<PAGE>
As filed with the Securities and Exchange Commission on August 14, 2000
REGISTRATION NO. 333-59829
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 10 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SWISSRAY INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
NEW YORK [3841] 16-0950197
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification Number)
SWISSRAY INTERNATIONAL, INC.
320 WEST 77TH STREET, SUITE 1A
NEW YORK, NEW YORK 10024
UNITED STATES: (917) 441-7841
SWITZERLAND: 011-4141-914-1200
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
RUEDI G. LAUPPER,
CHAIRMAN OF THE BOARD AND PRESIDENT
SWISSRAY INTERNATIONAL, INC.
320 WEST 77TH STREET, SUITE 1A
NEW YORK, NEW YORK 10024
(917) 441-7841
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
GARY B. WOLFF, ESQ.
GARY B. WOLFF, P.C.
747 THIRD AVENUE
NEW YORK, NEW YORK 10017
(212) 644-6446
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At the
discretion of the converting shareholders after the effective date of
the Registration Statement.
<PAGE>
* In accordance with Rule 429 of the General Rules and Regulations under
the Securities Act of 1933 this Registration Statement and the
Prospectus which is a part thereof relates, in part, and combines with
an earlier Registration Statement under Registration No. 333-50069
declared effective May 12, 1998.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE (4)
<TABLE>
<CAPTION>
Proposed
Maximum Proposed
Amount to Offering Maximum
Title of Each Class of be Price Aggregate Amount of
Securities to be Registered Per Share Offering Registration
Registered (1) (2)(3) Price(1)(2) Fee
---------- --- --- ----------- ---
Common Stock ($.01 par
<S> <C> <C> <C> <C> <C>
value per share) 19,080,184 $1.625 $31,005,299 $9,146.56(4)(5)(6)
</TABLE>
(1) Includes (a) 1,832,953 shares for previously issued restrictive shares
pursuant to Convertible Debentures referred to under Registration No.
and 333-59829, (b) 13,830,290 shares (inclusive of 1,239,894 shares as
may be issued for interest earned) which are reserved for issuance
pursuant to currently issued and outstanding Convertible Debentures
which will be offered for resale by certain Selling Holders under this
Registration Statement, (c) 3,000,000 shares being registered
pursuant to certain "piggy-back" registration rights granted to
otherwise unaffiliated purchasers pursuant to terms of subscription
agreements and registration rights agreements (see Part II, Item 15
"Recent Sales of Unregistered Securities") will be offered for resale
by certain Selling Holders under this Registration Statement, (d)
85,077 shares being registered pursuant to certain "piggy-back"
registration rights granted to an otherwise unaffiliated lender
pursuant to terms of a promissory note (see "Description of Capital
Stock - Promissory Note"), (e) 250,000 shares being registered which
underlie certain outstanding Warrants (unrelated to aforementioned
convertible debentures and/or promissory notes) and (f) an aggregate of
81,864 shares being registered pursuant to certain "piggy-back"
registration rights granted to two otherwise unaffiliated firms in
<PAGE>
exchange for services rendered by such firms to the Company. Also
registered hereunder (and included in the 19,080,184 shares) are shares
of Common Stock of the Registrant referred to above are (i) those
shares issuable in exchange for interest earned under Convertible
Debentures with interest calculated through respective mandatory
conversion dates and (ii) such additional shares as may be issued under
anti-dilution provisions contained in the aforesaid Convertible
Debentures and related Registration Rights Agreements. Such additional
shares do not and will not include any shares as may otherwise be
required to be issued as a result of adjustments to the conversion
price, stock dividends, stock splits or similar transactions as
Registrant is not relying upon Rule 416 with respect thereto.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933. In
accordance with Rule 457(c) of Regulation C, the estimated price for
the Securities was based on the average of the high and low reported
prices on the Electronic Over-the-Counter Bulletin Board on August 8,
2000, an average of $1.625.
(3) The number of shares referred to throughout this Registration Statement
unless otherwise specifically indicated gives retroactive effect to a 1
for 10 reverse stock split effective as of October 1, 1998.
(4) The number of securities being carried forward and the amount of the
filing fee associated with such securities that was previously paid
under earlier Registration No. 333-50069 was 1,477,008 shares of Common
Stock, $.01 par value, for which the registration fee of $2,859.40 was
paid. This information is provided in accordance with Rule 429(b) of
the 1933 Act and the number of securities being carried forward and the
amount of the filing fee associated with such securities that was
previously paid under earlier Registration No. 333-50069 was an
additional 1,967,900 and under Registration No. 333-59829,10,532,503
shares and 85,077 shares pursuant to piggy-back registration rights for
which the registration fee of $9,628.93 was paid.
(5) Includes (a) 13,830,290 shares which are reserved for issuance pursuant
to currently issued and outstanding convertible debentures which will
be offered for resale by certain Selling Holders under Registration
No. and 333-59829 and (b)an additional aggregate of 5,249,894 shares
as indicated in footnotes 1(a) and (c) through (f) inclusive.
(6) Required filing fee already paid for greater number of shares sought to
be registered under prior amendment filed September 13, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
<PAGE>
SWISSRAY INTERNATIONAL, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K.
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION
<S> <C>
1. Forepart of the Registration Statement and Outside Cover Page of Registration
Front Cover Page of the Prospectus Statement; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside
Prospectus Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of Prospectus Summary; Risk
Earnings to Fixed Charges Factors; The Company
4. Use of Proceeds Prospectus Summary; Use
of Proceeds
5. Determination of Offering Price Outside Front Cover Page
of Prospectus
6. Dilution Risk Factors; Dilution
7. Selling Security Holders Selling Holders and Plan
of Distribution
8. Plan of Distribution Outside Front Cover Page
of Prospectus; Selling
Holders and Plan of
Distribution
9. Description of Securities to be Registered Description of Capital Stock
10.Interests of Named Experts and Counsel Legal Matters; Independent
Auditors
11.Information with Respect to Registrant
(a) (1) Description of Business Prospectus Summary;
Management's Discussion and
Analysis of Financial Condition
and Results of Opertions;
Business; The Company
<PAGE>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION
(2) Description of Property Business -- Description of Property
(3) Legal Proceedings Business -- Legal Proceedings
(4) Control of Registrant Not Applicable
(5) Nature of Trading Market Risk Factors; Selling
Holders and Plan of
Distribution
(6) Exchange Controls and Other Limitations Risk Factors; Description
Affecting Security Holders of Capital Stock
(7) Taxation Risk Factors
(8) Selected Financial Data Prospectus Summary;
Selected Consolidated
Financial Data
(9) Management's Discussion and Analysis of Management's Discussion
Financial Condition and Results of and Analysis of Financial
Operations Condition and Results of
Operations
(10) Directors and Officers of Registrant Management
(11) Compensation of Directors and Officers Management
(12) Options to Purchase Securities from Management
Registrant or Subsidiaries
(13) Interest of Management in Certain Certain Transactions
Transactions
(b) Financial Statements Financial Statements
12.Disclosure of Commission Position on Indemnification Information Not Required
for Securities Act Liabilities In Prospectus
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
DATED AUGUST 14, 2000
PROSPECTUS
SWISSRAY INTERNATIONAL, INC.
19,080,184 Shares of Common Stock
This prospectus ("Prospectus") relates to the offer and sale of up to
19,080,184 shares of common stock, $.01 par value per share (the "Common
Stock"), of Swissray International, Inc., a New York corporation ("Swissray
International, Inc." or the "Registrant"), which shares consist of (i) up to
13,830,290 shares of Common Stock which are issuable to certain persons (the
"Selling Holders") upon conversion of convertible debentures, issued in twelve
(12) separate financings from June 1998 through February 2000, (the "Convertible
Debentures") and which shares are being registered hereby pursuant to
Registration Rights Agreements between the Registrant and the Selling Holders
named in this Prospectus under Registration No. 333-59829, (ii) 1,832,953
additional shares of Common Stock heretofore issued as restrictive shares to
certain Selling Holders upon conversion of convertible debentures issued in
March 1998, June 1998 and August 1998, (the "Convertible Debentures") and which
additional shares are being registered hereby pursuant to Registration Rights
Agreements between the Registrant and the Selling Holders named in a Prospectus
under Registration No. 333-59829, (iii) 3,000,000 shares being registered
pursuant to certain "piggy-back" registrants rights granted to five otherwise
unaffiliated purchasers of Company Common Stock pursuant to terms of
Subscription and Registration Rights Agreements (see Part II, Item 15 "Recent
Sale of Unregistered Securities"), (iv) 85,077 shares being registered pursuant
to certain "piggy-back" registration rights granted to an otherwise unaffiliated
lender pursuant to terms of a promissory note (see "Description of Capital Stock
- Promissory Note"), (v) 250,000 shares being registered which underlie certain
outstanding Warrants (unrelated to aforementioned convertible debentures and/or
promissory notes) and (vi) an aggregate of 81,864 shares being registered
pursuant to certain "piggy-back" registration rights granted to two otherwise
unaffiliated firms in exchange for services rendered by such firms to the
Company. The up to 19,080,184 shares of Common Stock offered hereby are herein
referred to as the "Securities." For further and more specific information
identifying when each of the debentures referred to herein were issued and
itemizing the number of shares being registered for each of such debentures,
reference is made to risk factor entitled "Significant Number of Shares Issued
..".
The number of shares being registered hereunder (exclusive of an
aggregate of 4,999,894 restrictive shares already issued as indicated in (ii),
(iii), (iv) and (vi) of preceding paragraph) when added to the 23,433,212 shares
of common stock currently issued and outstanding would increase
<PAGE>
total issued and outstanding shares to 37,513,502 and would represent
approximately 37.53% of all outstanding shares of common stock. The registration
of such a large percentage of total outstanding securities may have a material
adverse effect on the market price of the Company's common stock. Those shares
being registered hereunder in accordance with aforementioned convertible
debentures are to be issued in accordance with private placements and reliance
upon exemption afforded under Regulation D and Section 4(6). The Company's
common stock is currently listed for trading on the Electronic Over-the-Counter
Bulletin Board ("OTC") and the closing bid price on August 8, 2000 was $1.625.
See also "Market Prices and Dividend Policy" hereinafter and in particular
footnote 1 thereto.
The Securities may be offered and sold from time to time by the Selling
Holders named herein (hereinafter "Selling Holders") unless otherwise indicated
or the Stockholder whose shares are being registered pursuant to aforesaid
piggy-back rights or by their transferees, pledgees, donees or their successors
pursuant to the Prospectus. The Securities may be sold by the Selling Holders
from time to time directly to purchasers or through agents, underwriters or
dealers who may receive compensation in the form of discounts, concessions or
commissions from the Selling Holders or the purchasers of the Securities for
whom such agents, underwriters or dealers may act. See "Selling Holders and Plan
of Distribution." If required, the names of any such agents or underwriters
involved in the sale of the Securities and the applicable agent's commission,
dealer's purchase price or underwriter's discount, if any, will be set forth in
an accompanying supplement to this Prospectus. The Registrant will not receive
any of the proceeds from the sale of the Securities by the Selling Holders.
The Selling Holders will receive all of the net proceeds from the sale
of the Securities and will pay all underwriting discounts and selling
commissions, if any, applicable to any such sale. The Registrant is responsible
for payment of all other expenses incident to the offer and sale of the
Securities. The Selling Holders and any broker-dealers, agents or underwriters
that participate in the distribution of the Securities may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Act"), and any profit on the sale of the Securities by the Selling Holders and
any commissions received by any such underwriters may be deemed to be
underwriting commissions or discounts under the Act. See "Selling Holders and
Plan of Distribution" for a description of indemnification arrangements.
All references herein to the "Company" refer to Swissray International,
Inc. and its subsidiaries. The executive offices of the Company are located at
Swissray International, Inc., 320 West 77th Street, Suite 1A, New York, New York
10024. The telephone number is 917-441-7841 and the fax number is 917-441-7842.
The address in Switzerland is Turbistrasse 25-27, CH-6280 Hochdorf, Switzerland
and the telephone number in Switzerland is 011-4141-914-1200.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE
AND INVOLVE A HIGH DEGREE OF RISK. ACCORDINGLY, PROSPECTIVE INVESTORS
SHOULD BE PREPARED TO SUSTAIN THE LOSS OF THEIR ENTIRE INVESTMENT.
-2-
<PAGE>
The Registrant has not taken any action to register or qualify the
Securities for offer and sale under the securities or "blue sky" laws of any
state of the United States. However, pursuant to the Registration Rights
Agreements among the Registrant and the Selling Holders (the "Registration
Rights Agreements"), the Registrant will use reasonable efforts to (i) register
and qualify the Securities covered by the Registration Statement under such
other securities or blue sky laws of such jurisdictions as the investors who
hold a majority interest of the Securities being offered reasonably request and
in which significant volumes of shares of Common Stock are traded, (ii) prepare
and file in those jurisdictions such amendments (including post- effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times until the earliest
(the "Registration Period") of (A) the date that is two years after the Closing
Date, (B) the date when the Selling Holders may sell all Securities under Rule
144 or (C) the date the Selling Holders no longer own any of the Securities;
(iii) take such other actions as may be necessary to maintain such registrations
and qualification in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Securities for sale in such jurisdictions; provided, however, that the
Registrant shall not be required in connection therewith or as a condition
thereto to (A) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify, (B) subject itself to general taxation in any
such jurisdiction, (C) file a general consent to service of process in any such
jurisdiction, (D) provide any undertakings that cause more than nominal expense
or burden to the Registrant or (E) make any change in its articles of
incorporation or by-laws or any then existing contracts, which in each case the
Board of Directors of the Registrant determines to be contrary to the best
interests of the Registrant and its stockholders. Unless and until such times as
offers and sales of the Securities by Selling Holders are registered or
qualified under applicable state securities or "blue sky" laws, or are otherwise
entitled to an exemption therefrom, initial resales by Selling Holders will be
materially restricted. Selling Holders are advised to consult with their
respective legal counsel prior to offering or selling any of their Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED ON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS August 14, 2000.
AVAILABLE INFORMATION
The Registrant is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed with the Commission can be inspected and
copied at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Information may be obtained on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. Copies of this
material can also be obtained at prescribed rates from
-3-
<PAGE>
the Public Reference Section of the Commission at its principal office at 450
Fifth Street, NW., Washington, D.C. 20549. The Commission maintains a World Wide
Web site that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the Commission, such
as the Registrant. The address of such site is http:\\www.sec.gov.
-4-
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
detailed information and financial information incorporated by reference herein
or appearing elsewhere in this Prospectus.
THE COMPANY
The Registrant was incorporated under the laws of the State of New York
on January 2, 1968 under the name CGS Units Incorporated. On June 15, 1994, the
Registrant merged with Direct Marketing Services, Inc. and changed its name to
DMS Industries, Inc. In May of 1995 the Registrant discontinued the operations
then being conducted by DMS Industries, Inc. and acquired all of the outstanding
securities of SR Medical AG, a Swiss corporation engaged in the business of
manufacturing and selling X-ray equipment, components and accessories. On June
5, 1995 the Registrant changed its name to Swissray International, Inc. The
Registrant's operations are being conducted principally through its wholly owned
subsidiaries, Swissray Medical AG (formerly known as SR Medical Holding AG and
SR Medical AG) a Swiss corporation and its wholly owned subsidiary Swissray GmbH
(formerly known as Swissray (Deutschland) Rontgentechnik GmbH and SR Medical
GmbH), a German limited liability company as well as through the Company's other
wholly owned subsidiaries, Swissray America, Inc., a Delaware corporation,
Swissray Healthcare, Inc., a Delaware corporation and Swissray Information
Solutions, Inc. a Delaware corporation.
Swissray Medical AG (formerly SR Medical Holding AG and SR Medical AG
until renamed in June 1999 and February 1998) acquired all assets and
liabilities, effective July 1998, of its wholly owned subsidiaries, SR Medical
AG (known as Telray AG until renamed in February 1998), a Swiss corporation and
Telray Research and Development AG, a Swiss corporation. Swissray Medical AG
also absorbed all assets and liabilities of the Company's other wholly owned
subsidiary SR Management AG (formerly SR Finance AG), a Swiss corporation.
Effective as of July 1, 1999 Swissray Medical Systems, Inc., a Delaware
corporation (formerly Swissray America Corporation) and Empower Inc., a New York
corporation, have been merged into Swissray America Inc., a Delaware
corporation. Unless otherwise specifically indicated, all references hereinafter
to the "Company" refer to the Registrant and its subsidiaries.
The Company is active in the markets for diagnostic imaging devices for
the health care industry. The Company's products include a full range of
conventional X-ray equipment for all diagnostic purposes other than mammography
and dentistry, a direct digital multi-functional X-ray system - the
ddRMulti-System (formerly known as the AddOn-Multi-System) and the
SwissVision(TM) line of DICOM 3.0 compatible postprocessing workstations
operating on a Windows NT platform for the processing of digital image data. In
addition, the Company is in the business of selling components and accessories
for X-ray equipment manufactured by third parties and providing services related
to imaging systems. The Company is also offering products, consulting and
services related to viewing, archiving, networking and transmitting of digital
X-ray images.
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.
-5-
<PAGE>
In the United States, the Company offers information and informatics solutions
consulting services to hospital imaging departments and imaging centers,
maintenance management and after sales-services of products manufactured by the
Company and third parties (multi-vendor, multi-modality services).
The Company and its predecessors have been in the business of
manufacturing and selling X-ray equipment in Switzerland and Germany since 1988.
Beginning in 1991, the Company's predecessors began to expand into other markets
in Europe, the Middle East and Asia. In 1992, the Company entered into a first
Original Equipment Manufacturing ("OEM") Agreement with Philips Medical Systems
GmbH ("Philips Medical Systems") providing for the manufacturing by the Company
of a Multi-Radiography System ("MRS"). Simultaneously, the Company developed the
first SwissVision(TM) image post-processing system, which was able to convert
analog images obtained in fluoroscopy into digital information. Beginning in
1993, the Company began the development of direct digital X-ray technology for
medical diagnostic purposes and 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 "The Company" and "Business - 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 aggregating 15% of the aforesaid total proceeds (i.e., 2,070,000) was
received by the Company in early March 2000. The Company completed installation
and sale of 25 of the 32 ddRMulti-Systems through close of its fiscal year ended
June 30, 2000 while an additional 5 Systems have been installed and sold through
August 8, 2000 leaving a balance of 2 of the 32 Systems on backlog with the
expectation that same will be installed in late August 2000. During the current
fiscal year commencing July 1, 2000 and through August 8, 2000 the Company has
received additional payments aggregating $9,201,250 with the expectation that
the balance of approximately $2,528,750 will be received by August 31, 2000. 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 in order to more extensively focus
upon the sales and marketing of ddR equipment. The dollar amount of sales
from conventional x-ray Systems for the nine months ended March 31, 2000 and
March 31, 1999 were $1,408,825 and $2,237,061 respectively. The dollar amount of
sales from conventional OEM business for the nine months ended March 31, 2000
and March 31, 1999 were $3,365,832 and $7,087,394 respectively. See also risk
factor entitled "Decline in Revenues from Sale of Conventional X-Ray Equipment"
and "Business - Recent Developments".
The following organizational chart graphically indicates the Company,
its wholly owned subsidiaries and certain additional information regarding each
of such firms including principal locations.
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<PAGE>
Organization Chart
SWISSRAY International, Inc.
New York
USA
<TABLE>
<CAPTION>
Swissray Information
<S> <C> <C> <C>
Swissray Medical AG Swissray America, Inc. Solutions, Inc. Swissray Healthcare, Inc.
Hochdorf Delaware Delaware Delaware
Switzerland USA USA USA
|
|
-------------------------------
| |
Swissray GmbH Swissray Romania SRL
Wiesbaden Romania
Germany
THE OFFERING
Common Stock Offered(1) Up to 19,080,184 shares of Common Stock.
Common Stock Outstanding
Before the Offering(2)(3) 23,433,212
Common Stock Outstanding
After the Offering(4) 37,513,502
Use of Proceeds The Registrant will not receive any
of the proceeds from the sale of any
of the Securities.
Risk Factors The Securities
offered hereby involve a
high degree of risk. See
"Risk Factors" commencing
on page 10 hereof.
Electronic Over-the-Counter
Bulletin Board Symbol SRMI
</TABLE>
(1) Includes an aggregate of up to 13,830,290 shares of Common Stock
reserved for issuance upon the conversion of the Convertible
Debentures. See "Selling Holders and Plan of Distribution" and
"Description of Capital Stock." Also includes an aggregate of 1,832,953
additional shares of Common Stock heretofore issued as restrictive
shares upon conversion of Convertible Debentures issued in June 1998
August 1998 and May/June 1999, which latter shares relate to
Registration No. 333-59829 in accordance with Rule 429 (b) of the
1933 Act. Also being registered hereunder in accordance with certain
"piggy-back" registration rights are (a) 85,077 restrictive shares
heretofore issued pursuant to terms of a convertible promissory note,
(b) 250,000 shares underlying certain outstanding Warrants (unrelated
to convertible debentures), (c) an aggregate of 3,000,000 restrictive
shares heretofore issued
-7-
<PAGE>
pursuant to terms of subscription and registration rights agreements
and (d) an aggregate of 81,864 shares pursuant to certain "piggy-back"
registration rights granted to two otherwise unaffiliated firms in
exchange for services rendered by such firms to the Company.
(2) Does not include (i) those shares referred to in footnote 1 above, (ii)
161,000 shares of Common Stock which may be issued upon the exercise of
outstanding options under the Registrant's 1996 Non-Statutory Stock
Option Plan (the "1996 Plan"), (iii) 200,000 shares of Common Stock
reserved for issuance upon the exercise of options available for future
grant under the 1997 Non-Statutory Stock Option Plan (the "1997 Plan")
and 4,000,000 shares of Common Stock reserved for issuance upon the
exercise of options available for future grant under the 2000 Non-
Statutory Stock Option Plan (the "2000 Plan").
(3) As of the close of business on August 8, 2000 there were 23,433,212
shares issued and outstanding held by 514 stockholders of the
Registrant's Common Stock.
(4) While the Common Stock registered hereunder is being offered on a
delayed or continuous basis pursuant to Rule 415 under the Act, the
Registrant has quantified the number of shares that would be
outstanding if debentures were converted as of August 8, 2000 (while
taking into account interest earned through date of mandatory
conversion).
-8-
<PAGE>
SUMMARY FINANCIAL DATA
The summary information below represents financial information of the
Registrant for the (i) nine month periods ended March 31, 2000 and March 31,
1999, which information was derived from the unaudited consolidated financial
statements of the Registrant and (ii) fiscal years ended June 30, 1997, June 30,
1998 and June 30, 1999, which information was derived from the audited
consolidated financial statements of the Registrant.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
March 31, June 30,
--------------------- -----------------------------
2000 1999 1999 1998 1997
------- ------- ------- ------- -------
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales ......................... 12,394 13,221 17,296 22,893 13,151
Cost of sales..... ................ 9,372 10,405 13,529 18,082 8,445
------- ------- ------- ------- -------
Gross profit ...................... 3,022 2,816 3,767 4,811 4,706
Selling, general and administrative 13,725 10,389 19,346 18,748 17,450
------- ------- ------- ------- -------
Operating loss .................... (10,703) (7,573) (15,579) (13,937) (12,744)
Other expense (income) ............ (409) 182 (40) 281 (319)
Interest expense .................. 7,277 2,156 5,639 8,590 762
------- ------- ------- ------- -------
Loss from continuing operations
before income taxes ............... (17,571) (9,911) (21,178) (22,808) (13,187)
Income tax provision .............. -- -- -- -- 110
------- ------- ------- ------- -------
Loss from continuing operations ... (17,571) (9,911) (21,178) (22,808) (13,297)
======= ======= ======= ======= =======
Loss from continuing operations
per common share ............. (0.99) (2.09) (3.24) (8.48) (8.41)
======= ======= ======= ======= =======
</TABLE>
March 31, 2000
-----------------
Actual
---------
BALANCE SHEET DATA:
Total assets 25,538
Long-term debt 14,423
Common stock subject to put 320
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RISK FACTORS
Investors should carefully consider the factors set forth below as well
as the other information set forth in this Prospectus before purchasing the
Securities.
History of Increasing Losses; Profitability Uncertain Working Capital Deficiency
As of June 30, 1995 the Registrant had accumulated losses on a
consolidated basis of approximately $6,000,000. A substantial part of such
losses resulted from activities unrelated to the Company's present operations.
Since June 30, 1995 and for the four fiscal years commencing July 1, 1995 and
concluding June 30, 1999, the Company incurred additional net losses aggregating
$66,465,122 ($22,010,750 of which was attributable to year ended June 30, 1999
as compared to $22,503,109 which was attributable to year ended June 30, 1998).
The Company incurred a further net loss of $17,570,224 during the nine month
period ended March 31, 2000. As of March 31, 2000 the Company had a working
capital deficiency of $3,446,584. Such additional losses primarily resulted from
the significant expenses associated with the development of the Company's
products, primarily its direct digital X-ray system, the ddRMulti-System, the
building of the Company's organization and market position as well as the costs
of amortization of debenture issuance costs and beneficial conversion feature
(as well as the absence of a significant increase in sales - during fiscal year
ended June 30, 1998 - as a result of the delay in the market introduction of
certain of the Company's products, which delays were for the purpose of assuring
product quality prior to introduction to industry). The likelihood of the
success of the Company must be considered in light of the problems, expenses,
difficulties, complications and past delays encountered in connection with the
development of any new products and the competitive environment in which the
Company operates. Although the Company is deriving operating revenue from its
current operations, such revenue has not been sufficient to make the Company's
operations profitable. There can be no assurance that the Company will be able
to develop significant additional sources of revenue or that it will become
profitable. Results of operations may fluctuate significantly and will depend
upon further successful introduction of the ddRMulti-System, further market
acceptance of new product introductions in the future and competition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Products," "-- Research and Development" and "--
Competition."
Need for Continued Market Acceptance of the ddRMulti-System
The Company's future performance will depend to a substantial degree
upon the continued market introduction and acceptance of the ddRMulti-System.
The Company's marketing efforts to date have generated considerable awareness
about the ddRMulti-System among radiologists. From October 1997 through June 30,
1999, the Company sold twelve ddRMulti-Systems in the United States and Europe.
During the current fiscal year ended June 30, 2000 the Company contracted for
sales of 64 ddRMulti-Systems which represents an approximate 700%, increase in
contracted for sales of such Systems over the entire preceding fiscal year (when
eight Systems were sold). The 700% increase referred to primarily relates to
orders not yet shipped and revenues may not be recognized by the Company prior
to order fulfillment. See also risk factor entitled "Reliance on a Single
Product" hereinafter. The extent of, and rate at which, the market introduction,
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acceptance and penetration can be achieved by the ddRMulti-System are functions
of many variables, including, but not limited to, obtaining the necessary
governmental approvals (see "Government Regulation" hereinafter), price,
effectiveness, acceptance by potential customers and manufacturing, training
capacity and marketing and sales efforts. There can be no assurance that the
ddRMulti-System will continue to achieve or maintain acceptance in its target
markets. Additionally, and notwithstanding the significant increase in
contracted sales of ddRMulti-Systems as referred to in this paragraph, there can
be no assurance whatsoever that sale of such systems will continue to grow at
such a large rate or at any significant rate. Similar risks may confront other
products developed by the Company in the future. See "Business -- Products",
"Recent Developments" and "-- Regulatory Matters."
Reliance on a Single Product
The Company has concentrated its efforts primarily on the development
of the ddRMulti-System and will be dependent to a significant extent upon
acceptance of that product to generate additional revenues. There can be no
assurance that the ddRMulti-System will be successfully commercialized
notwithstanding its recent successful introduction both within and without the
United States (as heretofore and hereinafter indicated) and the fact that more
Systems (64) have been contracted for sale during fiscal year ended June 30,
2000 than were sold for the entire preceding fiscal year. Percentage of Company
revenues directly attributable to sales of its ddRMulti-Systems for the fiscal
year ended June 30, 1999 and the nine month period ended March 31, 2000 were
13.6% and 47.7% respectively. There can be no assurance that the Company's
competitors will not succeed in developing or marketing technologies and
products that are more commercially attractive than the ddRMulti-System. See
"Business -- Products" and "-- Competition."
During fiscal year ended June 30, 1999 11 ddRMulti-Systems were sold
in the U.S. while 1 ddRMulti-System was sold outside the U.S. During the current
fiscal year ending June 30, 2000, 29 ddRMulti-Systems were contracted for sale
in the U.S. while 35 ddRMulti-Systems were contracted for sale outside the U.S.
(32 of which were contracted for sale to the Government of Romania). Of the 64
ddR Systems contracted for sale during fiscal year ended June 30, 2000, 54 of
such Systems have been installed and sold while 10 Systems are considered to be
backlog with the expectation that the balance of 2 (from the backlog of 10)
substantial portion of the 32 ddR Systems contracted for sale to the Government
of Romania which have not yet been installed and sold will be installed by late
August 2000. With respect to the 29 ddRMulti-Systems contracted for sale in the
U.S. during fiscal year ended June 30, 2000, 4 contracts were for the sale of 2
Systems each to 4 separate purchasers, 1 contract was for the sale of 3 Systems
to a separate purchaser with the balance being contracted for sale to 18
separate purchasers. Additional orders for three ddRMulti-Systems were received
during July 2000 for installations within the U.S., thereby increasing backlog
from 10 to 13.
Cost of ddRMulti-System May Deter Sales
The Company's ddRMulti-Systems retail for prices substantially in
excess of retail prices for conventional x-ray systems. Dependent upon specific
features the ddR System may cost as much as $450,000 while conventional systems
cost around $170,000. This significant difference in pricing may deter potential
-11-
<PAGE>
purchasers from making a monetary commitment in order to purchase the Company's
system. In an effort to reduce customer resistance to this higher priced product
and to make payments therefore more attractive, the Company entered into a
financial services agreement with a firm known as DVI Strategic Partner Group
(`DVI"), a unit of DVI, Inc. (NYSE:DVI), whereby DVI has agreed to operate a
lease finance program on behalf of such Company clientele as DVI, in its sole
discretion, wishes to finance. The finance agreement is intended to serve to
overcome the initial investment barrier (as reflected by the higher cost for
ddRMulti-System) by tailoring payments to be within a purchasers budget and by
permitting such payment to be made over an extended period of time. Such
financing does not change the fact that the product cost approximates in excess
of two and one-half times the cost of conventional x-ray equipment. To the
extent that DVI finances Company purchase agreements, such purchasers will be
able to pay over an extended period of time and the Company would hope to
experience increased cash flow (since DVI would be making payments to the
Company) and a increase in ddR system sales (since the purchaser would be able
to make payments over an extended period of time to DVI). However, due to the
fact, as aforesaid, that DVI has sole discretion as to which purchasers to
finance, there can be no assurance whatsoever that the Company will experience
any significant cash flow increase or any significant increase in its ddR sales
as a result of entry into agreement with DVI.
Decline in Revenues from Sale of Conventional X-Ray Equipment
As net revenues attributable to ddRMulti-System sales increased, sales
attributed to conventional x-ray equipment and OEM business decreased. Net sales
amounted to $12,393,655 for the nine-month period ended March 31, 2000, compared
to $13,220,776 for the nine-month period ended March 31, 1999 a decrease of
$827,121 or 6.3% from the nine-month period ended March 31, 1999. The 6.3%
decrease in net sales was mainly due to the decrease in conventional x-ray
of 37% ($828,233)and conventional OEM-Business of 52.5% ($3,721,562 )whereas
sales offill in ddRMulti-Systems increased by 192.9%-$3,896,719. See
"Management's Discussion andfill in Analysis - Results of Operations" for nine
month period ended March 31, 2000.
Future Capital Needs and Uncertainty of Additional Financing
There can be no assurance that the Company will not be required to seek
additional equity or debt capital to finance its operations in the future. In
addition, there can be no assurance that any such financings, if needed, will be
available to the Company or that adequate funds for the Company's operations,
whether from the Company's revenues, financial markets, collaborative or other
arrangements with corporate partners or from other sources, will be available
when needed or on terms attractive to the Company. The inability to obtain
sufficient funds may require the Company to delay, scale back or eliminate some
or all of its research and product development programs, sales and marketing
efforts, manufacturing and slide processing operations, clinical studies and/or
regulatory activities or to grant licenses to third parties to commercialize
products or technologies that the Company would otherwise seek to market and
sell itself.
There can be no assurance that any additional source of financing at
reasonable terms or otherwise (be it debt and/or equity financing) will be
available to the Company in the future (notwithstanding availability of such
financings as recently as February 2000) or that absent such
-12-
<PAGE>
financing the Company will have sufficient cash flow to maintain operations in
the manner contemplated and be able to market its ddRMulti-System as currently
contemplated. See also risk factor directly below regarding shares issued since
May of 1995 as a result of debt or equity financing.
Potential Adverse Effect Upon Stock Price as a Result of Registration of
Significant Number of Shares Issued as a Result of Equity and Debt Financings
Pursuant to Regulation S and Regulation D
From May 1995 through February 18, 2000 the Company has engaged in a
significant number of equity (Regulation S) financings and debt (Regulation D)
financings. Such financings consisted of nine (9) Regulation S off-shore
financings, fourteen (14) Regulation D convertible debenture financings and four
(4) sale of securities financings. The Company received gross proceeds in excess
of $63,000,000 and a balance of $13,998,994 received in convertible debenture
financings remains outstanding. Such balance, if converted utilizing bid price
for the Company's common stock at August 8, 2000 would result in the issuance of
an additional 13,830,290 shares. However, due to the fact that the debenture
agreements do not contain any "floor" provisions, the number of shares as may
actually be issued in the future may significantly increase if there is a
significant decline in the bid price of the Company's common stock.
These persons and/or firms owning convertible debentures may profit
from "shorting" (selling without ownership of underlying shares) the
Registrant's common stock by covering such short positions with registered
shares of Company common stock received upon debenture conversion. Additionally,
exercise of convertible debentures has a dilutive effect to present Company
stockholders by reducing their percentage of interest in the Company. If all of
the principal balance and interest earned on outstanding unconverted convertible
debentures were converted (based upon the calculations contained in this
Registration Statement) total outstanding shares would increase to 37,513,502
and current stockholders percentage of ownership would decrease to approximately
62.5%. Further, as and when conversions occur a number of new significant
holders of Company common stock will necessarily exist.
The market price of the Registrant's Common Stock may also be adversely
affected by sales of substantial amounts of Common Stock in the public market,
including sales of Common Stock under Rule 144 or after the expiration of any
other applicable holding period (by contract and/or statute). The sale of such
stock could also adversely affect the ability of the Registrant to sell Common
Stock for its own account. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Management -- Compensation of
Directors and Executive Officers," "Selling Holders and Plan of Distribution"
and "Description of Capital Stock."
See also "History of Past Financings", "Selling Holders", "Plan of
Distribution" and "Description of Capital Stock".
-13-
<PAGE>
Inability to Currently Determine Number of Shares Which May be Issued Upon
Debenture Conversion; Potential For New Significant Stockholders and Potential
Significant Percentage Dilution to Existing Stockholders Which Would Result From
Significant Increase in Outstanding Shares
Any additional convertible debenture financings will result in
additional dilution to present Company shareholders by reducing their percentage
of interest in the Company. In the past the Company has issued (and currently
intends to issue when, as and if necessary) debt convertible into common stock
without any limits on the amount that can be converted over any specific period
of time. Since such conversion occurs at a negotiated discount from market
price, such conversion can have a negative impact upon the trading price of the
Company's common stock. Further, since there is no "floor" in the debt
convertibles (i.e., no bid price below which debentures may not be converted)
there is no specific limit on the number of shares that may be issued upon
conversion since such number of shares is dependent upon common share price at
time of conversion and, accordingly, a decline in common stock price will
necessarily result in the requirement to issue additional shares due to there
being no "floor" or "minimum" conversion price in their existing convertible
debenture agreements. Additionally, debenture conversion may result in a larger
number of new significant stockholders to the Company. The Company has continued
to issue convertible securities without a minimum price thereby continuing to
subject itself to the risks indicated herein, especially with respect to
potential decline in common stock price. With respect to the number of shares as
may be issued regarding financings from August 31, 1998 to February 18, 2000,
which number of shares is determined based upon indicated discount from market
on date of conversion, see chart appearing at end of risk factor entitled
"Potential Adverse Effect Upon Stock Price .." which chart quantifies the number
of shares as may be issued based upon a reasonable range of high and low prices.
Requirement For the Issuance of Additional Shares in Accordance With Periodic
Amount Provisions Contained in Financing Agreements
The financing agreements referred to in the preceding two risk factors
as well as in the sections entitled "History of Past Financings" and
"Description of Capital Stock - Registration Rights" contain "periodic amount"
provisions whereby the Company is required to make payments in its securities
which payments are calculated based upon the length of time within which the
Registration Statement that relates to each financing is concluded and declared
effective. As of fiscal year ended June 30, 1999 periodic payments amount to
$1,500,000. Additional periodic payment totaling $2,600,000 were incurring
during the first nine months of fiscal year ended June 30, 2000 with a further
accrual of $867,000 during the fourth quarter of such fiscal year. The aggregate
periodic payments due as of June 30, 2000 accordingly amount to approximately
$4,967,000 and are to be paid in shares of Company common stock. If such shares
were to be issued based upon the August 8, 2000 closing bid price of $1.625 the
number of shares required to be issued would amount to 3,056,615. The actual
number of shares to be issued may be higher or lower dependent upon the price of
the Company's common stock on the actual date of issuance subsequent to the
effective date of this Registration Statement. Assuming that 3,056,615 shares
are issued, current stockholders would be significantly further diluted with
respect to their percentage of Company stock holdings (since such additional
3,056,615 shares when added to the estimated number of shares of common stock to
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<PAGE>
be outstanding after this offering (i.e., 37,513,502) would approximate 7.5% of
all then outstanding shares. Additional periodic amounts continue to accrue
through the effective date of this Registration Statement at a rate
approximating $300,000 per month.
Lack of Basis in Fact Upon Which Certain Statements Were Reported in July 17,
2000 Published Interview
An interview with the Company's Vice President (Ueli Laupper) whose
overall responsibilities are in the area of international marketing and sales
appeared in a publication entitled Wall Street Transcript on July 17, 2000.
During the course of such interview, such Vice President indicated, amongst
other things, that (a) the Company had just turned cash flow positive, (b) the
pace with which the Company has been picking up orders is increasing every
month, (c) the Company is a real company with a profitable bottom line and (d)
the Company is making money. These statements are inaccurate and the reported
financial statements of the Company do not support such statements. These
statements are not consistent with the Company's historical financial statements
or expected Results of Operations for the quarter ended June 30, 2000.
The intent of such statements and what the average reader of such
statements would take therefrom are dissimilar. The statements were only meant
to indicate that the Company is in a better position today than it was one or
more years ago and were not meant to indicate, in any manner, that the Company
had reached the point wherein it would be able to show a net profit for fiscal
year ended June 30, 2000. In fact, as indicated elsewhere in this Registration
Statement, the Company had already incurred a net loss of $17,570,224 for the
nine months ended March 31, 2000. Therefore, it was inaccurate to state that the
Company had turned "cash flow positive" and that it had a "profitable bottom
line". Similarly, the statement that the Company was "making money" is
misleading since it may be read to indicate revenues exceeded all expenses when
in fact such is not the case. Additionally, the statement that "the pace that we
pick up orders is increasing every month" is not accurate and was meant to
indicate that orders are increasing annually as indicated in risk factor
entitled " Reliance on a Single Product", "Continued Nasdaq Delisting - Company
Appeal From Delisting Decision" and "Management - Employment Agreements". In
fact, orders do not increase each month but rather vary from month to month.
The aforementioned article also contains a statement to the effect that
the Company ".. will expand to South America and Asia" where more properly it
should have said "intends, in the future, to expand to South America, Asia and
such other countries and/or territories as deemed appropriate". To date, and
despite such intentions, there have been no material developments regarding
proposed expansion into either South America or Asia.
The above referenced interview also contains certain information with
respect to Mr. Ueli Laupper and such information contains the statement that
"Mr. Laupper (actually referring to the Company) entered into a OEM agreement
with Philips Medical Systems for approximately $40,000,000." Reference to such
OEM agreement should have further indicated, at least for clarification
purposes, that at the time of execution (1992) the Company expected sales to
eventually approximate $40,000,000 in conventional x-ray sales, that sales
commencing with fiscal year ended 1996 to date approximate $30,000,000 and that
sales are expected to decrease due to the fact that the Company sales efforts
are now geared towards its ddRMulti-System with substantially less emphasis upon
conventional x-ray equipment. Such article should have indicated what is most
pertinent and current about such contract, to wit, that sales to Philips over
the last 21 months approximated $15,500,000.
See also "Recent Developments - Preliminary Unaudited Fourth Quarter
Results of Operations".
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<PAGE>
Vice President's Personal Belief as to What Company Common Stock Should Sell For
Not Based Upon Any Objective Criteria
Reference is herewith made to the risk factor directly above regarding
certain statements made by the Company's Vice President. Such individual, in the
same July 17, 2000 article stated his personal belief that ".. the stock is way
to low. Because it is too low, it's the right time for an investor to buy our
stock." This personal belief should not have been expressed or made and was not
intended as anything other than informal conversation with the interviewer
without any expectation that same would be published. Neither Mr. Laupper nor
any other member of the Company's management team claims to be in any position
to know what price the Company's common stock should or should not be nor has
any way to know with any degree of accuracy or otherwise as to whether now is or
is not the right time for anyone to purchase Company shares of common stock. Any
statement or expression of belief regarding the Company's stock price bears no
relationship whatsoever to the book value of the Company's common stock, its
assets, its statements of operation or to any other objective criteria of value.
Conflict Between Statements Made By Company Representative Which Had No Basis
ans Should Not Be Relied Upon By Prospective Investors-As Contained In February
15, 2000 Conference Call Made Available on Company Web Site
On February 15, 2000 the Company conducted a conference call with
stockholders with such conference call information being available on the
Company's web site until its removal on August 11, 2000. The Company was
represented by its Vice President, Ueli Laupper, with the two other participants
(other than stockholders) being John Liviakis of Liviakis Financial
Communications Inc. (one of the companies with whom the Company has entered into
a consulting agreement) and Dr. Leonard Berliner, the Assistant Director of
Radiology at Staten Island Medical Center (a medical institution which currently
utilizes the Company's ddRMulti-System). During the course of such conference
call many statements (forward looking and otherwise), expressions of hopes and
desires and disclosure of substantiative information were made. To the extent
that any statements concerning past and current business operations, future
prospects, industry overview, merits of, cost for or comparisons between digital
x-ray equipment and conventional x-ray equipment and/or any other statements,
expressions of envisioned future prospects, forward looking statements or
otherwise as are contained in such conference call may differ in any way with
statements contained in this Registration Statement no credence whatsoever
should be given to such February 15, 2000 statements.
To the extent that such statements and expressions as are contained in
the above referenced February 15, 2000 conference call are inconsistent with
disclosure herein and historical financial statements and expressed results for
the quarter ended June 30, 2000, the following disclosure is being made so as to
be corrective and, where applicable, explanatory. Absent satisfactory
explanation such statements as are referred to below should be considered
erroneous and should not be relied upon by investors or any other persons or
firms. Such statements are as follows:
A. The statement that SRMI is currently "installing a system (referring
to ddRMulti-System) every week" is inaccurate. Some weeks are better
than others, some weeks do not have any such sales and overall sales
for the fiscal year ended June 30, 2000 amounted to 54.
B. The statement that "We (SRMI) have some other big projects like we did
with Romania, working on .. they are government projects and the
timelines are not easy to clearly define in which month they will fall
in, but all I can say is fiscal year 2000 is going to look very
exciting." should not have been made, as any initial discussions have
not reached a level requiring disclosure and in fact have not occurred
from the date of the statement to date despite premature expectations
regarding same.
C. The statement that "We are seeing from our forecasting, we are seeing
from our backlog that the year 2000 and also the second half of our
business year now is going to give us the payback we're hoping for and
it's even going to be bigger than we actually thought" does not
provide sufficient information as to what was "actually thought" and
thereby does not permit any realistic analysis as to what is meant by
the Company receiving the "payback we are hoping for". Accordingly,
such statement should be disregarded.
D. The statement made with respect to sales of ddRMulti-Systems to the
effect that "And when you look at our performance in ddR in our first
year in `97 when we started to sell we sold only four systems. In the
second year `98 we sold eight systems. And now in only seven months of
the new budget year of `99 we have sold already 53 systems" is not
entirely accurate nor is statement that "So when you look at this very
exponential growth rate, you can see the market becomes nature... and
Swiisray is going to be a big company..." The Company did sell the
number of systems indicated in fiscal years ended `97 and '98 but at
the time the statement was made 53 systems may have been contracted
for sale during fiscal year ended June 30, 2000 but in fact were not
all sold (for revenue recognition purposes) until the conclusion of
"1999" (i.e. fiscal year ended June 30, 2000) when the Company
reported sale of 54 systems. Terms such as "exponential growth" and
"Swissray is going to be a big company" should not have been utilized
since exponential growth at this stage of the Company's operations
would appear to presume an ongoing growth rate of a nature which may
not occur, especially in view of the fact that a significant portion
of such increase in the number of systems sold is directly
attributable to the Company's October 1999 contract for the sale of 32
of its ddRMulti-Systems to the Government of Romania. See also risk
factor "Reliance on Large Customers" and "Recent Developments".
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<PAGE>
E. The expression and statement of confidence indicating that "We had
about 1300 visitors at our booth (referring to the Radiological
Society of North America ("RSNA") held in late 1999 in Chicago), which
was an overwhelming success. Out of these 1300, there are about 700
people who were very seriously interested in technology, ... And
actual sales prospects ... out of this RSNA three to four hundred real
prospects ... we are now busy every day to turn those three to four
hundred prospects into orders" and "... I'm very confident that
together with Hitachi we will be able to do that" should not be relied
upon since there is no current way to ascertain to what extent and
even over what period of time any of such prospects will result in
orders.
F. Statements appearing to extrapolate assumptions based upon past sales
such as "when you look at tendency how our sales picked up from four
to eight to fifty-three in seven months you can assume the projections
for next year will be very exciting" should not have been made. As
indicated above, 54 systems were sold for the entire year and a
significant portion of same were purchased by one entity (the
Government of Romania). No assumption should be made regarding the
extent of future sales based upon past performance.
G. The statement that "in the year (fiscal) 2000 we are definitely going
to see the earnings we expect" is, on its face, meaningless absent any
indication of what earnings are expected and, accordingly, should be
disregarded.
H. The statement that a "break even analysis as we have it now with the
current infrastructure is around 40-45 systems" was intended to and
should have stated 40-45 systems per quarter.
I. The statement that "when we are conservative, looking at ten systems a
month (referring to the sale of ten ddR Systems per month)...
potential is around four to four and a half-million dollar monthly
revenue" would be accurate only if ten or more systems were sold each
month but should be disregarded since such expectation may be
unfounded and is not based upon any objective standard of past
performance.
J. The statement that "the growth is tremendous. It was more than 600% in
the past. So the growth will continue." again presumes too much. It
was accurate to say that sales of ddRMulti-Systems for fiscal year
ended June 30, 2000 (54 systems sold) compared favorably (on a
percentage basis) with the eight systems sold in the preceding fiscal
year. Extrapolations or projections based upon past sales should be
disregarded without taking any inferences therefrom.
K. The statement that "... fiscal year 2000 is going to look very
exciting" lacks sufficient factual information upon which to ascertain
what is considered to be "very exciting" and should be disregarded.
L. The statements that "Our technology costs (referring to ddR Systems)
about three times more than a conventional and the payback because we
can operate the technology at a much lower cost, so that payback is
(for customers purchasing ddR Systems) two to three years" and that
"Although we can prove and all our customers have appreciated yearly
cost savings of 200 to 250 thousand dollars", which gives them a
return of investment on the technology of two to three years standing
alone does not provide sufficient information. "Payback" within any
specific period of time and "cost savings" is dependent upon certain
factors outside of the Company's control such as the degree to which
purchaser utilizes the equipment, i.e., the number of patients per day
and number of x-rays taken. Assuming total utilization of ddR system
purchased, payback and savings indicated may occur but such assumption
should not be made as it is not a matter within the Company's control.
M. While profit margins for sale of direct digital equipment compared
quite favorably to those of conventional equipment, percentage
comparisons should not be made due to variables in costs of sales
relating to the specific nature of individual systems ordered and
negotiated pricing based primarily upon nature of system and quantity
as well as Company decisions regarding placement of system in any new
territories where it may attempt to get an initial foothold.
Similarly, statements such as "Each digital unit of sale generates
nearly two cents a share in earnings" does not provide sufficient
information and is wrong since amount of sales varies and earnings per
share is based upon number of shares outstanding, which has increased
substantially over the years and is currently the subject of further
potential significant increases due to eventual conversion of
outstanding convertible debentures. In fact, at the time such
statement was made the number of shares then outstanding approximated
20,984,669 shares while the number of shares currently outstanding is
23,433,212 and, accordingly, refernce to "$0.02" per share earnings is
meaningless since the Company has still not had any earnings. See
"Prospectus Summary - The Offering".
N. The statement made by the President of Liviakis Financial
Communications, Inc. that "the Company at one time and on a split
adjusted basis had a high of over $80 at one time" is misleading. Such
quoted statement number assumes that had the 1 for 10 split occurred
at a time when the common stock of the Company was $8.00 per share
that the post 1 for 10 reverse split price accurately would have been
$80. However, when the common stock was trading at such a high level
no reverse stock split occurred nor was any consideration even given
to effectuating a reverse stock split. The reverse stock split
occurred on October 1, 1998 at a time when the Company's common stock
was approximately $0.12 per share.
As aforesaid, the Company has removed, effective today, the entire
February 15, 2000 conference call from its web site.
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Sale of Restrictive Shares Below Market Price: Dilution to Current Stockholders
On September 2, 1999 the Company entered into an agreement whereby an
investor Parkdale LLC and/or its designees was given the right to purchase
1,000,000 shares at $1.00 per share (for $1,000,000) and 2,000,000 shares at
$1.50 (for $3,000,000) - as long as investor and/or its designees purchased
1,000,000 shares on or before September 30, 1999 and further as long as it
purchased at least an additional 1,000,000 shares within 60 days of the purchase
of the first 1,000,000 shares. As long as the purchase requirements indicated
were met (and they were) investor had the right until March 1, 2000 to purchase
the balance of the unpurchased shares remaining (at the $1.50 price indicated
above). On September 2, 1999 (the date of the agreement) the closing bid price
on the Company's common stock was $2.125 per share. Accordingly, the right to
purchase shares at $1.00 per share represented a 53% discount from market while
the right to purchase shares at $1.50 per share represented 29% discount from
market based upon September 2, 1999 closing bid price. See chart to risk factor
entitled "Potential Adverse Effect Upon Stock Price.." with respect to actual
dates of purchase and closing bid prices on dates of purchase which would
indicate discounts from market ranging from 45% to 80% if closing bid price on
date of purchase (as opposed to September 2, 1999 agreement) were utilized.
Investment participants involved in the above transactions (i.e., Parkdale LLC
and/or its designees) and the number of 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.
On February 18, 2000 the Company sold 333, 333 shares of common stock
at $3.00 per share to Dundurn Street LLC. The bid price on the date of such sale
was $6.375 per share and, accordingly, the discount from market approximated
53%.
Past History of Debt (Debenture) Fund Raising to Retire Existing Indebtedness
On two separate occasions during 1997 and 1998 the Company raised
monies in private placements partially to pay off holders of debentures from
previous private placements as hereinafter indicated. In the first instance the
August 19, 1997 debenture financing which resulted in gross proceeds of
$5,000,000 which had an outstanding balance of $1,850,000 was rolled over into a
November 26, 1997 debenture financing. Such outstanding balances including
interest (from August 19, 1997 financing) were paid to The Isosceles Fund
Limited, Otato Limited Partnership and Thomson Kernaghan & Co. Ltd. in the sums
of $583,630, $145,969 and $1,428,686 respectively. Similarly the March 16, 1998
debenture financing which resulted in gross proceeds of $5,500,000 which had an
outstanding balance of $4,000,000 was partially rolled over into an August 31,
1998 debenture financing. $3,000,000 of such outstanding balances as rolled over
including interest (from the March 16, 1998 financing) was paid to Atlantis
Capital Fund, Ltd., Canadian Advantage Limited Partnership, Dominion Capital
Fund, Ltd. and Sovereign Partners LP in the sums of $191,642, $421,613,
$1,226,512 and $1,993,082 respectively.
Authority to Issue Preferred Stock With Terms That May Not Be Beneficial to
Common Stock Holders
In accordance with stockholder approval received at Annual Meeting of
Stockholders held July 23, 1999, the Company amended its certificate of
incorporation pursuant to which it now is authorized to issue up to 1,000,000
shares of preferred stock, par value $.01 per share.
The designations, preferences, conversions rights, cumulative,
relative, participating, optional or other rights including voting rights,
qualifications, limitations or restrictions thereof of the preferred stock has
not, as yet, been determined by the Board of Directors. Thus, the Board of
Directors is entitled to authorize the issuance of up to 1,000,000 shares of
preferred stock in one or more series with such limitations and restrictions as
may be determined in its sole discretion, with no further authorization by
security holders required for the issuance thereof.
The issuance of preferred stock could adversely affect the voting power
and other rights of the holders of common stock. Preferred stock may be issued
quickly with terms calculated to discourage, make more difficult, delay or
prevent a change in control of the Company or make removal of management more
difficult. As a result, the Board of Directors' ability to issue preferred stock
may discourage the potential hostility of an acquirer, possibly resulting in
beneficial negotiations.Negotiating with an unfriendly acquirer may result in,
amongst other things, terms more favorable to the Company and its stockholders.
Conversely, the issuance of preferred stock may adversely affect the market
price of, and the voting and other rights of the holders of the Common Stock.
The Company presently has no plans to issue preferred stock. See also
"Description of Capital Stock - Preferred Stock".
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Issuance of Significant Percentage of Securities Pursuant to Consulting
Agreement With Corresponding Dilution to Current Stockholders
In March of 1999 the Registrant issued an aggregate of 3,800,000 shares
of restrictive fully vested, and non-forfeitable common stock pursuant to two
separate consulting agreements and in lieu of cash payment. At the time of such
issuance these shares represented approximately 32% of all outstanding shares
and currently represent approximately 16% of all outstanding securities.
Accordingly, upon issuance of such 3,800,000 shares, current stockholders
percentage of ownership (100%) decreased (by 32%) to 68% of all then issued and
outstanding shares. The Registrant has no current plans to continue this
practice excepting as same may relate to extensions and renegotiations regarding
the above referenced consulting agreements. For further information regarding
terms and conditions relating to such consulting agreements, reference is
herewith made to "Business - Recent Developments".
Company's President Controls in Excess of One-Fourth of all Voting Securities
Ruedi G. Laupper, the Company's President, owns of record and
beneficially (and/or through corporations over which he exercises control; see
footnote 2 to "Principal Stockholders") approximately 12% of all issued and
outstanding shares of Company common stock. Additionally, in accordance with the
terms and conditions of a March 29, 1999 Consulting Agreement with Liviakis
Financial Communications, Inc. ("LFC"), pursuant to which LFC was issued and
owns 3,000,000 fully vested, and non-forfeitable shares of Company common stock,
the Company's President has sole voting rights with respect to such 3,000,000
shares without any limitation thereon so long as same are owned by LFC. LFC in
turn may not sell any of such shares for a period of one year subsequent to
commencement of ownership and then only in accordance and subject to volume
limitations imposed in accordance with the applicable provisions of Rule 144
under the Securities Act of 1933. In March 2000 the Company and LFC entered into
a further 1 year consulting agreement pursuant to which an aggregate of 526,000
restrictive shares (490,000 of which are fully vested and non-forfeitable) were
required to be issued upon execution (and have been issued). The Company's
President has the same voting rights with respect to such shares as he has to
the 3,000,000 shares indicated above. By virtue of the above the Company's
President has voting control over approximately 28% of all Company common stock.
See "Business - Consulting Agreement with Liviakis Financial Communications,
Inc."
Issuance in June of 1999 of Substantial Number of Shares to Company's President
In June of 1999 the Company issued 2,000,000 fully vested, and
non-forfeitable shares of its common stock to its President in exchange for
extinguishment of certain bonus rights contained in his employment agreement
(see "Management - Employment Agreement") thereby increasing his percentage of
ownership from 3% to 17%. Such increase in percentage of interest created a
corresponding decrease in percentage of ownership of all other stockholders
thereby diluting their percentage of interest.
In addition to the above, 48,259 post split shares of restrictive
common stock were issued to the Company's President who surrendered his shares
for less than three months and then received a number of shares equal to 30%
more than the number of shares he surrendered to meet convertible debenture
provisions and avoid default. Such surrender was necessitated due to the fact
that the Company was required to issue shares upon debenture conversion but the
Company did not have authorized and unissued shares to meet its obligations and
avoid default absent its President surrendering his shares (and absent increase
in its authorized shares which required stockholder approval, which approval was
subsequently obtained in October 1997).
Recent Issuance in October, 1999 of 875,000 Shares to Certain Officers and
Directors
In accordance with Board of Directors resolution adopted on October 19,
1999, an aggregate of 875,000 shares of restrictive common stock were issued to
five of the Company's officers and directors as consideration for services as
per Board resolution.
NAME POSITION NO. OF SHARES
Ruedi G. Laupper Chairman, President & 275,000
Principal Executive
Officer (1)
Josef Laupper Secretary, Treasurer 150,000
& a Director (1)
Michael Laupper Chief Financial Officer, 150,000
Controller (1)
Ueli Laupper Vice President & a 250,000
Director (1)
Erwin Zimmerli Director (1) 50,000
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(1) It is possible that one or more officers or directors of the Company
may, in the future, receive material amounts of common stock as opposed
to regular monetary compensation and, accordingly, the potential for
further stockholder dilution exists; notwithstanding the fact that
neither the Company `s officers nor its Board of Directors have any
current intentions to issue further material amounts of common stock to
officers or board members.
Significant Portion of Company Assets Are Intangible Assets
As of March 31, 2000, and for the nine months then ended, the Company's
licensing agreement, patents and goodwill (aggregating approximately $4,400,000)
are all intangibles and account for approximately 17.1% of all Company assets.
Amortization of such intangibles amounts to approximately $307,000 or
approximately 2.21% of total operating expenses. The Company evaluates the
recoverability of unamortized intangible assets based upon expectations of
nondiscounted cash flows and operating income. Impairments, if any, would be
recognized in operating results if a permanent diminution in value were to
occur.
Reliance on Large Customers
In the past, the Company has made a significant amount of sales to a
few large customers. Historically, the identity of the Company's largest
customers and the volumes purchased by them has varied. The loss of the
Company's largest customer for fiscal year ended June 30, 1999 (Philips) who
accounted for 54% of Company sales during fiscal year ended June 30, 1999 (as
compared to the second largest customer who only accounted for 1% of Company
sales during fiscal year ended June 30, 1999) or a reduction of the volume
purchased by such customer would have an adverse effect upon the Company's sales
until such time, if ever, as significant sales to other customers can be made.
Philips accounted for 27.16% of Company sales during the nine month period ended
March 31, 2000. The Company considers the relationship with its largest
customers to be satisfactory. The Company expects that as sales of its
ddRMulti-System continues to increase, the Company's revenue will be less
dependent on one or a few large customers. Such expectations have recently been
realized (although there is no assurance that it will continue) as a result of
the Company entering into the October 1999 $13,800,000 agreement for the sale of
32 of its ddRMulti-Systems to the Government of Romania. See also "Recent
Developments". See Notes to the Consolidated Financial Statements of June 30,
1999, 1998 and 1997 and "Business -- Sales and Marketing."
Risk of Currency Fluctuations, If Not Adequately Hedged Can Adversely Effect
Company Financial Condition
The Company is subject to risks and uncertainties resulting from
changes in currency exchange rates. Future currency fluctuations, to the extent
not adequately hedged, could have an adverse effect on the Company's business,
financial condition and results of operations. On occasion, the Company enters
into currency forward contracts as a hedge against anticipated foreign currency
exposures and not for speculation purposes. Such contracts, which are types of
financial derivatives limit the Company's exposure to both favorable and
unfavorable currency fluctuations. In the past the Company has used forward
contracts exclusively in connection with the purchase of material in currencies
other than Swiss Francs or U.S. dollars. For a discussion of these risks, see
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Effect of Currency on Results of Operations."
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No Registration Under "Blue Sky" Laws
The Registrant has not taken any action to register or qualify the
Securities for offer and sale under the securities or "blue sky" laws of any
state of the United States. However, pursuant to the Registration Rights
Agreements, the Registrant will use reasonable efforts to (i) register and
qualify the Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as the investors who hold a
majority interest of the Securities being offered reasonably request and in
which significant volumes of shares of Common Stock are traded, (ii) prepare and
file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times until the earliest
(the "Registration Period") of (A) the date that is two years after the Closing
Date (B) the date when the Selling Holders may sell all Securities under Rule
144 or (C) the date the Selling Holders no longer own any of the Securities;
(iii) take such other actions as may be necessary to maintain such registrations
and qualification in effect at all times during the Registration Period and (iv)
take all other actions reasonably necessary or advisable to qualify the
Securities for sale in such jurisdictions; provided, however, that the
Registrant shall not be required in connection therewith or as a condition
thereto to (A) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify, (B) subject itself to general taxation in any
such jurisdiction, (C) file a general consent to service of process in any such
jurisdiction, (D) provide any undertakings that cause more than nominal expense
or burden to the Registrant or (E) make any change in its articles of
incorporation or by-laws or any then existing contracts, which in each case the
Board of Directors of the Registrant determines to be contrary to the best
interests of the Registrant and its stockholders. Unless and until such times as
offers and sales of the Securities by Selling Holders are registered or
qualified under applicable state securities or "blue sky" laws, or are otherwise
entitled to an exemption therefrom, initial resales by Selling Holders will be
materially restricted. Selling Holders are advised to consult with their
respective legal counsel prior to offering or selling any of their Securities.
Company International Operations Subject to Foreign Legal Regulatory
Requirements
The Company does business in the United States, Switzerland and Germany
which accounted for approximately 23%, 73% and 4% respectively of total sales
for the fiscal year ended June 30, 1999. Business conducted in the U.S.,
Switzerland and Germany accounted for approximately 42.37%, 55.7% and 1.93%
respectively of total sales during the nine month period ended March 31, 2000.
Included in the 55.7% indicated in business conducted in Switzerland is 17.5% of
total sales which represent sales as a result of contract entered into with the
Romanian Ministry of Finance due to the fact that the down payment received of
$2,078,400 was guaranteed by the Swiss Export Risk Guaranty ("ERG") with funding
coming from ABN AMRO Bank, which financed the agreement. In addition to the
currency risks discussed above, the Company's international operations are
subject to the risk of (a) new and different legal and regulatory requirements
in local jurisdictions, (b) tariffs and trade barriers, (c) potential
difficulties in staffing and managing local operations, (d) credit risk of local
customers and distributors, (e) potential inability to obtain regulatory
approvals, (f) different requirements as to product standards, (g) potential
difficulties in protecting intellectual property, (h) risk of nationalization of
private enterprises, (i) potential imposition of restrictions on
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investments or transfer of funds and (j) potentially adverse tax consequences.
Any adverse change in any of these conditions could have a material adverse
effect on the Company's business or financial condition. See "-- Risk of
Currency Fluctuations..," "-- Government Regulation," "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Taxes," "-- Effect
of Currency on Results of Operations" and "Business -- Regulatory Matters."
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.
Highly Competitive Market, Rapid and Significant Technological Change
While management believes that its ddRMulti-System does not have any
material current competition and enjoys an estimated two to three year lead for
serial production units and has most recent indicated that it enjoys both a
remarkable and significant lead in this regard, there can be no assurance
whatsoever that such lead will continue to exist for any significant period of
time. Similarly, while management continues to utilize its best efforts in order
to maintain its having positioned itself to capture the majority of what it
estimates to be a $10,000,000,000 total worldwide market, such positioning can
change quite quickly due to the competitive and highly technological areas in
which the Company is involved and competes.
As aforesaid and notwithstanding management's beliefs as expressed
above, it remains a fact that the highly competitive markets in which the
Company operates are characterized by rapid and significant technological
change, evolving industry standards and new product introductions which could
result in a loss of the Company's estimated competitive lead and its ability to
capture the majority of or a significant portion of the worldwide market
referred to above. The Company competes with numerous competitors, many of which
are well-established in the Company's markets. Most competitors are divisions of
larger companies with potentially greater financial and other resources than the
Company.
The Company's competitors can be expected to continue to improve the
design and performance of their products and to introduce new products with
competitive price and performance characteristics. Although the Company believes
that it has certain technological and other advantages over its competitors,
realizing and maintaining these advantages will require continued investment by
the Company in research and development, sales and marketing and customer
service and support. Such technological and other advantages principally are
believed to be the facts that the ddRMulti- System(s) (a) is the only
multifunctional direct digital x-ray system for all-purpose radiographic
examinations on the recumbent, sitting and upright patients, (b) are the most
time saving systems in comparison to conventional and computed radiography (CR)
systems allowing for a 3 to 4 time higher throughput, (c) does not require any
films, chemicals or cassettes (nor CR phosphor plates) as
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compared to conventional x-ray systems permits reduction in labor costs and
related x-ray department expenses. There can be no assurance that the Company
will have sufficient resources to continue to make such investments or that the
Company will be successful in maintaining such advantages. If the Company's
products or technologies become non-competitive or obsolete, it will have a
material adverse effect on the Company. See "Business -- Competition."
Accordingly, regardless of whether or not there is any current competition to
the Company with respect to its ddRMulti-System and regardless of any estimated
lead for serial production units that it may enjoy, such advantage may be
significantly reduced or eliminated in the near future as a result of
technological changes that may be developed by competitors enjoying greater
financial and other resources.
Dependence on Patents and Proprietary Technology
The Company has patented certain aspects of its proprietary technology
in certain markets and has filed patent applications for its direct digital
technology in key markets, including the United States. The European patent as
well as the initial U.S. patent for the Add-On Bucky have been granted and
expire January 2015. The duration of other patents range from 2000 to 2017. See
also "Business - Intellectual Property" with respect to the Company's receipt of
additional U.S. patent for its Add-On Bucky. However, there can be no assurance
that other applications will be granted. There can be no assurance that the
Company's issued patents or other patents issued in the future will afford
protection from material infringement or that such patents will not be
challenged. The Company also relies on trade secrets and proprietary and
licensed know-how, which it protects, in part, through confidentiality
agreements with employees, consultants and other parties. There can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach or that the Company's trade secrets will
not otherwise become known to, or independently developed by, competitors.
There also can be no assurance that the Company's technology will not
infringe upon the patents of others. In the event that any such infringement
claim is successful, there can be no assurance that the Company would be able to
negotiate with the patent holder for a license, in which case the Company could
be prevented from practicing the subject matter claimed by such patent. In
addition, there can be no assurance that the Company would be able to redesign
its products to avoid infringement. The inability of the Company to practice the
subject matter of patents claimed by others or to redesign its products to avoid
infringement could have a material adverse effect on the Company.
Company Activities Subject to Government Regulation and Approvals
General
The Company's services, products and manufacturing activities are
subject to extensive and rigorous government regulation, including the
provisions of the Federal Food, Drug and Cosmetic Act. Commercial distribution
in certain foreign countries is also subject to government regulations. The
process of obtaining required regulatory approvals can be lengthy, expensive and
uncertain. Moreover,
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regulatory approvals, if granted, may include significant limitations on the
indicated uses for which a product may be marketed.
The Food and Drug Administration (the "FDA") actively enforces
regulations prohibiting marketing without compliance with the pre-market
approval provisions of medical devices. A Section 510(k) application is required
in order to market a new or modified medical device. If specifically required by
the FDA, a pre- market approval may be necessary. The FDA review process
typically requires extended proceedings pertaining to the safety and efficacy of
new products, which may delay or hinder a product's timely entry into the
marketplace.
On November 21, 1997, the AddOn Bucky(R), the direct digital detector
of the ddRMulti-System received FDA approval. The Company also submitted the
ddRMulti-System for Section 510(k) approval with the FDA and such approval was
obtained on December 18, 1997 so that the ddRMulti-System may be marketed in the
United States.
The FDA also regulates the content of advertising and marketing
materials relating to medical devices. There can be no assurance that the
Company's advertising and marketing materials regarding its products are and
will be in compliance with such regulations. The Company is also subject to
other federal, state, local and foreign laws, regulations and recommendations
relating to safe working conditions, laboratory and manufacturing practices.
Failure to comply with applicable regulatory requirements can result in, among
other things, fines, suspensions of approvals, seizures or recalls of products,
operating restrictions and criminal prosecutions. Furthermore, changes in
existing regulations or adoption of new regulations could affect the timing of,
or prevent the Company from obtaining, future regulatory approvals. The effect
of government regulation may be to delay for a considerable period of time or to
prevent the marketing and full commercialization of future products or services
that the Company may develop and/or to impose costly requirements on the
Company. There can also be no assurance that additional regulations will not be
adopted or current regulations amended in such a manner as will materially
adversely affect the Company. See "-- Risks Associated With International
Operations," "Business -- Markets" and "-- Regulatory Matters."
The Company is in compliance with the following regulations:
USA 510(k) market clearance
UL/CSA (ENTELA)
- electrical and x-ray safety
- national regulations of Ministry of Health -
Quality System 21 CFR Part 820 and Part 820.72
(inspection) - identification (general labeling) 21
CFR Part 801.4 and 801.6
Canada CSA, ENTELA
- electrical and x-ray safety
- national regulations of Ministry of Health
Czech Republic - national regulations of Ministry of Health
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EU (United Europe) (EWG 93/42 Appendix II class II B)
- CE MDD 0124 market clearance incl. electrical and
x-ray safety - national regulations of Ministry of
Health (RoV Rontgenverordnung) - national system ISO
9001 / EN 46001 (Medical)
Switzerland - national regulations of Ministry of Health (BAG)
Market clearance
- quality system ISO 9001 / EN 46001 (Medical)
Sales to Highly Regulated Health Care Industry With Potential For Cost Reduction
Pressures Upon Company
The Company's products are used exclusively in the health care
industry, which is highly regulated. The health care industry in certain markets
for the Company's products, including the United States, has experienced
significant pressure to reduce costs, which has led in some jurisdictions to
substantial reorganizations and consolidations of health care providers or
payers. Cost reduction efforts by the Company's customers may adversely affect
the potential markets for the Company's products and services. It is also
possible that legislation could be adopted in any of these jurisdictions which
could increase such pressures or which could otherwise result in a modification
of the private or public health care system or both or impose limitations on the
ability of the Company to market its products in any such jurisdiction. Any such
event or condition could have an adverse impact on the Company's business,
financial condition or results of operations. See "Business -- Markets."
Reliance on Key Management
The Company's business is highly dependent on the principal members of
its management, marketing, research and development and technical staffs, and
the loss of their services might impede the achievement of the Company's
business objectives. In addition, the Company's future success will depend in
part upon its ability to retain highly qualified management, scientific,
technical and marketing personnel. There can be no assurance that the Company
will be successful in retaining such qualified personnel or hiring additional
qualified personnel. Losses of key personnel could have a material adverse
effect on the Company's business. The Company has no key man life insurance
policies with respect to any of its senior executives. See "Business -- Research
and Development" and "Management -- Directors and Executive Officers of the
Company."
Limited Manufacturing History with Respect to ddRMulti-System
The Company has limited experience with the manufacture and assembly of
the ddRMulti-System in the volumes that will be necessary for the Company to
generate significantrevenues from the sale of the ddRMulti-System. The Company
may encounter difficulties in scaling up its production or in hiring and
training additional personnel to manufacture the ddRMulti-System. Future
interruptions in supply or other production problems could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business - Products".
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Dependence on Sole Source Suppliers
The Company has only single sources for certain essential components of
the ddRMulti-System. Interruptions in the supply of such components might result
in production delays, each of which could have a material adverse effect on the
Company's business, financial condition and results of operations. See "--
Reliance on A Single Product". To date no material interruptions have occurred.
The percentage of Company revenues derived from products which included
components then only currently available from a single source supplier amounted
to 13.6% as of June 30, 1999 of which 13.6% related to the single source
supplier of certain camera electronics while 13.6% related to the single source
supplier of optics (both items are included in the same product).
(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. On January 13, 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 supplier's 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. The Company currently has 76 CCD
cameras in stock which will be used for the next 19 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. 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.
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Potential Recalls and Product Liability
Any of the Company's products may be subject to recall for unforeseen
reasons. The medical device industry has been characterized by significant
malpractice litigation. As a result, the Company faces a risk of exposure to
product liability, errors and omissions or other claims in the event that the
use of its X-ray equipment, components, accessories or related services or other
future potential products is alleged to have resulted in a false diagnosis and
there can be no assurance that the Company will avoid significant liability.
There also can be no assurance that the Company will be able to retain its
current insurance coverage or that such coverage will continue to be available
at an acceptable cost, if at all. Consequently, such claims could have a
material adverse effect on the business or financial condition of the Company.
As of the date hereof, the Company continues to maintain what it considers to be
adequate product liability insurance so as to enable it to be compensated for
certain losses incurred as a result of product recalls and product liability
claims (butremains "at risk" if and to the extent that awarded damages exceed
coverage).
Limited Public Market; Liquidity; Possible Volatility of Stock Price
The Common Stock was quoted on the Nasdaq SmallCap Market System under
the symbol "SRMI" until its delisting on October 26, 1998 and is currently
quoted on the Electronic Over-the-Counter Bulletin Board under the same symbol.
There can be no assurance that an established public market for the Common Stock
can be established and/or sustained. The market price of the Common Stock has
been volatile and has fluctuated significantly and may continue to fluctuate
significantly as a result of the Company's financial results, regulatory
approval filings, clinical studies, technological innovations or new commercial
products introduced by the Company or its competitors, developments concerning
patents or proprietary rights, trends in the health care industry or in health
care generally, litigation, the adoption of new laws or regulations or new
interpretations of existing laws or regulations and other factors. In fact since
October 26, 1998 Nasdaq delisting (referred to below) when the Company's common
stock traded at $.188, the bid price for the Company's common stock has
fluctuated from a low of $.125 to a high of $10.00 on January 10, 2000.
Delisting Due To Non-Compliance With Certain NASDAQ Standards
The Nasdaq Stock Market recently adopted certain changes to the
standards for issuers with securities listed on Nasdaq. One of the changes
included increasing the quantitative maintenance requirements for continued
listing in the Nasdaq SmallCap Market, on which the Company's Common Stock was
then listed and traded under the symbol SRMI until October 26, 1998 delisting.
In order to maintain continued listing on Nasdaq the Company's Common Stock was
required to maintain a closing bid price at least equal to $1.00 per share.
On October 26, 1998 NASDAQ determined to delist Company's securities
from The NASDAQ Stock Market effective with the close of business October 26,
1998. The advise (accompanying the delisting letter) indicated in pertinent part
that (a) the bid price of Company's common stock had fallen below $1.00 per
share on October 26, 1998 despite the Company having demonstrated ".. a closing
bid price in excess of $1.00 for a period of 17 consecutive trading days" and
(b) the Company's
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15 day extension within which to timely file its Form 10-K for fiscal year ended
June 30, 1998 had expired October 15, 1998 and, accordingly, "the Registrant is
now deficient in filing its 10-K for the fiscal year ended June 30, 1998". The
Company filed such Form 10-K on December 3, 1998.
Since delisting the Company has had an ongoing appeal with the Nasdaq
Listing Qualifications Panel ("Panel") and the Nasdaq Listing and Hearing and
Review Council ("Council"). The Panel has rejected the Company's appeal
indicating, in part, its subjective belief that the Company since October 1998
has demonstrated a continued disregard for existing shareholders' rights and has
exhibited preferential treatment to its insiders creating a overall dilutive
effect on outstanding shareholders rights without their prior approval (thereby
raising public interest concerns). The Company wholly disagrees with such
subjective determination as well as the Council's adverse June 1, 2000 decision.
For further information with respect to the above (including summary information
as relates to the aforesaid June 1, 2000 decision, reference is herewith made to
"Continued Nasdaq Delisting".
No Dividends and None Anticipated
The Company has not paid any dividends upon its common stock since its
inception and by reason of its present financial condition and contemplated
financing requirements does not anticipate paying any dividends in the
foreseeable future but rather intends to retain earnings, if any, in order to
finance its further growth and development.
Environmental Matters
The Company is subject to various environmental laws and regulations in
the jurisdiction in which it operates. 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. See "-- Environmental Matters" and "Business --
Environmental Matters."
Year 2000 Issue
Many currently installed computer systems and software products are
coded to accept only two-digit entries to represent years in the date code
field. Computer systems are products that do not accept four-digit year entries
and require upgrading or replacement in order to accept four-digit entries to
distinguish years beginning with 2000 from prior years. Management (and its
management information system) was and remains compliant with the Year 2000
requirements. The Company did not anticipate that it would nor did it experience
any material disruption to its operations as a result of the failure of its
management information system to be Year 2000 compliant. Computer systems
operated by third parties, including customers vendors, credit card transactions
processors and financial institutions, with which the Company's management
information system interfaced continue to properly interface with the Company's
system and were and remain with year 2000
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requirements. With respect to information and non-information technology
delivered by third parties the Company received written assurances that their
year 2000 compliance's is under control and such information proved to be
accurate.As of August 8, 2000 the Company has not been made aware of any
material adverse facts relating to "Y2K" which in any manner could have had any
material adverse effect upon its business, financial condition or operating
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
THE COMPANY
The Registrant was incorporated under the laws of the State of New York
on January 2, 1968 under the name CGS Units Incorporated. On June 15, 1994, the
Registrant merged with Direct Marketing Services, Inc. and changed its name to
DMS Industries, Inc. In May of 1995 the Registrant discontinued the operations
then being conducted by DMS Industries, Inc. and acquired all of the outstanding
securities of SR Medical AG, a Swiss corporation engaged in the business of
manufacturing and selling X-ray equipment, components and accessories. On June
5, 1995 the Registrant changed its name to Swissray International, Inc. The
Registrant's operations are being conducted principally through its wholly owned
subsidiaries, Swissray Medical AG (formerly known as SR Medical Holding AG and
SR Medical AG) a Swiss corporation and its wholly owned subsidiary Swissray GmbH
(formerly known as Swissray (Deutschland) Rontgentechnik GmbH and SR Medical
GmbH), a German limited liability company as well as through the Company's other
wholly owned subsidiaries, Swissray America, Inc., a Delaware corporation,
Swissray Healthcare, Inc., a Delaware corporation and Swissray Information
Solutions, Inc. a Delaware corporation.
Swissray Medical AG (formerly SR Medical Holding AG and SR Medical AG
until renamed in June 1999 and February 1998) acquired all assets and
liabilities, effective July 1998, of its wholly owned subsidiaries, SR Medical
AG (known as Telray AG until renamed in February 1998) a Swiss corporation and
Telray Research and Development AG, a Swiss corporation. Swissray Medical AG
also absorbed all assets and liabilities of the Company's other wholly owned
subsidiary SR Management AG (formerly SR Finance AG), a Swiss corporation.
Effective as of July 1, 1999 Swissray Medical Systems, Inc., a Delaware
corporation (formerly Swissray America Corporation) and Empower Inc., a New York
corporation, have been merged into Swissray America Inc., a Delaware
corporation. Unless otherwise specifically indicated, all references hereinafter
to the "Company" refer to the Registrant and its subsidiaries.
The Company and its predecessors have been in the business of
manufacturing and selling X-ray equipment in Switzerland and Germany since 1988.
Beginning in 1991, the Company's predecessors began to expand into other markets
in Europe, the Middle East and Asia. In 1992, 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(TM) post-processing
system which was able to convert analog images obtained in
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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).
On November 6, 1996, the Company formed Swissray Corporation (which has
since been renamed Swissray Medical Systems, Inc.), a Delaware corporation
located in Azusa, California, as the Company's principal authorizing division in
the United States.
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 "Business - Legal
Proceedings".
Both the original purchase and subsequent sale referred to in the
preceding paragraph were contracted on an arms-length basis. The sale of
Empower's assets less than one year after acquisition of Empower related
primarily to the sale of film, chemical and certain servicing of conventional
x-ray equipment since these areas no longer constituted the Company's "core"
business which revolves around its ddRMulti-System and filmless digital
technology. The original purchase of Empower was for $120,000 (in stock) and the
subsequent sale referred to resulted in a gain of $55,000. Counsel representing
the Company with respect to this transaction determined that such transaction
was not material, did not require stockholder approval and advised management
which acted upon reliance of such legal advice.
During the fiscal year ended June 30, 1997, the Company created a new
Information Solution Division known as Swissray Information Solutions, Inc.
which is engaged in services related to Picture Archiving and Communications
Systems ("PACS") as well as consulting activities. This division is located in
Gig Harbor, Washington and headed by Michael J. Baker, who has more than 20
years experience in radiology, most recently as head of Lockheed Martin's
Medical Imaging Systems division.
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
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exchange for the payment of approximately $622,000 in cash and issuance of
33,333 shares of its Common Stock in equal thirds to each of SSG's then owners
based upon certain warranties and representations made by them. Counsel
representing the Company with respect to this transaction determined that such
transaction was not material, did not require stockholder approval and advised
management which acted upon reliance of such legal advice. Pursuant to the terms
of the Asset Purchase Agreement and related Registration Rights Agreement both
dated October 17, 1997 (Exhibits 10.9 and 10.10 hereto), the holders of such
Company shares were then given the right, commencing June 30, 1998 and
terminating April 16, 1999, to require the Company to purchase any or all of
such shares at $45.00 per share. Since its formation on October 16, 1996, SSG
has been in the business of selling diagnostic imaging equipment and providing
services related thereto in the markets on the West Coast of the United States.
Issues involving the aforesaid Company shares and a number of other related
matters became the subject of dispute and litigation which was recently settled
August 31, 1999. See "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. (with Michael J.
Baker being appointed Deputy Chief Executive Officer of both subsidiaries). See
"Prospectus Summary", "Business -- Research and Development."
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 partyin order to
more extensively focus upon the sales and marketing of ddR equipment. See also
risk factor entitled "Decline in Revenues from Sale of Conventional X-Ray
Equipment" and "Business - Recent Developments".
USE OF PROCEEDS
The Registrant will not receive any of the proceeds from the sale of
the Securities. All of the proceeds will be received by the Selling Holders. See
"Selling Holders and Plan of Distribution."
MARKET PRICES AND DIVIDEND POLICY
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.
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Fiscal Year Ended June 30, 1997 Quarterly Common Stock Price
By Quarter Ranges (1)(2)
Quarter Date High Low
1st September 30, 1996 $5.0625 $3.6875
2nd December 31, 1996 $4.000 $2.375
3rd March 31, 1997 $3.5625 $1.6875
4th June 30, 1997 $3.250 $1.4063
Fiscal Year Ended June 30, 1998 Quarterly Common Stock Price
By Quarter Ranges (1)(2)
Quarter Date High Low
1st September 30, 1997 $1.6375 $1.5625
2nd December 31, 1997 $1.250 $1.125
3rd March 31, 1998 $1.6875 $0.750
4th June 30, 1998 $1.000 $0.500
Fiscal Year Ended June 30, 1999 Quarterly Common Stock Price
By Quarter Ranges (1)(2)
Quarter Date High Low
1st September 30, 1998 (3) $.5625 $0.188
2nd December 31, 1998 $1.375 $0.875
3rd March 31, 1999 $1.25 $0.375
4th June 30, 1999 $2 $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 are as reported to the Registrant by broker-dealer(s)
making a market in its common stock in the National Quotation Data Service
("pink
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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.
As of the close of business on August 8, 2000 there were 514
stockholders of the Registrant's Common Stock and 23,433,212 shares issued and
outstanding.
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.
Continued NASDAQ Delisting
Initial 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 advise (accompanying the delisting letter) indicated in pertinent part
that (a) the bid price of Company's common stock had fallen below $1.00 per
share on October 26, 1998 despite the Company having demonstrated ".. a closing
bid price in excess of $1.00 for a period of 17 consecutive trading days" and
(b) the Company's 15 day extension within which to timely file its Form 10-K for
fiscal year ended June 30, 1998 had expired October 15, 1998 and, accordingly,
"the Registrant is now deficient in filing its 10-K for the fiscal year ended
June 30, 1998". The Company filed such Form 10-K on December 3, 1998 and
attributed its entire delay to the fact that its former auditors failed and
refused to complete the necessary audit in a timely (or otherwise) manner
necessitating the Company's engagement of new auditors. See also "Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure". The
aforesaid October 26, 1998 delisting letter further indicated that the Panel
lacked confidence in the Company's ability to sustain compliance with the per
share bid price requirement and further raised concerns, based upon the
Company's history of losses, as to its ability to satisfy net tangible asset
requirements.
The NASDAQ Listing and Hearing and Review Council (" Council") may, on
its own motion,
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determine to review any NASDAQ Listing Qualifications Panel ("Panel") decision
within 45 calendar days after issuance of a written decision. The Council, by
letter dated December 9, 1998, and on its own initiative, called for review of
the above referenced Panel's decision. The Council may affirm, modify, reverse,
dismiss, or remand the decision to the Panel. The Registrant may also request
the Council to review its decision and such request must be made within 15 days
of the date of this decision. The institution of a review, whether by way of any
request, or on the initiative of the Council, does not operate as a stay of
NASDAQ's October 26, 1998 delisting decision.
Prior to the above referenced delisting and (a) on May 6, 1998 Nasdaq
advised the Company that its common stock had failed to maintain a closing bid
price of at least $1 for the previous 30 consecutive trading days and that the
Company had 90 days, until August 6, 1998, to comply with the bid price
requirement (b) on October 1, 1998 the Company effected a one for ten reverse
stock split which resulted in a bid price of at least $1 for a period of 17
consecutive trading days. The bid price for the Company's common stock on the
date before the reverse stock split was $.118.
Company Appeal From Delisting Decision
The Company formally requested a review of NASDAQ's decision in a
timely manner and such request was confirmed by NASDAQ on November 16, 1998
wherein NASDAQ indicated that the Company had until January 15, 1999 for its
submission of any additional information it may deem pertinent for purposes of
Council's consideration. The Company understands that the Panel is prepared to
and will consider any and all additional information supplied to it by the
Company that did not exist at the time of delisting and, accordingly, the
Company provided certain new and significant information (in a timely manner)
for NASDAQ's consideration. Such information primarily consisted of the fact
that current bid price for common stock met NASDAQ standards, that the Company
was current with respect to its Exchange Act reporting requirements and was
accompanied by various literature describing the Company's products and business
prospects. The Company further advised that it anticipated that it could meet
and sustain long term compliance with applicable maintenance criteria based
principally upon anticipated sales of 73 radiographic ddRMulti-Systems. The goal
was not achieved due to the fact that a then existing Company distributor's
(Elscint Ltd.) assets were sold to other firms. See subheading entitled
"Additional Sales Information" third paragraph. During the current fiscal year
ending June 30, 2000, 29 ddRMulti-Systems were contracted for sale in the U.S.
while 35 ddRMulti-Systems were contracted for sale outside the U.S. (32 of which
were contracted for sale to the Government of Romania). Of the 64 ddR Systems
contracted for sale during fiscal year ended June 30, 2000, 54 of such Systems
have been installed and sold while 10 Systems are considered to be backlog with
the expectation that the balance of 2 (from the backlog of 10) of the 32 ddR
Systems contracted for sale to the Government of Romania, which have not yet
been installed and sold, will be installed by late August 2000. With respect to
the 29 ddRMulti-Systems contracted for sale in the U.S. during fiscal year ended
June 30, 2000, 4 contracts were for the sale of 2 Systems each to 4 separate
purchasers, 1 contract was for the sale of 3 Systems to a separate purchaser
with the balance being contracted for sale to 18 separate purchasers. Additional
orders for three ddRMulti-Systems were received during July 2000 for
installations within the U.S., thereby increasing backlog from 10 to 13. See
risk factor entitled "Need
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For Continued Market Acceptance of the ddRMulti-System" as relates to revenue
recognition which may not occur prior to complete contract fulfillment. Since
filing of the above mentioned Form 10-K on December 3, 1998 and the simultaneous
filing on such date of its Form 10-Q for quarter ended September 30, 1998, the
Company has filed all forms 10-Q and its most recent 10-K for fiscal year ended
June 30, 1999 in a timely manner and on or before their mandated due dates.
On April 1, 1999 the Council issued a Decision whereby it reversed and
remanded the decision of the NASDAQ Panel with instructions, having found that
the Company was not provided with adequate notice and opportunity to respond to
all of the basis upon which the Panel apparently determined to delist the
Company's securities.
The Council's instructions directs NASDAQ staff and Panel to determine
whether the Company complies with all continued listing requirements for the
Nasdaq SmallCap Market and demonstrates the ability to maintain compliance with
these requirements in the long term. Such Council's decision directs the staff
to conclude its review and provide its findings to the Panel within 45 days from
April 1, 1999. The decision further states that "If, at the time of the staff's
review, the staff finds that the Company meets all of the requirements for
continued listing on The Nasdaq SmallCap Market, demonstrates the ability to
maintain compliance with these requirements in the long term, and there are no
new adverse developments, the Panel should relist the Company on the SmallCap
Market. If, however, the staff finds that the Company does not meet all of the
continued listing requirements or does not demonstrate the ability to maintain
compliance with these requirements for the long term, the Panel must notify the
Company of which requirement(s) it fails to satisfy." (providing the Company
with 15 days to respond).
By letter dated July 7, 1999 the Company requested that the Panel delay
in making any determination on the issues involved until July 30, 1999 so that
the Company would have ample time within which to conduct its July 23, 1999
Annual Meeting of Stockholders, at which time it anticipated that it would
receive stockholder approval (which it subsequently did receive) for the purpose
of creating a class of preferred stock. The Company further anticipated that it
would utilize such new class of preferred stock so as to convert outstanding
debentures into non-redeemable convertible preferred stock. Plans to convert
debentures into preferred stock have not gone forward as the primary purpose
therefore was to increase market capitalization (i.e., total outstanding shares
multiplied by bid price) so as to comply with the $35,000,000 minimum market
capitalization required by NASDAQ. As of August 8, 2000 Company market
capitalization amounted to $38,078,970 inclusive of $10,279,750 as a result of
the issuance of 6,326,000 shares as follows: (a) 2,000,000 shares issued to
Ruedi G. Laupper, the Company's President, as per agreement of March 29, 1999
and subsequent Board meeting of June 30, 1999, (b) 3,000,000 shares issued to
Liviakis Financial Communications, Inc. ("LFC") as per consulting agreement
effective March 29, 1999, (c) an additional 526,000 shares issued to LFC as per
new consulting agreement dated March 29, 2000 and (d) 800,000 shares issued to
Rolcan Finance Ltd. As per consulting agreement effective March 29, 1999.
Second Decision to Delist
The Panel, in its November 5, 1999 decision, opined that the Company
failed to evidence
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compliance with all requirements for continued listing on the NASDAQ SmallCap
Market notwithstanding its acknowledgment that the Company met all quantitative
requirements (1) for continued listing. This opinion was based upon the Panel's
subjective determination that shareholder approval should have been obtained
prior to the Company's issuance on July 6, 1999 of 2,000,000 restrictive shares
of its common stock to its President for and in consideration of his waiving
certain rights to performance based bonuses as contained in his employment
agreement with the Company. The Panel cited as a basis for such determination
the NASDAQ Marketplace rules which require shareholder approval when shares
issued exceed the lesser of 1% of the total shares outstanding at the time of
issuance or 25,000 shares. The Panel decision also indicated that as a separate
matter it believed that the Company's issuance of 3,000,000 shares to LFC which
exceeded 20% of total shares outstanding and which was priced below market
violated NASDAQ Marketplace Rules based upon the Company's failure to obtain
prior shareholder approval. Notwithstanding the fact that the Company was not on
NASDAQ at the time of security issuance, the Panel indicated that NASDAQ
corporate governance rules make specific provision permitting review of company
activities on a case by case basis even while its securities are not listed on
NASDAQ. The Panel, in its subjective determination, also stated that it believed
that the Company (a) has, since October 1998, demonstrated a continued disregard
for existing shareholders' rights, raising public interest concerns pursuant to
Nasdaq Marketplace Rules 4300 and 433 0(a)(3) and (b) had exhibited preferential
treatment to Company insiders creating an overall dilutive effect on outstanding
shareholders interests without their prior approval and that such actions
demonstrated (in the Panel's belief) the Company's disregard for shareholders
rights. The Company, as indicated in its appeal, wholly disagrees with the
Panel's subjective determination as well as the Council's adverse June 1, 2000
decision as referred to directly below.
Council's Decision to Affirm Delisting
In such June 1, 2000 decision the Council affirmed the decision of the
Panel indicating that it agreed with the Panel's conclusions that the issuance
of shares of Company common stock to both the Company's President and LFC
required stockholder approval. The Panel further indicated that the shareholder
approval rules exist to provide shareholders with a voice in significant
transactions and that through the Company's actions its shareholders were denied
that voice. The Council further indicated that the Company's proposal that
shareholders ratify these issuances is not, in its opinion, an adequate remedy
to the shareholder approval violations. In making such determination the Council
further indicated that Proxy solicitation to all shareholders provides
shareholders with certain required disclosure and permits shareholders to object
to a transaction or to sell their shares in advance thereof based upon such
disclosure and that this is fundamental to protection of existing shareholders.
The Panel deemed that ratification, on the other hand, deprived shareholders of
a meaningful opportunity to offer input prior to consummation of a transaction
and, therefore, is not an adequate remedy. The Panel further indicated (as a
separate ground) that the issuance of shares to the Company's President and LFC
was a "new adverse development" contrary to Nasdaq's shareholder approval rules.
The Council indicated that whether such issuances ultimately benefitted the
Company (as claimed by the Company) is irrelevant. The Council also found that
the consolidation of 41% of voting power with the Company's President through
transactions that could not have been made without shareholder approval while
the Company was traded on Nasdaq was a further adverse
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development (even though the Company's securities were not traded on Nasdaq at
the time of issuance). The Council further noted that the Company did not
demonstrate compliance with maintenance criteria on a fixed date of June 21,
1999 notwithstanding its acknowledgment that in the Panel's November 8, 1999
decision the Panel acknowledged that at this later date the Company appeared to
be in compliance with all continued listing requirements.
Pursuant to NASD Rule 4850(a), the NASD Board of Governors had the
the discretion to call this Decision for review in connection with its upcoming
meeting. On July 28, 2000 the Company wasprovided with written notice that the
NASD Board has decline to call for review the June 1, 2000 decision of the
Council and that accordingly the decision of the Council represents the final
action of NASDAQ. The Company has not, as yet, made any determination as to
whether or not to make application for further review to the Commission in
accordance with Section 19 of the Securities Act.
(1) Quantitative requirements refer to maintenance standards for continued
listing and primarily require at least (a) net tangible assets of
$2,000,000 or market capitalization of $35,000,000 or net income in two
of the last three years of $500,000 , (b) a public shares float of
500,000, (c) a market value of public float of $1,000,000, (d) a
minimum bid price of $1.00, (e) shareholders of 300, (f) two market
makers, (g) two independent directors and (h) an independent audit
committee. The Company currently meets each of the quantitative
requirements enumerated herein.
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CAPITALIZATION
The following table sets forth (i) the current liabilities and
capitalization of the Company as of March 31, 2000 and (ii) the pro forma
liabilities and capitalization as of March 31, 2000.
Actual Proforma(1)
Current liabilities ............................ 17,854,173 17,854,173
Long-term liabilities, net of current portion .. 14,422,640 14,422,640
Total liabilities .............................. 32,276,813 32,276,813
Common stock subject to put .................... 319,985 319,985
Stockholders' equity:
Common stock, $.01 par value, 30,000,000 ..... 227,864 232,764
shares authorized; 22,786,418 issued and
outstanding; 23,312,418 proforma
Additional paid-in-capital ................... 87,046,553 88,281,745
Treasury stock ............................... (2,040,000) (2,040,000)
Accumulated deficit .......................... (90,062,687) (90,062,687)
Accumulated other comprehensive loss ......... (1,910,247) (1,910,247)
Common stock subject to put .................. (319,985) (319,985)
Deferred compensation ........................ - (1,240,092)
------------ -------------
Total stockholders' deficit .................... (7,058,502) (7,058,502)
Total liabilities and stockholders' deficit .... 25,538,296 25,538,296
(1) Includes April 2000 issuance of 490,000 shares of common stock for
$1,240,092 as per contract.
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<PAGE>
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 Prospectus. The selected consolidated
financial data as of and for the fiscal years ended June 30, 1995 (six-month
period), June 30, 1996, June 30, 1997, June 30, 1998, June 30, 1999 and the nine
months ended March 31, 2000 and March 31, 1999 are derived from the consolidated
financial statements of the Company.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
March 31, June 30,
------------------- -------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- ------- -------
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ......................... 12,394 13,221 17,296 22,893 13,151 10,899 3,806
Cost of sales ..................... 9,372 10,405 13,529 18,082 8,445 5,793 2,484
------- ------- ------- ------- ------- ------- -------
Gross profit ...................... 3,022 2,816 3,767 4,811 4,706 5,106 1,322
Gross profit margin (%) ........... 24% 21% 22% 21% 36% 47% 35%
Selling, general and administrative 13,725 10,389 19,346 18,748 17,450 14,966 2,307
------- ------- ------- ------- ------- ------- -------
Operating loss .................... (10,703) (7,573) (15,579) (13,937) (12,744) (9,860) (985)
Other expense (income) ............ (409) 182 (40) 281 (319) (1,004) 3,054
Interest expense .................. 7,277 2,156 5,639 8,590 762 194 122
------- ------- ------- ------- ------- ------- -------
Loss from continuing operations
before income taxes ............... (17,571) (9,911) (21,178) (22,808) (13,187) (9,050) (4,161)
Income tax provision (benefit) .... -- -- -- -- 110 (365) (339)
------- ------- ------- ------- ------- ------- -------
Loss from continuing operations ... (17,571) (9,911) (21,178) (22,808) (13,297) (8,685) (3,822)
Loss from continuing operations
per common share ............. (0.99) (2.09) (3.24) (8.48) (8.41) (6.69) (4.80)
======= ======= ======= ======= ======= ======= =======
BALANCE SHEET DATA:
Total assets ...................... 25,538 24,975 23,511 25,915 24,788 18,793 13,027
Long-term liabilities ............. 14,423 12,552 15,501 7,771 5,635 -- 705
Common stock subject to put ....... 320 1,820 1,820 1,820 320 -- --
</TABLE>
(1) In 1995, the Registrant changed its fiscal year end from December 31 to
June 30. As a result, the Company had a fiscal year beginning on January 1,
1995 and ending on June 30, 1995. Accordingly, the Income Statement Data
for the period ended June 30, 1995 is for a six month period.
(2) On October 1, 1998 the Company declared a 1 for 10 reverse stock split. The
financial statements for all periods presented have been retroactively
adjusted for the split.
* Restated
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<PAGE>
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
The focus of the Company for the fiscal year ended June 30, 1999, was
mainly on the industrialization and commercialization of the newly developed
products ddRMulti-System and Bucky Diagnost TS and the building and
strengthening of its organization and distribution channels in the principal
markets USA and Europe.
In October 1997, the Company acquired substantially all of the assets
of Service Support Group LLC ("SSG"), a company active in the business of
selling diagnostic imaging equipment and providing services related thereto in
the markets on the West Coast of the United States. The Company also started its
activities, in the US and later in Europe, the business of information solutions
by providing a comprehensive package of consulting, services and products to
enable the Healthcare providers to perform the transition into filmless
Radiology. Significant amounts of money were invested in the opening of the
market of the Company's direct digital ddRMulti- Systems, both in the US and in
Europe.
During the start-up of the production of the Company's newly developed
products, the ddRMulti-System and the Bucky Diagnost TS, gross margins were
affected negatively because of the need of extra time for training the newly
hired production staff and implementation of the production run as well as
efforts made to improve and maintain the highest product quality. The Company
expects to lower costs and time needed for production of these systems in a
later stage of the learning curve due to positive impact of the optimized
production run. The sales of ddRMulti-System was slowed down by certain
governmental requirements for the sale of Healthcare products, which differ from
one country to the other. On July 26, 1998 SR Medical AG, the Company's Swiss
marketing subsidiary, was ISO 9002 and EN46002 certified. On March 8, 1999,
Swissray Medical AG, the Company's Swiss research and development, production
and marketing subsidiary became ISO 9001 and EN 46001 certified. The Company
filed for CE approval of the ddRMulti-System in July 1998. Appendix II for
CE-Certification was received November 1999, which allows the Company to use the
CE-Label, including the medical device numbers for all products manufactured
and/or sold through the Company.
The Company started a restructuring process in the fourth quarter of
its fiscal year ended June 30, 1998. With the sale of Empower's Film, Processor
and Chemistry Business to E.M. Parker, the Company continued its focus on
digital Radiography. The process of restructuring is ongoing and relates
primarily to the Company's shifting of emphasis away from sale of conventional
x-ray equipment so as to strengthen its focus upon direct digital radiography
and the sale of ddRMulti-Systems.
The process of restructuring also included the fact that during the
last quarter of fiscal year
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<PAGE>
1998, the Company decided to reorganize its U.S. operations and other branch
offices and also decided to close down its office in Lusanne, Switzerland. The
restructuring reserve for dissolving the office consisted of remaining lease
payments through the year 2001 totaling approximately $90,000. Further, the
Company decided to merge two of its branch offices in Europe. A restructuring
reserve of $10,000 was necessary for picking up various commitments.
Additionally, the Company's U.S. operations consisted of three legal
entities doing business in the State of Washington. The plan for reorganization
consisted of the following: (i) merge existing entities into one legal entity,
(ii) reorganize the selling force and management teams, (iii)analyze all
customers and lines of business for profitability and long term strategies and
(iv) relocate the operations, including personnel, to the East Coast which would
require the Company to vacate its existing facility in Washington. The Company
planned on relocating in the 3rd quarter of Fiscal 1999 at which time the
present value of the remaining lease payments amounted to approximately $400,000
(which sum was accrued). The only change to the Plan so far is a delay in the
final negotiations with respect to certain lease terms for certain proposed East
Coast facilities which the Company may or may not lease dependent upon
successful completion of negotiated terms. All other facets of the Plan have
been completed.
YEAR 2000 POLICY STATEMENT 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's 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.
NINE-MONTH PERIOD ENDED MARCH 31, 2000 COMPARED TO NINE-MONTH PERIOD ENDED MARCH
31, 1999
RESULTS OF OPERATIONS
Net sales amounted to $12,393,655 for the nine-month period ended March
31, 2000, compared to $13,220,776 for the nine-month period ended March 31, 1999
a decrease of $827,121 or 6.3% from the nine-month period ended March 31, 1999.
The 6.3% decrease in net sales was mainly due to the decrease in conventional
x-ray of 37% ($828,233) and conventional OEM-Business of 52.5% ($3,721,562)
whereas ddRMulti-Systems increased by 192.9%-$3,896,719. The decrease in
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<PAGE>
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 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 amounted to $3,021,535 or 24.38% of net sales for the
nine-month period ended March 31, 2000, compared to $2,816,287 or 21.3% of net
sales for the nine-month period ended March 31, 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 47.7% for
the nine-month period ended March 31, 2000 from 15.3% for the nine-month period
ended March 31, 1999.
Operating expenses were $13,724,509 or 110.7% of net revenues, for the
nine-month period ended March 31, 2000, compared to $10,389,147 or 78.6% of net
revenues for the nine-month period ended March 31, 1999. The principal items
were officers and directors compensation of $2,650,288 or 21.4% of net sales for
the nine-month period ended March 31, 2000 compared to $564,089 or 4.3% of net
sales for the nine-month period ended March 31, 1999, salaries (net of officers
and directors compensation) of $3,153,332 or 25.4% of net sales for the
nine-month period ended March 31,2000 compared to $3,168,298 or 23.9% of net
sales for the nine-month period ended March 31, 1999 and selling expenses of of
$3,364,935 or 27.2% of net sales for the nine-month period ended March 31, 2000
compared to $2,089,265 or 15.8% of net sales for the nine-month period ended
March 31, 1999. Research and development expenses were $1,364,415 or 11% of net
sales for the nine-month period ended March 31, 2000 compared to $1,307,135 or
9.9% of net sales for the nine-month period ended March 31, 1999 and general and
administrative expenses were $1,320,325 or 10.7% of net sales for the nine-month
period ended March 31, 2000 compared to $1,381,517 or 10.4% of net sales for the
nine-month period ended March 31, 1999. The increase in officers and directors
compensation and salaries is due to the issuance of common stock to certain
employees and directors. The increase in selling and general administrative
expenses is due to the amortization of deferred compensation for those shares
issued to consultants for services currently being rendered.
Other income was $409,269 for the nine-month period ended March 31,
2000 as compared to other expenses of $(182,037) for the nine-month period ended
March 31, 1999. The increase is primarily due to foreign currency exchange
gains.
Interest expenses increased to $7,276,519 for the nine months ended
March 31, 2000 compared to $2,156,457 for the nine months ended March 31, 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.
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<PAGE>
FINANCIAL CONDITION
March 31, 2000 compared to June 30, 1999
Total assets of the Company on March 31, 2000 increased by
$2,027,107 to $25,538,296 from $23,511. 189 on June 30, 1999, primarily due to
the increase of current assets. Current assets increased $2,478,208 to
$14,407,589 on March 31, 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
$1,964,313 and the increase of accounts receivable of $2,056,840 of which
approximately $2,000,000 arises from the sale of ddRMulti-Systems to Romania
which was partially offset by the decrease in inventory of $1,516,204 caused by
the sales of these units to Romania and the decrease in prepaid expenses and
sundry receivables of $26,741. Other assets decreased $537,057 to $4,761,711 on
March 31, 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 March 31, 2000, the Company had total liabilities of $32,276,813
compared to $30,445,812 on June 30, 1999. On March 31, 2000, current liabilities
were $17,854,173 compared to $14,944,865 on June 30, 1999. Working capital at
March 31, 2000 was $(3,446,584) compared to $(3,015,484) at June 30, 1999.
CASH FLOW AND CAPITAL EXPENDITURES NINE-MONTH PERIOD ENDED MARCH 31, 2000
COMPARED TO NINE-MONTH PERIOD ENDED MARCH 31, 1999.
Cash used for operating activities for the nine months ended March 31,
2000 was $5,472,748 compared to $8,931,709 for the nine months ended March 31,
1999. Cash used for investing activities was $629,632 for the nine months ended
March 31, 2000 compared to $554,023 for the nine months ended March 31, 1999.
Cash flow from financing activities for the nine months ended March 31, 2000 was
$8,189,205 compared to $9,533,015 for nine months ended March 31, 1999.
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, 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.
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<PAGE>
Operating expenses increased by $598,210 or 3.2% to $19,345,939 or
111.9% of net revenues, for the year ended June 30, 1999, from $18,747,729, or
81.9% of net revenues for the year ended June 30, 1998. The principal items were
salaries (net of officers and directors compensation) of $3,784,305 or 21.9% of
net sales for the year ended June 30, 1999 compared to $4,168,540 or 18.2% of
net sales for year ended June 30, 1998 and officers compensation increasing
approximately $4,444,477, primarily from the issuance of common stock to its
President in exchange for extinguishment of certain bonus rights contained in
his employment agreement, selling expenses of $3,207,646 or 18.5% of net sales
for the year ended June 30, 1999 compared to $3,740,391 or 16.3% of net sales
for the year ended June 30, 1998. The decrease of depreciation and amortization
of $471,582 primarily due to the fact that the depreciable fixed assets were
less for 1999 since many of these assets were fully depreciated at June 30,
1998. The decrease in selling expenses was a result of the closing of Empower
which totaled approximately $476,000. Research and development expenses were
$1,808,107 or 10.5% of net sales for the year ended June 30, 1999 compared to
$3,542,149 or 15.5% of net sales for the year ended June 30, 1998. This decrease
is primarily due to the decrease in research and development related to
AddOn-Bucky. Other operating expenses decreased by approximately $670,000 from
the comparable period in 1998 primarily from the decrease due to the Empower
closing of $100,000 and the decrease in occupancy and insurance costs of
approximately $200,000. Principal costs associated with development of the
ddRMulti-System have now been accomplished and research and development costs
are expected to continue regarding upgrades and new product development with
respect to associated and related products relating to the ddRMulti-System.
Interest expense decreased to $5,638,928 for the year ended June 30,
1999 compared to $8,590,268 for the year ended June 30, 1998. This decrease is
primarily due to the increase of interest expense for accrual of penalty
interest on periodic payments required by terms of financing agreements and a
decrease in amortization of Debenture issuance cost and Conversion Benefit.
Loss on extinguishment of debt was $832,849 for the year ended June 30,
1999 compared to a gain of $304,923 for the year ended June 30, 1998. The
extinguishment gain or loss resulted from refinancing of Convertible debentures.
Financial Condition
June 30, 1999 compared to June 30, 1998
Total assets of the Company on June 30, 1999 decreased by $2,403,408 to
$23,511,149 from $25,914,597 on June 30, 1998, primarily due to the decrease in
current assets. Current assets decreased $1,139,876 to $11,929,381 on June 30,
1999 from $13,069,257 on June 30, 1998. The decrease in current assets is
primarily attributable to the decrease in inventories of $368,744 and the
decrease in prepaid expenses and sundry receivables of $635,105 primarily from
the collection of VAT receivable. Other assets decreased $1,536,194 to
$5,298,768 on June 30, 1999 from $6,834,962 on June 30, 1998. The decrease is
primarily attributable to the amortization of the licensing agreement, patents &
trademark, software development cost and the goodwill.
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<PAGE>
On June 30, 1999, the Company had total liabilities of $30,445,812 compared to
$19,755,870 on June 30, 1998. On June 30, 1999, current liabilities were
$14,944,865 compared to $11,984,554 on June 30, 1998. Working capital at June
30, 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.
Liquidity
The Company anticipates that its use of cash will be substantial for
the foreseeable future. In particular, management of the Company expects
substantial expenditures in connection with the production of the planned
increase of sales, the continuation of the strengthening and expansion of the
Company's marketing organization and, to a lesser degree, ongoing research and
development projects. The Company expects that funding for these expenditures
will be available out of the Company's, future cash flow and/or issuance of
equity and/or debt securities during the next 12 months and thereafter.
However, the availability of a sufficient future cash flow will depend
to a significant extent on the marketability of the Company's ddRMulti-System.
Accordingly, the Company may be required to issue additional convertible
debentures or equity securities to finance such capital expenditures and working
capital requirements. There can be no assurance whether or not such financing
will be available on terms satisfactory to management.
On March 16, 1998, the Company issued $5,500,000 aggregate principal
amount of 6% convertible debentures (the "Convertible Debentures"), convertible
into Common Stock of the Company to the following financing participants -
Atlantis Capital Fund, Ltd., Canadian Advantage Limited Partnership, Dominion
Capital Fund, Ltd. and Sovereign Partners LP. After deducting legal fees of
$35,000, and placement agent fees of $550,000 directly attributable to such
offering, the Company received a net amount of $4,915,000. All Convertible
Debentures were issued to accredited investors as defined in Rule 501(a) of
Regulation D promulgated under the Act ("Regulation D") and the Company has
received written representations from each investor to that effect. One Hundred
percent of the face amount of the Convertible Debentures are convertible into
shares of Common
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Stock of the Company at the earlier of May 15, 1998 or the effective date of
this Registration Statement at a conversion price equal to 80% of the average
closing bid price for the ten trading days preceding the date of conversion. Any
Convertible Debentures not so converted are subject to mandatory conversion by
the Company on the 24th monthly anniversary of the date of issuance of the
Convertible Debentures. All of these debentures have been converted.
In June of 1998, the Company issued $2,000,000 aggregate principal
amount of 6% convertible debentures (the "Convertible Debentures"), convertible
into Common Stock of the Company to the following financing participants -
Canadian Advantage Limited Partnership, Dominion Capital Fund, Ltd. and
Sovereign Partners LP. After deducting fees directly attributable to such
offering the Company received a net amount of $1,760,000. All Convertible
Debentures were issued to accredited investors as defined in Rule 501(a) of
Regulation D promulgated under the Act ("Regulation D") and the Company has
received written representation from each investor to that effect. One Hundred
percent of the face amount of the Convertible Debentures are convertible into
shares of Common Stock of the Company at the earlier of August 14, 1998 or the
effective date of this Registration Statement at a conversion price equal to 80%
of the average closing bid price for the ten trading days preceding the date of
conversion. Any Convertible Debentures not so converted are subject to mandatory
conversion by the Company on the 24th monthly anniversary of the date of
issuance of the Convertible Debentures. 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 are convertible into
shares of Common Stock of the Company commencing March 1, 1999 at a conversion
price equal to 82% of the average closing bid price for the ten trading days
preceding the date of the conversion or $1.00 whichever is less. Any convertible
Debentures not so converted are subject to mandatory conversion by the Company
on the 24th monthly anniversary of the date of issuance of the Convertible
Debentures. As of August 8, 2000 an unconverted balance of $3,930,594 remains
outstanding and, accordingly, the number of shares being registered for the
balance of this transaction amounts to 4,323,653 shares.
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
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<PAGE>
deducting fees, commissions and escrow fees in the aggregate amount of $300,000
the Company received a net amount of $2,100,000. The face amount of the
Convertible Debentures is convertible into shares of Common Stock of the Company
any time after the closing date at a conversion price equal to 82% of the
average closing bid price for the ten trading days preceding the date of the
conversion or $1.00 whichever is less. Any Convertible Debentures not so
converted are subject to mandatory conversion by the Company on the 24th monthly
anniversary of the date of issuance of the Convertible Debentures. None of these
convertible debentures as of August 8, 2000 have been converted and, accordingly
the number of shares being registered for this transaction amounts to 3,234,000
shares.
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 more specifically set forth in the last paragraph to this subsection.
The Company is also required to register those shares of common stock
underlying the convertible debentures. Accordingly, 1,231,560 shares are being
registered pursuant to the terms of such agreements.
On January 29, 1999 the Company issued a principal aggregate amount of
$1,170,000 of convertible debentures ("Convertible Debenture"), convertible into
Common Stock of the Company to the following financing participants - Dominion
Capital Fund, Ltd., Dominion Investment Fund LLC and Sovereign Partners LP at a
conversion price of 82% of the average closing bid price for the ten trading
days preceding the date of conversion together with accrued interest of 3% for
the first 90 days, 3.5% for 91-120 days and 4% for 120 days and thereafter. As
further consideration for the loan, the Company issued Lenders Warrants to
purchase up to 58,500 shares of the Company's common stock exercisable, in whole
or in part, for a period of up to 5 years at $1.00 per share. After deducing
fees directly attributable to such offering the offering the Company received a
net amount of $1,020,000. All Convertible Debentures were issued to accredited
investors as defined in Rule 501(a) of regulation D promulgated under the Act
("Regulation D") and the Company received written representations from each
investor to that effect. Any Convertible Debenture not so converted are subject
to mandatory conversion by the Company on the 24th anniversary date of issuance
of the
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Convertible Debentures. None of these convertible debentures as of August 8,
2000 have been converted and, accordingly, the number of shares being registered
for this transaction amounts to 946,707 shares.
On March 2, 1999 the Company entered into a second promissory note
(contingent convertible debenture financing) with the same lenders as the
December 1998 transaction described directly above (i.e., Dominion Investment
Fund LLC and Sovereign Partners LP) with terms and conditions identical to those
set forth above excepting (a) gross proceeds amounted to $1,110,000, (b) the
initial due date of such notes was May 31, 1999, (c) the potential 60 day
extension date on such promissory notes was July 30, 1999, but such extension
right was never utilized, (d) the conversion price is 80% of the 10 day average
closing bid price for the 10 consecutive trading days immediately preceding
conversion date and (e) Warrants were issued (similarly exercisable over 5
years) to purchase up to 50,000 shares of common stock at 125% of the average 5
day closing bid price of the Company's common stock immediately preceding the
date of closing but in no event 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 and, accordingly,
the number of shares being registered for this transaction amounts to 958,016
shares.
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 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 and, accordingly, the number of shares being
registered for this transaction amounts to 474,692 shares.
From May 14, 1999 to June 9, 1999 (in a single financing) the Company
issued a principal aggregate amount of $850,000 of convertible debentures
("Convertible Debentures"), convertible into Common Stock of the Company to the
following financing participants - Endeavour Capital Fund SA, Excaliber Limited
Partnership and Carbon Mesa Partners LLC at a conversion price of 80% of the
average closing bid price for the ten trading days preceding the date of
conversion together with accrued interest of 5%. After deducing fees directly
attributable to such offering the offering the Company received a net amount of
$772,727. All Convertible Debentures were issued to accredited investors as
defined in Rule 501(a) of regulation D promulgated under the Act ("Regulation
D") and the
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Company received written representations from each investor to that effect. Any
Convertible Debenture not so converted are subject to mandatory conversion by
the Company on the 24th anniversary date of issuance of the Convertible
Debentures. 184,529 shares have been already been issued with regard to this
transaction and, accordingly, the number of shares being registered for the
balance of this transaction amounts to 398,708 shares.
On July 9, 1999 the Company entered into a fourth promissory note
(contingent convertible debenture financing) with terms and conditions identical
to those set forth in the March 2, 1999 promissory note financing referred to
directly above excepting (a) the lender is different, to wit: Southshore
Capital, Ltd. now assigned to Parkdale LLC (b) gross proceeds amounted to
$1,100,000, (c) the due date of such note is August 23, 1999 with no right to
extend and (d) the debenture holder did not receive any warrants. In all other
respects the terms and conditions of each of the documents executed with respect
to this transaction are identical to those described in the above referenced
March 2, 1999 transaction. The promissory notes were not paid by their due date
and the terms of a Contingent Subscription Agreement, Convertible Debenture and
Registration Rights Agreement automatically went into effect and, accordingly,
the number of shares being registered for this transaction amounts to 971,732
shares.
On August 11, 1999 the Company entered into a fifth 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 $1,400,000, (c) the due date of such note is
November 11, 1999 with no right to extend and (d) the debenture holder did not
receive any warrants. In all other respects the terms and conditions of each of
the documents executed with respect to this transaction are identical to those
described in the above referenced March 2, 1999 transaction. The 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 and, accordingly, the number of shares being registered for
this transaction amounts to 1,291,231 shares.
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. In accordance with the terms of
such Subscription Agreements and Registration Rights Agreements all 2,666,667
shares sold are being registered herein. The investment participants involved in
the above transactions and the number of shares and purchase price per share
paid by each of such participants is as follows: Parkdale LLC - 1,000,000
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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. In accordance with the terms of the
Subscription Agreement and Registration Rights Agreement all 333,333 shares sold
are being registered hereunder.
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, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997
Net sales for the fiscal year ended June 30, 1998 were $22,892,978
compared to $13,151,701 for the fiscal year ended June 30, 1997.
The 74% increase in net sales was partially due to the acquisition of
Empower on April 1, 1997 (Sales of Empower were $7,134,938 for the fiscal year
ended June 30, 1998 compared to $2,000,603 for the fiscal year ended June 30,
1997), the Asset purchase of Service Support Group LLC on October 17, 1997
(Sales of Swissray Medical Inc. which started its selling activities after the
asset purchase of Service Support Group was $1,577,298 for the fiscal year ended
June 30, 1998 compared to $0 for the fiscal year ended June 30, 1997) and the
increase in sales made under the Philips OEM Agreement of $6,500,529. Also sales
to third parties in Switzerland have significantly increased in the fiscal year
ended June 30, 1998 compared with the previous fiscal year. These increases have
been partially offset by the decrease of $1,519,159 in sales of Elscint products
and decreased sales of $1,952,016 for Eastern Europe. The Company sold four of
the ddRMulti-System during the fiscal year ended June 30, 1998.
Gross profits amounted to $4,811,192 or 21% of net sales for the fiscal
year ended June 30, 1998, compared to $4,706,287 or 35.8% of net sales for the
fiscal year ended June 30, 1997.The decrease in gross profits as a percentage of
net revenues is primarily attributable to the fact that sales of lower-margin
products increased substantially compared to the fiscal years ended June 30,
1997. This is mainly attributable to increased sales of accessories, which are
generally low-margin products, as a result of the acquisition of Empower (net
sales of Empower contributed approximately 31% to the Company's net sales). The
Company also sold a significant number of units of newly developed products,
where the Company is at the beginning of the learning curve in the production
process, which results in higher production costs than in a later stage of the
learning curve. These
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products are the Bucky Diagnost TS produced under the OEM Agreement with Philips
(which contributed approximately 22% to the Company's net sales) and the
ddRMulti-System (which contributed approximately 6% to the Company's net sales).
The Company expects sales of accessories to be of a smaller percentage of total
sales for the fiscal year ending June 30, 1999 because of the sale of Empower's
accessory business to E.M. Parker.
Operating expenses for the fiscal year ended June 30, 1998 were
$18,747,729 or 81.9% of net sales compared to $17,450,333 or 132.7% of net sales
for the fiscal year ended June 30, 1997. The principal items were selling
expenses of $3,740,391 or 16.3% of net sales compared to $1,873,389 or 14.2% of
net sales for the fiscal year ended June 30, 1997 and salaries (net of directors
and officers compensation) of $4,168,540 or 18.2% of net sales compared to
$2,059,396 or 15.6% of net sales for the fiscal year ended June 30, 1997.
Research and Development was $3,542,149 or 15.5% of net sales compared to
$5,786,158 or 44% of net sales for the fiscal year ended June 30, 1997.
General and administrative expenses for the year ended June 30, 1997
include the value of stock options granted in the amount of $1,161,462, whereas
no stock options were granted during the fiscal year ended June 30, 1998. The
Company made an accrual of $500,000 for planned restructuring of its
organization. No such costs were accrued in the fiscal year ended June 30, 1997.
The increase of 102% in Salaries was mainly due to the acquisition of
Empower Inc. on April 1, 1997 (with salaries included in the consolidated
statement of operation only for one quarter of the fiscal year ended June 30,
1997) and the takeover of all of the employees of Service Support Group on
October 17, 1997. Both acquisitions were within the Company's marketing strategy
to build a strong market position with its own organization in one of its
principle markets. The number of employees in Switzerland was increased by 21
mainly to handle the significant rise in production volume.
The increase of 100% in selling expenses is the result of additional
significant efforts on the part of the Company to build a strong market position
in the United States and in Germany, the biggest European market as well as the
costs incurred for successful market introduction of the Company's direct
digital ddRMulti-System. The Company also made efforts to lay the groundwork for
the market introduction of Swissray Information Solutions comprehensive package
of consulting, services and products.
Research and development expenses decreased by 39%. Management
considered the relative size of the research and development expenses for the
fiscal year ended June 30, 1997 as high. The main focus of the R&D was the
industrialization phase of the ddRMulti-System and the development of
communication interfaces (DICOM 3.0, HL 7, Dicom Worklist etc.) to extend the
connectivity of the ddRMulti-System to communication networks such as HIS, RIS,
and PACS. Another important task was to finalize the Tahoma TMSSM software and
go into beta-tests. The Tahoma TMSSM, technology management systems are based on
the premise that technology is a resource that can be managed to achieve
organizational objectives, like reducing operating expense and improving
clinical performance. Additional research and development expenses have also
been incurred to maintain the technological advantages of the Company's
conventional X-ray equipment. Significant research and development
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expenses will continue to be incurred for the development of new technologically
advanced products and the continuing improvement of existing products.
The Company's operating loss increased to $13,936,537 for the fiscal
year ended June 30, 1998 from $12,744,046 for the fiscal year ended June 30,
1997. The increase in the Company's operating loss is due to the significant
expenses associated with the building of the Company's organization and market
position primarily in one of its principle markets, the USA. After taking into
account Interest expenses, other income, income tax benefits and extraordinary
items of income (loss) the resulting net loss of the Company for the fiscal year
ended June 30, 1998 increased to $22,503,109 from $13,685,188 for the fiscal
year ended June 30, 1997. The increase of net loss is mainly due to the
significant amount of interest expenses which resulted from the amortization of
issuance cost and beneficial Conversion features of Convertible debentures
issued for financing purposes, which amounted to $8,590,268 for the fiscal year
ended June 30, 1998 compared to $759,853 for the fiscal year ended June 30,
1997. Extraordinary income includes the Gain on early extinguishment of Debt
which resulted from refinancing of Convertible debentures.
CASH FLOW AND CAPITAL EXPENDITURES
Cash used by operating activities for the fiscal year ended June 30,
1998 increased to $11,759,371 from $10,684,988 for the fiscal year ended June
30,1997 and cash used by investing activities increased to $4,517,140 for the
fiscal year ended June 30, 1998 from $3,668,196 for the fiscal year ended June
30, 1997. Cash flow from financing activities for the fiscal year ended June 30,
1998 was $14,799,200 compared to $14,752,928 for the fiscal year ended June 30,
1997.
The Company's capital expenditures totaled $2,849,205 for the fiscal
year ended June 30, 1998 compared to $3,431,375 for the fiscal year ended June
30, 1997. Capital expenditures were primarily for the improvements of the
Hochdorf facility and the purchase of equipment. The increased financing needs
resulted primarily from the building and strengthening of the Company's
organization and distribution channels in the US and Europe and the improvements
of the Hochdorf facility.
INFLATION
Inflation can affect the costs of goods and services used by the
Company. The competitive environment in which the Company operates limits
somewhat the Company's ability to recover higher costs through increasing
selling prices. Moreover, there may be differences in inflation rates between
countries in which the Company incurs the major portion of its costs and other
countries in which the Company sells its products, which may limit the Company's
ability to recover increased costs, if not offset by future increase of selling
prices. To date, the Company's sales to high-inflation countries have either
been made in Swiss Francs or US dollars. Accordingly, inflationary conditions
have not had a material effect on the Company's operating results.
SEASONALITY
The Company's business has historically experienced a slight amount of
seasonal variation with
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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,
1999 the Company had an order backlog of $12,000,000 which consisted of
$8,000,000 in conventional x-ray equipment and $4,000,000 in digital (i,e.,
ddRMulti-Systems and information solutions) as compared to an order backlog of
$13,000,000 which consisted of $11,500,000 in conventional x-ray equipment and
$1,500,000 in ddRMulti-Systems as of the fiscal year ended June 30, 1998.
As of March 31, 2000 total backlog amounts to $16,289,100 of which
$14,123,400 represents digital with the balance representing conventional X-ray
equipment.
NEW ACCOUNTING PRONOUNCEMENTS
The Company will adopt Statement of Financial Accounting Standard No.
133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities" for the year ended June 2000. SFAS No. 133 establishes a new model
for accounting for derivatives and hedging activities and supersedes and amends
a number of existing standards. The application of the new pronouncement is not
expected to have a material impact on the Company's financial statements.
Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure.
Bederson & Company LLP ("Bederson") audited the books, records and
accounts of the Registrant for the fiscal year ended June 30, 1997. Bederson was
dismissed on November 7, 1997.
On November 7, 1997 the Board of Directors selected STG-Coopers &
Lybrand AG ("STG") as the Registrant's auditors for the fiscal year ending June
30, 1998 and this action was ratified bythe stockholders at the Annual Meeting
held on December 23, 1997.
On November 2, 1998 (after having failed to complete the audit for
fiscal year ended June 30, 1998 in a timely manner or otherwise and alleging
that its inability to complete such audit was based upon the Company's failure
to fully cooperate with them) STG advised the Company that it had determined to
cease to represent the Company. On November 6, 1998 the Company engaged Feldman
Sherb Ehrlich & Co., P.C. ("FSE") as its new independent accountants and such
firm commenced and concluded its audit so that the Company was able to file its
Form 10-K on December 3, 1998. STG acknowledged in its required letter to the
SEC that there were no disagreements, as defined by Rule 304 of Regulation S-K
during the period that STG served as the Company's auditors through the date of
STG's resignation.
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BUSINESS
Overview
The Company is active in the markets for diagnostic imaging devices for
the health care industry. Diagnostic imaging devices include X-ray equipment,
computer tomography ("CT") systems and magnetic resonance imaging ("MRI")
systems for three dimensional projections, nuclear medicine ("NM") imaging
devices and ultrasound devices.
The Company is primarily engaged in the business of manufacturing and
selling diagnostic X-ray equipment for all radiological applications other than
mammography and dentistry. In addition, the Company is in the business of
selling imaging systems and components and accessories for X-ray equipment
manufactured by third parties and providing services related to diagnostic
imaging.
X-rays were discovered in 1895 by Wilhelm Konrad Rontgen. Shortly
thereafter, X-ray imaging found numerous applications for medical diagnostic and
non-medical purposes. Today, medical X-ray imaging is a fundamental tool in bone
and soft tissue diagnosis. X-ray diagnosis is primarily used in orthopedics,
traumatology, gastro-enterology, angiography, urology, pulmology, mammography
and dentistry. The principal elements of a diagnostic X-ray system are the X-ray
generator, the X-ray tube and the bucky device. The generator generates high
tension, which is converted into X-rays in the X-ray tube. The X-rays so created
then penetrate a patient's body and subsequently expose a film contained in the
bucky device. Following exposure, the film is chemically processed and dried in
a dark room. A typical room used for general X-ray examinations (bucky room)
contains an X-ray system which includes a table with a bucky device for
examinations of recumbent patients (bucky table) and a wall stand with a second
bucky device for examinations of sitting and standing patients (bucky wall
stand).
The film used in conventional X-ray systems has certain inherent
disadvantages, including the significant amount of time and operating expenses
associated with the handling, processing and storage thereof, the need for
chemicals to develop films and the environmental concerns related to their
disposal. Additional expenses and inconveniences arise in connection with the
storage, duplication and transportation of conventional films. The following
X-ray systems have been developed to overcome these disadvantages: scanning
devices, phosphor plate or Computed Radiography(TM) ("CR") systems and direct
digital radiography ("ddR") systems. Scanning devices are used to convert
existing X-ray images into a digital form. While the use of scanning devices
permits the electronic storage, retrieval and transmission of X-ray images, they
do not eliminate the other inconveniences of conventional films and add time and
expenses associated with the scanning process. In a CR system the film cassette
is replaced with a phosophor plate which is electrically charged by X-rays. The
electrical charges on this phosphor plate are then converted into digital
information by a laser scanner. Although this system has the advantage that the
phosphor plates are reusable and the inconveniences related to the development
of X-ray films are eliminated, it does not achieve instant images and a
significant amount of time and operating expenses are required in connection
with the handling and scanning of the phosphor plates. Additional expenses arise
due to the fact that phosphor plates have a limited lifespan.
ddR technology is designed to eliminate the disadvantages and
significant operating costs associated with conventional X-ray systems and CR
systems. With ddR technology digital information
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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(TM) line of DICOM 3.0 compatible
postprocessing work stations operating on a Windows NT platform. Currently, most
of the Company's X-ray equipment is manufactured and developed in Switzerland.
On March 8, 1999 Swissray Medical AG, the Company's Swiss research and
development, production and marketing subsidiary became ISO 9001 and EN 46001
certified. Appendix II for CE - Certification was completed in December 1999
thus allowing the Company to use the CE-Label, including the medical device
numbers for all products manufactured and/or sold through the Company. See also
"Products - Distribution of Agfa Products" and "Government Regulation".
Digital ddRMulti-System/SwissVision
The ddRMulti-System, which includes a SwissVision(TM) workstation for
the postprocessing of digital image data and the transfer of such data through
central networks or via telecommunications systems, is a complete multi-
functional direct digital X-ray system which combines the functions of a
conventional bucky table and a bucky wall stand. The Company's own estimates and
research into this area indicate that the ddRMulti-System is the first direct
digital radiography system available which allows for substantially all plane
X-ray examinations on the recumbent, upright and sitting patient necessary in
orthopedics, emergency rooms and chest examination rooms. The ddRMulti-System
uses the Company's 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.
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During the 100 years in which X-ray imaging has been used for medical
purposes, there has been a continuous trend to improve image quality, to reduce
the radiation dose and to improve the ergonomic features of X-ray equipment.
Management believes that the ddR technology developed by the Company will take
this development to the next level because the ergonomically advanced
ddRMulti-System provides excellent image quality with minimal radiation doses
and at the same time reduces operating expenses through the elimination of
films, phosphor plates or cassettes and the handling, development and storage
thereof.
The Company's line of SwissVision(TM) postprocessing workstations
permit the postprocessing of digital X-ray images, including section, zooming,
enlargement, soft tissue and bone structure imaging, accentuation of the
limitation of the joints, noise suppression, presentation of different fields of
interest within an area and archiving and transferring the data through central
networks and telecommunication systems. In addition, the SwissVision(TM)
post-processing workstations are able to analyze data stored with respect to a
particular patient. As a result, consistent image quality of different images of
the same patient can be achieved. The workstations operate on a Windows NT
platform and are DICOM 3.0 compatible. The Company is also offering products and
services related to networking, archiving and electronic distribution of digital
X-ray images, including PACS.
Conventional X-Ray Equipment, Imaging Systems, Components and Accessories
The Company manufactures and sells conventional diagnostic X-ray
equipment for all radiological applications other than mammography and
dentistry. The conventional X-ray equipment manufactured by the Company includes
X- ray generators, basic X-ray equipment, bucky table systems, mobile X-ray
systems, mobile C-arm systems, fluoroscopy systems, urology systems and remote
controlled examination systems. In addition, the Company sells components and
accessories for X-ray systems. In general, the components and accessories for
X-ray equipment sold by the Company are manufactured by third parties. In
Switzerland, the Company was the exclusive distributor of CT systems, MRI
systems and NM systems manufactured by Elscint. No sales were made under such
distributorship arrangement for the fiscal year ended June 30, 1998 while for
the fiscal year ended June 30, 1997 revenues under such agreement approximated
12% of total sales. The Company does not currently have any business
arrangements with Elscint in that such firm sold all or part of its company to
Picker International Inc. and GE Medical Systems in the later part of 1998.
Original Equipment Manufacturing (OEM)
On June 11, 1996, the Company entered into a new OEM Agreement (the
"Philips OEM Agreement") with Philips Medical Systems which replaced the
previous OEM Agreement with Philips Medical Systems, dated July 29, 1992. The
Philips OEM Agreement provides for the production of two conventional X-ray
systems, the Bucky Diagnost TS bucky table and a Multi Radiography System
("MRS"), which is approved by the World Health Organization ("WHO") as a World
Health Imaging System for Radiology ("WHIS-RAD"). As a result, the Company's MRS
system may be tendered in projects financed by the World Bank. Under the Philips
OEM Agreement these two products are marketed worldwide by Philips Medical
Systems through its existing distribution network. The initial
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term of the Philips OEM Agreement expires on December 31, 2000. See also risk
factor entitled "Reliance on Large Customers".
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.
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 June 2000. Four
additional ddrCombi-Systems are currently considered backlog with installation
scheduled for August 2000. As of July 21, 2000 the Company had not contracted
for the sale of any ddRChest-Systems.
See also "Business - Research and Development" hereinafter.
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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 42.37%, 55.7% and 1.93% respectively of total sales during the
nine month period ended March 31, 2000. Included in the 55.7% indicated in
business conducted in Switzerland is 17.5% of total sales which represent sales
as a result of contract entered into with the Romanian Ministry of Finance due
to the fact that the down payment received of $2,078,400 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 intends to sell the
ddRMulti-System in the United States through its subsidiaries and other
channels. See "Risk Factors -- Government Regulation" and "Business --
Regulatory Matters."
The percentage of revenues for fiscal year ended June 30, 1999
attributed to product markets amounted to 81.84% while the percentage of
revenues for the nine month period ended March 31, 2000 attributed to product
markets amounted to 89%.
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
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demand for such services. To date, a significant market for maintenance
management and capital planning has only developed in the United States as a
result of the impact of managed care plans and health maintenance organizations
("HMOs") on the health care industry. The Company expects that in the future
there will be a similar trend in Europe, which may lead to the development of a
market for such services in Europe. See "-- Products" and "-- Sales and
Marketing." The Company currently intends to continue to concentrate its
marketing efforts within Switzerland and U.S. wherein approximately 90% of all
Company sales were concluded during fiscal year ended June 30, 1999, with
Switzerland accounting for 73% of all sales and the U.S. accounting for 23% of
such sales (and with the balance of 4% of sales being conducted in Germany). See
also Note 19 to audited financial statements.
The percentage of revenues for fiscal year ended June 30, 1999
attributed to services amounted to 18.16% while the percentage of revenues for
the nine month period ended March 31, 2000 attributed to service markets
amounted to 11%.
Sales and Marketing
The Company's customers are universities, hospitals, clinics, imaging
centers and physicians . The Company markets its products and services primarily
through its own sales force in the United States, Switzerland, Germany and
Eastern Europe and through resellers in these and other markets in Europe,
Middle East, Africa, Asia, and Latin America. The Company also offers products
and services related to networking, electronic archiving and distribution,
including PACS, through the Swissray Information Solution division.
Two of the Company's products, the MRS system and the Bucky Diagnost TS
system, are distributed worldwide through Philips Medical Systems.
The Company believes that in the foreseeable future there will be a
continuous world-wide growth in the markets for complete X-ray systems,
components, accessories and related services because of the improvement of
health care services in developing countries and Eastern Europe and the
necessity to meet increasingly stricter regulations with respect to radiation
dosage and other safety features and environmental hazards in many
jurisdictions. With the transition from conventional to digital X-ray systems,
the demand for products and services related to networking, archiving and
electronic distribution of digital X-ray images will grow in industrialized
countries. In these markets the demand for conventional X-ray equipment,
accessories and related services will decrease over time. See "-- Markets."
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 systems, the ddRMulti-System, with the VA
reserving its option to extend the term of the contract up to March 31, 2001;
the ddRMulti-System being the first ever FDA approved multifunctional direct
digital radiography (ddR) system to be offered worldwide. With the official
contract award in hand, management intends to actively pursue sales to various
VA hospitals, medical centers and outpatient,
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community and outreach clinics throughout the United States. Since receipt of
such award the Company has sold 5 ddRMulti-Systems (through July 21, 2000) to
different VA institutions.
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 within these
territories.
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.
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In February of 1999 the Company announced the sale of three of its
ddRMulti-System, to Houston, Texas - based Kelsey-Seybold Clinic and to the
Federal Maximum Security Facility in Florence, Colorado. The two Kelsey-Seybold
systems 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 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 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.
The defined territories referred to consist of the entire U.S.
excepting for (a) the states of Alabama, Arizona, Connecticut, Mississippi,
Maine, Massachusetts, New York, Rhode Island, Vermont and New Hampshire, (b) a
portion of New Jersey that includes the Atlantic City Expressway and north, (c)
certain designated counties within the state of Pennsylvania, (d) the counties
Orange and San Diego within the state of California, and (e) the Panhandle of
Florida - Tallahassee west.
Additionally, the Agreement contains provisions whereby additional
exclusions exist with respect to various identified customers reserved to the
Company principally due to the Company's prior contact with and/or dealings with
such clientele.
In addition HMA will utilize and promote the Swissray Information
Solutions services and products consisting of consulting and product solutions
for medical imaging informatics.
In accordance with such agreement, the Company is required to provide
HMA 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.
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.
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Additional Sales Information
In the past, the Company has made a significant amount of sales of its
X-ray equipment to a few large customers. For the fiscal year ended June 30,
1999 sales to the Company's single largest customer accounted for approximately
54% of all revenues.
The Company considers the relationship with its largest customers to be
satisfactory. Historically, the identity of the Company's largest customers and
the volumes purchased by them has varied. The loss of the Company's current
single largest customer or a reduction of the volume purchased by it would have
an adverse effect upon the Company's sales until such time, if ever, as
significant sales to other customers can be made. The Company expects that as
sales of its ddRMulti-System increase, the Company's revenue will be less
dependent on a few large customers. See "Risk Factors -- Reliance on Large
Customers" and Notes to the Company's Consolidated Financial Statements.
In August 1998 the Company entered into a global distributorship
agreement for its ddRMulti-System with Elscint Ltd. of Haifa to sell and service
such product in 14 countries in Europe, Canada, South America and Africa. Soon
thereafter almost all of the assets of Elscint Ltd. were sold to Picker
International and GE Medical Systems respectively. Neither Picker International
nor GE Medical Systems have executed or honored the distributorship agreement as
of the date hereof and therefore the Company 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, 1999 the Company incurred
expenses regarding research and development of $1,808,107 (accounting for 12% of
the Company's operating expenses) compared to $3,542,149 (accounting for 19% of
the Company's operating expenses) for fiscal year ended June 30, 1998 and
compared to $5,786,158 (accounting for 33% of the Company's operating expenses)
for fiscal year ended June 30, 1997. The decrease of the Company's research and
development expenses by 68% from the fiscal year ended June 30, 1997 to the
fiscal year ended June 30, 1999 resulted primarily from the fact that principal
costs associated with development of the direct digital detector, the unique
Add-on-Bucky have been completed. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." For the nine months ended March
31, 2000 the Company incurred additional research and development expenses of
$1,364,415 (accounting for approximately 9.94% of the Company's operating
expenses).
The Company will continue to have significant research and development
expenses associated with the development of new products (including diagnostic
hardware and software products and new digital X-ray products) and improvements
to existing products manufactured by the Company.
New products currently being developed by or on behalf of the Company
include a new 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
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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 August 8, 2000, the Company employed 11 people in research and
development. The number of people employed in research and development has
increased by 10% since June 30, 1998. The Company is outsourcing certain
research and development activities and intends to continue this policy in the
future.
The Company has established a scientific advisory board to support its
research and development projects and to enable the Company to develop
technologically advanced products. The Company believes that the integration of
academic institutions and hospitals will allow the Company to save research and
development expenses and will provide it with access to clinical and scientific
experience and know-how.
Raw Materials and Suppliers
The Company has a policy of outsourcing the manufacturing of components
for its X-ray equipment whenever such outsourcing is more efficient and cost
effective than in-house production. In particular, components for which serial
production is available are produced by third-party manufacturers according to
Company specifications. Generally, the X-ray accessories sold by the Company are
manufactured by third parties.
There is virtually no stock of finished X-ray equipment on the
Company's premises for any extended period of time since X-ray equipment is
generally manufactured at a customer's request. At March 31, 2000 finished
products accounted for approximately 19.02% of inventory while raw material,
parts and supplies accounted for approximately 61.36% of inventory and work in
process for approximately 19.62%.
The percentage of Company revenues derived from products which included
components then only currently available from a single source supplier amounted
to 13.6% as of June 30, 1999 of which 13.6% related to the single source
supplier of certain camera electronics while 13.6% related to the single source
supplier of optics (both items are included in the same product).
(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
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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. The Company currently has 120 CCD cameras in stock which will
be used for the next 30 ddR-Systems, which can be used for deliveries over the
next three months.
(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. 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,
1999 the Company had an order backlog of $12,000,000 which consisted of
$8,000,000 in conventional x-ray equipment and $4,000,000 in digital (i.e.,
ddRMulti-Systems and information solutions) as compared to an order backlog of
$13,000,000 which consisted of $11,500,000 in conventional x-ray equipment and
$1,500,000 in ddRMulti-Systems as of the fiscal year ended June 30, 1998. 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 (which consists primarily of orders under the
Philips OEM Agreement) will be filled during the current fiscal year. While the
Company expects to continue to
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have a certain order backlog for conventional X-ray equipment (exclusive of that
indicated above) in the future because of the Philips OEM Agreement, the order
backlog for digital X-ray equipment is likely to be substantially reduced in the
future as the Company estimates that orders for such equipment will typically be
filled within three months.
As of March 31, 2000 total backlog amounts to $16,289,100 of which
$14,123,400 represents digital with the balance representing conventional X-ray
equipment.
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. ith respect
to such ddRMulti-System, management does not believe that it has any current
competition and is of the belief that the Company enjoys a significant
(estimated two to three years) 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 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 breakthroughs
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," "Risk Factors -- Competition."
Service Market
In the markets for services related to imaging equipment the Company's
competitors are equipment manufacturers (including certain of the Company's
competitors in the X-ray equipment
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market) and independent service organizations. In the service markets, it is the
Company's strategy to build a market position based on the confidence of its
customers in the quality of its products and service personnel. See "--
Products," "-- Markets," "Risk Factors -- Competition."
Intellectual Property
The Company has obtained patent protection for certain aspects of its
conventional X-ray technology. The Company has filed patent applications
covering certain aspects of its direct digital technology in key markets in
Europe, North America and Asia, including the United States, Canada, Switzerland
and Germany. The Company has obtained for one of its two patents the European
patent as well as the U.S. patent. Although the Company believes that its
products do not infringe patents or violate proprietary rights of others, it is
possible that infringement of proprietary rights of others has occurred or may
occur. In the event the Company's products infringe patents or proprietary
rights of others, the Company may be required to modify the design of its
products or obtain a license. There can be no assurance that the Company will be
able to do so in a timely manner, upon acceptable terms and conditions or at
all. The failure to do any of the foregoing could have a material adverse effect
upon the Company. In addition, there can be no assurance that the Company will
have the financial or other resources necessary to enforce or defend a patent
infringement action and the Company could, under certain circumstances, become
liable for damages, which also could have a material adverse effect on the
Company.
The Company also relies on proprietary know-how and employs various
methods to protect its concepts, ideas and technology. However, such methods may
not afford complete protection and there can be no assurance that others will
not independently develop such technology or obtain access to the Company's
proprietary know-how or ideas. Furthermore, although the Company has generally
entered into confidentiality agreements with its employees, consultants and
other parties, there can be no assurance that such arrangements will adequately
protect the Company. The Company has obtained licenses to use certain technology
which is essential for certain of the Company's products, including certain
software used for its line of SwissVision(TM) postprocessing systems. The
software license is a worldwide, non-exclusive, non-transferable license
recently extended to July 31, 2000 to use and distribute the Agfa software in
combination with the Add-On Bucky.
The Company considers the Swissray name as material to its business and
has obtained, or is in the process of obtaining, trademark protection in key
markets. The Company is not aware of any claims or infringement or other
challenges to the Company's rights to use this or any other trademarks used by
the Company. See "Risk Factors -- Dependence on Patents and Proprietary
Technology."
The Company has patented certain aspects of its proprietary technology
in certain markets and has filed patent applications for its direct digital
technology in key markets, including the United States. The European patent as
well as the U.S. patent for the Add-On Bucky have been granted and expire
January 2015. The duration of other patents range from 2000 to 2016. In many
instances where patents are filed the "applicant" is listed as a specific
individual (such as the Company's President) while the patent ownership is
listed in the Company's name thereby assuring that the exclusive patent holder
is the Company.
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In May of 1999 the European Patent Office issued patent No. EP 0 804
853 and in July of 1999 the U.S. Patent Office issued patent No. 5,920,604 -
both for the Company's Radiography (ddR) detector, the Add-on-Bucky (R) which
patent relates to the optical arrangement and process for transmitting and
converting primary x-ray images, which is the first of two inventions for the
Add-on-Bucky(R). The second patent application for optical arrangement and
method for electronically detecting an x-ray image was granted in September 1999
as hereinafter indicated. The Add-on-Bucky(R) is incorporated in Swissray's
unique multifunctional ddRMulti-System.
On September 30, 1999 the Company announced that the U.S. Patent Office
issued patent No. US 005920604A for its direct digital Radiography (ddR)
detector, the Add-on Bucky(R). The U.S. patent was awarded to Swissray pursuant
to application submitted by inventors R. G. Laupper, Chairman and President, CEO
of Swissray International, Inc. and Peter Waegli (Bremgarten, Switzerland), for
the optical arrangement and process for transmitting and converting primary
x-ray images generated on a two dimensional primary image array. The Company had
previously been awarded, in May 1999 the European patent for the technology
indicated herein. A separate patent application for the mirror optics has been
submitted and is pending approval in Europe while the U.S. patent therefore was
granted to the Company (Patent No. 6,038,286) in July 2000 for the optical
arrangement and method for electronically detecting an x-ray image.
Regulatory Matters
The Company's X-ray equipment, components and related accessories are
subject to regulation by national or regional authorities in the markets in
which the Company operates. Pursuant to the Federal Food, Drug and Cosmetic Act,
X-ray equipment is a class II medical device which may not be marketed in the
United States without prior approval from the FDA.
The FDA review process typically requires extended proceedings
pertaining to the safety and efficacy of new products. A 510(k) application is
required in order to market a new or modified medical device. If specifically
required by the FDA, a pre-market approval ("PMA")may be necessary. Such
proceedings, which must be completed prior to marketing a new medical device,
are potentially expensive and time consuming. They may delay or hinder a
product's timely entry into the marketplace. Moreover, there can be no assurance
that the review or approval process for these products by the FDA or any other
applicable governmental authorities will occur in a timely fashion, if at all,
or that additional regulations will not be adopted or current regulations
amended in such a manner as will adversely affect the Company. Moreover, such
pre-marketing clearance, if obtained, may be subject to conditions on the
marketing or manufacturing of the ddRMulti-System which could impede the
Company's ability to manufacture and/or market the product. The Company
submitted both its 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.
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The Company is also subject to other federal, state, local and foreign
laws, regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices. The electrical components of the
Company's products are subject to electrical safety standards in many
jurisdictions, including Switzerland, EU, Germany and the United States. The
Company believes that it is in compliance in all material respects with
applicable regulations.Failure to comply with applicable regulatory requirements
can result in, among other things, fines, suspensions of approvals, seizures or
recalls of products, operating restrictions and criminal prosecutions. The
effect of government regulation may be to delay for a considerable period of
time or to prevent the marketing and full commercialization of future products
or services that the Company may develop and/or to impose costly requirements on
the Company. There can also be no assurance that additional regulations will not
be adopted or current regulations amended in such a manner as will materially
adversely affect the Company. See "Risk Factors -- Risks Associated With
International Operations," "-- Government Regulations," "Business -- Markets"
and "-- Regulatory Matters." Company product certifications may be briefly
summarized as follows: On March 8, 1999 Swissray Medical AG, the Company's Swiss
research and development, production and marketing subsidiary became ISO 9001
and EN 46001 certified. Appendix II for CE - Certification was completed in
December 1999 thus allowing the Company to use the CE-Label, including the
medical device numbers for all products manufactured and/or sold through the
Company. See also "Government Regulation".
Environmental Matters
The Company is subject to various environmental laws and regulations in
the jurisdictions in which it operates, including those relating to air
emissions, wastewater discharges, the handling and disposal of solid and
hazardous wastes and the remediation of contamination associated with the use
and disposal of hazardous substances. The Company owns or leases properties and
manufacturing facilities in Switzerland, the United States and Germany. The
Company, like its competitors, has incurred, and will continue to incur, capital
and operating expenditures and other costs in complying with such laws and
regulations in both the United States and abroad as may specifically apply to
it. The Company does not believe that it has been involved in utilization of any
types of substances and/or wastes which it considers to be hazardous and the
operation of its business (or former business), accordingly, is not believed to
have created any potential liability involving environmental matters. Although
the Company believes that it is in substantial compliance with applicable
environmental requirements and the Company to date has not incurred material
expenditures in connection with environmental matters, it is possible that the
Company could become subject to additional or changing environmental laws or
liabilities in the future that could result in an adverse effect on the
Company's financial condition or results of operations. See "Risk Factors --
Environmental Matters."
Employees
After giving effect to the Empower, Inc. transaction heretofore
initially referred to on page 5 of this Registration Statement, the Company has
108 employees worldwide, of which 20 were employed by subsidiaries in the United
States, 73 in Switzerland, and 15 in European countries other than Switzerland.
The Company believes that its relationship with employees is satisfactory. The
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Company has not suffered any significant labor problems during the last five
years.
Description of Property
On April 12, 1997, the production facility rented by the Company in
Hochdorf, Switzerland was affected by a fire in an adjacent facility. On May 15,
1997, the Company purchased a new office and production facility of
approximately 43,000 square feet and moved its entire production to this
facility and has since moved the offices and other facilities formerly located
in its Hitzkirch facility to the new Hochdorf facility. The Company believes
that its new Hochdorf facility provides it with sufficient production and office
space to meet its demand in Switzerland in the foreseeable future.
The Company also leases office space in New York City, Brno, Czech
Republic, Gig Harbor, Washington and Wiesbaden, Germany.
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).
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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 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.
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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.
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 is required to compensate the Consultant through its issuance and
delivery of 3,000,000 fully vested, and non-forfeitable shares of the Company's
restrictive common stock. As regards such shares of common stock, Consultant has
agreed that throughout the period of time that it retains beneficial ownership
of all or any portion of such shares that it shall (a) vote such shares in favor
of Ruedi G. Laupper continuing to maintain his current position(s) with the
Company and (b) give Ruedi G. Laupper and/or his designee the right to vote
Consultant's shares at all Company shareholder meetings. 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 pertinent
portions thereof.
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In accordance with the terms of the aforementioned consulting
agreement, LFC has agreed that it will generally provide the following
consulting services: (a) advise and assist the Company in developing and
implementing appropriate plans and materials for presenting the Company and its
business plans, strategy and personnel to the financial community, 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 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;
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3) assisting the Company in packaging its investor relations materials;
4) assisting the Company in the writing and dissemination of its press releases;
5) assisting the Company in media relations; and
6) generally advising the Company, upon request, on matters of a corporate
financial nature.
Additionally, LFC has introduced the Company and subsequently entered
into an investment banking relationship with Raymond James & Associates in order
to assist the Company in evaluating strategic alternatives including, but not
limited to, identifying proposals from potential suitors or strategic partners
as well as supporting the Company's financing requirements.
Consulting Agreement with Rolcan Finance Ltd.
Additionally, on March 29, 1999 the Company entered into a eighteen
month Consulting Agreement with Rolcan Finance Ltd. ("Rolcan"), pursuant to
which Rolcan agreed to provide certain business and consulting services outside
the United States and in return for which the Company became obligated to issue
as full and complete compensation thereunder, 800,000 fully vested, and
non-forfeitable restrictive shares of its common stock.
In accordance with terms of aforementioned consulting agreement, Rolcan
has agreed to facilitate the endeavors of the Company's medium and long term
business plans through services, including but not limited to, introducing
Company management (i) to potential financial partners, financial brokers, and
assist in developing market awareness within the financial community with an
emphasis upon introductions to offshore investors in Europe, the Middle East and
the Far East and to the extent practicable assisting the Company in having its
stock listed on various European exchanges and (ii) continuing to discuss
Company financial requirements and types of financing which may be available
and/or 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 contracting for 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 $.50 per share when
issuing the above reference shares to LFC and Rolcan was based upon the Board's
determination that there is a substantial and significant difference between the
valuation of free trading securities and restricted shares. The principal
differences considered relate to the facts that (a) restricted shares may not be
sold in the open
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market and (b) restrictive legend appearing on such restricted shares may not be
removed for a period of at least one year absent registration and then only in
accordance with Rule 144 (assuming the Company continues to meet necessary
reporting requirements for utilization of Rule 144). The Board further
considered the fact that even if the above referenced Rule 144 requirements were
met the holder of restricted shares remained subject to specific volume
limitations (usually 1% of outstanding common stock) with respect to sales made
within a 3 month period subsequent to 1 year holding period. In addition to all
of the above, the Board also considered the fact that the Company's shares have
had a history of substantial and significant volatility.
The foregoing summarizes certain pertinent terms and conditions
contained in the Agreements entered into by the Company with LFC and Rolcan but
does not purport to be a complete summary of such Agreements. Copies of such
Agreements are filed with the SEC in the Company's Form S-1 Registration
Statement under SEC file number 333-59829. Accordingly, further information may
be obtained through the Commission's World Wide Web site utilized for Issuers
(such as the Company) that file electronically with the Commission. The address
of such site is http:\\www.sec.gov.
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 the date of termination no monies were
due to Raymond James.
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".
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,
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valued at over US$13,800,000. Installation will be in various hospitals
throughout Romania, The initial payment aggregating 15% of the aforesaid total
proceeds (i.e., 2,070,000) was received by the Company in early March 2000. The
Company completed installation and sale of 25 of the 32 ddRMulti-Systems through
close of its fiscal year ended June 30, 2000 while an additional 5 Systems have
been installed and sold through July 21, 2000 leaving a balance of 2 of the 32
Systems on backlog with the expectation that same will be installed and sold in
late August 2000. During the period commencing April 1, 2000 and through August
8, 2000 the Company has received additional payments aggregating $9,201,250 with
the expectation that the balance of approximately $2,528,750 will be received by
August 31, 2000.
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.
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.
Preliminary Unaudited Fourth Quarter Results of Operations
The preliminary unaudited results of operations, in millions except
Systems, for the three months ended June 30, 2000 indicate sales approximating
$9.6 with cost of sales, operating expenses and interest expense aggregating
approximately $13.6 thereby resulting in an approximate net loss for the quarter
of $4.0.
Approximately $8.0 of the $9.6 in sales is principally attributed to
delivery, installation and sale of ddRMulti-Systems to the Ministry of Health,
Government of Romania. The $8.0 consisted of 20 Systems that were delivered and
installed in the quarter ended June 30, 2000. During the quarter the Company
received $6.5 of the $8.0 with the remaining balance of $1.5 being received in
July 2000.
The unaudited results of operations (in millions) for the three months
ended June 30, 1999 indicated sales of $4.1 and net loss of $11.3. The decrease
in the fourth quarter loss in Fiscal 2000 as compared to Fiscal 1999 is
principally due to the increase in sales (as mentioned above) and a decrease in
operating expenses. During the last quarter of Fiscal 1999 the Company had
recorded $4.75 of non-cash compensation expenses to an officer and consultants.
Management of the Company (as a result of conversations with its
current auditors) are able to indicate that fourth quarter Results of Operations
information, once published, will not indicate any material adverse changes in
the financial condition or operations of the Company during the period indicated
excepting to the extent indicated above.
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MANAGEMENT
Directors and Executive Officers of the Company
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 54 Secretary, Treasurer and Director
Ueli Laupper 30 Vice President and Director
Dr. Erwin Zimmerli 52 Director and Member of the Independent Audit
Committee
Erich A. Kalbermatter 43 Chief Operating Officer *
Dr. Sc. Dov Maor 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
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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 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
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overseeing the performance of the Registrant. Members of the Board of Directors
are kept informed of the Registrant's business by various reports and documents
sent to them in anticipation of Board meetings as well as by operating and
financial reports presented at Board meetings. The Registrant pays its directors
fees or compensation for services rendered in their capacity as directors. The
current Board of Directors was elected and assumed office as of December 23,
1997 with the exception that Dr. Sc. Dov Maor assumed his position on March 26,
1998.
The Board does not currently have a standing audit, nominating or
compensation committee or any committee or committees performing similar
functions, but acts, as a whole, in performing the functions of such committees
(except as may be indicated directly hereinafter). At a meeting of the Board of
Directors held on March 26, 1998, an Independent Audit Committee was
established.
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
$194,121), (ii) an annual bonus of 12,000 Swiss francs (or $8,377), and (iii) a
performance based bonus, based on the audited consolidated financial statements
of the Company as of the end of the fiscal year. The bonus 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 $1,396,258) including any bonus. The Registrant guarantees the
obligation of Swissray Management AG in the event of a default.
Pursuant to June 30, 1999 Board meeting (attended by the Company's
President, Ruedi G. Laupper, who absented himself from the meeting prior to vote
upon and adoption of resolutions) the EBIT bonus provisions referred to above
were extinguished in exchange for (a) extending the duration of the employment
agreement to December 18, 2007 and (b) issuance to Ruedi G. Laupper of 2,000,000
fully vested, and non-forfeitable shares of restrictive Company common stock in
exchange for and in consideration of his agreeing to cancel the above referenced
EBIT provisions in his employment contract which otherwise would have entitled
him to receive 25% of all Company earnings before interest and taxes ("EBIT")
payable in shares of Company Common Stock during each year of such employment
contract, which contract expires December, 2007. EBIT, in thousands, for the
years ended June 30, 1997, 1998 and 1999 and the nine-months ended March 31,
2000 was $(12,425), $(14,218), $(15,539) and $(10,294) respectively.
Accordingly, no bonus was payable. Valuation
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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.
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 completed installation and sale
of 25 of the 32 ddRMulti-Systems through close of its fiscal year ended June 30,
2000 while an additional 5 Systems have been installed and sold through July 21,
2000 leaving a balance of 2 of the 32 Systems on backlog with the expectation
that same will be installed in late August 2000. During the current fiscal year
commencing July 1, 2000 and through August 8, 2000 the Company has received
additional payments aggregating $9,201,250 with the expectation that the balance
of approximately $2,528,750 will be received by August 31, 2000.
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
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<PAGE>
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 "Continued
Nasdaq Delisting - Council's Decision to Affirm Delisting"
The above referenced Rule provides in part that "Each Issuer shall
require shareholder approval." (A) when a stock option or purchase plan is to be
established or other arrangements made pursuant to which stock may be acquired
by officers or directors, except for warrants or rights issued generally to
security holders of the company or broadly based plans an arrangement including
other employees (e.g. ESPOS). In a case where the shares are issued to a person
not previously employed by the company, as an inducement essential to the
individual's entering into an employment contract with the company shareholder
approval will generally not be required. The establishment of a plan or
arrangement under which the amount of securities which may be issued does not
exceed the lesser of 1 percent of the number of shares of Common Stock, 1
percent of the voting power outstanding, or 25,000 shares, will not generally
require shareholder approval".
The Company is not currently on NASDAQ (see risk factor entitled
"Delisting Due to Non-compliance With certain NASDAQ Standards" as well as
Business subsection entitled "Continued NASDAQ Delisting") but nevertheless
wishes to obtain stockholder ratification regarding its issuance of restrictive
shares of its Common Stock in amounts greater than 25,000 shares per person
since NASDAQ may consider this issue for companies who are reapplying for
listing (on a case by case basis) and in the case of the Company, has so
considered such issuance to the detriment of the Company's ability for NASDAQ
relisting.
Ueli Laupper and Josef Laupper have entered into three-year employment
agreements with Swissray Management AG on December 18, 1997, which agreements
will be automatically renewed for another three years unless notice is given six
months prior to the expiration date. Such agreements provide for salaries of
$94,924 and 119,700 Swiss francs (or $83,566) respectively with annual bonuses
of $7,077 and 9975 Swiss francs (or $6,964) respectively, $1,500 and 1000 Swiss
francs (or $698) per month for expenses respectively and 20 days and 25 days of
vacation respectively. The employment agreements of each of Ueli Laupper and
Josef Laupper also provide for a car allowance. If either of such employees is
terminated for reasons beyond the employees control he will receive 500,000
Swiss francs (or $349,065).
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<PAGE>
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.
Compensation of Directors and Executive Officers
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> <C>
Ruedi G. Laupper 2000 $200,878 --- $695,625 (1)(9) 181,250(10) ---
President and Chief Executive 1999 $194,121 $8,377 $4,335,000(1)(8) --- ---
Officer, Chairman of the 1998 $173,587 $16,057 $15,000 (1) --- ---
Board of Directors 1997 --- --- $1,122,973 (7) --- ---
1997 $146,983 --- $15,000 (1) 12,000(5) ---
Josef Laupper 2000 $109,468 --- $383,250 (1)(9) 200,000(10) ---
Secretary, Treasurer 1999 $ 83,566 $6,494 $12,000 (1) --- ---
1998 $ 94,669 --- $12,000 (1) --- ---
1997 $ 96,861 --- $12,000 (1) --- ---
Ueli Laupper 2000 $114,494 --- $628,750 (1)(9) 218,750(10) ---
Vice President International 1999 $ 94,924 $7,077 $10,000 (1) --- ---
Sales (2) 1998 $ 95,685 --- $10,000 (1) --- ---
1997 $ --- --- $ --- --- ---
Michael Laupper 2000 $ 80,600 --- $371,250 (9) 125,000(10) ---
Chief Financial Officer
Herbert Laubscher 1998 $ 79,244 --- $ --- --- ---
Chief Financial Officer (2)(3) 1997 $ --- --- $ --- --- ---
Ulrich R. Ernst (4) 1997 $ 96,979 --- $10,000 (1) --- ---
Erich A. Kalbermatter 1999 $153,333 --- $ --- --- ---
Chief Operating Officer 1998 $ 33,652 --- $ --- --- ---
--------------------
</TABLE>
(1) Fees for service on the Board of Directors of the Company.
(2) Compensation did not exceed $100,000 in any fiscal year.
(3) Herbert Laubscher joined the Company in August of 1996 and served as
Treasurer from January 1998 until his resignation effective December 31,
1998.
(4) Ulrich R. Ernst was Chairman of the Board of Directors from May 1995 until
March 18, 1997.
(5) The options, which were fully vested on date of grant (6/13/97), were
issued in exchange for services to the Company as Chairman of the Board of
Directors.
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<PAGE>
(6) Erich A. Kalbermatter joined the Company on April 14, 1998 and resigned in
February 1999.
(7) Compensation paid in equivalent of 48,259 post reverse split shares of
Common Stock for cancellation of Common Stock held by officer, as follows:
Ruedi G. Laupper, the Company's President, surrendered for
cancellation an aggregate of 1,608,635 shares of common stock owned by
him in order for the Company to meet its obligations with respect to
various warrantees and representations made by it regarding
availability of a sufficient number of authorized but unissued shares
to timely meet convertible debenture conversions and avoid Company
default (regarding financings which occurred in or about September 1996
and January 1997). By surrendering such shares Ruedi G. Laupper lost
his holding period under Rule 144 which at that point would have
entitled him to utilize Rule 144 every three months to sell such
restrictive shares (as free trading) subject to volume limitation
imposed by Rule 144. In exchange for losing such valuable right and
once stockholders had increased the number of authorized shares of
Company common stock at a Special Meeting called for such purposes, Mr.
Laupper, as previously agreed to, received a number of shares equal to
30% (48,259 post reverse split shares) more than those previously
canceled (creating a brand new holding period for him for purposes of
Rule 144 transactions). At the time that the Company's President
surrendered his aforesaid 1,608,635 shares for cancellation (to wit:
March 7, 1997) the bid price of the Company's common stock was $2.6875
while at the time that such individual received the 48,259 post split
shares referred to above (on June 30, 1997) the bid price for the
Company's common stock was $2.421875.
(8) Dollar value assigned to the 2,000,000 shares of Common Stock issued
for relinquishment of EBIT bonus based upon Board members agreement
that such price would be based upon 90% of bid price at the time
proposal was initially made, i.e., 90% of the $2.40 average price on
June 30, 1999 - the date of the Board of Directors meeting.
(9) 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.
(10) See "Stock Option Grants in Fiscal Year Ended June 30, 2000".
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following tables set forth certain information concerning the grant
of options to purchase shares of the Common Stock to each of the executive
officers of the Registrant, as well as certain information concerning the
exercise and value of such stock options for each of such individuals. Options
generally become exercisable upon issuance and expire no later than ten years
from the date of grant.
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<PAGE>
STOCK OPTIONS GRANTED IN FISCAL YEAR ENDED JUNE 30, 1997(1)
<TABLE>
<CAPTION>
Percent of
Total Potential
Options Realization Value at
Granted Assumed Annual Rates
Number of to Exercise of Stock Appreciation
Securities Employees or Market For Option Term
Underlying in Base Price on
Options Fiscal Price Date of Expiration
Name Granted Year Per Share Grant Date 0% 5% 10%
---- ------- ---- --------- ----- ---- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ruedi G. Laupper 120,000(2) 30.4% $0.73(3) $2.94(4) 6/13/02 265,200 282,840 300,480
Josef Laupper(5) -- -- -- -- -- -- -- --
Ueli Laupper(5) -- -- -- -- -- -- -- --
Herbert Laubscher(5) -- -- -- -- -- -- -- --
Ulrich Ernst(5)(6) -- -- -- -- -- -- -- --
</TABLE>
(1) The options to purchase the Registrant's Common Stock were granted under
the Swissray International, Inc. 1996 Non-Statutory Stock Option Plan.
(2) These options were owned indirectly through SR Medical Equipment Ltd., a
corporation wholly owned by Mr. Laupper. They were immediately
exercisable on the date of grant but do not give effect to subsequent
October 1998 1 for 10 reverse stock split.
(3) The exercise price per share is contingent on purchase of the entire
amount of securities.
(4) The market price on date of grant was based on the average of the high
and low reported prices on the Nasdaq SmallCap Market on June 13,
1997. On October 26, 1998 the Company's securities were delisted by
NASDAQ.
(5) These individuals own no stock options of the Registrant.
(6) Mr. Ernst was Chairman of the Board of Directors from May 1995 until
March 18, 1997.
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 $2.625 per share for a period of three years.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END
OPTION VALUES(1)
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options Options
At Fiscal Year-End(#) At Fiscal Year-End($)
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 are owned indirectly by Mr. Laupper
through SR Medical Equipment Ltd., a corporation which is wholly owned
by Mr. Laupper.
(4) These individuals own no stock options of the Registrant.
(5) Mr. Ernst was Chairman of the Board of Directors from May 1995 until
March 18, 1997.
Stock Option Plans
On January 30, 1996, the Board of Directors adopted the Company's 1996
Non-Statutory Stock Option Plan (the "1996 Plan"). 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.
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<PAGE>
The maximum number of options that may be granted under this Plan shall
be options to purchase 200,000 shares of Common Stock. As of August 8, 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 aforesaid options. 2,988,000 of these
options have been granted through August 8, 2000.
Pursuant to October 1999 Board of Directors approval and subsequent
July 12, 1999 stockholder approval, the Registrant adopted its 2000 Non
Statutory Stock Option Plan, whereby it
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<PAGE>
reserved for issuance up to 4,000,000 shares of its common stock. None of these
options have been granted through August 8, 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, 1999, 1998 and 1997 .
Retirement and Long-Term Incentive Plans
The Swiss and German Subsidiaries, mandated by government regulations,
are required to contribute approximately five (5%) percent of eligible, as
defined, employees' salaries into a government pension plan. The subsidiaries
also contribute approximately five (5%) percent of eligible employee salaries
into a private pension plan. Total contributions charged to operations for the
years ended June 30, 1999, 1998 and 1997, were $509,959, $347,854 and $274,009,
respectively.
Director Compensation
Directors of the Registrant receive $10,000 annually for serving as
directors except for Josef Laupper, who receives $12,000 and Ruedi Laupper, the
Chairman of the Board of Directors, who receives $15,000. Ruedi Laupper also
received options to acquire 12,000 shares of the Registrant's Common Stock on
June 13, 1997 in accordance with applicable provisions of the Company's 1996
Non-Statutory Stock Option Plan. The exercise price for such options is $7.30
per share. The options were fully vested on the date of grant.
Compensation Committee Interlocks and Insider Participation
The 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 and 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. See also footnote 7 to
Summary Compensation Table for additional material information regarding this
transaction.
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<PAGE>
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.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of August 8, 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 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 12.46%
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland
Josef Laupper (3) 325,000 1.38%
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland
Erwin Zimmerli (4) 223,750 *%
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland
Ueli Laupper (11) 443,750 1.88%
320 West 77th Street
New York, New York 10024
Dov Maor (13) 31,250 * %
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland
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<PAGE>
Michael Laupper (12) 250,000 1.06%
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland
Dominion Capital Fund, Ltd. 5,084,951 (5) 18.40%
c/o Thomson Kernaghan & Co. Ltd.
365 Bay Street
Toronto, Ontario M5H 2V2
Canada
Sovereign Partners LP 6,444,814 (6) 22.07%
90 Grove Street - Suite 01
Ridgefield, New Jersey 06877
Liviakis Financial Communications, Inc. (LFC) 3,526,000 (7) 15.05%
495 Miller Avenue - 3rd Floor
Mill Valley, California 94914
Rolcan Finance Ltd. 800,000 (8) 3.41%
Seestrasse 17
P.O. Box 53
CH 8702 Zollikon 2
Switzerland
Parkdale LLC (14) 3,262,954 (14) 12.70%
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) 17.35%
</TABLE>
*Represents less than 1% of the 23,433,212 shares outstanding as of August 8,
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.
-88-
<PAGE>
(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 August 8, 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 4,204,170
shares which normally could be issued (inclusive of 377,846 shares as
may be issued for interest earned), 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 5,774,081
shares which normally could be issued (inclusive of 516,213 shares as
may be issued for interest earned), 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 August 8, 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 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
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<PAGE>
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 August 8, 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 2,262,954
shares which normally could be issued (inclusive of 205,723 shares as
may be issued for interest earned), 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, Dominion Investment 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 August 8, 2000 the right to vote over 1,880,781 shares owned in the
aggregate by Dominion Capital, Dominion Investment and Parkdale.
CERTAIN 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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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.
HISTORY OF PAST FINANCINGS
From May 1995 through February 18, 2000 the Company has engaged in a
significant number of equity (Regulation S) financings and debt (Regulation D)
financings. Appearing directly below is a chart indicating the number of shares
issued as a result of such financings.
<TABLE>
<CAPTION>
Outstanding
Type of Date of Closing Discount Number Of Proceeds Balance as of
FINANCING (7)(8) FINANCING BID PRICE FROM MARKET SHARES ISSUED(4) RECEIVED August 8, 2000
---------------- ------------ ------------ ----------- ---------------- -------------------- --------------
GROSS NET
----- ---
<S> <C> <C> <C> <C> <C> <C>
REG S- OFF-SHORE MAY 20, 1995 (5) 2,000,000 $4,250,000 $4,000,000 $ -0-
REG S- OFF-SHORE DEC. 10, 1995 (5) 1,000,000 $________ $4,500,000 $ -0-
Reg S- Convertible Sept. 11, 1996 $4.125 1,872,707 $3,800,000 $2,774,000 $ -0-
Reg S- Convertible Jan. 10, 1997 $3.00 2,395,709 $3,500,000 $3,085,000 $ -0-
Reg S - Off-Shore Mar. 5, 1997 $2.6875 1,000,000 $2,000,000 $1,925,000 $ -0-
Reg S - Prom. Note Apr. 28, 1997 $1.96875 800,00 $2,000,000 $1,822,500 $ -0-
Reg S- Convertible May 15, 1997 $2.40625 -- $2,000,000} $3,458,890} $ -0-
Reg S- Convertible June 15, 1997 $3.0625 -- $2,000,000} } $ -0-
Reg S- Convertible July 31, 1997 $2.750 4,077,878 $4,262,500 $4,262,500 $ -0- (includes May
and June 1997)(6)
Reg D- Convertible Aug. 19, 1997 $2.6875 20% 3,643,053 $5,000,000 $4,318,750 $1,850,000 rolled
over
Reg D- Convertible Nov. 26, 1997 $1.84375 25% 4,397,081 $2,158,285 $2,158,285 $ -0-
Reg D- Convertible Dec. 11, 1997 $1.375 25% 7,735,099 $3,690,000 $3,000,000 $ -0-
Reg D- Convertible Mar. 16, 1998 $1.00 20% 7,075,138 $5,500,000 $4,915,000 $ -0-
REG D- Convertible June 15, 1998 $.578 20% 919,858(4) $2,000,000 $1,760,000 $ -0-
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REG D- Convertible Aug. 31, 1998 $.281 18% 2,617,273(1) $6,143,849 $5,832,849 $3,930,594
REG D- Convertible Oct. 6, 1998 $.188 18% (1)(3) $2,940,000 $2,100,000 $2,940,000
REG D- Convertible May 13, 1999 $.500 18% (1)(2)(3) $1,080,000 $1,080,000 $1,119,600
REG D- Convertible Jan. 29, 1999 $.375 18% (1)(3) $1,170,000 $1,020,000 $1,170,000
REG D- Convertible May 31, 1999 $.437 18% (1)(2)(3) $1,110,000 $1,110,000 $1,132,200
REG D- Convertible May 14, 1999 $2.875 20% 121,431(4) $ 500,000 $ 500,000 $ 271,200
May 21, 1999 $3.00 20% (1)(3) $ 200,000 $ 200,000 $ 200,000
June 9, 1999 $2.625 20% 63,098(4) $ 150,000 $ 150,000 $ -0-
REG D- Convertible June 24, 1999 $.59375 18% (1)(2)(3) $ 550,000 $ 500,000 $ 561,000
REG D- Convertible Aug. 23, 1999 $3.750 20% (1)(2)(3) $1,100,000 $1,100,000 $1,148,400
Sale of Securities}(9) Sept. 7, 1999 $2.50 -- 1,000,000 $1,000,000 $1,000,000 $ -0-
Sale of Securities}(9) Oct. 19, 1999 $2.75 -- 500,000 $ 750,000 $ 750,000 $ -0-
}(9) Nov. 1, 1999 $3.312 -- 500,000 $ 750,000 $ 750,000 $ -0-
REG D-Convertible Nov. 11, 1999 $5.00 20% (1)(2)(3) $1,400,000 $1,260,000 $1,526,000
Sale of Securities (9) Dec. 13, 1999 $7.40625 -- 666,667 $1,000,000 $1,000,000 $ -0-
Sale of Securities (9) Feb. 18, 2000 $6.375 -- 333,333 $ 999,999 $ 976,499 $ -0-
---------- ---------- ---------- ----------
Totals 42,718,325 $63,004,633 $61,309,273 $13,998,994
</TABLE>
(1) Utilizing the August 8, 2000 bid price for the Company's common stock
($1.625) and assuming indicated discount from market, if all convertible
debentures were converted the number of shares required to be issued (inclusive
of 1,239,894 shares as may be issued for interest earned) would amount to
13,830,290 shares. However, since (as indicated in risk factor entitled
"Inability to Currently Determine Number of Shares .." appearing hereinafter)
the debenture agreements do not contain any "floor" provisions, the number of
shares as may actually be issued in the future may significantly increase if
there is a significant decline in the bid price of the Company's common stock.
As of August 8, 2000 the Company has not been able to negotiate any debenture
agreements which do contain any "floor" provisions.
(2) Such shares as may be issued result from conversion of promissory notes into
debentures when notes were not paid at or before their respective due dates.
Outstanding balance amounts indicated include interest earned on promissory
notes as of due date, which due date then became date of convertible debenture
issuance. See also "Description of Capital Stock - Convertible Promissory Notes
Subsequently Converted Into Debentures - December 1998, March 2, 1999, March 26,
1999, July 9, 1999 and August 11, 1999".
(3) With respect to the number of shares as may be issued regarding financings
from August 31, 1998 to February 18, 2000 (which number of shares is determined
based upon indicated discount from market on an as yet unknown date of
conversion). Reference is made to chart appearing hereinafter which quantifies
the number of shares as may be issued based upon a reasonable range of high and
low prices.
(4) In accordance with the terms of the debentures and related agreements,
1,832,953 of these shares have been issued with restrictive legends and are
included in the number of shares being registered pursuant to this Registration
Statement. If the closing bid price for the Company's common stock had remained
the same as it was at the time that these debentures were entered into the
number of restrictive shares that would have been issued would have been
6,856,470 inclusive of interest as opposed to 1,832,953 issued shares.
(5) Date precedes initial NASDAQ listing when securities traded in "pink
sheets". Attempts to obtain closing bid prices on such dates from the National
Quotation Bureau as well as from broker-dealers
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<PAGE>
have been unsuccessful. While bid prices existed on the dates indicated such
prices are not currently known nor available to the Company. Transactions
referred to were determined in arms-length negotiations at the time of such
financings.
(6) The July 31, 1997 transaction represents a renegotiated replacement,
inclusive of interest, of those prior two transactions which occurred on May 15,
1997 and June 15, 1997 ($2,000,000 each).
(7) In each instance where a Regulation D financing was concluded the Registrant
was required to file a Form D with the SEC indicating to what extent, if any,
net proceeds were utilized as and for payments to" officers, directors and
affiliates" of the Registrant as opposed to "payment to others". Each of the
Forms D indicate that net proceeds received were entirely allocated as "payments
to others" with a substantial majority (approximately 95%) of such funds being
allocated to working capital and with the balance being utilized to extinguish
outstanding indebtedness and for repurchase of Company securities.
(8) Pursuant to terms of Convertible Debentures, the holders thereof may not
beneficially own more than 4.9% of outstanding Company shares (other than as a
result of mandatory conversion provisions). The 4.9% limitation is only
contractual in nature and applies to holders, affiliates or non-affiliates, who
may acquire the debentures. The 4.9% 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.
(9) For specific details regarding these sale of restrictive securities at below
market prices, reference is herewith made to risk factor entitled "Sale of
Restrictive Securities Below Market Price .." appearing hereinafter. The
purchasers of these securities have been given certain "piggy-back" registration
rights requiring the Company to register such shares.
These persons and/or firms owning convertible debentures may profit
from "shorting" (selling without ownership of underlying shares) the
Registrant's common stock by covering such short positions with registered
shares of Company common stock received upon debenture conversion.
There continues to exist the potential adverse effect on the market
price of the Company's securities as a result of the registering of the
significant number of additional shares being registered under this Registration
Statement. Additionally, exercise of convertible debentures has a dilutive
effect to present Company stockholders by reducing their percentage of interest
in the Company. See also risk factor entitled "Inability to Currently Determine
Number of Shares .." appearing hereinafter. If all of the principal balance and
interest earned on outstanding unconverted convertible debentures were convered
(based upon the calculations contained in this Registration Statement) total
outstanding shares would increase to 35,749,442 and current stockholders
percentage of ownership would decrease to approximately 65.5%. As and when
conversions occur a number of new significant holders of Company common stock
will necessarily exist.
The market price of the Registrant's Common Stock may also be adversely
affected by sales of substantial amounts of Common Stock in the public market,
including sales of Common Stock under Rule 144 or after the expiration of any
other applicable holding period (by contract and/or statute). The sale of such
stock could also adversely affect the ability of the Registrant to sell Common
Stock for its own account. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Management -- Compensation of
Directors and Executive Officers," "Selling Holders and Plan of Distribution"
and "Description of Capital Stock."
As indicated in the chart directly below the number of shares to be
issued upon conversion of debentures issued from August 31, 1998 through
February 18, 2000 is only determinable upon actual conversion date. Accordingly,
the chart appearing below quantifies the number of shares which would be issued
upon conversion based upon a reasonable range of high and low prices as if the
debentures indicated above were converted based upon such reasonable range of
prices.
Chart to show range of high and low prices.
<TABLE>
<CAPTION>
Range of Prices
---------------------------------------------------------------------
Financing
Financing Amount Date $0.20 $1.00 $5.00 $10.00
Date Outstanding Bid Price/Shares Bid Price/Shares Bid Price/Shares Bid Price/Shares Bid Price/Shares
------- ----------- ----------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
8-31-98 $3,930,594 $0.281/13,987,879 19,652,970 3,930,594 786,119 393,059
10-6-98 $2,940,000 $0.188/15,638,298 14,700,000 2,940,000 588,000 294,000
5-13-99 $1,119,600 $0.50/2,239,200 5,598,000 1,119,600 223,920 111,960
1-29-99 $1,170,000 $0.375/3,120,000 5,850,000 1,170,000 234,000 117,000
5-31-99 $1,132,200 $0.437/2,590,847 5,661,000 1,132,200 226,440 113,220
5-14-99 $271,200 $2.875/94,330 1,356,000 271,200 54,240 27,120
5-21-99 $200,000 $3.00/66,667 1,000,000 200,000 40,000 20,000
6-24-99 $561,000 $0.593/946,037 2,805,000 561,000 112,200 56,100
8-23-99 $1,148,400 $3.75/306,240 5,742,000 1,148,400 229,680 114,840
11-11-99 $1,526,000 $2.625/581,333 7,630,000 1,526,000 305,200 152,600
---------- ---------- ---------- ---------
Totals 69,994,970 13,998,994 2,799,799 1,399,899
</TABLE>
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<PAGE>
See also risk factor entitled "Potential Adverse Effect Upon Stock
Price.."
SELLING HOLDERS
The Securities offered hereby may be sold from time to time to
purchasers directly by the Selling Holders (which term includes their
transferees, pledgees, donees or their successors). Any such transferee,
pledgee, donee or their successors may not offer the Securities pursuant to this
Prospectus until such holder is included as a Selling Holder in a supplement to
this Prospectus. The Securities consist of shares of Common Stock which are
issuable to Selling Holders upon conversion of the Convertible Debentures.
The Registrant has agreed to register the public offering of the
Securities by the Selling Holders under the Securities Act. The Registrant will
not receive any of the proceeds from the sale of the shares by the Selling
Holders.
The following table sets forth as of August 8, 2000, certain
information with respect to the Selling Holders, (who participated in financings
from August 31. 1998 to February 18, 2000) including the number of shares that
may be offered by them. The number of shares which may actually be sold by the
Selling Holders will be determined from time to time by them and will depend
upon a number of factors, including, with respect to the shares underlying the
Convertible Debentures, the price of the Registrant's Common Stock from time to
time. Because the Selling Holders may offer all or none of the Securities that
they hold and because the offering contemplated by the Prospectus is not being
underwritten, no estimate can be given as to the number of Securities that will
be held by the Selling Holders upon termination of such offering. None of the
Selling Holders have had any material relationship with the Registrant other
than as purchasers of Convertible Debentures excepting that those persons or
firms indicated in footnotes 4 through 8 inclusive below did not participate in
convertible debenture financing.
Name of Selling Holder Shares(1) % of Class(2)
---------------------- --------- -------------
Aberdeen Avenue LLC (5) 474,692 1.99%
Canadian Advantage Limited Partnership 204,909 .87%
Carbon Mesa Partners, LLC 63,098 .27%
Display Presentations Ltd. (10) 65,000 .28%
Dominion Capital Fund Ltd. (3) 5,084,951 18.40%
Dominion Investment Fund LLC (3) 715,685 2.96%
Dundurn Street LLC 333,333 1.42%
Endeavour Capital Fund SA 242,909 1.03%
Excaliber Limited Partnership 169,231 .72%
Greenfield Investments Consultants (6) 166,667 .71%
Alfred Hahnfeldt 333,332 1.42%
Live Marketing (11) 16,864 .07%
Parkdale LLC (3) 3,262,954 12.70%
Southridge Capital Management LLC 333,334 1.42%
Sovereign Partners Ltd. Partnership (4) 6,444,814 22.07%
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<PAGE>
Striker Capital Ltd. 833,334 3.56%
Trianon Opus One Inc. (7) 85,077 .36%
Gary B. Wolff (8) 150,000 .64%
Dr. Erwin Zimmerli (9) 100,000 .43%
(1) Assumes conversion of the Convertible Debentures held by such Selling
Holders based on the reported closing prices on the Electronic
Over-the-Counter Bulletin Board on August 8, 2000 at an 18% to 20%
discount (as required) and including 1,239,894 shares which may be
issued for interest earned through mandatory conversion date.
(2) Based upon an aggregate of 23,433,212 shares arrived at by adding the
aggregate of those shares indicated in column designated "Shares" to
those shares issued and outstanding as of August 8, 2000.
(3) Livingstone Asset Management Limited, a Bahamas Company controlled by
David Sims has voting control over these entities.
(4) Southridge Capital Management LLC (a Connecticut corporation) G.P.
Steven Hicks (President) has voting control over this entity.
(5) Minglewood Capital LLC, CTC Corporation Ltd. Bas Horsten (director of
CTC) has voting control over this entity.
(6) Steven Hicks and Dan Picket have voting control over this entity.
(7) These shares are being registered pursuant to certain "piggy-back"
registration rights granted to an otherwise unaffiliated lender,
Trianon Opus One Inc., pursuant to terms of a promissory note (see
"Description of Capital Stock - Promissory Note").
(8) The shares being registered underlie certain outstanding warrants
granted to such individual in December 1998 (50,000 warrants) and March
1999 (100,000 warrants).
(9) The shares being registered underlie certain outstanding warrants
granted to such individual who is a member of the Company's Board of
Directors.
(10) These shares were issued in accordance with October 8, 1999 agreement
and as partial consideration for services rendered and in accordance
with certain "piggy-back" registration rights granted to this otherwise
unaffiliated stockholder.
(11) These shares were issued in accordance with October 31, 1999 agreement
and as partial consideration for services rendered and in accordance
with certain "piggy-back" registration rights granted to this otherwise
unaffiliated stockholder.
Each of the Selling Holders referred to herein have indicated in
writing to the Company that they are neither broker-dealers nor affiliates of
broker-dealers.
The Selling Holders of the Securities identified above may have sold,
transferred or otherwise disposed of, in transactions exempt from the
registration requirements of the Securities Act, all or a portion of the
Convertible Debentures or Securities since the date on which the information in
the preceding table is presented. Information concerning the Selling Holders may
change from time to time and any such changed information will be set forth in
supplements to this Prospectus if and when necessary.
PLAN OF DISTRIBUTION
Each Subscription Agreement and Debenture, as amended to date, contains
a contractual
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<PAGE>
provision between Registrant and debenture holder whereby debenture holder is
limited in the amount of debenture it may convert and own. One exception to such
limitation (referred to as the mandatory conversion provision) provides for the
automatic conversion on last date of debenture with respect to any outstanding
unconverted balances. Additional exceptions to such limitation (i.e. where
contractual limitation does not apply) relate to (i) if there is a public
announcement that 50% or more of the Company is being acquired, (ii) a public
announcement that the Company is being merged, or (iii) a change in control.
Excepting for such limitations, the debenture holder is entitled to convert any
Debentures solely to the extent that, after such conversion, (a) the number of
shares of common stock beneficially owned by the debenture holder and its
affiliates (other than shares of common stock which may be deemed beneficially
owned through the ownership of the unconverted portion of the Debentures) and
(b) the number of shares of common stock issuable upon such conversion would
result in beneficial ownership of no more than 4.99% of the outstanding shares
of common stock.
The sale of the Securities by the Selling Holders may be affected from
time to time in transactions on the Electronic Over-the-Counter Bulletin Board
in negotiated transactions, or through a combination of such methods of sale (a)
at fixed prices, which may be changed, (b) at market prices prevailing at the
time of sale, (c) at prices related to such prevailing market prices or (d) at
negotiated prices. The Selling Holders may effect such transactions by selling
the Securities directly to purchasers or to or through broker-dealers. Such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Holders and/or the purchasers of the Securities for
whom such broker-dealers may act as agents or to whom they sell as principals,
or both (which compensation as to a particular broker-dealer may be in excess of
customary commissions). The Selling Holders and any broker-dealers who act in
connection with the sale of the Securities hereunder may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by them and profit on any resale of the Securities as
principals might be deemed to be underwriting discounts and commissions under
the Securities Act.
At the time a particular offering of the Securities is made, a
Prospectus Supplement, if required, will be distributed, which will set forth
the aggregate amount and type of Securities being offered and the terms of the
offering, including the name or names of any underwriters, broker/dealers or
agents, any discounts, commissions and other terms constituting compensation
from the Selling Holders and any discounts, commissions or concessions allowed
or reallowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if
applicable, the Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Securities may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or any exemption from
registration or qualification is available and is complied with. The Registrant
has not taken any action to register or qualify the Securities for offer and
sale under the securities or "blue sky" laws of any state of the United States.
However, pursuant to the Registration Rights Agreements among the Registrant and
the Selling Holders (the "Registration Rights Agreements"), the Registrant will
use reasonable efforts to (i) register and qualify the Securities covered by the
Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Selling Holders who hold a majority in interest of the
Securities being offered reasonably request and in which significant volumes of
shares of
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<PAGE>
Common Stock are traded, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof at all times until the earliest (the "Registration
Period") of (A) the date that is two years after the Closing Date, (B) the date
when the Selling Holders may sell all Securities under Rule 144 or (C) the date
the Selling Holders no longer own any of the Securities, (iii) take such other
actions as may be necessary to maintain such registrations and qualification in
effect at all times during the Registration Period and (iv) take all other
actions reasonably necessary or advisable to qualify the Securities for sale in
such jurisdictions; provided, however, that the Registrant shall not be required
in connection therewith or as a condition thereto to (A) qualify to do business
in any jurisdiction where it would not otherwise be required to qualify, (B)
subject itself to general taxation in any such jurisdiction, (C) file a general
consent to service of process in any such jurisdiction, (D) provide any
undertakings that cause more than nominal expense or burden to the Company or
(E) make any change in its articles of incorporation or by-laws or any then
existing contracts, which in each case the Board of Directors of the Registrant
determines to be contrary to the best interests of the Company and its
stockholders. Unless and until such times as offers and sales of the Securities
by Selling Holders are registered or qualified under applicable state securities
or "blue sky" laws, or are otherwise entitled to an exemption therefrom, initial
resales by Selling Holders will be materially restricted. Selling Holders are
advised to consult with their respective legal counsel prior to offering or
selling any of their Securities.
The Selling Holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Securities by the Selling
Holders. The foregoing may affect the marketability of the Securities.
Pursuant to the Registration Rights Agreements between the Registrant
and each of the Selling Holders all expenses of the registration of the
Securities will be paid by the Registrant, including, without limitation,
Commission filing fees and expenses of compliance with state securities or "blue
sky" laws; provided, however, that the Selling Holders will pay all underwriting
discounts and selling commissions, if any. The Selling Holders will be
indemnified by the Registrant against certain civil liabilities, including
certain liabilities under the Securities Act or will be entitled to contribution
in connection therewith.
RESTRICTIVE SHARES BEING REGISTERED PURSUANT TO CONTRACTUAL AGREEMENTS
An aggregate of 81,864 shares of Company common stock are being registered
hereunder in accordance with certain "piggy-back" registration rights granted to
two otherwise unaffiliated firms in exchange for services rendered by such firms
to the Company, as follows:
(a) On October 8, 1999 the Company entered into an agreement with
Display Presentations, Hauppauge, New York (hereinafter "Display"), whereby
Display agreed to provide certain construction and related services for purposes
of assisting the Company's establishment of its booth at the November 1999 RSNA
Convention held in Chicago, Illinois. Total costs in accordance with such
contract amounted to $415,000 with one-half of such costs ($207,500) having been
paid in cash and with the balance paid through issuance of 65,000 restrictive
shares of SRMI common stock, which
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<PAGE>
shares were based upon a market valuation of $3.192 per share (which was the bid
price when the written agreement was orally agreed to). In accordance with such
written agreement the Company was required to register such shares in this
Registration Statement and (b) on October 31, 1999 the Company entered into an
agreement with Live Marketing, Chicago, Illinois (hereinafter "Live"), whereby
Live agreed to provide certain video production, audio/video equipment rental,
lighting, on site personnel and related services for purposes related to SRMI's
booth at the 1999 RSNA Convention, Total costs in accordance with such contract
amounted to $156,180 of which $105,590 was paid in cash and with the balance of
$50,590 paid in 16,864 restrictive shares of SRMI common stock, which shares
were based upon market valuation of $3.00 per shares (which was the bid price
when the written agreement was orally agreed to). In accordance with such
written agreement the Company was required to register such shares in this
Registration Statement.
DESCRIPTION OF CAPITAL STOCK
The following statements do not purport to be complete and are qualified in
their entirety by reference to the detailed provisions of the Registrant's
Certificate of Incorporation, as amended and By-Laws, copies of which are
incorporated by reference as exhibits to this Registration Statement.
Common Stock
On December 26, 1997 an amendment to the Certificate of Incorporation with
respect to an increase of the number of shares of Common Stock the Registrant is
authorized to issue from 30,000,000 to 50,000,000 was filed with the Department
of State of the State of New York. Accordingly, the Registrant was thereafter
authorized to issue up to 50,000,000 shares of Common Stock, par value $.01 per
share. The Certificate of Incorporation was thereafter subsequently further
amended on July 20, 2000 so as to increase authorize shares of Common Stock to
100,000,000 shares of Common Stock in accordance with shareholder approval
received on July 12, 2000. The amount of shares of Common Stock of the
Registrant issued and outstanding at the close of business on August 8, 2000 was
23,433,212. Additionally the Company has reserved an aggregate of 13,830,290
shares which are part of this Registration Statement and are referred to in
footnote 1 to the "Calculation of Registration Fee". The Company has also
reserved (i) 161,000 shares of Common Stock which may be issued upon the
exercise of outstanding options under the Registrant's 1996 Non-Statutory Stock
Option Plan (the "1996 Plan") and (ii) 200,000 shares of Common Stock reserved
for issuance upon the exercise of options available for future grant under the
1997 Non-Statutory Stock Option Plan (the "1997 Plan") and (iii) 4,000,000
shares of Common Stock for issuance upon the exercise of options available for
future grant under the 2000 Non-Statutory Stock Option Plan adopted by
stockholders on July 12, 2000.
All of the issued and outstanding shares of Common Stock are fully paid and
non-assessable. The holders of Common Stock are entitled to one vote per share
for the election of directors and with respect to all other matters submitted to
a vote of stockholders. Shares of Common Stock do not have cumulative voting
rights, which means that the holders of more than 50% of such shares voting for
the election of directors can elect 100% of the directors if they choose to do
so and, in
-98-
<PAGE>
such event, the holders of the remaining shares so voting will not be able to
elect any directors. There is no classification of the Board of Directors. 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 Registrant'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. The holders of the Common Stock have no preemptive or
conversion rights, and there are no redemption or sinking fund rights with
respect to the Common Stock. See "Market Prices and Dividend Policy."
Preferred Stock
In accordance with stockholder approval received at Annual Meeting of
Stockholders held July 23, 1999, the Registrant filed on July 28, 1999 (with the
Department of State of the State of New York) an amendment to its Certificate of
Incorporation pursuant to which it obtained authority to issue up to 1,000,000
shares of preferred stock, par value $.01 per share. None of such shares have
been issued.
The preferred stock is issuable with such rights, preferences,
privileges and such number of shares constituting each series to be fixed by the
Board of Directors without further action by the holders of common stock. The
Board of Directors could, without stockholder approval, issue preferred stock
with voting and conversion rights, which could dilute the voting power of the
holders of the common stock. The issuance of shares of preferred stock by the
Board of Directors could be utilized, under certain circumstances, as a method
of preventing a takeover of the Company whether or not stockholders approve or
disapprove of such takeover. As of the date hereof, the Board of Directors has
not authorized any series of preferred stock and there are no agreements or
understandings for the issuance of any shares of preferred stock. See also risk
factor entitled "Authority to Issue Preferred Stock With Terms That May Not Be
Beneficial to Common Stock Holders".
Promissory Note
On or about April 28, 1997 an otherwise unaffiliated lender, Trianon
Opus One Inc. ("Trianon"), loaned the Company the sum of $2,000,000 bearing
interest at the rate of 6% per annum in accordance with the terms and conditions
of a certain convertible promissory note due April 28, 1998. In accordance with
the terms of such note both principal and interest were convertible into shares
of Company Common Stock one year from the date of the note at the higher of 80%
of bid price or $2.50 per share on the date of conversion. The note also
provided for certain "piggy-back" registration rights and, accordingly, the
85,077 restrictive shares of Company Common Stock issued upon conversion in
accordance with the terms of the note are herewith being registered hereunder
with Trianon being the selling shareholder.
Promissory Notes - Subsequently Converted Into Debentures
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<PAGE>
(a) December 1998
The Registrant received gross proceeds of $1,080,000 in December 1998
pursuant to promissory notes bearing interest at the rate of 8% per annum for
the first 90 calendar days (through March 13, 1999) with the Company having the
option to extend the notes for an additional 60 days with interest increasing 2%
per annum during the 60 day period. The Company exercised its extension option.
As further consideration for the loan, the Company issued Lenders Warrants to
purchase up to 50,000 shares of the Company's common stock exercisable, in whole
or in part, for a period of up to 5 years at $.375 (the bid price for Company
shares on the date of closing). The notes are secured by a second mortgage on
land and building . 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 more specifically set forth in the last paragraph to this subsection.
The Company is also required to register those shares of common stock
underlying the convertible debentures. Accordingly, 1,231,560 shares are being
registered pursuant to the terms of such agreements.
(b) March 2, 1999
On March 2,1999, the Company entered into a second promissory note
contingent convertible debenture financing with the same lenders as the December
1998 transaction described directly above (i.e., Dominion Investment Fund LLC
and Sovereign Partners LP) with terms and conditions identical to those set
forth above excepting (a) gross proceeds amounted to $1,110,000, (b) the initial
due date of such notes were May 31, 1999, (c) the potential 60 day extension
date on such promissory notes was July 30, 1999 but such extension right was
never utilized, (d) the conversion price is 80% of the 10 day average closing
bid price for the 10 consecutive trading days 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 (in subparagraph
(a) regarding December 1998 transaction) . The promissory notes were not paid on
their due date and the terms of the Contingent Subscription Agreement and
Registration Rights Agreement automatically went into effect and, accordingly,
the number of shares being registered for this transaction amounts to 958,016
shares.
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<PAGE>
(c) March 26, 1999
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 is 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 to those described in the above referenced March 2,
1999 transaction. The promissory notes were not paid on their due date and the
terms of the Contingent Subscription Agreement and Registration Rights Agreement
automatically went into effect and, accordingly, the number of shares being
registered for this transaction amounts to 474,692 shares.
(d) July 9, 1999
On July 9, 1999 the Company entered into a fourth promissory note
(contingent convertible debenture financing) with terms and conditions
substantially identical to those set forth in the March 2, 1999 promissory note
financing referred to directly above excepting (a) the lender is different, to
wit: Southshore Capital, Ltd. who has since assigned its rights to Parkdale LLC,
(b) gross proceeds amounted to $1,100,000, (c) the due date of such note is
August 23, 1999 with no right to extend and (d) the debenture holder did not
receive any warrants. In all other respects the terms and conditions of each of
the documents executed with respect to this transaction are identical to those
described in the above referenced March 2, 1999 transaction. The promissory 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 and, accordingly, the number of shares being registered for
this transaction amounts to 971,732 shares.
(e) August 11, 1999
On August 11,1999 the Company entered into a fifth 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 $1,400,000, (c) the due date of such note is
November 11, 1999 with no right to extend and (d) the debenture holder did not
receive any warrants. In all other respects the terms and conditions of each of
the documents executed with respect to this transaction are identical to those
described in the above referenced March 2, 1999 transaction. The 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 and, accordingly, the number of shares being registered for
this transaction amounts to 1,291,231 shares.
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<PAGE>
With respect to each debenture referred to in this subsection in
paragraphs designated (a) through (e) inclusive hereof, the Company has the
right to redeem debentures during the first four months thereof at the rate of
115% of the face amount of the debenture to be redeemed (plus accrued interest)
which percentage increase to 120% during the fifth and sixth months of the
debenture and which percentage further increases to 125% at any time after the
last day of the aforesaid sixth month. Additionally, with respect to each of
these debentures, the debenture holder may not require the Company to pay any
balance due in cash and it has been the Company's policy to pay such outstanding
indebtedness through issuance of shares of its common stock.
Registration Rights
The Convertible Debentures
The Registrant issued $16,591,049 aggregate principal amount of
Convertible Debentures from August of 1998 to February 18, 2000. With respect to
specific dates and dollar amounts of debentures issued, reference is made to
risk factor entitled "Potential Adverse Effect Upon Stock Price ..". One Hundred
percent of the face amount of such Convertible Debentures is convertible into
shares of Common Stock of the Registrant at the earlier of the effective date of
a Registration Statement covering the underlying shares of Common Stock or
within 90 to 120 days from closing dependent upon the specific convertible
debenture at a conversion price equal to 18% to 20% except for one instance
where the discount from market was 25% on a $145,969 debenture (since entirely
converted into shares of Company common stock) of the average closing bid price
for the five to ten trading days preceding the date of conversion (dependent
upon the particular debenture). Any Convertible Debentures not so converted are
subject to mandatory conversion by the Registrant on the 24th monthly
anniversary of the date of issuance of the Convertible Debentures. Other than on
the date of such mandatory conversion provision (and certain other defined
circumstances regarding acquisition, merger and/or change of control as
summarized in the fifth paragraph to the section entitled "Selling Holders") ,
the Selling Holder shall not be entitled to convert any amount of Convertible
Debentures in excess of that amount upon conversion of which the sum of (i) the
number of shares of Common Stock beneficially owned by the Selling Holder and
its affiliates (other than the unconverted Convertible Debentures) and (ii) the
number of shares of Common Stock issuable upon conversion of the Convertible
Debentures would result in beneficial ownership by the Selling Holder and its
affiliates of more than 4.99% of the outstanding shares of Common Stock of the
Registrant. This conversion limitation is contractual in nature.
Reference is herewith made to chart appearing under "Selling Holders"
regarding specific percentages as same relate to debenture conversion price and
percent of beneficial ownership that Selling Shareholders may have at any one
time.
If at any time the number of shares of Common Stock into which the
Convertible Debentures may be converted exceeds the aggregate number of shares
of Common Stock then registered, the Registrant shall, within ten (10) business
days after receipt of written notice from any investor, either (i) amend the
registration statement filed by the Registrant, if such registration statement
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<PAGE>
has not been declared effective by the SEC at that time, to register all shares
of Common Stock into which the Debenture may be converted, or (ii) if such
registration statement has been declared effective by the Securities and
Exchange Commission (the "SEC") at that time, file with the SEC an additional
registration statement on Form S-1 to register the shares of Common Stock into
which the Convertible Debentures may be converted that exceed the aggregate
number of shares of Common Stock already registered.
Pursuant to the Registration Rights Agreements between the Registrant and
the Selling Holders, the Registrant is required to file with the SEC, within a
set time frame, a Registration Statement(s) covering a sufficient number of
shares of Common Stock for the Selling Holders into which the Convertible
Debentures would be convertible. Consequently, the Registrant is filing with the
Commission this Registration Statement on Form S-1 (the "Registration
Statement"), of which this prospectus is a part, to cover the sale of the Common
Stock issuable to the Selling Holders upon conversion of the Convertible
Debentures. The Registration Rights Agreements provide that the Registrant shall
keep the Registration Statement effective at all times until the earliest (the
"Registration Period") of (i) the date that is two years after the Closing Date,
(ii) the date when the Investors may sell all Securities under Rule 144 or (iii)
the date the Investors no longer own any of the Securities.
If the Registration Statement covering the Securities required to be filed
by the Registrant pursuant to the Registration Rights Agreements is not filed by
the agreed to date (which agreed to date was either 30, 45 or 60 days from
closing dependent upon Agreement) or if such Registration Statement is not
declared effective within 90 to 120 days of the closing date (dependent upon
applicable Registration Rights Agreement) (the "Initial Date"), the Registrant
shall make payments to the Selling Holders in such amounts and at such times as
shall be determined pursuant to the Registration Rights Agreements. In the event
a timely filing is not made, the Registrant shall pay the Selling Holder 2% of
the face amount of the Convertible Debenture for each 30 day period, or portion
thereof after 30 days following the Closing Date that the Registration Statement
is not filed. The amount to be paid by the Registrant to the Selling Holders in
the event the Registration Statement is not declared effective within the agreed
to number of days subsequent to closing date shall be determined as of each
Computation Date, and such amount shall be equal to two percent (2%) of the
purchase price paid by the Selling Holders for the Convertible Debentures
pursuant to the Registration Rights Agreements for the period from the Initial
Date to the first Computation Date, and two percent (2%) of the purchase price
for each Computation Date thereafter, to the date the Registration Statement is
declared effective by the SEC (the "Periodic Amount"). The full Periodic Amount
shall be paid by the Registrant in immediately available funds within five
business days after each Computation Date.
The Registrant has not paid any "periodic amounts" (notwithstanding delays
in anticipated effective date) nor has any demand for payment been made upon the
Registrant. Notwithstanding the foregoing, the amounts payable by the Registrant
pursuant to the Registration Rights Agreements shall not be payable to the
extent any delay in the effectiveness of the Registration Statement occurs
because of an act of, or a failure to act or to act timely by the Selling
Holders or their respective counsel.
-103-
<PAGE>
"Computation Date" means the date which is the earlier of (i) 35 days after
the Registrant is notified by the SEC that the Registration Statement may be
declared effective or (ii) one hundred twenty (120) days after the Closing Date
and, if the Registration Statement required to be filed by the Registrant
pursuant to the Registration Rights Agreements has not therefore been declared
effective by the SEC, each date which is thirty (30) days after the previous
Computation Date until such Registration Statement is so declared effective.
The number of shares of Common Stock issuable upon conversion of the
Convertible Debentures depends on several factors, including the conversion
ratio and the date on which such shares are converted. As of August 8, 2000 if
all of the Convertible Debentures (issued from August 1998 to February 18, 2000,
as indicated in aforesaid chart) were converted based on a 18% to 20% discount
to the reported closing price on the Electronic Over-the-Counter Bulletin Board
on August 8, 2000, the Registrant would be required to issue 13,830,290 shares
of Common Stock (inclusive of shares which may be issued in exchange for
interest earned through mandatory conversion date).
Except for the total number of shares to which this Prospectus relates
as set forth above, references in this Prospectus to the "number of Shares
covered by this Prospectus," or similar statements, and information in this
Prospectus regarding the number of Securities issuable to or held by the Selling
Holders and percentage information relating to the Securities of the outstanding
capital stock of the Registrant, are based, with respect to the Convertible
Debentures. See "Selling Holders" and "Description of Capital Stock."
The Securities are being offered on a continuous basis pursuant to Rule
415 under the Securities Act of 1933, as amended (the "Securities Act"). No
underwriting discounts, commissions or expenses are payable or applicable in
connection with the sale of the Securities by the Selling Holders. The Common
Stock of the Registrant was quoted on the NASDAQ SmallCap Market ("NASDAQ")
under the symbol "SRMI" until October 26, 1998 delisting. See also risk factor
entitled "Delisting Due to Non-Compliance With Certain NASDAQ Standards". The
Securities offered hereby will be sold from time to time at the then prevailing
market prices, at prices relating to prevailing market prices or at negotiated
prices. On August 8, 2000, the last reported sale price of the Common stock on
Electronic Over-the-Counter Bulletin Board was $1.625 per share. This Prospectus
may be used by the Selling Holders or any broker-dealer who may participate in
sales of the Securities covered hereby.
Reference is herewith made to risk factor entitled "Potential Adverse
Effect Upon Stock Price as a Result of Registration of Significant Number of
Shares .." and in particular to the chart which is a part thereof. Reference is
also made to risk factor entitled "Past History of Debt (Debenture) Fund Raising
to Retire Existing Indebtedness" which indicates Company's need to raise funds
partially to retire certain existing debenture indebtedness.
See also "Restrictive Shares Being Registered Pursuant to Contractual
Agreements" with respect to registration of an aggregate of 81,864 shares of
Company common stock.
Common Stock Reserved
The Registrant is required to reserve and keep available out of its
authorized but unissued
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<PAGE>
Common Stock such number of shares of Common Stock as shall from time to time be
sufficient to effect conversion of all of the then outstanding Convertible
Debentures and exercise of options. While the Registrant currently has a
sufficient number of authorized but unissued shares for such purposes in the
event of any significant decrease in the bid price of the Company's common stock
additional authorized shares may be necessary in order to meet its contractual
commitments regarding conversion especially in view of the fact that none of the
Subscription Agreements or convertible debentures contain any "floor", i.e., a
bid price beneath which Debenture Holder may not convert. In the event that
additional authorized shares are necessary but not readily available (which
while currently appears unlikely cannot be discounted), the Company intends to
take such steps as are necessary in order to hold a Special Meeting of
Stockholders for the purpose of amending its Certificate of Incorporation so as
to increase its authorized shares.
Registrar and Transfer Agent
The registrar and transfer agent for the Registrant's Common Stock is
Continental Stock Transfer & Trust Company, New York, New York.
LEGAL MATTERS
The validity of the Securities will be passed upon for the Registrant by Gary B.
Wolff, P.C., counsel to the Company.
INDEPENDENT AUDITORS
The consolidated financial statements of the Registrant and its
subsidiaries for the years ended June 30, 1999 and June 30,1998 included herein
have been included in reliance upon the report of Feldman Sherb Horowitz & Co.,
P.C., independent accountants, appearing elsewhere herein and upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of the Registrant and its
subsidiaries for the two years ended June 30, 1997 and 1996 included herein have
been included in reliance upon the report of Bederson & Company LLP, independent
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
As set forth in the report of Bederson & Company LLP, the financial
statements of one of the Registrant's subsidiaries for the year ended June 30,
1997 were audited by other auditors whose report was furnished to Bederson &
Company LLP. The opinion of Bederson & Company LLP set forth in such report,
insofar as it relates to amounts included for that subsidiary, is based solely
on the report of the other auditors.
-105-
<PAGE>
INTERIM FINANCIAL STATEMENTS
The information for the interim period ended March 31, 2000 is
unaudited but includes all adjustments considered necessary for a fair
presentation of the results.
-106-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Financial Statements for Fiscal Years Ended
June 30, 1999, 1998 and 1997
Independent Auditors' Reports ................................ F-1 - F-3
Consolidated Balance Sheets .................................. F-4
Consolidated Statements of Operations ........................ F-6
Consolidated Statements of Cash Flows ........................ F-7
Consolidated Statements of Stockholders' Equity .............. F-8
Notes to Consolidated Financial Statements ................... F-11 - F-25
Unaudited Financial Statements for Nine Months Ended
March 31, 2000 and 1999 ............................ F-26 - F-33
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<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Swissray International, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Swissray
International, Inc. and subsidiaries as of June 30, 1999 and 1998, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Swissray International, Inc.
and subsidiaries as of June 30, 1999 and 1998, and the results of its
operations, changes in stockholders' equity (deficit) and cash flows for the
years then ended in conformity with generally accepted accounting principles.
The financial statements for the year ended June 30, 1999 have been restated
(see Note 25).
/s/ Feldman Sherb Horowitz & Co., P.C.
Feldman Sherb Horowitz & Co., P.C.
(Formerly Feldman Sherb Ehrlich & Co., P.C.)
Certified Public Accountants
New York, New York
August 6, 1999
Except for Notes 25,
as of July 21, 2000
F-1
<PAGE>
(LETTERHEAD OF BEDERSON & COMPANY LLP)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Swissray International, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Swissray
International, Inc., and its subsidiaries, as of June 30, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of Swissray (Deutschland) Rontgentechnik
GmbH, a wholly owned subsidiary, which statements reflect total assets of
$437,021 as of June 30, 1997 and total revenues of $1,255,140 for the year then
ended. Those statements were audited by other auditors whose report has been
furnished to us, and our opinon, insofar as it related to the amounts included
for Swissray (Deutschland) Rontgentechnick GmbH, is based solely on the report
of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statements presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present farily, in all
material respects, the financial position of Swissray International, Inc., and
its subsidiaries, at June 30, 1997 and 1996 and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/s/ BEDERSON & COMPANY LLP
BEDERSON & COMPANY LLP
West Orange, New Jersey
September 16, 1997
Except for Notes 17, 20 and 22, as of March 6, 1998, and Note 1, 16, 23, 25, 26
27, 29, 30, 31 and 32, as of November 16, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of
Swissray (Duetschland) Rontegentechnik Gmbh
Wiesbaden, Germany
We have audited the balance sheet of Swissray (Duetschland)
Rontegentechnik Gmbh as of June 30, 1997 and the related statements of income
and stockholder's equity for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements based on our audit.
We conducted our audit in accordance to all laws governed by German
regulations and with generally accepted auditing standards promulgated by the
American Institute of Certified public accountants. Those standards require that
we plan and perform the audit to obtian reasonable assurance about whether the
financial statements are free of material misstatements. An audit includes
examining on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement preparation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Swissray
(Duetschland) Rontegentechnik Gmbh as of June 30, 1997 and the results of its
operations for the year then ended.
/s/ Theo Lepper
Theo Lepper
Certified Public Accountant
Wiesbaden, Germany
August 8, 1997
F-3
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
ASSETS
June 30,
------------------------------
1999 1998
(Restated)
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 1,281,297 $ 1,281,552
Accounts receivable,
net of allowance for doubtful
accounts of $219,993 and $32,356 2,448,879 2,584,651
Inventories 7,332,401 7,701,145
Prepaid expenses and sundry receivables 866,804 1,501,909
------------ ------------
TOTAL CURRENT ASSETS 11,929,381 13,069,257
------------ ------------
PROPERTY AND EQUIPMENT 6,283,040 6,010,378
------------ ------------
OTHER ASSETS
Loan receivable 15,948 20,005
Licensing agreement 3,104,109 3,600,766
Patents and trademarks 199,906 230,614
Software development costs 347,762 455,318
Security deposits 28,036 38,280
Note receivable - net of allowance
of $544,376 and $30,733 --- 513,643
Goodwill 1,603,007 1,796,336
Debt issuance costs on convertible --- 180,000
------------ ------------
TOTAL OTHER ASSETS 5,298,768 6,834,962
------------ ------------
TOTAL ASSETS $23,511,189 $25,914,597
============ ============
F-4
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL
CONSOLIDATED BALANCE SHEET (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30,
------------------------------
1999 1998
(Restated)
------------ ------------
CURRENT LIABILITIES
Current maturities of long-term debt $ 247,028 $ 233,746
Notes payable - banks 3,667,159 3,551,091
Notes payable - short-term 1,700,000 ---
Loan payable 126,006 125,029
Accounts payable 5,422,321 5,030,449
Accrued expenses 3,003,844 2,365,450
Restructuring 500,000 500,000
Customer deposits 278,507 176,583
Due to stockholders and officers --- 2,206
------------ ------------
TOTAL CURRENT LIABILITIES 14,944,865 11,984,554
------------ ------------
CONVERTIBLE DEBENTURES, net of conversion benefit 15,305,852 7,330,642
------------ ------------
LONG-TERM DEBT, less current maturities 195,095 440,674
COMMON STOCK SUBJECT TO PUT 1,819,985 1,819,985
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 140,062 41,426
Additional paid-in capital 69,028,013 58,074,793
Treasury stock (540,000) ---
Deferred compensation (1,282,500) ---
Accumulated deficit (72,492,463) (50,481,713)
Accumulated other comprehensive loss (1,787,735) (1,475,779)
Common stock subject to put (1,819,985) (1,819,985)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (8,754,608) 4,338,742
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $23,511,189 $25,914,597
============ ============
F-5
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED JUNE 30, 1999, 1998 and 1997
1999 1998 1997
(Restated)
------------ ------------ ------------
NET SALES $ 17,295,882 $ 22,892,978 $ 13,151,701
COST OF SALES 13,529,301 18,081,786 8,445,414
------------ ------------ ------------
GROSS PROFIT 3,766,581 4,811,192 4,706,287
------------ ------------ ------------
OPERATING EXPENSES
Officers and directors compensation 5,014,293 569,816 1,816,879
Salaries 3,784,305 4,168,540 2,059,396
Selling 3,207,646 3,740,391 1,873,389
Research and development 1,808,107 3,542,149 5,786,158
General and administrative 2,484,756 2,612,262 2,879,257
Restructuring cost --- 500,000 ---
Other operating expenses 1,066,039 1,735,877 1,645,800
Bad debts 706,877 133,196 619,160
Depreciation and amortization 1,273,916 1,745,498 770,294
------------ ------------ ------------
TOTAL OPERATING EXPENSES 19,345,939 18,747,729 17,450,333
------------ ------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSES)
AND INCOME TAXES (15,579,358) (13,936,537) (12,744,046)
Other income (expenses) 40,385 (281,227) 318,763
Interest expense (5,638,928) (8,590,268) (762,168)
------------ ------------ ------------
OTHER EXPENSES (5,598,543) (8,871,495) (443,405)
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS (21,177,901) (22,808,032) (13,187,451)
INCOME TAX PROVISION --- --- 110,223
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEMS (21,177,901) (22,808,032) (13,297,674)
Extraordinary income (expenses) (832,849) 304,923 (387,514)
------------ ------------ ------------
NET LOSS $(22,010,750) $(22,503,109) $(13,685,188)
============ ============ ============
LOSS PER COMMON SHARE BASIC
Loss from continuing operations (3.24) (8.48) (8.41)
Extraordinary items (0.13) 0.11 (0.24)
------------ ------------ ------------
NET LOSS (3.37) (8.37) (8.65)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 6,525,423 2,690,695 1,581,757
============ ============ ============
F-6
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
1999 1998 1997
(Restated)
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITES
Net loss $(22,010,750) $(22,503,109) $(13,685,188)
Adjustment to reconcile net loss to
net cash used by operating
activities
Depreciation and amortization 1,327,395 1,874,206 770,294
Provision for bad debts 931,146 (38,803) 552,725
Write-off of affiliate receivable --- --- 166,384
Common stock and stock options
issued for services 4,755,925 --- 2,309,435
Issuance of common stock in lieu
of interest payments 128,107 449,376 132,950
Interest expense on debt issuance
cost and conversion benefit 3,070,784 7,905,225 511,125
Interest expense on option value
per Black Scholes 91,763 --- ---
Early extinguishment of debt (gain) 832,849 (304,923) ---
(Increase) decrease in operating assets:
Accounts receivable (51,866) 2,887,427 (1,857,662)
Accounts receivable - others --- --- 31,533
Accounts receivable - long-term --- 163,680 283,603
Inventories 368,744 (3,790,038) (998,271)
Prepaid expenses and sundry receivables 635,106 434 229 (860,457)
Increase (decrease) in operating
liabilities:
Accounts payable 391,873 (306,300) 1,601,074
Accounts payable-affiliates --- --- (1,541)
Accrued expenses (361,606) 1,463,512 266,245
Customers deposits 101,924 6,147 92,763
------------ ------------ ------------
NET CASH USED BY OPERATING
ACTIVITIES (9,788,606) (11,759,371) (10,684,988)
------------ ------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property and
equipment (692,954) (2,849,205) (3,431,375)
Capitalized computer software (1,518) (225,174) (352,036)
Patents and trademarks --- (52,386) (12,925)
Goodwill --- (802,107) (299,837)
Asset purchase net of cash received --- (591,108) ---
Increase in note receivable (199,132) --- ---
Collection of note receivable --- --- 448,857
Security deposits 10,245 5,448 (23,776)
Increase(repayment)of loan receivable 4,056 (2,608) 2,896
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (879,303) (4,517,140) (3,668,196)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 20,191,413 10,342,060 9,198,821
Proceeds from long-term borrowings --- --- 248,987
Proceeds related to debentures not
funded (227,273) --- ---
Principal payment of short-term
borrowings (11,268,343) (3,852,075) (2,093,074)
Principal payment of long-term
borrowings (245,580) (21,748) (442,681)
Principal payment of long-term
borrowings with stock --- (62,267) ---
Issuance of common stock for cash 3,160,396 8,461,262 7,753,222
Purchase of treasury stock (540,000) --- ---
Repayment from (payment to)
stockholders and officers (2,207) (68,032) 87,653
------------ ------------ ------------
CASH PROVIDED BY FINANCING ACTIVITIES 11,068,406 14,779,200 14,752,928
------------ ------------ ------------
EFFECT OF EXCHANGE RATE ON CASH (400,752) (332,444) (561,122)
------------ ------------ ------------
NET DECREASE IN CASH (255) (1,809,755) (161,378)
CASH AND CASH EQUIVALENT - beginning
of year 1,281,552 3,091,307 3,252,685
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - end of
year $ 1,281,297 $ 1,281,552 $ 3,091,307
============ ============ ============
F-7
The accompanying notes are an integral part of these financial statements
<PAGE>
SUPPLEMENTAL CASH FLOW INFORMATION
1999 1998 1997
------------ ------------ ------------
Cash paid for interest $ 462,997 $ 161,093 $ 122,427
Cash paid for taxes --- --- 56,562
DISCLOSURE OF NONCASH FINANCING
AND INVESTING ACTIVITIES
Stock options, warrants and
common stock issued for services --- --- 2,287,935
Shares issued in lieu of interest
paymnets 128,107 449,376 132,950
Stock issued for acquisition --- 1,499,997 120,000
Beneficial conversion feature
recorded as additional paid-in
capital 1,633,164 5,738,149 1,000,000
F-8
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL, INC.
CONSOLITATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Common
Additional Stock
Paid-in to be
Common Stock Capital issued Treasury
Shares Amount Stock
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE - July 1, 1996 1,418,506 $ 14,185 $ 25,770,534 $ -- $ --
COMPREHENSIVE LOSS:
Net loss of the year -- -- -- -- --
Foreign currency translation losses net of taxes $ -0- -- -- -- -- --
TOTAL COMPREHENSIVE LOSS -- -- -- -- --
Issuance of common stock for cash 519,776 5,197 7,630,495 -- --
Stock options exercised for cash 16,100 161 117,369 -- --
Issuance of common stock in lieu of interest payment 7,061 71 132,879 -- --
Beneficial conversion feature of convertible debentures -- -- 1,000,000 -- --
Stock options granted as compensation -- -- 25,000 -- --
Stock options granted for services -- -- 1,161,462 -- --
Shares to be issued to officers for services -- -- -- 1,122,973 --
Purchase of subsidiary for stock 8,000 80 119,920 -- --
Common stock subject to put -- -- -- -- --
--------------------------------------------------------------------
BALANCE - JUNE 30, 1997 1,969,443 19,694 35,957,659 1,122,973 --
COMPREHENSIVE LOSS:
Net loss of the year -- -- -- -- --
Foreign currency translation losses net of taxes $ -0- -- -- -- -- --
TOTAL COMPREHENSIVE LOSS -- -- -- -- --
Issuance of common stock for cash 2,013,688 20,137 13,581,739 -- --
Stock options exercised for cash 16,900 169 123,201 -- --
Shares issued to officers for services 48,259 483 1,122,490 (1,122,973) --
Issuance of common stock in lieu of interest payment 60,999 610 448,766 -- --
Beneficial conversion feature of convertible debentures -- -- 5,738,149 -- --
Early extinguishment of debt -- -- (396,875) -- --
Issuance of common stock for asset purchase 33,333 333 1,499,664 -- --
Common Stock subject to put -- -- -- -- --
--------------------------------------------------------------------
BALANCE - JUNE 30, 1998 4,142,622 41,426 58,074,793 -- --
COMPREHENSIVE LOSS:
Net loss of the year -- -- -- -- --
Foreign currency translation losses net of taxes $ -0- -- -- -- -- --
TOTAL COMPREHENSIVE LOSS -- -- -- -- --
Issuance of common stock for cash 3,861,287 38,613 3,121,784 -- --
Stock options exercised for services 1,000 10 7,290 -- --
Shares issued for services 3,801,500 38,015 1,673,110 -- --
Issuance of common stock in lieu of interest payment 199,830 1,998 126,109 -- --
Beneficial conversion feature of convertible debentures -- -- 1,633,164 -- --
Shares issued to officers for services 2,000,000 20,000 4,300,000 -- --
Treasury stock - at cost -- -- -- -- (540,000)
Interest expense on option value per Black Scholes -- -- 91,763 -- --
----------------------------------------------------------------------
BALANCE - JUNE 30, 1999 14,006,239 $ 140,062 $ 69,028,013 $ -- $(540,000)
======================================================================
F-9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated Other
Deficit Deferred Comprehensive Common Stock Total
Compensation Loss Subject to Put
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE - July 1, 1996 $(14,293,416) $ -- $ (836,047) $ -- $10,655,256
COMPREHENSIVE LOSS:
Net loss of the year (13,685,188) -- -- -- (13,685,188)
Foreign currency transaction losses net of taxes $ -0- -- -- (592,487) -- (592,487)
--------------
TOTAL COMPREHENSIVE LOSS -- -- -- -- (14,277,675)
--------------
Issuance of common stock for cash -- -- -- -- 7,635,692
Stock options exercised for cash -- -- -- -- 117,530
Issuance of common stock in lieu of interest payment -- -- -- -- 132,950
Beneficial conversion feature of convertible debentures -- -- -- -- 1,000,000
Stock options granted as compensation -- -- -- -- 25,000
Stock options granted for services -- -- -- -- 1,161,462
Shares to be issued to officers for services -- -- -- -- 1,122,973
Purchase of subsidiary for stock -- -- -- -- 120,000
Common Stock subject to put -- -- -- (320,000) (320,000)
---------------------------------------------------------------------
BALANCE - JUNE 30, 1997 (27,978,604) -- (1,428,534) (320,000) 7,373,188
COMPREHENSIVE LOSS:
Net loss of the year (22,503,109) -- -- -- (22,503,109)
Foreign currency transaction losses net of taxes $ -0- -- (47,245) -- (47,245)
--------------
TOTAL COMPREHENSIVE LOSS -- -- -- -- (22,550,354)
--------------
Issuance of common stock for cash -- -- -- -- 13,601,876
Stock options exercised for cash -- -- -- -- 123,370
Shares issued to officers for services -- -- -- -- --
Issuance of common stock in lieu of interest payment -- -- -- -- 449,376
Beneficial conversion feature of convertible debentures -- -- -- -- 5,738,149
Early extinguishment of debt -- -- -- -- (396,875)
Issuance of common stock for asset purchase -- -- -- -- 1,499,997
Common Stock subject to put -- -- -- (1,499,985) (1,499,985)
---------------------------------------------------------------------
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)
=====================================================================
</TABLE>
F-10
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company was incorporated under the laws of the State of New York on January
2, 1968 under the name CGS Units Incorporated. On June 6, 1994, the Company
merged with Direct Marketing Services, Inc. and changed its name to DMS
Industries, Inc. In May of 1995 the Company discontinued the operations of DMS
Industries, Inc. and acquired all of the outstanding stock of SR Medical AG, a
Swiss corporation engaged in the business of manufacturing and selling X-ray
equipment, components and accessories. On June 5, 1995 the Company changed its
name to Swissray International, Inc. The Company's operations are conducted
principally through its wholly owned subsidiaries.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated. Investments which are recorded on an equity
method and have operated at a loss in excess of equity are carried at a zero
value.
BUSINESS ACQUISITION
On April 1, 1997, the Company exchanged 8,000 shares of common stock at the then
quoted market price of $120,000 ($15 per share) for all the outstanding shares
of Empower, Inc.The consolidated financial statements presented include the
accounts of Empower, Inc.(whose assets were substantially sold in June 1998),
from April 1, 1997 (date of acquisition) to June 30, 1998. The acquisition has
been accounted under the purchase accounting method. The contract requires the
Company to repurchase the 8,000 shares of common stock at $40 per share for a
period of one year commencing two years from the date of the contract at the
option of the former owner of Empower, Inc.
On October 17, 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Service Support Group, LLC (SSG) located in Gig
Harbor, Washington pursuant to an asset purchase agreement. The acquisition has
been accounted for under the purchase method of accounting. SSG is in the
business of selling diagnostic imaging equipment and related services in markets
on the West Coast of the United States. The purchase price consisted of (1) cash
in the amount of $621,892, (2) 33,333 shares of the Company's common stock, (3)
an amount equal to fifty percent of certain accounts receivable net of certain
accounts payable and (4) the assumptions of certain other liabilities. As a
result of this transaction, the Company recorded goodwill of $1,933,275. The
contract requires the Company to repurchase the 33,333 common shares at $45 per
share during the period June 30, 1998 to April 17, 1999 at the option of the
former owners of SSG.
In connection with the abovementioned acquisitions, the Company has recorded put
options totaling $1,819,985. Such amount is excluded from permanent equity. As
of June 30, 1999, both options were exercised and subject to dispute. (See
Litigation footnote)
REVENUE AND INCOME RECOGNITION POLICIES
Revenues from direct sales of products to end users are recorded when the
product is shipped, the product is installed and collection of the purchase
price is probable and the Company has no significant further obligations to the
customer. Revenues from direct sales of products to distributors are recorded
when the product is shipped, and collection of the purchase price is probable
and the Company has no significant further obligations to the customer.Cost of
remaining insignificant company obligations, if any, are accrued as costs of
revenue at the time of revenue recognition.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during this period. Actual results
could differ from those estimates.
F-11
<PAGE>
WARRANTY
The company accrues a warranty allowance at the time of sale. The warranty
allowance is based upon the companies experience and varies between 0.5 and 2%
of the net sales amount.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard No. 107 "Disclosures about Fair Value
of Financial Instruments" (SFAS 107) requires the disclosure of fair value
information about financial instruments whether or not recognized on the balance
sheet, for which it is practicable to estimate the value. Where quoted market
prices are not readily available, fair values are based on quoted market prices
of comparable instruments. The carrying amount of cash and equivalents, accounts
receivable and accounts payable approximates fair value because of the short
maturity of those instruments.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined on the first-in, first-out (FIFO) method. Inventory costs include
material, labor, and overhead.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the respective assets,
which are three years for Computers and Telecommunication Equipment, five to ten
years for Equipment, Office Furniture and Equipment and Office and Leasehold
Improvements and thirty years for Buildings. Leasehold improvements are
amortized over the shorter of the estimated useful lives of the improvements, or
the term of the facility lease.
Expenditures for repairs and maintenance are charged to expense as incurred. The
cost of major renewals and betterment's are capitalized and depreciated over
their useful lives. Upon disposition, the cost and related accumulated
depreciation of property and equipment are removed from the accounts and any
resulting gain or loss is reflected in operations.
The Company is required to review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable, in accordance with the provisions of Statement of
Financial Accounting Standards No.121, "Accounting for Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of" ("SFAS 121"). Accordingly, when
indicators of impairment are present, the Company evaluates the carrying value
of property, plant, and equipment and intangibles using projected undiscounted
future cash flows and operating income for each subsidiary to determined whether
material impairment of these assets exists.
INTANGIBLE ASSETS
Excess of cost over fair value of net assets acquired ("goodwill") resulting
from the acquisition of SSG is being amortized over ten years from the date of
acquisition using the straight-line method. Patents and Trademarks are
capitalized and are amortized using the straight-line method over their
estimated useful lives (10 years).Debt issuance costs are amortized using the
straight-line method over the term of the related debt, which range from two to
six months. Periods of amortization are evaluated periodically to determine
whether later events and circumstances warrant revised estimates of useful
lives. At each balance sheet date, the Company evaluates the recoverability of
unamortized goodwill based upon expectations of nondiscounted cash flows and
operating income. Impairments, if any, would be recognized in operating results
if a permanent diminution in value were to occur.
Capitalization of software development costs begins upon the establishment of
technological feasibility of new or enhanced software products. Technological
feasibility of a computer software product is established when the Company has
completed all planning, designing, coding and testing that is necessary to
establish that the software product can be produced to meet design
specifications including functions, features and technical performance
requirements. All costs incurred prior to establishing technological feasibility
of a software product are charged to research and development as incurred. The
F-12
<PAGE>
Company amortizes capitalized software development costs over straight-line
method over the estimated remaining economic life of the software products,
generally five to eight years.
All cost incurred by the Company in connection with incorporation of
subsidiaries have been capitalized and are being amortized over a period up to
60 months.
ADVERTISING AND PROMOTION
Advertising and promotion cost are expensed as incurred and included in "Selling
Expenses". Advertising and promotion expense for the years ended June 30, 1999,
1998 and 1997 were $ 1,452,309, $ 1,737,935, and $ 781,189, respectively.
RESEARCH AND DEVELOPMENT
Costs associated with research, new product development, and product cost
improvements are treated as expenses when incurred.
CONVERTIBLE DEBT
Convertible debt is recorded as a liability until converted into common stock,
at which time it is recorded as equity.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
EXPENSES RELATED TO SALES AND ISSUANCE OF SECURITIES
All costs incurred in connection with the sale of the Company's common stock
have been capitalized and charged to additional paid-in capital.
NET LOSS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share",
which established new standards for computation of earnings per share. SFAS No.
128 requires the presentation on the face of the income statement of "basic"
earnings per share and "diluted" earnings per share.
Basic earnings per share is computed by dividing the net income (loss) available
to common shareholders by the weighted average number of outstanding common
shares. The calculation of diluted earnings per share is similar to basic
earnings per share except the denominator includes dilutive common stock
equivalents such as stock options and convertible debentures. Common stock
options and the common shares underlying the convertible debentures are not
included as their effect would be anti-dilutive.
ACCOUNTING FOR STOCK OPTIONS
The Company adopted Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock Based Compensation". SFAS 123 encourages the use of
a fair-value-based method of accounting for stock-based awards under which the
fair value of stock options is determined on the date of grant and expensed over
the vesting period. Under SFAS 123, companies may, however, measure compensation
costs for those plans using the method prescribed by Accounting Principles Board
Opinion No. 25, ("APB No.25"), "Accounting for Stock Issued to Employees."
Companies that apply APB No. 25 are required to include pro forma disclosures of
net earnings and earnings per share as if the fair-value-based method of
accounting had been applied. The Company elected to account for such plans under
the provisions of APB No. 25.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year's financial statements to
conform to the June 30, 1999 presentation.
F-13
<PAGE>
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of subsidiaries operating in foreign countries are
translated into U.S. dollars using both the exchange rate in effect at the
balance sheet date or historical rate, as applicable. Results of operations are
translated using the average exchange rates prevailing throughout the year. The
effects of exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are included in stockholders equity (Accumulated
other comprehensive loss), while gains and losses resulting from foreign
currency transactions are included in operations.
NEW ACCOUNTING PRONOUNCEMENTS
The Company will adopt Statement of Financial Accounting Standard No. 133 ("SFAS
No. 133"), "Accounting for Derivative Instruments and Hedging Activities" for
the year ended June 30, 2000. SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends
a number of existing standards. The application of the new pronouncement is not
expected to have a material impact on the Company's financial statements.
STOCK SPLIT
On October 1, 1998 the Company declared a 1 for 10 reverse stock split. The
financial statements for all periods presented have been retroactively adjusted
for the stock split.
NOTE 2 - NOTE RECEIVABLE
On June 20, 1996 the Company sold marketable securities for a 5% promissory note
in the amount of $962,500 originally due on October 20, 1996 of which $100,000
was paid on December 10, 1996. On January 15, 1997, the Company renegotiated the
terms of the unpaid balance. A new note in the amount of $862,500 was
renegotiated, with interest at 6% cumulative and payable when the note matures
on January 1, 2000. At June 30, 1997, principal payments of $348,857 were
received leaving a balance due of $513,643. The $513,643 was written off during
the year ended June 30, 1999.
NOTE 3 - INVENTORIES
Inventories are summarized by major classification as follows:
June 30,
---------------------------
1999 1998
----------- -----------
Raw materials, parts and supplies $ 5,558,330 $ 7,047,001
Work in process 1,048,197 160,064
Finished goods 725,874 494,080
----------- -----------
$ 7,332,401 $ 7,701,145
=========== ===========
NOTE 4 - PREPAID EXPENSES AND SUNDRY RECEIVABLES
Prepaid expenses and sundry receivables consist of the following:
June 30,
--------------------
1999 1998
--------- ---------
Prepaid expenses, deposits and advance payments $ 229,236 $ 616,183
Insurance claim for fire damage 389,220 165,655
Prepaid and refundable taxes 240,368 708,246
Employee loans 7,980 11,825
--------- ----------
$ 866,804 $1,501,909
========= ===========
F-14
<PAGE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
June 30,
------------------------
1999 1998
----------- -----------
Land and building $ 5,501,853 $ 4,956,328
Equipment 1,448,961 1,305,092
Office furniture and equipment 333,596 330,035
----------- -----------
7,284,410 6,591,455
Less: Accumulated depreciation and amortization 1,001,370 581,077
----------- -----------
$ 6,283,040 $ 6,010,378
=========== ===========
Depreciation and amortization expense, for property and equipment, for the years
ended June 30, 1999, 1998 and 1997 were $ 547,693, $1,077,074 and $233,040
respectively.
NOTE 6 - INTANGIBLE ASSETS
Intangible Assets at June 30, 1999 and 1998 consisted of the following
June 30,
------------------------
1999 1998
----------- -----------
Excess of cost over fair value of net
assets acquired $ 1,933,275 $ 1,933,275
Licensing 4,966,575 4,966,575
Software development cost 578,729 577,210
Patents and trademarks 313,330 313,330
Other -- 8,385
----------- -----------
7,791,909 7,798,775
Less: Accumulated amortization 2,537,125 1,715,741
----------- -----------
$ 5,254,784 $ 6,083,034
=========== ===========
Amortization expense, for Intangible Assets, for the years ended June 30, 1999,
1998 and 1997 were $ 830,194, $ 1,227,719 and $ 537,254, respectively.
NOTE 7 - LICENSING AGREEMENT
The Company entered into a licensing agreement in June of 1995 with an
unaffiliated individual. The agreement is for an exclusive field-of-use license
within the United States and Canada to use the proprietary information,
including the patent rights, for certain technology regarding the integration of
computer technology with diagnostic x-ray and radiology medical equipment
through digital imaging systems. The agreement required a fee of $5,000,000
consisting of $1,200,000 in cash and 66,000 shares of the Company's common
stock. The cash payment requirement consisted of $900,000 upon the signing of
the agreement and the $300,000 balance due on December 31, 1996. The fee has
been discounted at 7.5% for imputed interest of $33,425 resulting in a net
capitalized cost of $4,966,575. This agreement is for an indefinite term or
until all of the proprietary information becomes public knowledge and the patent
rights expire.
The Licensing Agreement is amortized using the straight-line method over the
estimated remaining economic life, generally ten years. At each balance sheet
date, the Company evaluates the recoverability of the unamortized License Fee
based upon expectations of nondiscounted cash flows and operating income of its
US-Operation. Impairments, if any, would be recognized in operating results if a
permanent diminution in value were to occur.
F-15
<PAGE>
NOTE 8 - NOTES PAYABLE - BANKS
The Company has negotiated a revolving line-of-credit agreement with Migros Bank
of Switzerland, dated March 23, 1998, for up to $1,314,924. The company has also
negotiated an agreement for up to $1,314,924 for the issuance of guarantees and
letters of credit, both with a commission of 15% per $1,000,000, quarterly while
outstanding. There were $1,052,906 in outstanding guarantees and $ -0- in letter
of credits as of June 30, 1999. The Company also negotiated a fixed line of
credit for up to $2,630,000 with an agreed repayment of $65,750 per 180 days
first time applicable as of June 30, 1999. All lines of credit are based on the
Exchange rate in effect on June 30, 1999.
Notes payable are summarized as follows:
June 30,
--------------------------
1999 1998
------------ ------------
Migros Bank revolving line of credit,
due on demand,with interest at 4.75% per
annum, collateralized by certain accounts
receivable, and a cash deposit at Migros
Bank as of June 30, 1999 of $485,367 $ 798,730 $ 408,786
Migros Bank, on demand with six week notice,
with interest as of June 30, 1999 and 1998
at 3.7/8% and 4% per annum, collateralized
by land and building 2,529,930 2,630,000
Union Bank of Switzerland, due on demand,
with interest at 8% per annum, collateralized
by cash on deposit at Union Bank of Switzerland
and accounts receivable. Cash balances on deposit at
Union Bank of Switzerland at June 30, 1999 and 1998
were $332,812 and $627,625, respectively 338,499 512,305
------------ ------------
$ 3,667,159 $ 3,551,091
============ ============
NOTE 9 - LOAN PAYABLE
The Company has negotiated a 5% demand loan from a private foundation fund. The
loan balance payable at June 30, 1999 and 1998 was $126,006 and $125,029
respectively.
NOTE 10 - SHARES ISSUED FOR COMPENSATION
Pursuant to agreements between the President of the Company and the Company,
dated as of December 1996 and June 1997, the Company incurred additional
compensation to the officer payable as 48,259 shares with a fair value of
$1,122,973. The compensation was in consideration of the officer's agreement for
F-16
<PAGE>
the cancellation of 1,608,633 shares of common stock held by the officer or
companies controlled by him which allowed the Company to maintain a sufficient
number of shares of common stock to meet certain obligations of the Company to
issue common stock and to permit certain financings prior to the increase in the
number of authorized shares of common stock from 15,000,000 to 30,000,000
shares. The shares were issued by the Company on July 22, 1997. In June 1999 the
Company incurred additional compensation to the President of the Company of
2,000,000 fully vested, nonforfeitable shares with a fair market value of
$4,320,000 (based on the bid price of $2.40 per share on the date of issuance
less a 10% discount for restrictions on the resale of such shares). The
compensation was in consideration of the President's agreement to extinguish his
rights contained in his employment agreement which entitled him to a 25% bonus
of the Company's earnings (as defined).
In 1999 the Company issued 3,800,000 fully vested, nonforfeitable shares of
common stock with a fair market value of $.45 per share or $1,710,000 (based on
the bid price of $.50 per share on the date of issuance less a 10% discount for
restrictions on the resale of such shares) to consultants for services to be
rendered over terms of one year to eighteen months. Such amount has been
deferred and is being amortized over the term of the consulting agreements.
NOTE 11 - CONVERTIBLE DEBENTURES
Convertible debentures consist of the following:
June 30,
------------------------------
1999 1998
------------- ---------------
Convertible debenture dated December 11, 1997.
The debenture was converted into 327,101 shares
in Fiscal 1999. $ - $ 145,969
Convertible debenture dated March 14, 1998. A
total of $2,500,000 was converted into 2,482,656
shares in Fiscal 1999.The remaining balance of
$3,000,000 was refinanced.
(See August 31, 1998 debenture) - 5,500,000
Convertible debenture dated June 15, 1998 and
due June 15, 2000 with interest at 6% per annum.
The debentures are convertible into common
shares at a price equal to eighty (80%) of the
average closing bid price for the ten (10)
trading days preceding the date of conversion.
All of the debentures are convertible at the
earlier of a registration effective date or
August 15, 1998. Any debenture not so converted
is subject to mandatory conversion on
June 15, 2000. Debt issuance cost was $240,000,
beneficial conversion feature was $420,436. 2,000,000 2,000,000
Convertible debenture of $6,143,849 dated
August 31, 1988 and due August 31, 2000 with
interest of 5% per annum.The debentures are
convertible into common shares at a price
equal to the lesser of eighty-two (82%) of
the average closing bid price for the ten
trading days preceding the date of the
conversion.All debentures are convertible at
the earlier of a registration effective date
or March 1, 1998.Any debenture not so converted
is subject to mandatory conversion on August 31,
2000.The Company at its sole direction can redeem
the debenture at 115% of the face amount up to
the fourth month, at 120% within the fifth and
sixth month and at 125% after the sixth month
following the closing date. $514.428 of the
balance was converted into 1,051,529 shares in
Fiscal 1999.Debt issuance cost was $311,000,
beneficial conversion feature was $-0-. 5,629,421 -
F-17
<PAGE>
Convertible debenture including $540,000
repurchase of stock dated October 6, 1988 and
due October 6, 2000 with interest of 5% per
annum.The debentures are convertible into common
shares at a price equal to the lesser of
eighty-two (82%) of the average closing bid
price for the ten trading days preceding the
date of the conversion.All debentures are
convertible at the earlier of a registration
effective date or October 6, 1998. Any debenture
not so converted is subject to mandatory
conversion on October 6, 2000.The Company at
its sole discretion can redeem the debenture at
115% of the face amount up to the fourth month,
at 120% within the fifth and sixth month and at
125% after the sixth month following the closing
date. Debt issuance cost was $300,000, beneficial
conversion feature was $53,112. 2,940,000 -
Convertible debenture dated January 29, 1999 and
due January 29, 2001 with interest of 3% per each
30 days for the first ninety days, 3.5% per each
30 days for the ninety-first to the one hundred-
twentieth day and 4% per each 30 days from the
hundred-twenty-first day until the earlier of
conversion or redemption. The debentures are
convertible into common shares at a price equal to
the lesser of eighty-two (82%) of the average
closing bid price for the ten trading days
preceding the date of the conversion. All
debentures are convertible at the earlier of a
registration effective date or January 29, 1999.
Any debenture not so converted is subject to
mandatory conversion on January 29, 2001. The
Company at its sole direction can redeem the
debentures at any time. Debt issuance cost was
$150,000, beneficial conversion feature was $-0-. 1,170,000 -
Convertible debenture dated May 13, 1999 and due
May 13, 2001 with interest of 5% per annum. The
debentures are convertible into common shares at
a price equal to the lesser of eighty (80%) of
the average closing bid price for the ten trading
days preceding the date of the conversion. All
debentures are convertible at the earlier of a
registration effective date or May 13, 1999. Any
debenture not so converted is subject to mandatory
conversion on May 13, 2001.The company at its sole
direction can redeem the debenture at 115% of the
face amount up to the fourth month, at 120%
within the fifth and sixth month and at 125%
after the sixth month following the closing date.
Debt issuance cost was $80,000, interest rollover
was $39,600, beneficial conversion feature was
$735,025. 1,119,600 -
Convertible debenture dated May 31, 1999 and due
May 31, 2001 with interest of 5% per annum. The
debentures are convertible into common shares at
a price equal to the lesser of eighty (80%) of the
average closing bid price for the ten trading
days preceding the date of the conversion.All
debentures are convertible at the earlier of a
registration effective date or May 31, 1999. Any
debenture not so converted is subject to mandatory
conversion on May 31, 2001.The company at its sole
direction can redeem the debenture at 115% of the
face amount up to the fourth month, at 120%
within the fifth and sixth month and at 125% after
the sixth month following the closing date. Debt
issuance cost was $110,000, interest rollover was
$22,200, beneficial conversion feature
was $140,049. 1,132,200 -
Convertible debenture dated June 26, 1999 and due
June 26, 2001 with interest of 5% per annum. The
debentures are convertible into common shares at
a price equal to the lesser of eighty (80%) of the
average closing bid price for the ten trading days
preceding the date of the conversion.All debentures
are convertible at the earlier of a registration
effective date or June 26, 1999. Any debenture not
so converted is subject to mandatory conversion on
June 26, 2001.The company at its sole direction can
redeem the debenture at 115% of the face amount up
to the fourth month, at 120% within the fifth and
sixth month and at 125% after the sixth month
following the closing date.Debt issuance cost was
$50,000, interest rollover was $11,000, beneficial
conversion feature was $281,005. 561,000 -
F-18
<PAGE>
Convertible debenture dated May 5, May 24 and
June 10, 1999 and due May 5, May 24 and June 10,
2001, respectively with interest of 5% per annum.
The debentures are convertible into common shares
at a price equal to eighty (80%) of the average
closing bid price for the ten trading days
preceding the date of the conversion.The investor
shall not be allowed to convert any portion of the
Debentures for 120 days from the Closing date,
unless the bid price is greater than $5.50.Every
30-day period after the Closing date, the investor
shall be allowed to convert and sell based upon if
the bid price is over $1.50 then 15% of the
original face amount can be converted, if the bid
price is over $7.50 then 20% of the original face
amount can be converted. No conversion can be made
for 300 days if the bid price is below $1.50 All
debentures are convertible at the earlier of a
registration effective date or May 5, May 24 and
June 10, 1999, respectively.Any debenture not so
converted is subject to mandatory conversion on May
5, May 24 and June 10, 2001, respectively.The
Company at its sole direction can redeem the
debenture at 120% of the face amount including
interest. Debt issuance cost was $100,000,
beneficial conversion feature was $423,973. 850,000 -
------------- ---------------
15,402,221 7,645,969
Less: discount due to beneficial conversion
features, net of accumulated amortization of
$327,604 and $310,559 respectively (96,369) (315,327)
------------- ---------------
$15,305,852 $ 7,330,642
============= ===============
The Company is currently in violation of certain covenants in their debenture
agreements. Such covenants have been waived by the holders through July 1, 2001.
NOTE 12 - NOTES PAYABLE - SHORT-TERM
Notes payable - short-term consists of the following
June 30,
------------------------------
1999 1998
------------- ---------------
Promissory note, dated June 11, 1999
$654,000, due September 9, 1999,
collateralized by inventory $ 600,000 $ --
Promissory note, dated April 1999,
currently in default, personally
guaranteed by the Company's president
and collateralized by 428,259 shares
owned by the Company's president.
Subsequent to June 30, 1999, the
collateral was transferred to the
lenders.The Company agreed to issue
the president 535,324 shares to
replace the collateral shares. 1,100,000 --
------------- ---------------
$ 1,700,000 $ --
============= ===============
F-19
<PAGE>
NOTE 13 - LONG-TERM DEBT
Long-term debt consists of the following:
June 30,
------------------------------
1999 1998
-------------- --------------
Note payable - Edward Coyne, in weekly
installments of $817, including principal
and interest at 8% per annum, maturing on
October 9, 2002 $ 122,175 $ 153,603
Note payable-Union Bank of Switzerland,
related to the acquisition of equipment
sold to a customer, in monthly installments
of $12,589 with imputed interest at 6.0% per
annum, maturing on September 30, 2000 188,907 335,062
Capitalized leases related to the acquisition
of various computer and office equipment
payable in monthly installments over periods
through 2001, with interest imputed at rates
ranging from 9.1% to 28.3% 131,041 185,755
------------- ---------------
442,123 674,420
Less: Current portion (247,028) (233,746)
------------- ---------------
$ 195,095 $ 440,674
============= ===============
The aggregate long-term debt principal payment are as follows:
Year Ending June 30,
2000 $ 247,028
2001 144,578
2002 40,006
2003 10,511
NOTE 14 - SHAREHOLDERS' EQUITY
Authorized Shares
On March 12, 1997, the Company amended its certificate of incorporation to
change the number of authorized common shares from 15,000,000 to 30,000,000 of
$.01 par value common shares. On December 26, 1997, the Company amended its
certificate of incorporation to change the number of authorized common shares
from 30,000,000 to 50,000,000 of $.01 par value common shares.
Preferred Stock
In July 1999, the Company amended its Certificate of Incorporation to authorize
the issuance of 1,000,000 shares of preferred stock, $.01 par value per share.
Stock Option
The Stock Option Plans provide for the grant of options to officers, directors,
employees and consultants. Options may be either incentive stock options or
non-qualified stock options, except that only employees may be granted incentive
stock options.The maximum number of shares of Common Stock with respect to which
options may be granted under the Stock Option Plans is 500,000 shares. Options
vest at the discretion of the Board of Directors. All options granted in 1999
and 1997 vested immediately. The maximum term of an option is ten years. The
1996 Stock Option Plan will terminate in January, 2006, though options granted
prior to termination may expire after that date. The 1997 Stock Option Plan will
terminate at the discretion of the Board of Directors.In Fiscal 1998, there were
no grants or vesting of stock options. In Fiscal 1997, had compensation cost for
the Stock Option Plans been determined based on the fair value at the grant
dates for awards under the Stock Option Plans, except for grants to consultants
for which compensation expense has been recognized consistent with the method of
SFAS No. 123, as discussed in Note 1, the Company's net loss and net loss per
share would have increased to the pro forma amounts indicated below:
Fiscal 1997
------------------------
As Pro
Reported Forma
----------- -----------
Nel loss (in thousands) ($13,685) ($13,959)
Basic and diluted net loss per share ($8.65) ($8.82)
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option-pricing method with the following weighted average
assumptions used for grants in 1997; dividend yield 0%, expected volatility
61.6%, risk-free interest rate 6.25%, expected lives in years 1%.
The weighted average fair value of stock options granted during the year ended
June 30, 1997 was $22.80. No employee stock options were granted in fiscal 1999
and 1998.
F-20
<PAGE>
A summary of the status of the Stock Option Plans at June 30, 1999, 1998 and
1997 and the changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------ ------------------------------ ----------------------------
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
Underlying Exercise Underlying Exercise Underlying Exercise
Options Price Options Price Options Price
-------------- --------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding
at beginning 180,000 $23.40 196,900 $23.40 133,500 $25.20
of year
Granted 15,500 $.44 - $0.00 $17.80
79,500
Exercised (1,000) $7.30 (16,900) $7.30 $0.00
(16,100)
-------------- --------------- -------------- -------------- -------------- ------------
Outstanding
at end of year 194,500 $24.30 180,000 $24.30 196,900 $23.40
============== =============== == ============== ============== ==== ============== ============
Exercisable at
end of year 194,500 $24.30 180,000 $24.30 196,900 $23.40
============== =============== == ============== ============== ==== ============== ============
</TABLE>
The following table summarizes information about stock options under the Stock
Option Plans at June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
----------------------------------------------------------------------------------
Weighted Average
Number Remaining Contractual Weighted Average
Range of Exercise Price Outstanding Life Exercise Price
-------------------------------- ----------------- --------------------------- -----------------------
<S> <C> <C> <C>
$.01 - $.44 15,500 9.5 $0.44
$7.30 - $10.00 18,000 8.4 $8.00
$20.00 - $40.00 127,500 7.8 $22.10
$47.50 - $65.00 33,500 7.5 $58.70
-----------------
194,500
=================
</TABLE>
Stock Warrants
In Fiscal 1999, the Company issued 462,500 warrants. The Company recognized
interest cost for the warrants issued of $92,000. Such value was determined
using the Black-Scholes method method with the following weighted average
assumptions; dividend yield 0%, expected volatility 70%, risk-free interest rate
7%, expected lives in years 1. The following table summarized information about
stock warrants at June 30, 1999:
<TABLE>
<CAPTION>
Warrants Outstanding and Exercisable
-- ------------------------------------------------------------------------------------------
Range of Exercise Price Number Outstanding Remaining Contractual Life Average Exercise Price
----------------------------- ------------------------ -------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
$.375 - $9.38 462,500 4.5 $.96
</TABLE>
NOTE 15 - DEFINED CONTRIBUTION PLANS
The Swiss and German Subsidiaries, mandated by government regulations, are
required to contribute approximately five (5%) percent of all eligible, as
defined, employees' salaries into a government pension plan. The subsidiaries
also contribute approximately five (5%) percent of eligible employee salaries
into a private pension plan. Total contributions charged to operations for the
years ended June 30, 1999, 1998 and 1997, were $ 509,959, $347,854 and $274,009,
respectively.
F-21
<PAGE>
NOTE 16 - OTHER INCOME (EXPENSES)
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------
1999 1998 1997
------------------- ------------------ ---------------
<S> <C> <C> <C>
Interest income $60 $58,902 $68,950
Interest income-stockholder and officer - - 4,351
Foreign currency income (9,097) (87,148) 484,846
Miscellaneous income 49,422 60,648 6,833
Loss from investments - - (246,217)
Loss on sale of certain asset and liabilities - (313,629) -
------------------- ------------------ ---------------
Total other income (expenses) $40,385 ($281,227) $318,763
=================== ================== ===============
</TABLE>
NOTE 17 - INCOME TAXES
Deferred income tax assets as of June 30, 1999 of $12,500,000 as a result of net
operating losses, have been fully offset by valuation allowances. The valuation
allowances have been established equal to the full amounts of the deferred tax
assets, as the Company is not assured that it is more likely than not that these
benefits will be realized.
A reconciliation between the statutory United States corporate income tax rate
(34%) and the effective income tax rates based on continuing operations is as
follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1999 1998 1997
------------------ ----------------- -----------------
<S> <C> <C> <C>
Statutory federal income tax (benefit) $ (5,940,000) $ (7,754,000) $ (4,101,913)
Foreign income tax (benefit) in excess
of domestic rate 377,000 543,000 509,203
Benefit not recognized on operating 4,033,000 5,111,000 2,816,057
loss
Permanent and other differences 1,530,000 2,100,000 886,886
------------------ ----------------- -----------------
$ - $ - $ 110,233
================== ================= =================
</TABLE>
Net operating loss carryforwards at June 30, 1999 were approximately as follows:
United States (expiring through June 30, 2014) $ 21,000,000
Switzerland (expiring through June 30, 2009) 21,000,000
-------------------
$ 42,000,000
===================
F-22
<PAGE>
NOTE 18 - EXTRAORDINARY ITEMS
On April 12, 1997, the Company sustained significant fire damage at a leased
production and office facility in Hochdorf, Switzerland, resulting in an
extraordinary loss, net of insurance proceeds, of $387,514 (($ 0.24) per share),
net of income taxes of $-0-.
On July 31, 1997 the Company refinanced Convertible debentures issued in May and
June 1997. A gain on extinguishment of debt of $154,212 resulted from that
transaction net of income taxes of $-0-.
In December, 1997 the Company refinanced part of the Convertible debentures
issued in August 1997. A gain on extinguishment of debt of $150,711 resulted
from that transaction net of income taxes of $-0-.
In Fiscal 1999 the Company recognized a loss from early extinguishment of debt
of $832,849, net of income taxes of $-0-.
NOTE 19 SIGNIFICANT CUSTOMER AND CONCENTRATION OF CREDIT RISK
The Company sells its products to various customers primarily in Europe and the
USA. The company performs ongoing credit evaluations on its customers and
generally does not require collateral. Export sales are usually made under
letter of credit agreements. The company establishes reserves for expected
credit losses and such losses, in the aggregate, have not exceeded management's
expectations.
The Company maintains its cash balances with major Swiss, United States and
German financial institutions. Funds on deposit with financial institutions in
the United States are insured by the Federal Deposits Insurance Corporation
("FDIC) up to $ 100,000.
During the years ended June 30, 1999 1998 and 1997 there were sales to customers
that exceeded 10% of net consolidated sales. Sales to these customers were: 1999
customer A, $9,253,480 (54%), 1998 customer A $ 7,647,354 (33%), 1997 customer
A, $1,899,084 (14%) customer B $2,389,613 (18%).The company operates in a single
industry segment, providing x-ray medical equipment.
The Company derives all of its revenues from its subsidiaries located in the
United States, Switzerland and Germany. Sales by geographic areas for the years
ended June 30, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ----------------- ----------------
<S> <C> <C> <C>
United States $ 4,026,931 $ 9,127,569 $ 2,000,608
Switzerland 12,625,381 12,851,115 2,184,161
Germany 643,570 914,294 1,393,072
Other export sales - - 7,573,860
==================== ================= ================
$ 17,295,882 $ 22,892,978 $ 13,151,701
==================== ================= ================
</TABLE>
The following summarizes identifiable assets by geographic area:
<TABLE>
<CAPTION>
1999 1998
--------------------- -----------------
<S> <C> <C>
United States $ 7,270,543 $ 8,075,151
Switzerland 16,009,209 17,454,379
Germany 231,437 385,067
--------------------- -----------------
$ 23,511,189 $ 25,914,597
===================== =================
</TABLE>
F-23
<PAGE>
The following summarizes operating losses before provision for income tax:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------- -------------------
<S> <C> <C> <C>
United States $ (15,542,148) $ (13,962,842) $ (175,254)
Switzerland (5,392,436) (8,803,006) (12,678,800)
Germany (243,317) (42,184) (333,397)
------------------ ------------------- -------------------
$ (21,177,901) $ (22,808,032) $ (13,187,451)
================== =================== ===================
</TABLE>
NOTE 20 - COMMITMENTS
The Company leases various facilities and vehicles under operating lease
agreements expiring through September 2003. The company has excluded all vehicle
leases in its presentation because they are deemed to be immaterial. The
facilities lease agreements provide for a base monthly payment of $22,285 per
month. Rent expense for the years ended June 30, 1999, 1998 and 1997 was
325,000, $ 324,726 and $ 297,926 respectively. Future minimum annual lease
payments, based on the exchange rate in effect on June 30, 1999, under the
facilities lease agreements are as follows: 2000 $173,549, 2001 $162,526, 2002
$166,995, 2003 $137,994, Thereafter $0.
The Company has employment agreements with three of its executives. Minimum
compensation under these agreements are as follows:
Year Ended
June 30, 2000 $ 382,321
June 30, 2001 299,326
June 30, 2002 202,498
June 30, 2003 109,037
--------------------
$ $993,182
====================
NOTE 21 - LITIGATION
An arbitrator awarded judgement in favor of SSG in February of 1999, which order
was confirmed by the Supreme Court of the State of NY on July 8, 1999. The
judgement of $1,500,000 has been recorded in the financial statements and is
included in common stock subject to put.
On or about July 1, 1999 an action was commenced in the Supreme Cout, State of
New York, County of New York entitled J. Douglas Maxwell ("Maxwell") against the
Company, whereby Maxwell is seeking judgement in the sum of $380,000 based upon
his interpretation of various terms and conditions contained in an Exchange
Agreement between the parties dated July 22, 1996 and a subsequent Mutual
Release and Settlement Agreement between the parties dated June 1, 1998.
Swissray has denied the material allegations of Maxwell's complaint and has
asserted three affirmative defenses and two separate counteclaims seeking
(amongst other matters) dismissal of the complaint and and recision of the
settlement agreement. 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. The $380,000 has been recorded in the
financial statements and is included in common stock subject to put.
NOTE 22 - RESTRUCTURING
During the year ended June 30, 1998 the Company recorded restructuring charges
of $500,000, as a result of its decision to relocate two facilities. The charges
consist primarily of the present value of the remaining lease obligations of
those facilities.
F-24
<PAGE>
NOTE 23 - UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
The following unaudited proforma condensed combined statements of operations for
the years ended June 30, 1998 and 1997 give retroactive effect of the
acquisition of Empower, Inc. on April 1, 1997 and SSG on October 17, 1997, which
were accounted for as purchases. The unaudited proforma condensed combined
statements of operations give retroactive effect to the foregoing transaction as
if it had occurred at the beginning of each year presented. The proforma
statements do not purport to represent what the Company's results of operations
would actually have been if the foregoing transactions had actually been
consummated on such dates or project the Company's results of operations for any
future period or date.
The proforma statements should be read in conjunction with the historical
financial statements and notes thereto.
<TABLE>
<CAPTION>
SWISSRAY INTERNATIONAL, INC
UNAUDITED PROFORMA CONDENSED COMBINED CONSOLIDATED STATEMENT
OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998 AND JUNE 30, 1997
Year Ended June 30,
-----------------------------------------------------
1998 1997
------------------------ -------------------
<S> <C> <C>
Revenues $ 23,837,000 $ 21,223,000
Loss before extraordinary items (21,963,000) (13,568,000)
Net Loss (22,403,000) (13,956,000)
Loss per share (8.33) (8.79)
Weighted average number of shares 2,690,695 1,587,757
outstanding
</TABLE>
It was not practicable to include information for SSG for the year ended
June 30, 1997
NOTE 24-VALUATION AND QUALIFYING ACCOUNTS
Balance at Additions Balance at
Beginning Charged to End of
of Year Expenses Deductions Year
Allowance for doubtful acounts:
Year ended June 30, 1999 $ 32,356 $706,877 $519,240 $219,993
Year ended June 30, 1998 $148,390 $133,196 $249,230 $ 32,356
Year ended June 30, 1997 $109,843 $619,160 $580,613 $148,390
NOTE 25 - RESTATEMENT
The accompanying financial statements have been restated to properly record the
accounting for the value of common stock issued to an officer and consultants as
compensation during the year ended June 30, 1999 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) $ (0.73) $ (3.24)
F-25
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
ASSETS
March 31, June 30,
2000 1999
--------- ----------
(Unaudited) (Restated)
CURRENT ASSETS
Cash and cash equivalents .......................... $ 3,245,610 $ 1,281,297
Accounts receivable, net of allowance for doubtful
accounts of $ 174,995 and $ 219,993 ................ 4,505,719 2,448,879
Inventories ........................................ 5,816,197 7,332,401
Prepaid expenses and sundry receivables ............ 840,063 866,804
---------- ----------
Total Current Assets ............................... 14,407,589 11,929,381
---------- ----------
PROPERTY AND EQUIPMENT ............................. 6,368,996 6,283,040
---------- ----------
OTHER ASSETS
Loan receivable .................................... 75,270 15,948
Licensing agreement ................................ 2,731,616 3,104,109
Patents and trademarks ............................. 178,528 199,906
Software development costs ......................... 281,756 347,762
Security deposits .................................. 36,533 28,036
Goodwill ........................................... 1,458,008 1,603,007
---------- ---------
TOTAL OTHER ASSETS ................................. 4,761,711 5,298,768
---------- ---------
Total Assets ....................................... $25,538,296 $23,511,189
========== ==========
F-26
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' DEFICIT
March 31, June 30,
2000 1999
--------- ----------
(Unaudited) (Restated)
(Restated)
CURRENT LIABILITIES
Current maturities of long-term debt ............ $ 154,558 $ 247,028
Notes payable - banks ........................... 3,689,144 3,667,159
Notes payable - short-term ...................... 713,308 1,700,000
Loan payable .................................... 116,073 126,006
Accounts payable ................................ 4,526,354 5,422,321
Accrued expenses ................................ 6,132,833 3,003,844
Restructuring ................................... 460,000 500,000
Customer deposits ............................... 2,061,903 278,507
--------- ----------
TOTAL CURRENT LIABILITIES ....................... 17,854,173 14,944,865
---------- -----------
Convertible Debentures, net of conversion benefit 14,242,793 15,305,852
---------- -----------
LONG-TERM DEBT, less current maturities ......... 179,847 195,095
---------- -----------
COMMON STOCK SUBJECT TO PUT ..................... 319,985 1,819,985
---------- -----------
STOCKHOLDERS' DEFICIT
Common stock .................................... 227,864 140,062
Additional paid-in capital ...................... 87,046,553 69,028,013
Treasury stock .................................. (2,040,000) (540,000)
Deferred compensation ........................... - (1,282,500)
Accumulated deficit ............................. (90,062,687) (72,492,463)
Accumulated other comprehensive loss ............ (1,910,247) (1,787,735)
Common stock subject to put ..................... (319,985) (1,819,985)
---------- -----------
TOTAL STOCKHOLDERS' DEFICIT...................... (7,058,502) (8,754,608)
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT...... $ 25,538,296 $ 23,511,189
========== ===========
F-27
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended
March 31,
2000 1999
---------- ----------
(Unaudited) (Unaudited)
(Restated)
NET SALES ......................... $ 12,393,655 $ 13,220,776
COST OF SALES ..................... 9,372,120 10,404,489
---------- ----------
GROSS PROFIT ...................... 3,021,535 2,816,287
---------- ----------
OPERATING EXPENSES
Officers and directors compensation 2,650,288 564,089
Salaries .......................... 3,153,332 3,168,298
Selling ........................... 3,364,935 2,089,265
Research and development .......... 1,364,415 1,307,135
General and administrative ........ 1,320,325 1,381,517
Other operating expenses .......... 794,971 978,603
Bad debts ......................... 50,276 7,383
Depreciation and amortization ..... 1,025,967 892,857
---------- ----------
TOTAL OPERATING EXPENSES .......... 13,724,509 10,389,147
---------- ----------
LOSS BEFORE OTHER INCOME (EXPENSES) (10,702,974) (7,572,860)
Other income (expenses) ........... 409,269 (182,037)
Interest expense .................. (7,276,519) (2,156,457)
---------- ----------
OTHER INCOME (EXPENSES) ........... (6,867,250) (2,338,494)
---------- ----------
LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEMS ...... (17,570,224) (9,911,354)
Extraordinary expenses ............ -- (832,849)
---------- ----------
NET LOSS .......................... $(17,570,224) $(10,744,203)
========== ==========
LOSS PER COMMON SHARE
Loss from continuing operations ... $ (0.99) $ (2.09)
Extraordinary items ............... 0.00 (0.18)
---------- ----------
NET LOSS .......................... $ (0.99) $ (2.27)
========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING ................ 17,807,655 4,752,041
F-28
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Nine Months Ended
March 31,
2000 1999
----------- ------------
(Unaudited) (Unaudited)
(Restated)
Net loss $(17,570,224) $(10,744,203)
Other comprehensive loss, net of tax:
Foreign translation adjustment (122,512) (246,606)
----------- -----------
Comprehensive loss $(17,692,736) $(10,990,809)
=========== ============
F-29
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended
March 31,
2000 1999
---------- ---------
Unaudited Unaudited
Restated
NET SALES ......................... $ 5,436,627 $ 3,119,629
COST OF SALES ..................... 4,039,558 2,435,147
---------- ---------
GROSS PROFIT ...................... 1,397,069 684,482
---------- ---------
OPERATING EXPENSES
Officers and directors compensation 224,898 167,195
Salaries .......................... 730,201 1,103,721
Selling ........................... 992,447 650,984
Research and development .......... 469,343 463,546
General and administrative ........ 398,444 670,699
Other operating expenses .......... 223,251 417,596
Bad debts ......................... 34,275 --
Depreciation and amortization ..... 347,571 302,095
---------- ---------
TOTAL OPERATING EXPENSES .......... 3,420,430 3,775,836
LOSS BEFORE OTHER INCOME (EXPENSES) (2,023,361) (3,091,354)
Other income 388,780 176,959
Interest expense .................. (1,908,209) (743,760)
---------- ---------
OTHER INCOME (EXPENSES) ........... (1,519,429) (566,801)
---------- ---------
NET LOSS .......................... $ (3,542,790) $ (3,658,155)
========== =========
NET LOSS PER COMMON SHARE $ (0.17) $ (0.72)
========== =========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING ................ 20,636,133 5,087,116
F-30
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended
March 31,
2000 1999
--------- ----------
Unaudited Unaudited
Restated
Net loss .................................... $(3,542,790) $(3,658,155)
Other comprehensive loss, net of tax:
Foreign translation adjustment ......... (204,056) (266,643)
--------- ----------
Comprehensive loss .......................... $(3,746,846) $(3,924,798)
========== ===========
F-31
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
March 31,
2000 1999
--------- -----------
(Unaudited) (Unaudited)
(Restated)
CASH FLOWS FROM OPERATING ACTIVITES
Net loss ....................................... $(17,570,224) $(10,744,203)
Adjustment to reconcile net loss to net
cash used by operating activities
Depreciation and amortization ................. 1,080,732 1,000,667
Provision for bad debts ....................... (44,997) 643
Operating expenses through issuance of stock options
and common stock ............................. 2,809,936 --
Issuance of common stock in lieu of
interest payments ............................ 270,250 --
Interest expense on debt issuance cost and
conversion benefit ........................... 2,931,061 1,007,818
Interest expense on option value per black scholes 1,385,473 --
Settelment expense paid through issuance of
common stock 675,000 --
Amortization of deferred compensation ........... 1,282,500 (1,144,288)
Early extinguishment of debt (gain) .............. -- 832,849
(Increase) decrease in operating assets:
Accounts receivable ............................... (2,011,842) 458,899
Inventories ....................................... 1,516,204 341,319
Prepaid expenses and sundry receivables ........... 26,741 (492,131)
Increase (decrease) in operating liabilities:
Accounts payable .................................. (895,967) (51,069)
Accrued expenses .................................. 1,288,989 (1,144,266)
Customers deposits ................................ 1,783,396 (142,235)
--------- ----------
NET CASH USED BY OPERATING ACTIVITIES .............. (5,472,748) (8,931,709)
--------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of proberty and equipment ......... (548,114) (563,077)
Patents and trademarks ........................ -- (1,546)
Other intangibles ............................. (13,698) --
Security deposits ............................. (8,498) 7,689
(Repayment of) increase in loan receivable ..... (59,322) 2,911
--------- ----------
NET CASH USED BY INVESTING ACTIVITIES .......... (629,632) (554,023)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings ........... 21,985 18,545,444
Proceeds related to debentures ................ (1,063,059) --
Principal payment of short-term borrowings ...... (1,089,095) (11,024,348)
Principal payment of long-term borrowings ....... (15,248) (117,043)
Issuance of common stock for cash ............... 9,698,473 2,671,169
Issuance of stock options for cash .............. 2,136,149 --
Purchase of Treasury Stock ...................... (1,500,000) (540,000)
Payment to stockholders and officers ............ -- (2,207)
--------- ----------
CASH PROVIDED BY FINANCING ACTIVITIES ............ 8,189,205 9,533,015
--------- ----------
EFFECT OF EXCHANGE RATE ON CASH .................. (122,512) (171,231)
--------- ----------
NET INCREASE (DECREASE) IN CASH .................. 1,964,313 (123,948)
CASH AND CASH EQUIVALENT - beginning of period ... 1,281,297 1,281,552
--------- ----------
CASH AND CASH EQUIVALENTS - end of period ....... $ 3,245,610 $ 1,157,604
========= ==========
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000
(1) The financial statements included herein have been prepared by the
Registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Registrant believes that the disclosures are
adequate to make the information presented not misleading. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the Registrant's annual
report on Form 10-K for the fiscal year ended June 30, 1999.
(2) In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting of only a
normal and recurring nature, necessary to present fairly the financial position
of the Registrant as of March 31, 2000 and the results of operations and cash
flows for the interim period presented. Operating results for the nine months
ended March 31, 2000 are not necessarily indicative of the results to be
expected for the full year ending June 30, 2000.
(3) INVENTORIES
Inventories are summarized by major classification as follows:
March 31, June 30,
---------------------------
2000 1999
---------- ----------
(Unaudited) (Restated)
Raw materials, parts and supplies $3,569,261 $5,558,330
Work in process 1,140,982 1,048,197
Finished goods 1,105,954 725,874
---------- ----------
$5,816,197 $7,332,401
========== ==========
Inventories are stated at lower of cost or market, with cost being
determined on the first-in, first-out (FIFO) method. Inventory cost include
material, labor, and overhead.
(4) Common Stock
In October 1999 the Company issued 875,000 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.
(5) Restatement
The accompanying financial statements have been restated to properly record the
accrual of an additional $2,800,000 ($600,000 for the quarter ended March 31,
2000, $1,800,000 for the nine months ended March 31, 2000) for interest expense
for accrual of penalty interest on periodic payments required by terms of
financing agreements.
The effect of such restatements on the Company's quarterly financial statement
is as follows:
As As
Reported Adjustments Restated
-------------------------------------------
Balance Sheet Adjustments
Assets $ 25,538,296 $ -- $ 25,538,296
Liabilities 29,476,813 2,800,000 32,276,813
Statement of Operations
Adjustments
Nine months ended March 31, 2000
Operating expenses $ 13,724,509 $ -- $ 13,724,509
Loss from continuing operations 15,770,224 1,800,000 17,570,224
Net loss 15,770,224 1,800,000 17,570,224
Net loss per common share basic $ (0.89) $ (0.10) $ (0.99)
Three months ended March 31, 2000
Operating expenses $ 3,420,430 $ -- $ 3,420,430
Loss from continuing operations 2,942,790 600,000 3,542,790
Net loss 2,942,790 600,000 3,542,790
Net loss per common share basic $ (0.14) $ (0.03) $ (0.17)
(6) SUBSEQUENT EVENT
On March 29, 1999 an agreement was reached and executed on April 4, 2000 whereby
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.
The Company anticipates accruing $866,666 for interest expense for the accrual
of penalty interest on periodic payments as required by terms of financing
agreement for the quarter ended June 30, 2000.
F-33
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
Page
Available Information 3
Prospectus Summary 5
Risk Factors 10
The Company 26
Use of Proceeds 29
Market Prices and Dividend Policy 29
Capitalization 35
Selected Consolidated Financial Data 36
Management's Discussion and Analysis Of Financial Condition and
Results of Operations 37
Business 51
Management 72
Stock Options and Stock Appreciation Rights 78
Aggregated Option Exercises in Fiscal Year Ended June 30, 1999
Option Values 80
Principal Stockholders 83
Certain Transactions 86
History of Past Financings 87
Debenture Conversions Based Upon Hypothetical Range of High
and Low Prices 89
Selling Holders 90
Plan of Distribution 91
Restrictive Shares Being Issued Pursuant to Contractual
Agreements 93
Description of Capital Stock 94
Legal Matters 105
Independent Auditors 105
Interim Financial Statements 106
Index to Consolidated Financial Statements 107
-108-
<PAGE>
SWISSRAY INTERNATIONAL, INC.
19,080,184 SHARES OF
COMMON STOCK
PROSPECTUS
August 14, 2000
-109-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SECURITIES AND EXCHANGE COMMISSION REGISTRATION FEE $ 9,628.93
PRINTING EXPENSES 15,000.00
ACCOUNTING FEES AND EXPENSES 85,000.00
LEGAL FEES AND EXPENSES 250,000.00
TRANSFER AGENT AND REGISTRATION FEES 1,500.00
BLUE SKY FEES AND EXPENSES 15,000.00
MISCELLANEOUS EXPENSES 5,000.00
-----------
Total $381,128.93
===========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 721 of the New York Business Corporation Law provides that the
indemnification and advancement of expenses of directors and officers may be
provided by the certificate of incorporation or by-laws of a corporation, or
when authorized by the certificate of incorporation or by-laws, a resolution of
shareholders, a resolution of directors or an agreement providing for
indemnification (except in cases where a judgment or other final adjudication
establishes that such acts were committed in bad faith or were the result of
active or deliberate dishonesty and were material to the cause of action so
adjudicated or that a person personally gained in fact a financial profit or
other advantage to which he was not legally entitled).
Section 722 of the New York Business Corporation Law provides that a
corporation may indemnify any person made, or threatened to be made, a party of
an action or proceeding other than one by or in the right of the corporation to
procure a judgment in its favor, whether civil or criminal, including an action
by or in the right of any other corporation, partnership, joint venture, trust,
employee benefit plan or other entity which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he was a director or officer of the corporation or served such
other corporation, partnership, joint venture, trust, employee benefit plan or
other entity in any other capacity, against judgments, fines, amounts paid in
settlement and reasonable expenses if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or in the case of
service for any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, not opposed to, the best interests of the
corporation and, in criminal acts or proceedings, in addition, had no reasonable
cause to believe that his conduct was unlawful.
Section 722 of the New York Business Corporation Law also states that a
corporation may indemnify any person made, or threatened to be made, a party to
an action by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director or
II-1
<PAGE>
officer of the corporation or any other corporation, partnership, joint venture,
trust, employee benefit plan or other entity at the request of the corporation,
against amounts paid in settlement and reasonable expenses actually and
necessarily incurred by him in connection with the defense or settlement of such
action, or in connection with an appeal therein if such director or officer
acted, in good faith, for a purpose which he reasonably believed to be in, or in
the case of service for any other corporation, partnership, joint venture,
employee benefit plan or other entity, not opposed to, the best interests of the
corporation, except that no indemnification shall be made in respect to a
threatened or pending action which is settled or otherwise disposed of, or any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation, unless the court determines the person is fairly and
reasonably entitled to indemnity for such portion of the settlement amount and
expenses as the court deems proper.
Section 726 of the New York Business Corporation Law provides that a
corporation shall have the power to purchase and maintain insurance for
indemnification of directors and officers. However, no insurance may provide for
any payment, other than cost of defense, to or on behalf of any director or
officer for a judgment or a final adjudication adverse to the insured director
or officer if (i) a judgment or other final adjudication establishes that his
acts of active and deliberate dishonesty were material to the cause of action
adjudicated or that he personally gained a financial profit or other advantage
to which he was not legally entitled or (ii) if prohibited under the insurance
law of New York.
Section 724 of the New York Business Corporation Law provides that
indemnification shall be awarded by a court to the extent authorized under
Sections 722 and 723 (a) of the New York Business Corporation Law
notwithstanding the failure of a corporation to provide indemnification, and
despite any contrary resolution of the board or of the shareholders.
The By-Laws of the Registrant provide for indemnification as follows:
(a) Any person made a party to any action, suit or proceeding, by
reason of the fact that he, his testator or intestate representative is or was a
director, officer or employee of the Corporation, or of any Corporation in which
he served as such at the request of the Corporation, shall be indemnified by the
Corporation against the reasonable expenses, including attorney's fees, actually
and necessarily incurred by him in connection with the defense of such action,
suit or proceedings, or in connection with any appeal therein, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding, or in connection with any appeal therein that such officer, director
or employee is liable for negligence or misconduct in the performance of his
duties.
(b) The foregoing right of indemnification shall not be deemed
exclusive of any other rights to which any officer or director or employee may
be entitled apart from the provisions of this section.
(c) The amount of indemnity to which any officer or any director may be
entitled shall be fixed by the Board of Directors except that in any case where
there is no disinterested majority of the Board available, the amount shall be
fixed by arbitration pursuant to the then existing rules of the American
Arbitration Association.
II-2
<PAGE>
The Certificate of Incorporation of the Registrant, as amended,
provides for indemnification as follows:
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for damages for any breach of duty in such
capacity, provided that nothing contained in this Article shall eliminate or
limit the liability of any director if a judgment or final adjudication adverse
to him establishes that his acts or omissions were in bad faith or involved
intentional misconduct or a knowing violation of law to which he was not legally
entitled or that his acts violated Section 719 of the New York Business
Corporation Law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On May 20, 1995, the Registrant issued 2,000,000 shares of Common Stock
to non-U.S. persons in reliance on Regulation S promulgated under the Securities
Act for an aggregate consideration of $4,250,000. Placement agents were
Interfinance Investment Co., Ltd., Berkshire Capital Management Corp. and Rolcan
Finance Ltd. Net proceeds received by the Company after costs related to the
financing were $4,000,000.
On December 10, 1995, the Registrant issued 1,000,000 shares of Common
Stock to non-U.S. persons in reliance on Regulation S. Placement agent was
Berkshire Capital Management Corp. Net proceeds received by the Company were
$4,500,000.
On September 11, 1996, the Registrant issued $3,800,000 aggregate
principal amount of convertible debentures to non-U.S. persons in reliance on
Regulation S. The convertible debentures were all converted into shares of
Common Stock at a conversion price equal to 81% of the average closing bid price
for the five trading days preceding the date of conversion. The Registrant
received net proceeds of $2,774,000.
On January 10, 1997, the Registrant issued $3,500,000 aggregate
principal amount of convertible debentures to non-U.S. persons in reliance on
Regulation S. Placement agent was Targas Trading Ltd. Such convertible
debentures were all converted into shares of Common Stock at a conversion price
equal to 81% of the average closing bid price for the five trading days
preceding the date of conversion. Any convertible debentures not so converted
are subject to mandatory conversion by the Registrant on the 36th monthly
anniversary of the date of issuance of the convertible debentures. Net proceeds
received by the Registrant were $3,085,000.
On March 5, 1997, the Registrant issued 1,000,000 shares of Common
Stock for an aggregate price of $2,000,000 to non-U.S. persons in reliance on
Regulation S under the Securities Act. The placement agent for such shares was
Rolcan Finance Ltd. The Registrant received net proceeds of $1,925,000.
On April 28, 1997, the Registrant issued $2,000,000 aggregate principal
amount of convertible debentures, which were all converted into shares of Common
Stock of the Registrant at a conversion price equal to the higher of 80% of the
average closing bid price on the date of
II-3
<PAGE>
conversion or $2.50 per share. The Registrant received net proceeds of
$1,822,500.
On each of May 15, 1997 and June 15, 1997, the Registrant issued
$2,000,000 principal amount of 6% convertible debentures convertible into Common
Stock on terms similar to those of the April 28, 1997 issuance to accredited
investors as defined in Rule 501(a) of Regulation D. Placement agent for such
convertible debentures was Rolcan Finance Ltd. The aggregate offering price for
such convertible debentures was $4,000,000. After deducting underwriting
discounts, commissions and escrow fees in the aggregate amount of $528,610, the
Registrant received an aggregate net amount of $3,458,890. Such convertible
debentures were refinanced on July 31, 1997, with the proceeds of $4,262,500
principal amount of convertible debentures issued to non-U.S. persons under
Regulation S.
On July 31, 1997, the Registrant issued $4,262,500 of 7% convertible
debentures. The proceeds of such issuance were used to refinance $4,000,000
principal amount of 6% convertible debentures dated May 15, 1997 and June 13,
1997 plus interest. The Registrant did not receive any cash proceeds from this
transaction. Such convertible debentures, due July 31, 2000, were all converted
into shares of Common Stock at a price equal to 80% of the average closing bid
price for the five (5) trading days preceding the date of conversion.
On August 19, 1997, the Registrant issued $5,000,000 aggregate
principal amount of 6% convertible debentures, convertible into Common Stock of
the Registrant. Placement Agent for such convertible debentures was Rolcan
Finance Ltd. The aggregate offering price of such convertible debentures was
$5,000,000. After deducting underwriting discounts, commissions and escrow fees
in the aggregate amount of $681,250 the Registrant received a net amount of
$4,318,750. All such convertible debentures were issued to accredited investors
as defined in Rule 501(a) of Regulation D promulgated under the Act ("Regulation
D") and the Registrant has received written representations from each investor
to that effect. The placement agent for such convertible debentures was Rolcan
Finance, Ltd. Fifty percent of the face amount of such convertible debentures
were convertible into shares of Common Stock of the Registrant at any time after
November 3, 1997 and the remaining 50% of the face value of such convertible
debentures were convertible into shares of Common Stock of the Registrant after
December 3, 1997, in each case at a conversion price equal to 80% of the average
closing bid price for the five trading days preceding the date of conversion.
Any such convertible debentures not so converted are subject to mandatory
conversion by the Registrant on the 36th monthly anniversary of the date of
issuance of such Convertible Debentures. All conversions have been competed (or
rolled over as indicated below).
Between November 26, 1997 and December 11, 1997, the Company issued
$2,158,285 aggregate principal amount of 5% convertible debentures (the
"Convertible Debentures") including a 15% premium, and accrued interest,
convertible into Common Stock of the Company. The Registrant did not receive any
cash proceeds from the offering of the Convertible Debentures. An amount of
$2,158,285 was paid by investors to holders of the Company's Convertible
Debentures issued on August 19, 1997 holding $1,850,000 of such Convertible
Debentures as repayment in full of the Company's obligations under such
Convertible Debentures. During the same period the Company issued $3,690,000
aggregate principal amount of 8% Convertible Debentures, convertible into Common
Stock
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<PAGE>
of the Company. After deducting fees, commissions and escrow fees in the
aggregate amount of $690,000 the Company received a net amount of $3,000,000.
All Convertible Debentures were issued to accredited investors as defined in
Rule 501(a) of Regulation D promulgated under the Act ("Regulation D") and the
Company has received written representation from each investor to that effect.
The placement agent for such convertible debentures was Rolcan Finance, Ltd.
Twenty-five percent of the face amount of both Convertible Debentures are
convertible into shares of Common Stock of the Company as at the effective date
of a registration statement covering the underlying shares of Common Stock, to
wit: March 12, 1998. An additional twenty-five percent of the face amount of
both Convertible Debentures may be converted each 30 days thereafter, in each
case at a conversion price equal to 75% of the average closing bid price for the
five trading days preceding the date of the conversion. Any Convertible
Debenture not so converted are subject to mandatory conversion by the Company on
the 24th monthly anniversary of the date of issuance of the Convertible
Debentures. As of March 31, 1999 all conversions were completed.
In March of 1998, the Company issued $5,500,000 aggregate principal
amount of 6% convertible debentures (the "Convertible Debentures"), convertible
into Common Stock of the Company. After deducting legal fees of $35,000 and
placement agent fees of $550,000 directly attributable to such offering the
Company received a net amount of $4,915,000. All Convertible Debentures were
issued to accredited investors as defined in Rule 501(a) of Regulation D
promulgated under the Act ("Regulation D") and the Company has received written
representations from each investor to that effect. The placement agent for such
convertible debentures was Rolcan Finance, Ltd. One Hundred percent of the face
amount of the Convertible Debentures are convertible into shares of Common Stock
of the Company at the earlier of May 15, 1998 or the effective date of this
Registration Statement at a conversion price equal to 80% of the average closing
bid price for the ten trading days preceding the date of conversion. Any
Convertible Debentures not so converted are subject to mandatory conversion by
the Company on the 24th monthly anniversary of the date of issuance of the
Convertible Debentures. As of December 3, 1999 all conversions were completed.
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. After deducting fees directly attributable to
such offering the Company received a net amount of $1,760,000. All Convertible
Debentures were issued to accredited investors as defined in Rule 501(a) of
Regulation D promulgated under the Act ("Regulation D") and the Company has
received written representation from each investor to that effect. The placement
agent for such convertible debentures was Net Financial International, Ltd. One
Hundred percent of the face amount of the Convertible Debentures are convertible
into shares of Common Stock of the Company at the earlier of August 14, 1998 or
the effective date of this Registration Statement at a conversion price equal to
80% of the average closing bid price for the ten trading days preceding the date
of conversion. Any Convertible Debentures not so converted are subject to
mandatory conversion by the Company on the 24th monthly anniversary of the date
of issuance of the Convertible Debentures. All of these debentures have been
converted as of December 3, 1999.
On August 31, 1998 the Company issued a principal aggregate total
amount of $6,143,849 of 5% convertible debentures ("Convertible Debentures"),
convertible into Common Stock of the Company
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to the following financing participants - Canadian Advantage Limited
Partnership, Dominion Capital Fund, Ltd. 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 or $1.00 whichever is less as follows: (a)
The Company issued $3,832,849 aggregate principal for which the Company received
no cash; investors having paid the holders of $3,000,000 in Convertible
Debentures (originally issued in March 1998) together with 25% premium and
accrued interest; and (b ) the Company issued new Convertible Debentures
convertible into shares of Company Common Stock. After deducing fees directly
attributable to such offering the Company received a net amount of $ 2,000,000.
All Convertible Debentures were issued to accredited investors as defined in
Rule 501(a) of Regulation D promulgated under the Act ("Regulation D") and the
Company has received written representations from each investor to that effect.
The placement agent for such convertible debentures was Net Financial
International, Ltd. Any Convertible Debentures not so converted are subject to
mandatory conversion by the Company on the 24th anniversary of the date of
issuance of the Convertible Debentures. As of August 8, 2000 an unconverted
balance of $3,930,594 remains outstanding and, accordingly, the number of shares
being registered for the balance of this transaction amounts to 4,323,653
shares.
On October 6, 1998 the Company issued a principal aggregate amount of
$2,940,000 of 5% convertible debentures ("Convertible Debentures"), convertible
into Common Stock of the Company to the following financing participants -
Dominion Capital Fund, Ltd. 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 or $1.00 whichever is less. After deducting fees directly
attributable to such offering (including the Company's repurchase of 1,465,000
pre-split shares (717,850 and 747,150 shares from Dominion Capital Fund, Ltd.
and Sovereign Partners LP respectively) of its common stock for a cash
consideration of $540,000) the Company received a net amount of $ 2,100,000. All
Convertible Debentures were issued to accredited investors as defined in Rule
501(a) of Regulation D promulgated under the Act ("Regulation D") and the
Company has received written representations from each investor to that effect.
There was no placement agent involved in this financing. Any Convertible
Debentures not so converted are subject to mandatory conversion by the Company
on the 24th anniversary of the date of issuance of the Convertible Debentures.
None of these Convertible Debentures have been converted as of August 8, 2000
and, accordingly, the number of shares being registered for this transaction
amounts to 3,234,000 shares.
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 notes are secured by a second mortgage on
land and building . 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 Agreements, Debentures and Registration Rights
Agreements automatically went into effect with debentures in the principal sum
of $1,119,600 (inclusive of interest on aforesaid promissory notes) bearing
interest at the rate of 5% per annum (payable in stock or cash at the
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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. None of these convertible debentures have been
converted as of July 21, 2000 and, accordingly, the number of shares being
registered for this transaction amounts to 1,231,560 shares.
On January 29, 1999 the Company issued a principal aggregate amount of
$1,170,000 of convertible debentures ("Convertible Debentures"), convertible
into Common Stock of the Company 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. All Convertible Debentures were issued to
accredited investors as defined in Rule 501(a) of Regulation D promulgated under
the Act ("Regulation D") and the Company has received written representations
from each investor to that effect. The placement agent for such convertible
debentures was Rolcan Finance, Ltd. Any Convertible Debentures not so converted
are subject to mandatory conversion by the Company on the 24th anniversary of
the date of issuance of the Convertible Debentures. None of these Convertible
Debentures have been converted as of August 8, 2000 and, accordingly, the number
of shares being registered for this transactions amounts to 946,707 shares.
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 were May 31, 1999, (c) the potential 60 day extension
date on such promissory notes was July 30, 1999 but such extension right was
never utilized, (d) the conversion price is 80% of the 10 day average closing
bid price for the 10 consecutive trading days 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 (in subparagraph
(a) regarding December 1998 transaction) There was no placement agent involved
in this financing. The promissory notes were not paid on their due date and the
terms of the Contingent Subscription Agreements, Debentures and Registration
Rights Agreements automatically went into effect with debentures in the
principal sum of $1,132,200 (inclusive of interest on aforesaid promissory
notes) going into effect. None of these Convertible Debentures have been
converted as of August 8, 2000 and, accordingly the number of shares being
registered for this transaction is 958,016 shares.
On March 26, 1999 the Company entered into a third promissory note
(contingent convertible
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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 is June 25, 1999,
(d) the potential 60 day extension date on such promissory note was August 23,
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 to those
described in the above referenced March 2, 1999 transaction. There was no
placement agent involved in this financing. The promissory notes were not paid
on their due date and the terms of the Contingent Subscription Agreement,
Debenture and Registration Rights Agreement automatically went into effect with
debentures in the principal sum of $561,000 (inclusive of interest on aforesaid
promissory notes) going into effect. None of these Convertible Debentures have
been converted as of August 8, 2000, and, accordingly, the number of shares
being registered for this transaction amounts to 474,692 shares.
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 Debenture"), convertible into Common Stock of the Company to the
following financing participants - Endeavour Capital Fund SA, Excaliber Limited
Partnership and Carbon Mesa Partners LLC at a conversion price of 80% of the
average closing bid price for the ten trading days preceding the date of
conversion together with accrued interest of 5%. After deducing fees directly
attributable to such offering the offering the Company received a net amount of
$772,727. All Convertible Debentures were issued to accredited investors as
defined in Rule 501(a) of regulation D promulgated under the Act ("Regulation
D") and the Company received written representations from each investor to that
effect. There was no placement agent involved in this financing. 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. 184,529
shares have been already been issued with regard to this transaction and,
accordingly, the number of shares being registered for the balance of this
transaction amounts to 398,708 shares.
On July 9, 1999 the Company entered into a fourth promissory note
(contingent convertible debenture financing) with terms and conditions
substantially identical to those set forth in the March 2, 1999 promissory note
financing referred to directly above excepting (a) the lender is different, to
wit: Southshore Capital, Ltd. now assigned to Parkdale LLC, (b) gross proceeds
amounted to $1,100,000, (c) the due date of such note is August 23, 1999 with no
right to extend and (d) the debenture holder did not receive any warrants. In
all other respects the terms and conditions of each of the documents executed
with respect to this transaction are identical to those described in the above
referenced March 2, 1999 transaction. There was no placement agent involved in
this financing. 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 with debentures in the principal
sum of $1,148,400 (inclusive of interest on aforesaid promissory note) going
into effect. None of these Convertible Debentures have been converted as of
August 8, 2000 and, accordingly, the number of shares being registered for this
transaction amounts to 971,732 shares.
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<PAGE>
On August 11, 1999 the Company entered into a fifth promissory note
(contingent convertible debenture financing) with terms and conditions
substantially identical to those set forth in the March 2, 1999 promissory note
financing referred to directly above excepting (a) the lender is different, to
wit: Aberdeen Avenue, LLC, (b) gross proceeds amounted to $1,400,000, (c) the
due date of such note is November 11, 1999 with no right to extend and (d) the
debenture holder did not receive any warrants. In all other respects the terms
and conditions of each of the documents executed with respect to this
transaction are identical to those described in the above referenced March 2,
1999 transaction. There was no placement agent involved in this financing. The
terms of the Contingent Subscription Agreement, Convertible Debenture and
Registration Rights Agreement went into effect on November 11, 1999 with the
principal sum of the Convertible Debenture being $1,526,000. No portion of this
Convertible Debenture has been converted as of August 8, 2000 and, accordingly,
the number of shares being registered for this transaction amounts to 1,291,231
shares.
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. In accordance with the terms of
such Subscription Agreements and Registration Rights Agreements all 2,666,667
shares sold are being registered herein. The Investment participants involved in
the above transactions are Parkdale LLC, Southridge Capital Management LLC,
Striker Capital, Alfred Hahnfeldt and Greenfield Investments Consultants LLC.
In accordance with one year consulting agreement entered into on March 29, 1999
with Liviakis Financial Communications, Inc. ("LFC"), the Company issued as full
and complete compensation thereunder 3,000,000 fully vested and non-forfeitable
shares of its restrictive common stock to LFC. Thereafter, and in accordance
with a second one year consulting agreement with LFC entered into on March 29,
2000, the Company issued 490,000 fully vested and non-forfeitable shares of its
restrictive common stock and further issued an additional 36,000 restrictive
shares of its common stock (based upon 3,000 shares per month). The issuance of
shares of common stock in accordance with the above referenced consulting
agreements were exempt from registration in accordance with Section 4(2) of the
Securities Act of 1933, as amended, as transactions by an issuer not involving a
public offering.
In accordance with eighteen month consulting agreement entered into on
March 29, 1999 with Rolcan Finance Ltd. ("Rolcan"), the Company issued as full
and complete compensation thereunder 800,000 fully vested and non-forfeitable
shares of its restrictive common stock to Rolcan The issuance of shares of
common stock in accordance with the above referenced consulting agreement were
exempt from registration in accordance with Section 4(2) of the Securities Act
of 1933, as amended, as a transaction by an issuer not involving a public
offering.
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<PAGE>
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. In accordance with the terms of the
Subscription Agreement and Registration Rights Agreement all 333,333 shares sold
are being registered hereunder.
With respect to each of the above referenced financings, to the extent
required, the Company has filed Forms D with the SEC indicating the manner in
which net proceeds received were utilized. Such Forms D require that distinction
be made for net proceeds utilized as "payments to officers, directors and/or
affiliates" as opposed to "payment to others". In each instance the Forms D, as
filed, indicate "payment to others".
Additional Selling Shareholders
In addition to those Selling Shareholders referred to above, the
following persons and/or firms may be considered to be "Additional Selling
Shareholders".
No. of No. of Date
Name Shares Warrants Issued
---- ------ -------- ------
Trianon Opus One Inc. ("Trianon") 85,077 4/28/98
Gary B. Wolff ("Wolff") 150,000 12/11/98 & 3/26/99
Dr. Erwin Zimmerli ("Zimmerli") 100,000 2/26/99
Display Presentations Ltd. ("Display") 65,000 10/8/99
Live Marketing ("Live") 16,864 10/31/99
All shares referred to herein are shares of common stock $.01 par
value. Warrants referred to herein are convertible (on a 1 for 1 basis) into
shares of common stock $.01 par value. None of these five transactions involved
underwriters.
Trianon owns the number of shares indicated pursuant to terms of April
28, 1997 promissory note referred to under "Description of Capital Stock -
Promissory Note", which note issued in exchange for $2,000,000 in cash
consideration, was converted one year thereafter into the number of shares of
Company common stock indicate and which note contained "piggy-back" registration
rights.
Both Wolff and Zimmerli own the number of warrants indicated with the
right to convert same into shares of common stock (on a one for one basis).
Warrants granted to Wolff (each exercisable at $1.00 per share) were issued on
December 11, 1998 (50,000 warrants) and March 26, 1999 (100,000 warrants). The
bid price for shares of Company common stock on the dates of warrant issuance
were as follows: December 11, 1998 - $0.50 and March 26, 1999 - $0.60. Each of
these 150,000 warrants expire five years from date of issuance. Warrants granted
to Zimmerli (each exercisable at $1.00 per share) were issued on February 26,
1999. The bid price for shares of Company common stock on the date of warrant
issuance was $.562. Each of these 100,000 warrants expire five years from date
of issuance.
Wolff acts as corporate counsel to the Company while Zimmerli serves on
the Company's Independent Audit Committee and is one of the Company's
independent directors. The warrants
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issued to each of these individuals were for personal services rendered by such
individuals to the Company and valued at a nominal consideration in view of the
fact that exercise price approximated twice the trading price on date of
issuance.
Display and Live were issued the number of shares indicated alongside
their respective names as partial consideration for services rendered, pursuant
to agreements containing certain "piggy-back" registration rights. The shares
issued to Live were issued pursuant to October 31, 1999 contract and were for
services rendered and valued at $50,590 with the number of shares being arrived
at by utilizing the bid price ($3.00) on date of contract. The shares issued to
Display were issued pursuant to October 8, 1999 contract and were for services
rendered and valued at $207,500 with the number of shares being arrived at by
utilizing the bid price of ($3.192) on date of contract. The agreements with
both Display and Live are filed as exhibits to this Registration Statement and
are summarized under the heading entitled "Restrictive Shares Being Registered
Pursuant to Contractual Agreements.
Each of the transactions referred to under the heading "Additional
Selling Shareholders" are claimed to be exempt from registration in accordance
with Section 4(2) of the Securities Act of 1933 as transactions by an issuer not
involving a public offering.
Each of those transactions conducted commencing with August, 1997 were
transactions with financing participants who warrant and represent themselves to
be "accredited investors" as that term is defined in the Securities Act.
Those sales of unregistered securities referred to herein as having
been conducted with "non-US persons" from May 20, 1995 through March 5, 1997
were conducted in accordance with the exemption afforded by Regulation S Rules
governing offers and sales made outside the United States without registration
under the Securities Act of 1933 while each of those sales of unregistered
securities indicated herein as having been conducted from April 28, 1997 to the
present were conducted in accordance with exemption afforded by Rule 506 of
Regulation D under the Securities Act of 1933.
Item 16. Exhibits and Financial Statement Schedules
Exhibit
No. Description
2.1 Acquisition Agreement, dated May 1995, by and between
Registrant, a New York corporation (now Swissray
International, Inc.); Berkshire International Finance, Inc.,
SR-Medical AG (a Swiss corporation), Teleray AG (a Swiss
corporation) and others (Incorporated by reference to Exhibit
6(a) of the Registrant's Registration Statement on Form 10SB,
Registration No . 0-26972, effective February 14, 1996).
2.2 Exchange Agreement, dated as of November 22, 1996 by and
between the Registrant and Douglas Maxwell ("Maxwell");
Registration Rights Agreement, dated as of March 13, 1997,
between the Registrant and Maxwell; Assignment and Assumption
Agreement, dated March 13, 1997, between the Registrant and
Maxwell; Option Agreement, dated January 24, 1997, granting
options for 125,000 shares of the Registrant to Maxwell
(Incorporated by reference to Exhibit 2.2 of the Registrant's
Annual Report for the fiscal year ended June 30, 1997 on Form
10-KSB filed on September 30, 1997).
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3.1 Registrant's Certificate of Incorporation, dated December 20,
1967 (Incorporated by reference to Exhibit 2(a) of the
Registrant's Registration Statement on Form 10SB, Registration
No. 0- 26972, effective February 14, 1996).
3.2 Amendment to Registrant's Certificate of Incorporation, dated
September 19, 1968 (Incorporated by reference to Exhibit 2(b)
of the Registrant's Registration Statement on Form 10SB,
Registration No. 0-26972, effective February 14, 1996).
3.3 Amendment to Registrant's Certificate of Incorporation, dated
September 8, 1972 (Incorporated by reference to Exhibit 2(c)
of the Registrant's Registration Statement on Form 10SB,
Registration No. 0-26972, effective February 14, 1996).
3.4 Amendment to Registrant's Certificate of Incorporation, dated
October 30, 1981 (Incorporated by reference to Exhibit 2(d) of
the Registrant's Registration Statement on Form 10SB,
Registration No. 0-26972, effective February 14, 1996).
3.5 Certificate of Merger of Direct Marketing Services, Inc. and
CGS Units Incorporated into CGS Units Incorporated, dated
June 16, 1994 (Incorporated by reference to Exhibit 2(e)
of the Registrant's Registration Statement on Form 10SB,
Registration No. 0-26972, effective February 14, 1996).
3.6 Amendment to Registrant's Certificate of Incorporation, dated
August 10, 1994 (Incorporated by reference to Exhibit 3.6 of
Registrant's Annual Report for the fiscal year ended June 30,
1997 on Form 10-KSB, filed September 30, 1997).
3.7 Certificate of Correction of Certificate of Merger of Direct
Marketing Services, Inc. and CGS Units Incorporated into
CGS Units Incorporated, filed August 5, 1994 (Incorporated
by reference to Exhibit 2(f) of the Registrant's Registration
Statement on Form 10SB, Registration No. 0-26972, effective
February 14, 1996).
3.8 Amendment to Registrant's Certificate of Incorporation,
dated May 24, 1995 (Incorporated by reference to Exhibit 2(g)
of the Registrant's Registration Statement on Form 10SB,
Registration No. 0-26972, effective February 14, 1996).
3.9 Amendment to Registrant's Certificate of Incorporation, dated
August 29, 1996 (Incorporated by reference to Exhibit 3.9 of
Registrant's Annual Report for the fiscal year ended June 30,
1997 on Form 10-KSB, filed September 30, 1997).
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<PAGE>
3.10 Amendment to Registrant's Certificate of Incorporation, dated
December 13, 1996 (Incorporated by reference to Exhibit 3.10
of Registrant's Annual Report for the fiscal year ended June
30, 1997 on Form 10-KSB, filed September 30, 1997).
3.11 Amendment to Registrant's Certificate of Incorporation, dated
March 12, 1997 (Incorporated by reference to Exhibit 3.11 of
Registrant's Annual Report for the fiscal year ended June 30,
1997 on Form 10-KSB, filed September 30, 1997).
3.12 Registrant's By-Laws (Incorporated by reference to Exhibit 2
(h) of the Registrant's Registration Statement on Form 10SB,
Registration No. 0-26972, effective February 14, 1996).
3.13 Amendment to Registrant's Certificate of Incorporation, dated
December 26, 1997 (Incorporated by reference to Exhibit 3.13
of Registrant's Form S-1 Registration Statement, Registration
No. 333-43401, effective March 12, 1998).
3.14 Amendment to Registrant's Certificate of Incorporation, dated
July 28, 1999.
3.15 Amendment to Registrant's Certificate of Incorporation, dated
July 20, 2000. (Incorparated by reference to Exhibit 3.15 of
Form S-1 Registration Statement, Registration No. 333-59829)
filed August 4, 2000
5.1 Opinion of Gary B. Wolff, P.C., counsel to the Registrant
(Incorporated by reference to Exhibit 5.1 of Registrant's
first amendment to filing of Form S-1 Registration Statement,
Registration No. 333-59829 filed April 27, 1999).
5.1(a) Opinion of Gary B. Wolff, P.C., counsel to the Registrant.
5.1(b) Opinion of Gary B. Wolff, P.C., counsel to the Registrant.
5.1(c) Opinion of Gary B. Wolff, P.C., counsel to the Registrant.
5.1(d) Opinion of Gary B. Wolff, P.C., counsel to the Registrant.
5.1(e) Opinion of Gary B. Wolff, P.C., counsel to the Registrant.
5.1(f) Opinion of Gary B. Wolff, P.C., counsel to the Registrant.
5.1(g) Opinion of Gary B. Wolff, P.C., counsel to the Registrant.
5.1(h) Opinion of Gary B. Wolff, P.C., counsel to the Registrant.
5.1(i) Opinion of Gary B. Wolff, P.C., counsel to the Registrant.
10.1 License Agreement, dated June 24, 1995, by and between the
Registrant and Hans-Jurgen Behrendt (Incorporated by reference
to Exhibit 6(b)of Registrant's Registration Statement on Form
10SB, Registration No. 0-26972, effective February 14, 1996).
10.2 1996 Swissray International Corporation, Inc. Non-Statutory
Stock Option Plan. (Incorporated by reference to Exhibit 10.2
II-13
<PAGE>
of Registrant's Amendment No. 1 to Form S-1 Registration
Statement, Registration No. 333-38229, filed December 17,
1997).
10.3 Agreement, dated June 11, 1996 between the Registrant and
Philips Medical Systems (Incorporated by reference to Exhibit
10.3 of Registrant's Annual Report for the fiscal year ended
June 30, 1997 on Form 10-KSB, filed September 30, 1997).
10.4 License Agreement, dated as of July 18, 1997, by and between
the Registrant and Agfa-Gevaert N.V., certain portions of
which are filed under a request for confidential treatment
pursuant to Rule 24b-2 promulgated pursuant to the Securities
Exchange Act of 1934, as amended, and Rule 80(b)(4) of
Organization; Conduct and Ethics; and Information and Requests
adopted under the Freedom of Information Act, under Rule 406
of the Securities Act of 1933, as amended, and the Freedom of
Information Act (Incorporated by reference to Exhibit 10.4 of
Registrant's Annual Report for the fiscal year ended June 30,
1997 on Form 10-KSB/A2, filed December 3, 1997).
10.5 Agreement, dated July 14, 1995, by and between Teleray AG and
Optische Werke G. Roderstock, certain portions of which are
filed under a request for confidential treatment pursuant to
Rule 24b-2 promulgated pursuant to the Securities Exchange Act
of 1934, as amended, and Rule 80(b)(4) of Organization;
Conduct and Ethics; and Information and Requests adopted under
the Freedom of Information Act, under Rule 406 of the
Securities Act of 1933, as amended, and the Freedom of
Information Act (Incorporated by reference to Exhibit 10.5 of
Registrant's Annual Report for the fiscal year ended June 30,
1997 on Form 10-KSB/A2, filed December 3, 1997).
10.6 Agreement, dated as of June 30, 1997, between the Registrant
and Ruedi G. Laupper. (Incorporated by reference to Exhibit
10.2 of Registrant's Amendment No. 1 to Form S-1 Registration
Statement, Registration No. 333-38229, filed December 17,
1997).
10.7 Registration Rights Agreement, dated as of August , 1997, by
and between Swissray International, Inc. and the person named
on the signature page hereto. (Incorporated by reference to
Exhibit 10.2 of Registrant's Amendment No. 1 to Form S-1
Registration Statement, Registration No. 333-38229, filed
December 17, 1997). See attached Schedule. (Incorporated by
reference to Exhibit 10.7 of Registrant's Amendment No. 4 to
Form S-1 Registration Statement, Registration No. 333-38229,
filed February 9, 2000).
10.8 Debenture of Swissray International, Inc. (Incorporated by
reference to Exhibit 10.2 of Registrant's Amendment No. 1 to
Form S-1 Registration Statement, Registration No. 333-38229,
filed December 17, 1997). See attached Schedule. (Incorporated
by reference to Exhibit 10.8 of Registrant's Amendment No. 4
to Form S-1 Registration Statement, Registration No. 333-38229
filed February 9, 2000).
10.9 Asset Purchase Agreement, dated as of October 17, 1997 by and
among Swissray Medical Systems, Inc., Swissray International,
Inc., Service Support Group LLC, Gary Durday, Michael Harle
and Kenneth Montler (Incorporated by reference to Exhibit 2.1
of the Registrant's Current Report on Form 8-K, filed November
4, 1997).
10.10 Registration Rights Agreement, dated as of October 17, 1997,
by and among Swissray International, Inc., Service Support
II-14
<PAGE>
Group, LLC, Gary Durday, Michael Harle and Kenneth Montler
(Incorporated by reference to Exhibit 2.2 of the Registrant's
Current Report on Form 8-K, filed November 4, 1997).
10.11 Employment Agreement between the Registrant and Ruedi
G. Laupper, dated as of December , 1997 (Incorporated by
reference as Exhibit 10.11 to Registrant's initial filing of
Form S-1 Registration Statement, Registration No. 333-43401
filed December 29, 1997).
10.12 Employment Agreement between the Registrant and Josef Laupper,
dated as of December , 1997 (Incorporated by reference as
Exhibit 10.12 to Registrant's initial filing of Form S-1
Registration Statement, Registration No. 333-43401 filed
December 29, 1997).
10.13 Employment Agreement between the Registrant and Herbert
Laubscher, dated as of December , 1997 (Incorporated by
reference as Exhibit 10.13 to Registrant's initial filing of
Form S-1 Registration Statement, Registration No. 333-43401
filed December 29, 1997).
10.14 Employment Agreement between the Registrant and Ueli Laupper,
dated as of December , 1997 (Incorporated by reference as
Exhibit 10.14 to Registrant's initial filing of Form S-1
Registration Statement, Registration No. 333-43401 filed
December 29, 1997).
10.15 Registration Rights Agreement, dated as of November , 1997
(Incorporated by reference as Exhibit 10.15 to Registrant's
initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29, 1997). See
attached Schedule. (Incorporated by reference to Exhibit 10.15
of Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No.333-38229, filed February 9, 2000).
10.16 Debenture of Swissray International, Inc., dated November ,
1997 (Incorporated by reference as Exhibit 10.16 to
Registrant's initial filing of Form S-1 Registration Statement
Registration No. 333-43401 filed December 29, 1997). See
attached Schedule.(Incorporated by reference to Exhibit 10.16
of Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No.333-38229, filed February 9, 2000).
10.17 Subscription Agreement, dated November , 1997 (Incorporated
by reference as Exhibit 10.17 to Registrant's initial filing
of Form S-1 Registration Statement, Registration No. 333-43401
filed December 29, 1997). See attached Schedule. (Incorporated
II-15
<PAGE>
by reference to Exhibit 10.17 of Registrant's Amendment No. 4
to Form S-1 Registration Statement, Registration No.333-38229,
filed February 9, 2000).
10.18 Registration Rights Agreement (rollover), dated as of November
1997 (Incorporated by reference as Exhibit 10.18 to
Registrant's initial filing of Form S-1 Registration Statement
Registration No. 333-43401 filed December 29, 1997). See
attached Schedule.(Incorporated by reference to Exhibit 10.18
of Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No.333-38229, filed February 9, 2000).
10.19 Debenture of Swissray International, Inc. (rollover), dated
November , 1997 (Incorporated by reference as Exhibit 10.19
to Registrant's initial filing of Form S-1 Registration
Statement, Registration No.333-43401 filed December 29, 1997).
See attached Schedule. (Incorporated by reference to Exhibit
10.19 of Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No.333-38229, filed February 9, 2000).
10.20 Subscription Agreement (rollover), dated November , 1997
(Incorporated by reference as Exhibit 10.20 to Registrant's
initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29, 1997). See
attached Schedule.(Incorporated by reference to Exhibit 10.20
of Registrant's Amendment No. 4 to Form S-1 Registration
Statement,Registration No. 333-38229, filed February 9, 2000).
10.21 Agreement Regarding August, 1997 Regulation D offering
(Incorporated by reference as Exhibit 10.21 to Registrant's
initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29, 1997).
10.22 Subscription Agreement dated March , 1998 (Incorporated by
reference as Exhibit 10.22 to Registrant's initial filing of
Form S-1 Registration Statement, Registration No. 333-50069
filed April 14, 1998). See attached Schedule. (Incorporated
by reference to Exhibit 10.22 of Registrant's Amendment No. 4
to Form S-1 Registration Statement, Registration No.333-38229,
filed February 9, 2000).
10.23 Registration Rights Agreement dated March , 1998 (Incorporated
by reference as Exhibit 10.23 to Registrant's initial filing
of Form S-1 Registration Statement, Registration No.333-50069
filed April 14, 1998). See attached Schedule. (Incorporated by
reference to Exhibit 10.23 of Registrant's Amendment No. 4 to
Form S-1 Registration Statement, Registration No. 333-38229,
filed February 9, 2000).
10.24 Debenture dated March , 1998 (Incorporated by reference
as Exhibit 10.24 to Registrant's initial filing of Form S-1
Registration Statement, Registration No. 333-50069 filed April
14, 1998). See attached Schedule. (Incorporated by reference
II-16
<PAGE>
to Exhibit 10.24 of Registrant's Amendment No. 4 to Form S-1
Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.25 This Exhibit Number skipped.
10.26 Subscription Agreement dated June, 1998 (Incorporated by
reference as Exhibit 10.26 to Registrant's initial filing of
Form S-1 Registration Statement, Registration No. 333-59829
filed July 24, 1998). See attached Schedule. (Incorporated
by reference to Exhibit 10.26 of Registrant's Amendment No. 4
to Form S-1 Registration Statement, Registration No.333-38229,
filed February 9, 2000).
10.27 Registration Rights Agreement dated June, 1998 (Incorporated
by reference as Exhibit 10.27 to Registrant's initial filing
of Form S-1 Registration Statement, Registration No. 333-59829
filed July 24, 1998). See attached Schedule. (Incorporated
by reference to Exhibit 10.27 of Registrant's Amendment No. 4
to Form S-1 Registration Statement, Registration No.333-38229,
filed February 9, 2000).
10.28 Debenture dated June, 1998 (Incorporated by reference
as Exhibit 10.28 to Registrant's initial filing of Form S-1
Registration Statement, Registration No. 333-59829 filed July
24, 1998). See attached Schedule. (Incorporated by reference
to Exhibit 10.28 of Registrant's Amendment No. 4 to Form S-1
Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.29 Subscription Agreement dated August, 1998 with March 17, 1999
amendment (Incorporated by reference as Exhibit 10.29 to
Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed
April 27, 1998). See attached Schedule. (Incorporated by
reference to Exhibit 10.29 of Registrant's Amendment No. 4
to Form S-1 Registration Statement, Registration No.333-38229,
filed February 9, 2000).
10.30 Registration Rights Agreement dated August, 1998 (Incorporated
by reference as Exhibit 10.30 to Registrant's first amendment
to filing of Form S-1 Registration Statement, Registration No.
333-59829 filed April 27, 1998). See attached Schedule.
(Incorporated by reference to Exhibit 10.30 of Registrant's
Amendment No. 4 to Form S-1 Registration Statement,
Registration No. 333-38229, filed February 9, 2000).
10.31 Debenture dated August, 1998 with March 17, 1999 amendment
(Incorporated by reference as Exhibit 10.31 to Registrant's
first amendment to filing of Form S-1 Registration Statement,
Registration No.333-59829 filed April 27, 1998). See attached
Schedule. (Incorporated by reference to Exhibit 10.31 of
Registrant's Amendment No.4 to Form S-1 Registration Statement
Registration No. 333-38229, filed February 9, 2000).
II-17
<PAGE>
10.32 Subscription Agreement dated October, 1998 with March 17, 1999
amendment (Incorporated by reference as Exhibit 10.32 to
Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No.333-59829 filed April
27, 1998).See attached Schedule.(Incorporated by reference to
Exhibit 10.32 of Registrant's Amendment No. 4 to Form S-1
Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.33 Registration Rights Agreement dated October,1998 (Incorporated
by reference as Exhibit 10.33 to Registrant's first amendment
to filing of Form S-1 Registration Statement, Registration No.
333-59829 filed April 27, 1998). See attached Schedule.
(Incorporated by reference to Exhibit 10.33 of Registrant's
Amendment No.4 to Form S-1 Registration Statement,Registration
No. 333-38229, filed February 9, 2000).
10.34 Debenture dated October, 1998 with March 17, 1999 amendment
(Incorporated by reference as Exhibit 10.34 to Registrant's
first amendment to filing of Form S-1 Registration Statement,
Registration No.333-59829 filed April 27, 1998). See attached
Schedule, (Incorporated by reference to Exhibit 10.34 of
Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No.333-38229, filed February 9, 2000).
10.35 Promissory Note dated December, 1998 (Incorporated by
reference as Exhibit 10.35 to Registrant's first amendment to
filing of Form S-1 Registration Statement, Registration No.
333-59829 filed April 27, 1998). See attached Schedule.
(Incorporated by reference to Exhibit 10.35 of Registrant's
Amendment No.4 to Form S-1 Registration Statement,Registration
No. 333-38229, filed February 9, 2000).
10.36 Contingent Subscription Agreement dated December, 1998 with
March 17, 1999 amendment (Incorporated by reference as Exhibit
10.36 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April
27, 1998). See attached Schedule. (Incorporated by reference
to Exhibit 10.36 of Registrant's Amendment No. 4 to Form S-1
Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.37 Registration Rights Agreement dated December, 1998
(Incorporated by reference as Exhibit 10.37 to Registrant's
first amendment to filing of Form S-1 Registration Statement,
Registration No.333-59829 filed April 27, 1998). See attached
Schedule. (Incorporated by reference to Exhibit 10.37 of
Registrant's Amendment No.4 to Form S-1 Registration Statement
Registration No. 333-38229, filed February 9, 2000).
10.38 Debenture dated December, 1998 with March 17, 1999 amendment
(Incorporated by reference as Exhibit 10.38 to Registrant's
first amendment to filing of Form S-1 Registration Statement,
II-18
<PAGE>
Registration No.333-59829 filed April 27, 1998). See attached
Schedule. (Incorporated by reference to Exhibit 10.38 of
Registrant's Amendment No.4 to Form S-1 Registration Statement
Registration No. 333-38229, filed February 9, 2000).
10.39 Warrant dated December, 1998 (Incorporated by reference as
Exhibit 10.39 to Registrant's first amendment to filing of
Form S-1 Registration Statement, Registration No. 333-59829
filed April 27, 1998). See attached Schedule. (Incorporated by
reference to Exhibit 10.39 of Registrant's Amendment No. 4 to
Form S-1 Registration Statement, Registration No. 333-38229,
filed February 9, 2000).
10.40 Subscription Agreement dated January, 1999 (Incorporated by
reference as Exhibit 10.40 to Registrant's first amendment to
filing of Form S-1 Registration Statement, Registration No.
333-59829 filed April 27, 1998). See attached Schedule.
(Incorporated by reference to Exhibit 10.40 of Registrant's
Amendment No.4 to Form S-1 Registration Statement,Registration
No. 333-38229, filed February 9, 2000).
10.41 Registration Rights Agreement dated January, 1999(Incorporated
by reference as Exhibit 10.41 to Registrant's first amendment
to filing of Form S-1 Registration Statement, Registration No.
333-59829 filed April 27, 1998). See attached Schedule.
(Incorporated by reference to Exhibit 10.41 of Registrant's
Amendment No.4 to Form S-1 Registration Statement,Registration
No. 333-38229, filed February 9, 2000).
10.42 Debenture dated January, 1999 (Incorporated by reference
as Exhibit 10.42 to Registrant's first amendment to filing of
Form S-1 Registration Statement, Registration No. 333-59829
filed April 27, 1998). See attached Schedule. (Incorporated by
reference to Exhibit 10.42 of Registrant's Amendment No. 4 to
Form S-1 Registration Statement, Registration No. 333-38229,
filed February 9, 2000).
10.43 Warrant dated January 28, 1999 with March 17, 1999 amendment
(Incorporated by reference as Exhibit 10.43 to Registrant's
first amendment to filing of Form S-1 Registration Statement,
Registration No.333-59829 filed April 27, 1998). See attached
Schedule. (Incorporated by reference to Exhibit 10.43 of
Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No.333-38229, filed February 9, 2000).
10.44 Promissory Note dated March 2, 1999 (Incorporated by
reference as Exhibit 10.44 to Registrant's first amendment
to filing of Form S-1 Registration Statement, Registration
No. 333-59829 filed April 27, 1998). See attached Schedule.
(Incorporated by reference to Exhibit 10.44 of Registrant's
II-19
<PAGE>
Amendment No. 4 to Form S-1 Registration Statement,
Registration No. 333-38229, filed February 9, 2000).
10.45 Contingent Subscription Agreement dated March 2, 1999
(Incorporated by reference as Exhibit 10.45 to Registrant's
first amendment to filing of Form S-1 Registration
Statement, Registration No. 333-59829 filed April 27, 1998).
See attached Schedule. (Incorporated by reference to Exhibit
10.45 of Registrant's Amendment No. 4 to Form S-1
Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.46 Registration Rights Agreement dated March 2, 1999
(Incorporated by reference as Exhibit 10.46 to Registrant's
first amendment to filing of Form S-1 Registration
Statement, Registration No. 333-59829 filed April 27, 1998).
See attached Schedule. (Incorporated by reference to Exhibit
10.46 of Registrant's Amendment No. 4 to Form S-1
Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.47 Debenture dated March 2, 1999 (Incorporated by reference
as Exhibit 10.47 to Registrant's first amendment to filing
of Form S-1 Registration Statement, Registration No. 333-59829
filed April 27,1998). See attached Schedule. (Incorporated by
reference to Exhibit 10.47 of Registrant's Amendment No. 4 to
Form S-1 Registration Statement, Registration No. 333-38229,
filed February 9, 2000).
10.48 Warrant dated March 2,1999 (Incorporated by reference as
Exhibit 10.48 to Registrant's first amendment to filing of
Form S-1 Registration Statement, Registration No. 333-59829
filed April 27, 1998). See attached Schedule. (Incorporated
by reference to Exhibit 10.48 of Registrant's Amendment No. 4
to Form S-1 Registration Statement, Registration No.333-38229,
filed February 9, 2000).
10.49 Promissory Note dated March 26,1999 (Incorporated by reference
as Exhibit 10.49 to Registrant's first amendment to filing of
Form S-1 Registration Statement, Registration No. 333-59829
filed April 27,1998). See attached Schedule.(Incorporated by
reference to Exhibit 10.49 of Registrant's Amendment No. 4 to
Form S-1 Registration Statement, Registration No. 333-38229,
filed February 9, 2000).
10.50 Contingent Subscription Agreement dated March 26, 1999
(Incorporated by reference as Exhibit 10.50 to Registrant's
first amendment to filing of Form S-1 Registration Statement,
Registration No. 333-59829 filed April 27, 1998). See attached
Schedule. (Incorporated by reference to Exhibit 10.50 of
Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No.333-38229, filed February 9, 2000).
II-20
<PAGE>
10.51 Registration Rights Agreement dated March 26, 1999
(Incorporated by reference as Exhibit 10.51 to Registrant's
first amendment to filing of Form S-1 Registration Statement,
Registration No. 333-59829 filed April 27, 1998). See attached
Schedule. (Incorporated by reference to Exhibit 10.51 of
Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No. 333-38229, filed February 9,2000).
10.52 Debenture dated March 26,1999 (Incorporated by reference as
Exhibit 10.52 to Registrant's first amendment to filing
of Form S-1 Registration Statement, Registration No.333-59829
filed April 27, 1998). See attached Schedule. (Incorporated
by reference to Exhibit 10.52 of Registrant's Amendment No. 4
to Form S-1 Registration Statement, Registration No.333-38229,
filed February 9, 2000).
10.53 Warrant dated March 26,1999 (Incorporated by reference as
Exhibit 10.53 to Registrant's first amendment to filing of
Form S-1 Registration Statement, Registration No. 333-59829
filed April 27,1998). See attached Schedule. (Incorporated
by reference to Exhibit 10.53 of Registrant's Amendment No. 4
to Form S-1 Registration Statement, Registration No.333-38229,
filed February 9, 2000).
10.54 Subscription Agreement dated May ,1999. See attached Schedule.
(Incorporated by reference to Exhibit 10.54 of Registrant's
Amendment No. 4 to Form S-1 Registration Statement,
Registration No. 333-38229, filed February 9, 2000).
10.55 Registration Rights Agreement dated May , 1999. See attached
Schedule. (Incorporated by reference to Exhibit 10.55 of
Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No.333-38229, filed February 9, 2000).
10.56 Debenture dated May ,1999. See attached Schedule.(Incorporated
by reference to Exhibit 10.56 of Registrant's Amendment No.
4 to Form S-1 Registration Statement, Registration No.
333-38229, filed February 9, 2000).
10.57 Promissory Note dated July 9, 1999. See attached Schedule.
(Incorporated by reference to Exhibit 10.57 of Registrant's
Amendment No. 4 to Form S-1 Registration Statement,
Registration No. 333-38229, filed February 9, 2000).
10.58 Security Agreement dated July 9, 1999. See attached Schedule.
(Incorporated by reference to Exhibit 10.58 of Registrant's
Amendment No. 4 to Form S-1 Registration Statement,
Registration No. 333-38229, filed February 9, 2000).
10.59 Contingent Subscription Agreement dated July 9, 1999. See
attached Schedule. (Incorporated by reference to Exhibit
10.59 of Registrant's Amendment No. 4 to Form S-1
Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
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<PAGE>
10.60 Registration Rights Agreement dated July 9, 1999. See
attached Schedule. (Incorporated by reference to Exhibit
10.60 of Registrant's Amendment No. 4 to Form S-1
Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.61 Debenture dated August 23, 1999. See attached Schedule.
(Incorporated by reference to Exhibit 10.61 of Registrant's
Amendment No. 4 to Form S-1 Registration Statement,
Registration No. 333-38229, filed February 9, 2000).
10.62 Promissory Note dated August 11, 1999. See attached
Schedule. (Incorporated by reference to Exhibit 10.62 of
Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No. 333-38229, filed February 9,
2000).
10.62(a) Assignment of Promissory Note and Security Agreement.
(Incorporated by reference to Exhibit 10.62(a) of
Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No. 333-38229, filed February 9,
2000).
10.63 Consulting Agreement between Registrant and Liviakis Financial
Communications, Inc. dated March 24, 1999 with exhibit thereto
entitled Voting Trust Agreement. (Incorporated by reference
to Exhibit 10.63 of Registrant's Amendment No. 3 to Form S-1
Registration Statement, Registration No. 333-38229, filed
December 8, 1999).
10.64 Contract between Registrant and Rolcan Finance Ltd. Dated
April 14, 1999.
10.65 Master Supplier Agreement between Registrant and Data General
Corporation effective January 20, 1999.
10.66 Authorized Distributor Agreement with Medika Equipos Medicos,
Inc.
10.67 Subscription Agreement dated September 7, 1999.
(Incorporated by reference to Exhibit 10.67 of Registrant's
Amendment No. 3 to Form S-1 Registration Statement,
Registration No. 333-38229, filed December 8, 1999). See
attached Schedule. (Incorporated by reference to Exhibit
10.67 of Registrant's Amendment No. 4 to Form S-1
Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.68 Registration Rights Agreement dated September 7, 1999.
(Incorporated by reference to Exhibit 10.68 of Registrant's
Amendment No. 3 to Form S-1 Registration Statement,
Registration No. 333-38229, filed December 8, 1999). See
II-22
<PAGE>
attached Schedule. (Incorporated by reference to Exhibit
10.68 of Registrant's Amendment No. 4 to Form S-1
Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.69 Subscription Agreement dated October/November 1999.
(Incorporated by reference to Exhibit 10.69 of Registrant's
Amendment No. 3 to Form S-1 Registration Statement,
Registration No. 333-38229, filed December 8, 1999). See
attached Schedule. (Incorporated by reference to Exhibit
10.69 of Registrant's Amendment No. 4 to Form S-1
Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.70 Registration Rights Agreement dated October/November 1999.
(Incorporated by reference to Exhibit 10.70 of Registrant's
Amendment No. 3 to Form S-1 Registration Statement,
Registration No. 333-38229, filed December 8, 1999). See
attached Schedule. (Incorporated by reference to Exhibit
10.70 of Registrant's Amendment No. 4 to Form S-1
Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.71 Contingent Subscription Agreement dated August 11, 1999.
(Incorporated by reference to Exhibit 10.71 of Registrant's
Amendment No. 3 to Form S-1 Registration Statement,
Registration No. 333-38229, filed December 8, 1999). See
attached Schedule. (Incorporated by reference to Exhibit
10.71 of Registrant's Amendment No. 4 to Form S-1
Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.72 Registration Rights Agreement dated August 11, 1999.
(Incorporated by reference to Exhibit 10.72 of Registrant's
Amendment No. 3 to Form S-1 Registration Statement,
Registration No. 333-38229, filed December 8, 1999). See
attached Schedule. (Incorporated by reference to Exhibit
10.72 of Registrant's Amendment No. 4 to Form S-1
Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.73 Debenture dated November 11, 1999. (Incorporated by
reference to Exhibit 10.73 of Registrant's Amendment No. 3
to Form S-1 Registration Statement, Registration No.
333-38229, filed December 8, 1999). See attached Schedule.
(Incorporated by reference to Exhibit 10.73 of Registrant's
Amendment No. 4 to Form S-1 Registration Statement,
Registration No. 333-38229, filed February 9, 2000).
10.74 Agreement with Display Presentations. (Incorporated by
reference to Exhibit 10.74 of Registrant's Amendment No. 3
to Form S-1 Registration Statement, Registration No.
333-38229, filed December 8, 1999).
10.75 Agreement with Live Marketing. (Incorporated by reference to
Exhibit 10.75 of Registrant's Amendment No. 3 to Form S-1
Registration Statement, Registration No. 333-38229, filed
December 8, 1999).
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<PAGE>
10.76 Sales, Marketing and Service Agreement with Hitachi Medical
Systems America Inc. inclusive of Exhibits A through G
inclusive, which Exhibits have certain information redacted
therefrom in accordance with request for confidentiality.
(Incorporated by reference to Exhibit 10.76 of Registrant's
Amendment No. 7 to Form S-1 Registration Statement,
Registration No. 333-38229, filed July 14, 2000).
10.77 Subscription Agreement dated December 13, 1999 - See
attached schedule. (Incorporated by reference to Exhibit
10.77 of Registrant's Amendment No. 4 to Form S-1
Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.78 Registration Rights Agreement dated December 13, 1999 - See
attached schedule. (Incorporated by reference to Exhibit
10.78 of Registrant's Amendment No. 4 to Form S-1
Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.79 Agreement to Purchases Shares dated September 2, 1999.
(Incorporated by reference to Exhibit 10.79 of Registrant's
Amendment No. 4 to Form S-1 Registration Statement,
Registration No. 333-38229, filed February 9, 2000).
10.80 Subscription Agreement dated February , 2000.
10.81 Registration Rights Agreement dated February 11, 2000.
10.82 Consulting Agreement between Registrant and Liviakis Financial
Communications, Inc. dated March 29,2000 with letter agreement
dated April 26, 2000 attached thereto.
10.83 Agreement between Registrant and Ministry of Health,
Government of Romania inclusive of Annexes 1 through 5
thereto.
21.1 List of Subsidiaries (Incorporated by reference to Exhibit
21 of Registrant's Annual Report for the fiscal year ended
June 30, 1997 on Form 10-KSB, filed September 30, 1997).
23.1 Consent of Bederson & Company LLP.
23.1(a) Consent of Bederson & Company LLP.
23.1(b) Consent of Bederson & Company LLP.
23.1(c) Consent of Bederson & Company LLP.
23.1(d) Consent of Bederson & Company LLP.
23.1(e) Consent of Bederson & Company LLP.
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23.1(f) Consent of Bederson & Company LLP.
23.1(g) Consent of Bederson & Company LLP.
23.2 Consent of Gary B. Wolff, P.C. (included in Exhibit 5.1a).
23.2(a) Consent of Gary B. Wolff, P.C. (included in Exhibit 5.1b).
23.2(b) Consent of Gary B. Wolff, P.C. (included in Exhibit 5.1c).
23.2(c) Consent of Gary B. Wolff, P.C. (included in Exhibit 5.1d)
23.2(d) Consent of Gary B. Wolff, P.C. (included in Exhibit 5.1e)
23.2(e) Consent of Gary B. Wolff, P.C. (included in Exhibit 5.1f)
23.2(f) Consent of Gary B. Wolff, P.C. (included in Exhibit 5.1g)
23.2(g) Consent of Gary B. Wolff, P.C. (included in Exhibit 5.1h)
23.2(h) Consent of Gary B. Wolff, P.C. (included in Exhibit 5.1h)
23.3 Consent of Feldman Sherb Ehrlich & Co., P.C.
23.3(a) Consent of Feldman Sherb Horowitz & Co., P.C.
23.3(b) Consent of Feldman Sherb Horowitz & Co., P.C.
23.3(c) Consent of Feldman Sherb Horowitz & Co., P.C.
23.3(d) Consent of Feldman Sherb Horowitz & Co., P.C.
23.3(e) Consent of Feldman Sherb Horowitz & Co., P.C.
23.3(f) Consent of Feldman Sherb Horowitz & Co., P.C.
23.3(g) Consent of Feldman Sherb Horowitz & Co., P.C.
23.3(h) Consent of Feldman Sherb Horowitz & Co., P.C.
23.3(i) Consent of Feldman Sherb Horowitz & Co., P.C.
23.4 Consent of Theo Lepper
23.4(a) Consent of Theo Lepper
23.4(b) Consent of Theo Lepper
27. Financial Data Schedule
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling
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<PAGE>
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to the Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price, set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-offering amendment
any of the securities being registered which remain unsold at the termination of
the offering.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Hochdorf, Country of Switzerland, on August 11, 2000.
SWISSRAY INTERNATIONAL, INC.
By:/s/Ruedi G. Laupper
Name: Ruedi G. Laupper
Title: Chairman of the Board of
Directors, President &
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/RUEDI G. LAUPPER/ Dated:Aug. 11, 2000
------------------ Chairman of the Board of
Ruedi G. Laupper Directors, President &
Chief Executive Officer
/s/JOSEF LAUPPER/ Secretary, Treasurer and a Dated:Aug. 11, 2000
------------------ Director
Josef Laupper
/s/MICHAEL LAUPPER/ Dated:Aug. 11, 2000
------------------ Principal Financial Officer
Michael Laupper & Controller.
Vice President and a Director Dated:Aug. , 2000
------------------
Ueli Laupper
/s/DR, ERWIN ZIMMERLI/ Director Dated:Aug. 11, 2000
---------------------
Dr. Erwin Zimmerli
--------------------- Director Dated:Aug. , 2000
Dr. Sc. Dov Maor
