year ended June 30, 2000
compared to a loss of $832,849 for the year ended June 30, 1999. The
extinguishment gain or loss resulted from refinancing of Convertible debentures.
FINANCIAL CONDITION
June 30, 2000 compared to June 30, 1999
Total assets of the Company on June 30, 2000 increased by $1,871,825 to
$25,383,014 from $23,511,189 on June 30, 1999, primarily due to the increase of
current assets. Current assets increased $1,902,120 to $13,831,501 on June 30,
2000 from $11,929,381 on June 30, 1999. The increase in current assets is
attributable to the increase of cash and cash equivalents of $1,729,886,
restricted cash of $1,385,600 and the increase of accounts receivable of
$736,520 of which approximately $1,840,250 arises from the sale of
ddRMulti-Systems to Romania which was partially offset by the decrease in
inventory of $2,695,249 caused
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by the sales of these units to Romania and the increase in prepaid expenses and
sundry receivables of $445,363. Other assets decreased $47,871 to $5,250,897 on
June 30, 2000 from $5,298,768 on June 30, 1999. The decrease is primarily
attributable to the amortization of the licensing agreement, patents &
trademark, software development cost and the goodwill.
On June 30, 2000, the Company had total liabilities of $35,384,045
compared to $30,445,812 on June 30, 1999. On June 30, 2000, current liabilities
were $21,233,649 compared to $14,944,865 on June 30, 1999. Working capital at
June 30, 2000 was $(7,402,148) compared to $(3,015,484) at June 30, 1999.
CASH FLOW AND CAPITAL EXPENDITURES YEAR ENDED JUNE 30, 2000 COMPARED TO YEAR
ENDED JUNE 30, 1999.
Cash used for operating activities for the year ended June 30, 2000 was
$4,360,009 compared to $9,788,606 for the year ended June 30, 1999. Cash used
for investing activities was $639,778 for the year ended June 30, 2000 compared
to $879,303 for the year ended June 30, 1999. Cash flow from financing
activities for the year ended June 30, 2000 was $6,215,558 compared to
$11,068,406 for year ended June 30, 1999.
Liquidity
The Company anticipates that its use of cash will remain 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 ddR Systems and
related products. 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. The Company received
written representations from each investor to the effect that they were each
accredited investors as defined in Rule 501(a) of Regulation D. One Hundred
percent of the face amount of the Convertible Debentures were convertible into
shares of Common Stock of the Company at the earlier of May 15, 1998 or the
effective date of a Registration Statement (since declared effective August 14,
2000) 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 were 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.
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. The Company received
written representations from each investor to the effect that they were each
accredited investors as defined in Rule 501(a) of Regulation D. One Hundred
percent of the face amount of the Convertible Debentures were convertible into
shares of Common Stock of the Company at
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the earlier of August 14, 1998 or the effective date of a Registration Statement
(since declared effective August 14, 2000) 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 were 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.
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 were 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 became subject to mandatory conversion by the
Company on the 24th monthly anniversary of the date of issuance of the
Convertible Debentures. As of September 12, 2000 an unconverted balance
exclusive of interest and liquidated damages of $3,930,594 remains outstanding
and is subject to conversion.
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 became 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 became subject to mandatory conversion by the Company on the 24th
monthly anniversary of the date of issuance of the Convertible Debentures. As of
September 12, 2000 none of these debentures have been converted.
The Registrant received gross proceeds of $1,080,000 in December, 1998,
pursuant to promissory notes bearing interest at the rate of 5% per annum for
the first 90 calendar days (through March 13, 1999) with the Company having the
option to extend the notes for an additional 60 days with interest increasing 2%
per annum during the 60 day period. The Company exercised its extension option.
As further consideration for the loan, the Company issued Lenders Warrants to
purchase up to 50,000 shares of the Company's common stock exercisable, in whole
or in part, for a period of up to 5 years at $.375 (the bid price for Company
shares on the date of closing). The 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 82% of the 10 day average bid price for the 10
consecutive trading days immediately preceding the conversion date or $1.00
whichever is less. 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 of September 12, 2000 none of these debentures have been converted.
On January 29, 1999 the Company issued a principal aggregate amount of
$1,170,000 of convertible
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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 Company received a net amount of $1,020,000. The Company received
written representations from each investor to the effect that they were each
accredited investors as defined in Rule 501(a) of Regulation D. 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 as of September 12, 2000 have been converted. As of
September 12, 2000 none of these debentures have been converted.
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 was 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 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 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 a Contingent Subscription Agreement and
Registration Rights Agreement automatically went into effect. As of September
12, 2000 none of these debentures have been converted.
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
note was June 25, 1999, (d) the potential 60 day extension date on such
promissory note was August 24, 1999 but such extension 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 in all material respects 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 and
Registration Rights Agreement automatically went into effect. As of September
12, 2000 none of these debentures have been converted.
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 - Endeavor 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 deducting fees directly
attributable to such offering the Company received a net amount of $772,727. The
Company received written representations from each investor to the effect that
they were each accredited investors as defined in Rule 501(a) of Regulation D.
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. As of September 12, 2000 an unconverted balance exclusive of
interest and liquidated damages of $471,200 remains outstanding and is subject
to conversion.
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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
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 was 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 in all material respects 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. As of September 12, 2000 none of these debentures have been converted.
On August 11, 1999 the Company entered into a fifth promissory note
(contingent convertible debenture financing) with terms and conditions identical
in all material respects to those set forth in the March 2, 1999 promissory note
financing referred to 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 was 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 were identical in all material respects to those described in the
above referenced March 2, 1999 transaction. The promissory note was not paid on
its due date and the terms of the Contingent Subscription Agreement, Convertible
Debenture and Registration Rights Agreement automatically went into effect. As
of September 12, 2000 none of these debentures have been converted.
Pursuant to an agreement entered into on September 2, 1999, the Company
authorized a purchaser to purchase 1,000,000 shares at $1.00 per share (which
occurred on September 7, 1999) and up to an additional 2,000,000 shares at $1.50
per share so long as the first 1,000,000 shares were purchased on or before
September 30, 1999 and as long as the purchaser purchased at least an additional
1,000,000 shares within 60 days of its first purchase. The first purchase, as
aforesaid, was made on September 7, 1999 (at $1.00 per share) while the next
1,000,000 shares were purchased on October 19, 1999 (500,000 shares at $1.50 per
share) and November 1, 1999 (500,000 shares at $1.50 per share). Having met the
purchase requirements, the purchaser was entitled (through March 1, 2000) to
purchase the balance of the shares referred to at $1.50 but only purchased
666,667 shares at such price in December 1999. The investment participants
involved in the above transactions and the number of shares (an aggregate of
2,666,667 shares) and purchase price per share paid by each of such participants
is as follows: Parkdale LLC - 1,000,000 shares at $1.00, Southridge Capital
Management LLC - 333,334 shares at $1.50, Striker Capital - 833,334 shares at
$1.50, Alfred Hahnfeldt - 333,332 shares at $1.50 and Greenfield Investments
Consultants LLC - 166,667 shares at $1.50.
In February 2000 the Company entered into an additional separate
transaction whereby it sold 333,333 restrictive shares of its common stock at
$3.00 per share to Dundurn Street LLC.
EFFECT OF CURRENCY ON RESULTS OF OPERATIONS
The results of operations and the financial position of the Company's
subsidiaries outside of the United States are 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, 1999 COMPARED 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,
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a decrease of $5,597,096, or 24.4% from the year ended June 30, 1998.Sales for
the 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, 1999 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
$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 periodic payments required by term of financing agreements and
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 again 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.
On June 30, 1999, the Company had total liabilities of $30,445,812
compared to $19,755,870 on June 30, 1998. On June 30, 1999, current liabilities
were $14,944,865 compared to $11,984,554 on June
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30, 1998. Working capital at June 30, 199 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.
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 fiscal year ended June 30,
2000 the Company had an order backlog of $8,800,000 which consisted of
$2,080,000 in conventional x-ray equipment and $6,720,000 in digital (i,e.,
ddRMulti-Systems and information solutions) as compared to an order backlog of
$12,000,000 which consisted of $8,000,000 in conventional x-ray equipment and
$4,000,000 in ddRMulti-Systems as of the fiscal year ended June 30, 1999.
NEW ACCOUNTING PRONOUNCEMENTS
The Company has adopted 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 did not
have a material impact on the Company's financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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, 2000, 1999 and 1998:
Independent Auditors' Report F-1
Consolidated Balance Sheets at June 30, 2000 and 1999 F-2-3
Consolidated Statements of Operations for the years ended
June 30, 2000, 1999 and 1998 F-4
Consolidated Statements of Cash flows for the years ended
June 30, 2000, 1999 and 1998 F-5-6
Consolidated Statements of Stockholders Equity for the years
ended June 30, 2000, 1999 and 1998 F-7-8
Notes to Consolidated Financial Statements F-9-23
-35-
<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, 2000 and 1999 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years 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, 2000 and 1999, and the results of its operations
changes in stockholders' equity and cash flows for each of the three years then
ended in conformity with generally accepted accounting principles.
/s/ Feldman Sherb & Co., P.C.
Feldman Sherb & Co., P.C.
Certified Public Accountants
New York, New York
August 4, 2000
F-1
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
------------------------------
2000 1999
(Restated)
------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,011,183 $ 1,281,297
Restricted cash 1,385,600 -
Notes receivable - short-term 300,000 -
Accounts receivable, net of allowance for doubtful
accounts of $170,883 and $219,993 3,185,399 2,448,879
Inventories 4,637,152 7,332,401
Prepaid expenses and sundry receivables 1,312,167 866,804
------------------------------
TOTAL CURRENT ASSETS 13,831,501 11,929,381
------------------------------
PROPERTY AND EQUIPMENT 6,300,616 6,283,040
------------------------------
OTHER ASSETS
Loan receivable - 15,948
Loan receivable affiliates 768,647 -
Licensing agreement 2,607,451 3,104,109
Patents and trademarks 171,866 199,906
Software development costs 256,380 347,763
Security deposits 28,035 28,035
Goodwill 1,409,680 1,603,007
------------------------------
TOTAL OTHER ASSETS 5,250,897 5,298,768
------------------------------
TOTAL ASSETS $25,383,014 $23,511,189
==============================
</TABLE>
F-2
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL
CONSOLIDATED BALANCE SHEET (Continued)
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
------------------------------
2000 1999
(Restated)
------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 229,700 $ 247,028
Notes payable - banks 3,667,159 3,667,159
Notes payable - short-term 1,352,502 1,700,000
Loan payable 119,885 126,006
Accounts payable 4,340,033 5,422,321
Accrued expenses 10,727,576 3,003,844
Restructuring 100,000 500,000
Customer deposits 785,614 278,507
------------------------------
TOTAL CURRENT LIABILITIES 21,233,649 14,944,865
------------------------------
CONVERTIBLE DEBENTURES, net of conversion benefit 14,067,294 15,305,852
------------------------------
LONG-TERM DEBT, less current maturities 83,102 195,095
COMMON STOCK SUBJECT TO PUT 319,985 1,819,985
STOCKHOLDERS' DEFICIT
Common stock 233,999 140,062
Additional paid-in capital 88,207,532 69,028,013
Treasury stock (2,040,000) (540,000)
Deferred compensation (998,399) (1,282,500)
Accumulated deficit (94,130,543) (72,492,463)
Accumulated other comprehensive loss (1,273,620) (1,787,735)
Common stock subject to put (319,985) (1,819,985)
------------------------------
TOTAL STOCKHOLDERS' DEFICIT (10,321,016) (8,754,608)
------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 25,383,014 $ 23,511,189
==============================
</TABLE>
F-3
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION> YEAR ENDED JUNE 30,
----------------------------------------------------
2000 1999 1998
(Restated) (Restated)
----------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 22,030,124 $ 17,295,882 $ 22,892,978
COST OF SALES 16,499,996 13,529,301 18,081,786
----------------------------------------------------
GROSS PROFIT 5,530,128 3,766,301 4,811,192
----------------------------------------------------
OPERATING EXPENSES
Officers and directors compensation 2,831,662 5,014,293 569,816
Salaries 3,762,009 3,784,305 4,168,540
Selling 4,352,016 3,207,646 3,740,391
Research and development 1,914,065 1,808,107 3,542,149
General and administrative 1,816,828 2,484,756 2,612,262
Restructuring cost --- --- 500,000
Other operating expenses 883,835 1,066,039 1,735,877
Bad debts 93,570 706,877 133,196
Depreciation and amortization 1,357,112 1,273,916 1,745,498
----------------------------------------------------
TOTAL OPERATING EXPENSES 17,011,097 19,345,939 18,747,729
----------------------------------------------------
LOSS BEFORE OTHER INCOME (EXPENSES) (11,480,969) (15,579,358) (13,936,537)
Other income (expenses) 190,316 40,385 (281,227)
Interest expense (10,347,427) (5,638,928) (8,590,268)
----------------------------------------------------
OTHER EXPENSES (10,157,111) (5,598,543) (8,871,495)
----------------------------------------------------
LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEMS (21,638,080) (21,177,901) (22,808,032)
Extraordinary income (expenses) --- (832,849) 304,923
----------------------------------------------------
NET LOSS $(21,638,080) $(22,010,750) $(22,503,109)
====================================================
LOSS PER COMMON SHARE BASIC
Loss from continuing operations (1.14) (3.24) (8.48)
Extraordinary items (0.00) (0.13) 0.11
----------------------------------------------------
NET LOSS (1.14) (3.37) (8.37)
====================================================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 18,927,303 6,525,423 2,690,695
============ ========= =========
</TABLE>
F-4
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION> YEAR ENDED JUNE 30,
----------------------------------------------------
2000 1999 1998
(Restated) (Restated)
----------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITES
Net loss $(21,638,080) $(22,010,750) $(22,503,109)
Adjustment to reconcile net loss to net
cash used by operating activities
Depreciation and amortization 1,438,719 1,327,395 1,874,206
Provision for bad debts (49,110) 931,146 (38,803)
Common stock and stock options issued for services 2,809,936 4,755,925 ---
Issuance of common stock in lieu of interest payments 279,600 128,107 449,376
Interest expense on debt issuance cost and
conversion benefit 1,131,061 3,070,784 7,905,225
Interest expense on option value per Black Scholes 1,066,536 91,763 ---
Settlement expense paid through issuance of common stock 675,000 --- ---
Early extinguishment of debt (gain) --- 832,849 (304,923)
(Increase) decrease in operating assets:
Accounts receivable (687,410) (51,866) 2,887,427
Accounts receivable - long-term --- --- 163,680
Inventories 2,695,249 368,744 (3,790,038)
Prepaid expenses and sundry receivables (445,363) 635,106 434 229
Increase (decrease) in operating liabilities:
Accounts payable (1,082,288) 391,873 (306,300)
Accrued expenses 7,723,732 (361,606) 1,463,512
Customers deposits 507,107 101,924 6,147
----------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES (4,360,009) (9,788,606) (11,759,371)
----------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property and equipment (633,419) (692,954) (2,849,205)
Capitalized computer software (1,518) (1,518) (225,174)
Patents and trademarks --- --- (52,386)
Goodwill --- --- (802,107)
Other intangibles (13,469) --- ---
Asset purchase net of cash received --- --- (591,108)
Increase in notes receivable --- (199,132) ---
Security deposits (8,838) 10,245 5,448
Increase(repayment)of loan receivable 15,948 4,056 (2,608)
----------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (639,778) (879,303) (4,517,140)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (payments for) short-term borrowings-bank (88,820) 20,191,413 10,342,060
Proceeds related to debentures not funded --- (227,273) ---
Principal payment of short-term borrowings (370,947) (11,268,343) (3,852,075)
Principal payment of long-term borrowings (111,993) (245,580) (21,748)
Principal payment of long-term borrowings with stock --- --- (62,267)
Increase in restricted cash (1,385,600) --- ---
Note receivable - short-term (300,000) --- ---
Issuance of common stock for cash 8,605,416 3,160,396 8,461,262
Exercise of stock options for cash 2,136,149 --- ---
Purchase of treasury stock (1,500,000) (540,000) ---
Payment to stockholders and officers --- (2,207) (68,032)
----------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 6,215,558 11,068,406 14,779,200
----------------------------------------------------
EFFECT OF EXCHANGE RATE ON CASH 514,115 (400,752) (332,444)
----------------------------------------------------
NET INCREASE (DECREASE) IN CASH 1,729,886 (255) (1,809,755)
CASH AND CASH EQUIVALENT - beginning of year 1,281,297 1,281,552 3,091,307
----------------------------------------------------
CASH AND CASH EQUIVALENTS - end of year $ 3,011,183 $ 1,281,297 $ 1,281,552
====================================================
</TABLE>
F-5
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CASH FLOW INFORMATION
YEAR ENDED JUNE 30,
----------------------------------------------------
2000 1999 1998
(Restated) (Restated)
----------------------------------------------------
<S> <C> <C> <C>
Cash paid for interest $ 154,157 $ 462,997 $ 161,093
DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES
Shares issued in lieu of interest paymnets 279,600 128,107 449,376
Stock issued for acquisition --- --- 1,499,997
Beneficial conversion feature recorded as additional paid-in
capital 1,131,061 1,633,164 5,738,149
Convertible debentures converted to common stock 1,238,558 --- ---
</TABLE>
F-6
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL, INC.
CONSOLITATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2000, 1999 and 1998
<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, 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)
COMPREHENSIVE LOSS:
Net loss of the year -- -- -- -- --
Foreign currency translation losses net of taxes $ -0- -- -- -- -- --
TOTAL COMPREHENSIVE LOSS -- -- -- -- --
Issuance of common stock for cash 6,269,621 62,696 9,781,278 -- --
Stock options exercised for cash 1,125,500 11,255 2,124,894 -- --
Issuance of common stock in lieu of interest payment 165,450 1,655 277,945 -- --
Issuance of common stock "Settlement" 150,000 1,500 673,500 --
Amortization of shares issued for services -- -- -- --
Shares issued to officers/employees for services 1,157,065 11,571 2,798,365 -- --
Shares issued for services 526,000 5,260 1,325,941 -- --
Purchase of 33,333 shares subject to put -- -- -- -- (1,500,000)
Beneficial conversion feature of convertible debentures -- -- 1,131,061 -- --
Interest expense on option value per Black Scholes -- -- 1,066,536 -- --
----------------------------------------------------------------------
BALANCE - JUNE 30, 2000 14,006,239 $ 140,062 $ 69,028,013 $ -- (540,000)
======================================================================
F-7
</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, 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 -- -- -- (1,499,985) (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) -- -- 428,625
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)
COMPREHENSIVE LOSS:
Net loss of the year (21,638,080) -- -- -- (21,638,080)
Foreign currency translation losses net of taxes $ -0- -- -- 514,115 -- 514,115
----------
TOTAL COMPREHENSIVE LOSS -- -- -- -- (21,123,965)
Issuance of common stock for cash -- -- -- -- 9,843,974
Stock options exercised for cash -- -- -- -- 2,136,149
Issuance of common stock in lieu of interest payment -- -- -- -- 279,600
Issuance of common stock "Settlement" -- -- -- -- 675,000
Amortization of shares issued for services -- 1,282,500 -- -- 1,282,500
Shares issued to officers/employees for services -- -- -- -- 2,809,936
Shares issued for services -- (998,399) -- -- 332,802
Purchase of 33,333 shares subject to put -- -- -- 1,500,000 --
Beneficial conversion feature of convertible debentures -- -- -- -- 1,131,061
Interest expense on option value per Black Scholes -- -- -- -- 1,066,536
----------------------------------------------------------------------
BALANCE - JUNE 30, 2000 $(94,130,543) $ (998,399) $(1,273,620) $ (319,985) $ (540,000)
======================================================================
</TABLE>
F-8
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
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.
REVENUE RECOGNITION
Revenues from direct sales of products to end users are recorded when the
products are shipped, installed, 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 products are
shipped, collection of the purchase price is probable and the Company has no
significant further obligations to the customer. Cost of remaining insignificant
Company obligations, if any, are accrued as costs of revenue at the time of
revenue recognition.
USE OF ESTIMATES
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-9
<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.
Leasehold improvements are amortized over the shorter of the estimated useful
lives of the improvements, or the term of the facility lease.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets to assess recoverability from future
operations using undiscounted cash flows. When necessary, charges for
impairments of long-lived assets are recorded for the amount by which the
present value of future cash flows exceeds the carrying value of these assets.
INTANGIBLE ASSETS
Intangible assets are stated at cost and are being amortized using the straight
line method over the estimated useful lives of the respective assets.
F-10
<PAGE>
SOFTWARE DEVELOPMENT COSTS
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.
ADVERTISING AND PROMOTION
Advertising and promotion costs are expensed as incurred and included in
"Selling" expenses. Advertising and promotion expense for the years ended June
30, 2000, 1999 and 1998 were $ 2,601,410, $ 1,452,309 and $ 1,737,935,
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
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.
F-11
<PAGE>
ACCOUNTING FOR STOCK OPTIONS
The Company accounts for stock-based compensation using the intrinsic value
method as prescribed under Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations.
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 has adopted 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 did not
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 - RESTRICTED CASH
In association with the contract signed with the Romanian Ministry of Health in
October 1999, the Company had to post a performance bond of 10% of the total
contract of $13,856,000 or $1,385,600. The performance bond will be partially
reimbursed at 50% of its total value within 30 days of the presentation of
acceptance certificates for the first 16 units. The remaining balance will be
reimbursed 30 days after presentation of the acceptance certificate for the 32nd
and final unit. The amount for the performance bond is denoted in the financial
statements as restricted cash.
F-12
<PAGE>
NOTE 3 - INVENTORIES
Inventories are summarized by major classification as follows:
June 30,
2000 1999
--------------- ----------------
Raw materials, parts and supplies $ 2,682,558 $ 5,558,330
Work in process 1,295,575 1,048,197
Finished goods 659,019 725,874
----------------- ----------------
$ 4,637,152 $ 7,332,401
================= ================
NOTE 4 - PREPAID EXPENSES AND SUNDRY RECEIVABLES
Prepaid expenses and sundry receivables consist of the following:
June 30,
2000 1999
------------------- -----------------
Prepaid expenses, deposits and
advance payments $ 892,077 $ 229,236
Insurance claim for fire damage - 389,220
Prepaid and refundable taxes 414,090 240,368
Employee loans 6,000 7,980
------------------- -----------------
$ 1,312,167 $ 866,804
=================== =================
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Estimated June 30,
Useful Lives
(years) 2000 1999
------------ ----------- -----------
Land - $ 596,982 $ 5,501,853
Building 30 4,976,657 -
Equipment 5 1,866,720 1,448,961
Office furniture and equipment 3-5 253,946 333,596
------------- -------------
7,694,305 7,284,410
Less: Accumulated depreciation 1,393,689 1,001,370
------------- -------------
$ 6,300,616 $ 6,283,040
============= =============
Depreciation and amortization expense, for property and equipment, for the years
ended June 30, 2000, 1999 and 1998 were $ 615,873, $ 547,693 and $ 1,077,074
respectively.
F-13
<PAGE>
NOTE 6 - INTANGIBLE ASSETS
Intangible Assets at June 30, 2000 and 1999 consisted of the following
Estimated June 30,
Useful Lives
(Years) 2000 1999
---------- --------- ------------
Excess of cost over fair value
of net assets acquired 10 $ 1,933,275 $ 1,933,275
Licensing (a) 10 4,966,575 4,966,575
Software development cost 5-8 592,198 578,729
Patents and Trademarks 10 313,330 313,330
------------ ------------
7,805,378 7,791,909
Less: Accumulated amortization 3,360,001 2,537,125
------------ ------------
$ 4,445,377 $ 5,254,784
============ ============
Amortization expense, for Intangible Assets, for the years ended June 30, 2000,
1999 and 1998 were $ 822,876, $ 830,194 and $ 1,227,719, respectively.
(a) 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 total cost of the license was $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.
NOTE 7 - 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 $ 440,263. The Company has also
negotiated an agreement for up to $ 1,206,200 for the issuance of guarantees and
letters of credit, both with a commission of 15% per $ 1,000,000, quarterly
while outstanding. There were $ 596,896 in outstanding guarantees and $ -0- in
letter of credits as of June 30, 2000. The Company also negotiated a fixed line
of credit for up to $ 2,352,090 with an agreed repayment of $ 60,310 per 180
days first time applicable as of June 30, 2000. All lines of credit are based on
the Exchange rate in effect on June 30, 2000.
F-14
<PAGE>
Notes payable are summarized as follows:
June 30,
2000 1999
------------- --------------
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, 2000 and 1999 were
$ -0- and $ 485,367, respectively. $ - $ 798,730
Migros Bank, on demand with six week
notice, with interest as of June 30,
2000 and 1999 at 3.7/8% and 4% per annum,
collateralized by land and building 2,231,470 2,529,930
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,
2000 and 1999 were $ 2,429,258 and $ 627,625,
respectively 1,346,869 338,499
--------------- -----------
$ 3,578,339 $ 3,667,159
=============== ===========
NOTE 8 - LOAN PAYABLE
The Company has negotiated a 4% demand loan from a private foundation fund. The
loan balance payable at June 30, 2000 and 1999 was $ 119,885 and $ 126,006
respectively.
NOTE 9 - SHARES ISSUED FOR COMPENSATION
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 $2.16 per share or $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 a term of one year to eighteen months. Such amount has been
deferred and is being amortized over the term of the consulting agreements.
In October 1999 the Company issued 1,050,000 fully vested, nonforfeitable shares
of common stock with a fair market value of $2.475 per share or $2,165,625
(based on the bid price of $2.75 per share on the date of issuance less a 10%
discount for restrictions on the resale of such shares) to officers and/or
directors as additional compensation. Such amount has been expensed and is
included in results of operations.
F-15
<PAGE>
On April 4, 2000 the Company issued 490,000 fully vested, nonforfeitable shares
of common stock with a fair market value of $2.5308 per share or $1,240,092
(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 a consultant for
services to be rendered over twelve months commencing April 1, 2000. Such amount
has been deferred and is being amortized over the term of the consulting
agreement. In addition the agreement provides for the issuance of 36,000
restrictive shares of Company Common stock (based on 3,000 shares per month)
throughout the period of the Consultant's performance.
NOTE 10 - CONVERTIBLE DEBENTURES
Convertible debentures consist of the following:
June 30,
2000 1999
---------- ----------
Convertible debenture dated June 15, 1998.
The debenture was converted into 851,970
shares in Fiscal 2000. - 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 discretion can redeem
the debenture at 125% after the sixth month
following the closing date. $1,698,827 and
$514,428 of the balance was converted into
1,383,604 and 1,051,529 shares in
Fiscal 2000 and 1999 respectively.
Debt issuance cost was $311,000, beneficial
conversion feature was $-0-. 3,930,594 5,629,421
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 discretion can redeem the debenture 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 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 or $1.00. 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 discretion can redeem the
debentures at any time. Debt issuance cost was
$150,000, beneficial conversion feature was $-0-. 1,170,000 1,170,000
F-16
<PAGE>
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 or $1.00.
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
discretion can redeem the debenture 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 1,119,600
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 discretion can redeem the
debenture at 120% of the face amount including
interest. $310,500 of the balance was converted
into 142,332 shares in Fiscal 2000. Debt issuance
cost was $100,000, beneficial conversion feature
was $423,973. 539,500 850,000
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 or $1.00.
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
discretion can redeem the debenture 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 1,132,000
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 or $1.00.
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
discretion can redeem the debenture 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. 561,000 561,000
F-17
<PAGE>
Convertible debenture dated August 23, 1999
and due August 23, 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 immediately. Any debenture not so
converted is subject to mandatory conversion
on August 23, 2001. The company at its sole
discretion can redeem the debenture at 125%
after the sixth month following the closing date.
Debt issuance cost was $100,000, beneficial
conversion feature was $717,243. 1,148,400 -
Convertible debenture dated November 11, 1999
and due November 11, 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
immediately. Any debenture not so converted is
subject to mandatory conversion on November
11, 2001. The company at its sole discretion can
redeem the debenture at 125% after the sixth month
following the closing date. Debt issuance cost
was $140,000, beneficial conversion feature
was $510,187. 1,526,000 -
----------- ------------
14,067,294 15,402,221
Less: Discount due to beneficial conversion
features, net of accumulated amortization
of $ -0- and $327,604 - (96,369)
------------ ------------
$ 14,067,294 $15,305,852
============ ============
The Company is currently in violation of certain covenants in their debenture
agreements. Such covenants have been waived by the holders through July 1, 2002.
NOTE 11 - NOTES PAYABLE - SHORT-TERM
June 30,
2000 1999
----------- ------------
Promissory note, dated June 11, 1999, $654,000,
due September 9, 1999, collateralized by
inventory. $ 350,000 $ 600,000
Promissory note, dated August 31, 1999, $500,000,
with interest at 8%, payable monthly through
August 15, 2001.(a) 302,502 -
Promissory note, dated May 2000, with interest
payable at 3% per month due December 31, 2000. 500,000 -
Promissory note, dated June 2000, with interest
payable at 3% per month due December 31, 2000. 200,000 -
Promissory note, dated April 1999, the note was
converted into debentures in Fiscal 2000. 1,050,000 1,100,000
----------- ------------
$ 1,352,502 $ 1,700,000
=========== ============
(a) This promissory note is a settlement agreement with former owners of
Swissray America, Inc.
F-18
<PAGE>
NOTE 12 - LONG-TERM DEBT
Long-term debt consists of the following:
June 30,
2000 1999
-------------- ---------------
Note payable - Other $ 87,450 $ 122,175
Note payable - Union Bank of Switzerland,
in monthly installments of $12,589 with
imputed interest at 6.0% per annum,
maturing on September 30, 2000 163,824 188,907
Capitalized leases 61,528 131,040
-------------- ------------
312,802 442,123
Less: Current portion (229,700) (247,028)
-------------- ------------
$ 83,102 $ 195,095
============== ============
The aggregate long-term debt principal payment are as follows:
Year Ending June 30,
2001 $ 229,700
2002 72,591
2003 10,511
NOTE 13 - 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. On July 20, 2000,
the Company amended its certificate of incorporation to change the number of
authorized common shares from 50,000,000 to 100,000,000 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 2000,
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:
Fiscal 2000
As Pro
Reported Forma
Net loss (in thousands) ($21,638) ($22,616)
Basic and diluted net loss per share ($1.22) ($1.27)
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 2000; dividend yield 0%, expected volatility 50%,
risk-free interest rate 5.7%, expected lives in years-1 year.
The weighted average fair value of stock options granted during the year ended
June 30, 2000 was $ 2.36.
F-19
<PAGE>
A summary of the status of the Stock Option Plans at June 30, 2000, 1999 and
1998 and the changes during the years then ended is presented below:
<TABLE>
<CAPTION>
2000 1999 1998
----------------------------- ------------------------------- --------------------------------
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
Underlying Exercise Underlying Exercise Underlying Exercise
Options Price Options Price Options Price
------------- ------------ --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding
At beginning
Of year 194,500 $ 23.40 180,000 $ 23.40 196,900 $ 23.40
Granted 2,987,000 $ 2.36 15,500 $ .44 - $ 0.00
Exercised (1,130,500) $ 1.93 (1,000) $ 7.30 (16,900) $ 7.30
------------- ------------ --------------- ------------ ------------- -------------
Outstanding
At end of year 2,051,000 $ 4.60 194,500 $ 23.40 180,000 $ 23.40
============= ============ =============== ============ ============= =============
Exercisable at
End of year 2,051,000 $ 4.60 194,500 $ 23.40 180,000 $ 23.40
============= ============ =============== ============ ============= =============
</TABLE>
The following table summarizes information about stock options under the Stock
Option Plans at June 30, 2000
Options Outstanding and Exercisable
---------------------------------------------------------------------
Weighted Average Weighted
Number Remaining Contractual Average
Range of Exercise Pr Outstanding Life Exercise Price
---------------------- --------------- -------------------- ---------------
$.01 - $.44 15,500 8.5 $0.44
$2.625 - $2.625 1,856,500 9.2 $2.625
$7.30 - $10.00 18,000 7.4 $8.00
$20.00 - $40.00 127,500 6.8 $22.10
$47.50 - $65.00 33,500 6.5 $58.70
--------------
2,051,000
==============
Stock Warrants
In Fiscal 1999, the Company issued 462,500 warrants. The Company recognized
compensation cost for the warrants issued of $92,000. Such value was determined
using the Black-Scholes 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, 2000:
Warrants
Outstanding
and
Exercisable
Range of Number Remaining Contractual Average Exercise
Exercise Price Outstanding Life Price
$.375 - $9.38 462,500 4.5 $.96
NOTE 14 - 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, 2000, 1999 and 1998, were $ 475,176, $509,959 and $347,854,
respectively.
F-20
<PAGE>
NOTE 15 - INCOME TAXES
Deferred income tax assets as of June 30, 2000 of $22,700,000 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,
-------------------------------------------------------------------
2000 1999 1998
------------------- ------------------ ------------------
<S> <C> <C> <C>
Statutory federal income tax (benefit) $ (7,400,000) $ (5,600,000) $ (7,754,000)
Foreign income tax (benefit) in excess of
domestic rate (77,000) 377,000 543,000
Benefit not recognized on operating loss 5,127,000 3,693,000 5,111,000
Permanent and other differences 2,350,000 1,530,000 2,100,000
------------------- ------------------ ------------------
$ - $ - $ -
=================== ================== ==================
</TABLE>
Net operating loss carryforwards at June 30, 2000 were approximately as follows:
United States (expiring through June 30, 2015) $ 40,000,000
Switzerland (expiring through June 30, 2010) 33,000,000
----------
$ 77,000,000
==========
NOTE 16 - EXTRAORDINARY ITEMS
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 17 - 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, 2000, 1999 and 1998 there were sales to
customers that exceeded 10% of net consolidated sales. Sales to these customers
were: 2000 customer A, $ 8,180,866 (23 %) and customer C $ 10,825,000 (49 %),
1999 customer A, $9,253,480 (54%), 1998 customer A, $ 7,647,354 (33%) customer B
$2,389,613 (18%). The company operates in a single industry segment, providing
x-ray medical equipment.
F-21
<PAGE>
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, 2000, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
2000 1999 1998
--------------------- -------------------- ------------------
<S> <C> <C> <C>
United States $ 6,561,669 $ 4,026,931 $ 9,127,569
Switzerland 15,164,707 12,625,381 12,851,115
Germany 303,748 643,570 914,294
--------------------- -------------------- ------------------
$ 22,030,124 $ 17,295,882 $ 22,892,978
===================== ==================== ==================
</TABLE>
The following summarizes identifiable assets by geographic area:
2000 1999
----------------- ------------------
United States $ 8,344,431 $ 7,270,543
Switzerland 16,782,132 16,009,209
Germany 184,157 231,437
Romania 72,293 -
----------------- ------------------
$ 25,383,014 $ 23,511,189
================= ==================
The following summarizes operating losses before provision for income tax:
<TABLE>
<CAPTION>
2000 1999 1998
------------------- -------------------- -------------------
<S> <C> <C> <C>
United States $ (16,801,696) $ (14,542,148) $ (13,962,842)
Switzerland (4,277,240) (5,392,436) (8,803,006)
Germany (409,272) (243,317) (42,184)
(149,872) - -
------------------ -------------------- -------------------
$ (21,638,080) $ (20,177,901) $ (22,808,032)
=================== ==================== ===================
</TABLE>
NOTE 18 - COMMITMENTS
The Company leases various facilities under operating lease agreements expiring
through September 2003. The facilities lease agreements provide for a base
monthly payment of $22,285 per month. Rent expense for the years ended June 30,
2000, 1999 and 1998 was $ 361,757, $ 325,000 and $ 324,726 respectively. Future
minimum annual lease payments, based on the exchange rate in effect on June 30,
2000, 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, 2001 $ 299,326
June 30, 2002 202,498
June 30, 2003 109,037
------------------
$ 610,861
==================
F-22
<PAGE>
NOTE 19 - 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
consisted primarily of the present value of the remaining lease obligations of
those facilities. The balance at June 30, 2000 is $100,000.
NOTE 20 - UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
The following unaudited proforma condensed combined statements of operations for
the years ended June 30, 1998 give retroactive effect of the SSG on October 17,
1997, which were accounted for as purchase. The unaudited proforma condensed
combined statements of operations give retroactive effect to the foregoing
transaction as if it had occurred at the beginning of each year presented. The
proforma statements do not purport to represent what the Company's results of
operations would actually have been if the foregoing transactions had actually
been consummated on such dates or project the Company's results of operations
for any future period or date.
The proforma statements should be read in conjunction with the historical
financial statements and notes thereto.
SWISSRAY INTERNATIONAL, INC
UNAUDITED PROFORMA CONDENSED COMBINED CONSOLIDATED STATEMENT
OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998
Year Ended
June 30,
1998
------------------------
Revenues $ 23,837,000
Loss before extraordinary items (21,963,000)
Net Loss (22,403,000)
Loss per share (8.33)
Weighted average number of shares outstanding $ 2,690,695
NOTE 21-VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Additions Deductions Balance at End
Beginning Charged to of Year
of Year Expenses
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 30, 2000 $ 219,993 $ 93,570 $ 142,680 $ 170,883
Year ended December 30, 1999 $ 32,356 $ 706,877 $ 519,240 $ 219,993
Year ended December 30, 1998 $ 148,390 $ 133,169 $ 249,230 $ 32,356
</TABLE>
NOTE 22 - 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 and the accrual of an
additional $1,000,000 for interest expense for the accrual of penalty interest
on periodic payments required by terms of financing agreements.
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
29,695,812 750,000 30,445,812
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) $ (0.72) $ (3.37)
F-23
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL MATTERS
None - during the Company's two most recent fiscal years or any
subsequent interim period.
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 50 Chairman of the Board of Directors,
President and Chief Executive Officer,
Josef Laupper 55 Secretary, Treasurer and Director
Ueli Laupper 30 Vice President and Director
Dr. Erwin Zimmerli 53 Director and Member of the Independent
Audit Committee
Erich A. Kalbermatter 44 Chief Operating Officer *
Dr. Sc. Dov Maor 53 Director and Member of the Independent
Audit Committee
Michael Laupper 27 Chief Financial Officer
* Until his resignation in February 1999.
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 from its inception in June 1988 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
having previously been employed by the Company from January 1993 to July 1995 as
Export Manager. 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
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<PAGE>
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.
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 worked in
conjunction with the Company's former CFO and has been the Company's CFO since
August 1999. 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 since 1999 and 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/or 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 nominating or compensation
committee or any committee or committees performing similar functions, but acts,
as a whole, in performing the functions of such committees. 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
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<PAGE>
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 Ruedi G. Laupper; one initial statement of beneficial ownership was
not filed timely by Ueli 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
statement of beneficial ownership was not filed timely by Berkshire Capital
Management and one initial statement of beneficial ownership, 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 and
one initial statement of beneficial ownership on Form 3 and one statement of
changes in beneficial ownership on Form 5 covering one transaction (such Form 5
representing a delinquent Form 4) was not filed timely by Michael Laupper.
ITEM 11. EXECUTIVE COMPENSATION
Employment Agreements
Ruedi G. Laupper entered into a five-year employment agreement with
Swissray Management AG, a wholly owned subsidiary of the Registrant, on December
18, 1997, which agreement provided for automatic renewal for another five years
unless terminated by either party no later than December 31, 2001. Such
agreement also provided for (i) an annual salary of 299,000 Swiss francs (or
$200,878), (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 was calculated at 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 $1,206,200 at June 30, 2000) 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, 1999 and 2000 was $(12,425), $(14,218),
$(15,539), $(10,294) and $(11,291) 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.
-38-
<PAGE>
At such June 30, 1999 Board meeting members expressed their consensus
that while the Company had not, as yet, had any earnings, that its business
(after significant and ongoing infusions of capital) had now reached the point
where it was expected that "breakeven" (earnings before interest and taxes
("EBIT") being $0) was reasonably foreseeable within the current fiscal year and
that it was further expected that in both the near term (i.e., within the next
two fiscal years) and long term (i.e., the period of time commencing subsequent
to the close of fiscal year ended June 30, 2002) that substantial and
significant earnings would be forthcoming as a result of its development of its
ddRMulti-System (and related products) and the industry's acceptance of same as
reflected by substantial sales increases and the then anticipated sale of a
significant number of its ddRMulti-Systems to the Government of Romania. The
contract for sale of ddRMulti-Systems was entered into in October 1999 as a
result of the Romanian Bidding Commission having accepted the Company's tender
(in September 1999) as made to the Ministry of Health of the Government of
Romania. As a result thereof the Company entered into the aforesaid contract for
the sale of 32 of its ddRMulti-Systems with a valuation of in excess of
$13,800,000. An initial payment aggregating 15% of the aforesaid total gross
proceeds (i.e. a sum approximating $2,070,000) due under such contract was made
to the Company in early March 2000. The Company sold 25 of the 32
ddRMulti-Systems through close of its fiscal year ended June 30, 2000 while the
balance of 7 Systems have been sold during the first quarter of the Company's
current fiscal year.
Based upon the above, Board members reaffirmed their aforesaid March
12, 1999 agreement that it would be in the best interests of all parties
concerned (and especially Company stockholders) to eliminate the above
referenced EBIT provisions so that what might otherwise amount to significant
earnings being paid to the Company's President in stock (pursuant to the 25% of
EBIT bonus provisions) be replaced with a permanent one time solution. It was
then resolved and subsequently accepted by the Company's President that
2,000,000 restrictive shares of the Company's Common Stock be issued to him in
exchange for cancellation of the above referenced 25% of EBIT bonus provisions
and in accordance with March 12, 1999 original agreement.
The above referenced proposal was initially orally made to the
Company's President by its Board of Directors on March 12, 1999 and the key
meeting with respect to discussion thereon occurred on such date, and such
agreement was subsequently finalized (i.e. reduced to writing) at the Company's
June 30, 1999 Board meeting wherein discussions were basically limited to those
set forth above and at which the only persons present were Board members and at
which time Board members again agreed that valuation assigned to shares issued
would reflect price at time of initial proposal as previously agreed to. There
were no offers or counter-offers between the Company and its President but
rather directors agreed to and voted in favor of issuance of the above
referenced 2,000,000 restrictive shares and the Company's President (abstaining
himself from such vote) agreed to such resolution. All material factors
considered by the Board consisted of those referred to above and were what it
considered to be "positive" factors without any negative factors or implications
being discussed. The Company has quantified all material factors to the extent
practicable.
Management obtained stockholder ratification regarding this matter on
July 12, 2000 after advising stockholders that even absent ratification the
Board, in all likelihood, would leave the agreement in effect, as is. Such
ratification was sought and received in an effort to comply with NASDAQ
Marketplace Rule 4310(c)(25)(H)(i)(a). Notwithstanding ratification the NASD
Board of Governors on July 28, 2000 advised the Company that it had declined to
review the June 1, 2000 decision of the Nasdaq Council. See also Items 4 and
5(d).
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
$114,494 and 119,700 Swiss francs (or $109,468) 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
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<PAGE>
reasons beyond the employees control he will receive 500,000 Swiss francs (or
$301,550 at June 30, 2000).
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.
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" insurance 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, 1999 and 2000 concerning
the cash and non-cash compensation earned by or awarded to the Chief Executive
Officer of the Registrant, the three other most highly compensated executive
officers of the Registrant as of June 30, 2000 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>
Ruedi G. Laupper 2000 $200,878 --- $695,625(1)(6) 181,250(7) ---
President and Chief Executive 1999 $194,121 $8,377 $4,335,000(1)(5) --- ---
Officer, Chairman of the 1998 $173,587 $16,057 $15,000(1) --- ---
Board of Directors
Josef Laupper 2000 $109,468 --- $383,250(1)(6) 200,000(7) ---
Secretary, Treasurer 1999 $ 83,566 $6,494 $12,000(1) --- ---
1998 $ 94,669 --- $12,000(1) --- ---
Ueli Laupper 2000 $114,494 --- $628,750(1)(6) 218,750(7) ---
Vice President International 1999 $ 94,924 $7,077 $10,000(1) --- ---
Sales (2) 1998 $ 95,685 --- $10,000(1) --- ---
Michael Laupper 2000 $ 80,600 --- $371,250(6) 125,000(7) ---
Chief Financial Officer
Herbert Laubscher 1998 $ 79,244 --- --- --- ---
Chief Financial Officer (2)(3)
Erich A. Kalbermatter 1999 $153,333 --- --- --- ---
Chief Operating Officer (4) 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) Erich A. Kalbermatter joined the Company on April 14, 1998 and resigned
in February 1999.
(5) 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.
(6) Includes 275,000, 150,000, 250,000 and 150,000 shares of common stock
issued to Ruedi G. Laupper, Josef Laupper, Ueli Laupper and Michael
Laupper respectively, all of which shares were valued at $2.475 per
share.
(7) See "Stock Option Grants in Fiscal Year Ended June 30, 2000".
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<PAGE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following sets 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 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.
STOCK OPTION GRANTS IN FISCAL YEAR ENDED JUNE 30, 2000
With respect to the named Executive Officers there were no granting of
stock options under either the Company's 1996, 1997. 1999 or 2000 Stock Option
Plans (the "Plans") during fiscal year ended June 30, 2000 excepting for options
granted (October 27, 1999 when the bid price was $2.625) from the 1999 Plan as
follows: Ruedi G. Laupper, Josef Laupper, Ueli Laupper and Michael Laupper
181,250, 200,000, 218,750 and 125,000 options respectively. All of such options
are exercisable at $2.625 per share for a period of three years.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED JUNE 30, 1999
AND YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options Options
At Fiscal Year-End(#) At Fiscal Year-End($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C> <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, 1998 and 1999.
(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 a re 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.
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<PAGE>
Stock Option Plans
On January 30, 1996, the Board of Directors adopted the Company's 1996
Non-Statutory Stock Option Plan (the "1996 Plan"). 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
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 September 12, 2000,
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.
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
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<PAGE>
aforesaid options. As of September 12, 2000, 2,909,000 of these options have
been granted.
Pursuant to October 1999 Board of Directors approval and subsequent
July 12, 2000 stockholder approval, the Registrant adopted its 2000 Non
Statutory Stock Option Plan, whereby it reserved for issuance up to 4,000,000
shares of its common stock. Thereafter in August 2000 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. None of these options
have been granted through September 12, 2000.
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, 2000, 1999 and 1998.
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, 2000, 1999 and 1998, were $475,176, $509,959 and $347,854
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.
Compensation Committee Interlocks and Insider Participation
The Company had no Compensation Committee during the last completed
fiscal year. The Corporation's executive compensation was supervised by all
members of the Company's Board of Directors and the following directors were
concurrently officers of the Company in the following capacities: Ruedi G.
Laupper (Chairman of the Board of Directors, President and Chief Executive
Officer); Josef Laupper (Secretary, Treasurer and director) and Ueli Laupper
(Vice President and director). No executive officer of the Company 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 Company'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.
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. See Item 11 - "Employment Agreements". With respect to
shares of common stock issued to officers and directors during fiscal year ended
June 30, 2000 see Item 13.
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 September 12, 2000 (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
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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. The title of class of all securities indicated below is Common
Stock with $.01 par value per share.
<TABLE>
<CAPTION>
No. Of Shares Percentage of
Beneficially Shs. Beneficially
Name and Address of Beneficial Owner Owned (1) Owned (1)
------------------------------------ -------------- ------------
<S> <C> <C> <C>
Ruedi G. Laupper (2)(10) 2,941,074 12.34%
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland
Josef Laupper (3) 325,000 1.36%
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland
Erwin Zimmerli (4) 218,750 *
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland
Ueli Laupper (11) 443,750 1.86%
80 Grasslands Road
Elmsford, New York 10523
Dov Maor (13) 31,250 *
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland
Michael Laupper (12) 250,000 1.05%
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland
Dominion Capital Fund, Ltd. 4,436,359 (5) 16.30%
c/o Thomson Kernaghan & Co. Ltd.
365 Bay Street
Toronto, Ontario M5H 2V2
Canada
Sovereign Partners LP 5,587,506 (6) 20.05%
90 Grove Street - Suite 01
Ridgefield, New Jersey 06877
Liviakis Financial Communications, Inc. (LFC) 3,526,000 (7) 14.90%
495 Miller Avenue - 3rd Floor
Mill Valley, California 94914
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<PAGE>
Rolcan Finance Ltd. 780,000 (8) 3.30%
Seestrasse 17
P.O. Box 53
CH 8702 Zollikon 2
Switzerland
Parkdale LLC (14) 2,723,195(14) 10.73%
c/o Thomson Kernaghan & Co. Ltd.
365 Bay Street
Toronto, Ontario M5H 2V2
Canada
All directors and officers as
a group (six persons) 4,209,824 (9) 17.18%
</TABLE>
* Represents less than 1% of the 23,667,129 shares outstanding as of
September 12, 2000.
(1) 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 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.
(2) 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, (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 and (iv)
an additional 156,250 shares which may be acquired upon exercise of balance
of immediately exercisable options issued in October 1999. (3) Includes
175,000 shares which may be acquired upon exercise of balance of
immediately exercisable options issued in October 1999. (4) Includes
168,750 shares which may be acquired upon exercise of balance of
immediately exercisable options.
As of the September 12, 2000, an aggregate principal outstanding balance
(exclusive of interest) for those Convertible Debentures referred to below
amounts to $13,998,994. None of these convertible debentures are owned by
officers and/or directors of the Company.
(5) Includes 880,781 shares currently owned as well as up to 3,555,578 shares
which normally could be issued (exclusive of interest), at any time, upon
conversion of previously issued convertible debentures (the "Convertible
Debentures"). Dominion Capital Fund, Ltd. is managed and directed by David
Sims, its sole director. Voting control of Dominion Capital Fund, Ltd.'s
shares is exercised by Livingstone Asset Management Limited, a Bahamas
Company controlled by David Sims.
(6) Includes 670,733 shares currently owned as well as up to 4,196,773 shares
which normally could be issued (exclusive of interest), at any time, upon
conversion of previously issued convertible debentures (the "Convertible
Debentures"). The person or persons having voting control are Southridge
Capital Management LLC, P.P., Steven Hicks (President) - Connecticut.
The foregoing information contained in footnotes 5 and 6 above assumes
conversion based on 18% - 20% discount from market (dependent upon
debenture) based upon the last reported sales price on September 12, 2000.
This 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
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<PAGE>
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. The 4.99% limitation does not apply and,
accordingly, would not limit beneficial ownership in any manner in the
event that (a) 50% or more of the Company is acquired, (b) the Company is
merged into another company or (c) a change of control occurs.
(7) Pursuant to written Agreements, the Registrant's President, Ruedi G.
Laupper, has sole voting rights with respect to these shares without any
limitation thereon so long as same are owned by LFC. LFC in turn (and
pursuant to agreement with the Company) may not sell any of such shares
until March 28, 2001 and then only in accordance with and subject to such
volume limitations as are imposed in accordance with the applicable
provisions of Rule 144 under the Securities Act of 1933.
(8) Roland Kaufmann, Managing Director and a control person of this firm has
voting control over these shares.
(9) Includes 837,000 shares issuable upon option exercise.
(10) When taking into account the number of shares owned beneficially by Ruedi
G. Laupper (2,772,824) as well as those shares over which he exercises
voting control (as indicated in footnote 7 above) Ruedi G. Laupper
exercises voting control over approximately 27% of all voting shares as of
September 12, 2000.
(11) Includes 193,750 shares which may be acquired upon exercise of balance of
immediately exercisable options issued in October 1999.
(12) Includes 100,000 shares which may be acquired upon exercise of balance of
immediately exercisable options issued in October 1999.
(13) Includes 31,250 shares which may be acquired upon exercise of immediately
exercisable options issued in October 1999.
(14) Includes 1,000,000 shares currently owned as well as up to 1,723,195 shares
which normally could be issued (exclusive of interest), at any time, upon
conversion of previously issued convertible debentures (the "Convertible
Debentures"). Parkdale LLC is managed and directed by Navigator Management
Ltd., its sole director. Voting control of Parkdale LLC's shares is
exercised by Livingstone Asset Management Limited, a Bahamas Company
controlled by David Sims.
As indicated in footnotes 5 and 14 thereto, Livingstone Asset Management
Limited, a Bahamas Company controlled by David Sims has voting control over
both Dominion Capital Fund, Ltd. and Parkdale LLC. These persons or firms
having voting control (i.e., Livingstone Asset Management Limited,
controlled by David Sims) do not own any Company shares of record but
rather have been given the right to vote by Dominion Capital and Parkdale
with respect to those shares owned by such entities. Accordingly, such
persons and/or firms (referred to in this paragraph) exercise, in the
aggregate, as of September 12, 2000 the right to vote over 1,880,781 shares
owned in the aggregate by Dominion Capital and Parkdale.
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.
Subsequent to June 30, 1999 year end, 497,824 restrictive shares of
Company common stock were issued to corporations controlled by the Company's
President in consideration of his pledging as collateral (and subsequently
forfeiting) shares of Company common stock owned by corporations controlled by
him in order to enable the Company to obtain financing.
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<PAGE>
During October of 1999 and in accordance with unanimous Board approval
the Company issued an aggregate of 875,000 shares to certain of its officers
and/or directors as consideration for services rendered as per Board resolution.
Such shares were issued as follows:
No. Of
Name Position Shares
Ruedi G. Laupper Chairman, President & 275,000
Chief Executive
Officer
Josef Laupper Secretary, Treasurer 150,000
& a Director
Michael Laupper Chief Financial Officer, 150,000
Controller
Ueli Laupper Vice President & a 250,000
Director
Erwin Zimmerli Director 50,000
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.
PART IV
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, 2000, the following Forms 8-K were filed.
1) 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 has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SWISSRAY INTERNATIONAL, INC.
Dated: September 18, 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 Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Ruedi G. Laupper Chairman of the Board of Dated: Sept. 18, 2000
Ruedi G. Laupper Directors, President &
Principal Executive Officer
/s/Josef Laupper Secretary, Treasurer and a Dated: Sept. 18, 2000
Josef Laupper Director
/s/Michael Laupper Principal Financial Officer Dated: Sept. 18, 2000
Michael Laupper & Controller
/s/Ueli Laupper Vice President and a Director Dated: Sept. 18, 2000
Ueli Laupper
/s/Dr. Erwin Zimmerli Director Dated: Sept. 18, 2000
Dr. Erwin Zimmerli
Dr. Sc. Dov Maor Director Dated: Sept. , 2000
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<PAGE>
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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