U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                     For the fiscal year ended June 30, 2001
                                       or

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

       For the transition period from _______________ to _________________

                         Commission file number 0-26972

                          SWISSRAY INTERNATIONAL, INC.
             (Exact Name of Registrant as Specified in Its Charter)

                               New York 16-0950197
                (State or Other Jurisdiction of (I.R.S. Employer
               Incorporation or Organization) Identification No.)

                  100 Grasslands Road, Elmsford, New York 10523
               (Address of Principal Executive Office) (Zip Code)

         United States - 914-345-3700 Switzerland - 011 41 41 914 12 00
              (Registrant's Telephone Number, Including Area Code)

        Securities registered pursuant to Section 12(b) of the Act: None

            Securities registered pursuant Section 12(g) of the Act:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                                (TITLE OF CLASS)

Indicate  by check  mark  whether  the  Registrant;  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Exchange  Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for past 90 days.

                                              Yes  xx          No
                                                  ---             ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The number of shares  outstanding of each of the Registrant's  classes of Common
Stock,  as of August 15,  2001 is  84,750,524  shares  (1),  all of one class of
common stock, $.01 par value. Of this number a total of 26,805,353 shares having
an aggregate  market  value of  $15,145,024,  based on the closing  price of the
Registrant's  common  stock of  $0.565  on  August  15,  2001 as  quoted  on the
Electronic Over-the-Counter Bulletin Board ("OTC"), were held by non-affiliates*
of the Registrant.

                                       -1-

<PAGE>



* Affiliates  for the purpose of this item refers to the  Registrant's  officers
and  directors  and/or any persons or firms  (excluding  those  brokerage  firms
and/or  clearing  houses  and/or  depository   companies  holding   Registrant's
securities as record holders only for their  respective  clienteles'  beneficial
interest) owning 5% or more of the Registrant's Common Stock, both of record and
beneficially.

(1) Unless  otherwise  indicated  throughout  this Form 10-K,  all references to
number of  shares,  price per share  and data of a similar  and  related  nature
retroactively  reflect  and take into  consideration  a 1 for 10  reverse  stock
split, as effective October 1, 1998.

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date: 84,750,524 shares as of August
15, 2001.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the part
of the Form 10-K  (e.g.,  Part I, Part II,  etc.)  into  which the  document  is
incorporated:  (1) any  annual  report  to  security  holders;  (2) any proxy or
information  statement;  and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933.

None  excepting for the  incorporation  by reference of the  Company's  Form S-1
Registration  Statement (under File Number 333-55898 as declared effective March
9, 2001) and in particular those sections therein entitled "Risk Factors" (which
is herewith  incorporated by reference to Part I, Item 1, of this Form 10-K) and
"Market  Prices and Dividend  Policy"  subsection  entitled  "Nasdaq  Delisting"
(which is herewith  incorporated by reference into Part II, Item 5, of this Form
10-K).


                                       -2-

<PAGE>



                                TABLE OF CONTENTS
                                                                         Page
                                                                        Number
PART I

Item 1.   Business                                                         4

Item 2.   Properties                                                      24

Item 3.   Legal Proceedings                                               24

Item 4.   Submission of Matters to a Vote of Security Holders             26

PART II

Item 5.   Market For Registrant's Common Equity and Related
          Stockholder Matters                                             27

Item 6.   Selected Financial Data                                         29

Item 7.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations                             30

Item 7a.  Quantitative and Qualitative Disclosures About Market
          Risk                                                            39

Item 8.   Financial Statements and Supplementary Data                  F-1-F-22

Item 9.   Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure                             40

PART III

Item 10.  Directors and Executive Officers of the Registrant              40

Item 11.  Executive Compensation                                          42

Item 12.  Security Ownership of Certain Beneficial Owners and
          Management                                                      49

Item 13.  Certain Relationships and Related Transactions                  51

PART IV

Item 14.  Exhibits, Financial Statement Schedules, and
          Reports on Form 8-K                                             52

SIGNATURES                                                                53

SUPPLEMENTAL INFORMATION                                                  54


                                       -3-

<PAGE>



                                     PART I

ITEM 1.           BUSINESS

Background Summary

     The Registrant was incorporated  under the laws of the State of New York on
January 2, 1968 under the name CGS Units  Incorporated.  On June 15,  1994,  the
Registrant merged with Direct Marketing  Services,  Inc. and changed its name to
DMS Industries,  Inc. In May of 1995 the Registrant  discontinued the operations
then being conducted by DMS Industries, Inc. and acquired all of the outstanding
securities  of SR Medical  AG, a Swiss  corporation  engaged in the  business of
manufacturing and selling X-ray equipment,  components and accessories.  On June
5, 1995 the  Registrant  changed its name to Swissray  International,  Inc.  The
Registrant's operations are being conducted principally through its wholly owned
subsidiaries,  Swissray  Medical AG (formerly known as SR Medical Holding AG and
SR Medical AG) a Swiss  corporation and its wholly owned  subsidiaries  Swissray
GmbH  (formerly  known  as  Swissray  (Deutschland)  Rontgentechnik  GmbH and SR
Medical GmbH), a German limited  liability  company and Swissray  Romania SRL as
well as through the Company's other wholly owned Delaware subsidiaries, Swissray
America, Inc. and Swissray Information Solutions, Inc.

     Swissray  Medical AG acquired all assets and  liabilities,  effective  July
1998, of its wholly owned subsidiaries, SR Medical AG (known as Teleray AG until
renamed  in  February  1998,  a  Swiss  corporation  and  Teleray  Research  and
Development  AG, a Swiss  corporation.  Swissray  Medical AG also  absorbed  all
assets and  liabilities  of the  Company's  other  wholly  owned  subsidiary  SR
Management AG (formerly SR Finance AG), a Swiss corporation.

     Effective  as of  September  10, 2001  Swissray  Medical  Systems,  Inc., a
Delaware   corporation   (formerly  Swissray  America   Corporation),   Swissray
Healthcare, Inc. and Empower Inc., a New York corporation,  merged into Swissray
America Inc., a Delaware corporation.  Unless otherwise specifically  indicated,
all  references  hereinafter  to the "Company"  refer to the  Registrant and its
subsidiaries.

     The Company and its predecessors have been in the business of manufacturing
and selling X-ray equipment in Switzerland and Germany since 1988.  Beginning in
1991, the Company's  predecessors  began to expand into other markets in Europe,
the Middle East and Asia. In 1992,  SR Medical AG entered into a first  Original
Equipment  Manufacturing  ("OEM")  Agreement with Philips  Medical  Systems GmbH
("Philips   Medical   Systems")   providing   for   the   manufacturing   of   a
multi-radiography  system  ("MRS").  In 1996, this agreement was replaced with a
new OEM Agreement ("Philips OEM Agreement") which provides for the manufacturing
of  the  Bucky   Diagnost  TS  bucky  table  in  addition  to  the  MRS  System.
Simultaneously,  the Company developed the first SwissVision(R)  post-processing
system which was able to convert  analog  images  obtained in  fluoroscopy  into
digital  information.  Beginning in 1993,  the Company began the  development of
direct  digital  X-ray  technology  for  medical  diagnostic  purposes.  This is
currently  the Company's  primary  focus (as opposed to the further  development
and/or sale of conventional X-ray equipment).

     With respect to  information  regarding the Company  acquisition of Empower
Inc.  and  Service  Support  Group LLC on April 1,  1997 and  October  17,  1997
respectively  and  subsequent  litigation  resulting  therefrom,   reference  is
herewith made to Item 1 subsections  entitled "Sale of Substantially  All of the
Assets of Empower,  Inc." and "Acquisition of Substantially All of the Assets of
Service Support Group LLC" respectively as well as to Item 3 "Legal Proceedings"

     In October  1999 the  Company  was  awarded a purchase  order for 32 of its
direct digital  Radiography Systems from the Romanian Ministry of Health for its
multifunctional ddRMulti, valued at over US$13,800,000. Installation was made in
various hospitals throughout Romania. The initial payment aggregating 15% of the
aforesaid total proceeds (i.e., $2,070,000) was received by the Company in early

                                      -4-

<PAGE>


March 2000.  The Company sold 25 of the 32 ddRMulti  through close of its fiscal
year ended June 30, 2000 while the balance of 7 Systems were sold through August
2000 with the Company receiving the full balance of $11,730,000 by such date.

     In  October,  2000 the  Romanian  Ministry  of Health  ordered 30 ddR Chest
valued at more than $7,000,000  which were all  subsequently  sold. By virtue of
the extent and nature of these  contracts,  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) and Swissray Medical AG
sold their  conventional  X-ray  business  divisions in March 2000 and June 2000
respectively to an unaffiliated  third party in order to more extensively  focus
upon  sales  and  marketing  of  ddR  equipment.   The  March  2000  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)  while the June 2000  transaction
resulted in the sale of customer base for approximately  $200,000.  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.

     The dollar amount of sales from  conventional  X-ray Systems for the fiscal
years  ended  June 30,  2001,  June 30,  2000 and June 30,  1999 were  $268,842,
$1,803,716  and  $2,664,722  respectively.  The  dollar  amount  of  sales  from
conventional  OEM business  for the fiscal  years ended June 30, 2001,  June 30,
2000 and June 30, 1999 were $1,054,172, $3,883,257 and $9,806,402 respectively.

Overview

     The Company is active in the markets for diagnostic imaging devices for the
health care  industry.  Diagnostic  imaging  devices  include  X-ray  equipment,
computer  tomography  ("CT")  systems and  magnetic  resonance  imaging  ("MRI")
systems for three  dimensional  projections,  nuclear  medicine  ("NM")  imaging
devices and ultrasound devices. The Company is primarily engaged in the business
of  manufacturing  and selling  diagnostic  X-ray equipment for all radiological
applications other than mammography and dentistry.  In addition,  the Company is
in the business of selling  imaging  systems and components and  accessories for
X-ray equipment  manufactured by third parties and providing services related to
diagnostic imaging.

     X-rays  were  discovered  in  1895  by  Wilhelm  Konrad  Rontgen.   Shortly
thereafter, X-ray imaging found numerous applications for medical diagnostic and
non-medical purposes. Today, medical X-ray imaging is a fundamental tool in bone
and soft tissue  diagnosis.  X-ray  diagnosis is primarily used in  orthopedics,
traumatology,  gastro-enterology,  angiography,  urology, pulmology, mammography
and dentistry. The principal elements of a diagnostic X-ray system are the X-ray
generator,  the X-ray tube and the bucky  device.  The  generator  produces 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 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  film and add time and expenses  associated with
the  scanning  process.

                                      -5-

<PAGE>

In a CR system the film  cassette  is  replaced  with a phosphor  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 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.

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 some conventional X-ray equipment for diagnostic
purposes other than mammography and dentistry and a full line of ddR Systems for
any application in direct digital Radiography as well as the SwissVision(R) line
of DICOM 3.0/IHE compatible  postprocessing work stations operating on a Windows
NT/2000  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", "New Products" and "Regulatory Matters".

     Direct Digital Systems (ddR)/SwissVision

     The  ddR  line  of  products  (which   includes  the  ddRMulti,   ddRCombi,
ddRModulaire   and  ddRChest)   and  a   SwissVision(R)   workstation   for  the
postprocessing  of digital  image  data and the  transfer  of such data  through
central  networks  or  via  telecommunications   systems,  are  complete  multi-
functional  direct  digital  X-ray  systems.   All ddR Systems use the Company's
AddOn  Bucky(R)  as the  digital  detector.  The AddOn  Bucky(R) is able to make
available  an X-ray image in a direct  digital way for  diagnostic  study within
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  ddR Systems 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.   See  also  "New  Products"
hereinafter.

     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  ddR
Systems provide  excellent image quality with minimal radiation doses and at the
same time reduce operating expenses through the elimination of films,  cassettes
or phosphor plates and the handling, development and storage thereof.

     The Company's line of SwissVision(R)  postprocessing  workstations  permits
the  postprocessing  of  digital  X-ray  images,  including  section,   zooming,
enlargement,  soft  tissue  and  bone  structure  imaging,  accentuation  of the
limitation of the joints, noise suppression, presentation of different fields of
interest within an area and archiving and  transferring the data through central
networks  and  telecommunication   systems.  In  addition,   the  SwissVision(R)
post-processing  workstations  are able to analyze data stored with respect to a
particular patient. As a result, consistent image quality of different images of
the same patient can be achieved.

                                     -6-

<PAGE>



The  workstations  operate on a Windows  NT/2000  platform and are DICOM 3.0/IHE
compatible.  The  Company is also  offering  products  and  services  related to
networking and electronic distribution of digital X-ray images.

     Conventional X-Ray Equipment, Imaging Systems, Components and Accessories

     The Company manufactures and sells conventional  diagnostic X-ray equipment
for radiological applications other than mammography and dentistry. 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.

     Original Equipment Manufacturing (OEM)

     On June 11, 1996, the Company  entered into the Philips OEM Agreement 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 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 may be  tendered  in
projects  financed by the World Bank.  Under the Philips OEM Agreement these two
products are marketed  worldwide by Philips Medical Systems through its existing
distribution  network. The initial term of the Philips OEM Agreement which would
have expired December 31, 2000 was  automatically  extended (from year to year).
Since  entry into the initial  OEM  Agreement  the  parties  have  maintained  a
mutually satisfactory relationship.  The Company continues to deal directly with
Philips with respect to its MRS.

     Services

     The  services   offered  by  the  Company  include  the   installation  and
after-sales  servicing  of imaging  equipment  sold by the  Company,  consulting
services,  application  training of  radiographers,  second line support for the
Company's distributors as well as technical training on the different Systems.

     Distribution of Agfa Products

     In April of 1998 the Company  entered into an 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.   The   software   license   with  Agfa  is  a   worldwide,   non-exclusive,
non-transferable  license to use and distribute the Agfa software in combination
with the AddOn Bucky and is based upon certain purchase order requirements.

     New Products

                   1999 Introduction of ddRChest and ddRCombi

     To compliment its ddRMulti, 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  and (b)  ddRCombi.
Both  Systems  are based  upon the  patented  technology  of the  ddRMulti.  The
ddRChest is a dedicated chest unit capable of taking all chest examinations in a
direct digital format. The ddRCombi is a multi-functional system able to perform
examinations on the seated,  upright and recumbent patient,  can be coupled with

                                       -7-

<PAGE>



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.

     The  initial  installation  of a ddRCombi  occurred in  November  2000.  An
additional 11 ddRCombi were  subsequently  ordered with 9 having been  installed
through August 13, 2001.

     2000 Introduction of Five Additional New Products

     To  further  complete  its  ddRMulti  and add to the  two  new ddR  Systems
referred to in the previous  subsection,  Swissray announced the introduction of
five new products  that were  exhibited at RSNA 2000 held in Chicago  during the
last week of November  2000.  These new  products may be briefly  summarized  as
follows:

         o        ddRModulaire - a new system intended to lower the ddR price
                  barrier which incorporates Swissray's patented, overlapping
                  Quad-CCD detector into a new stand with a price comparable
                  with detector-only retrofits offered by competitors while
                  providing a complete entry level, multifunctional system for
                  those within the medical/healthcare community with limited
                  space and investment capital.

         o        ddRFluoroscopy (work in progress) - designed to extend the
                  clinical utility ddR by adding full motion imaging to
                  complement the high resolution radiographic images already
                  provided.

         o        in order to meet special patient positioning needs of
                  efficient, single detector ddR Systems, Swissray introduced
                  two new tables. The IGS2000 (work in progress) - pedestal
                  based table designed to provide positioning flexibility allows
                  for head-to-toe horizontal coverage, tilts 90 degrees for
                  upright imaging, pivots 90 degrees for decubitus exams and
                  swings out of the way for chest radiography and the IGS1000 -
                  a table that combines the convenience of a 4- way floating top
                  with the flexibility of a portable table and

         o        the OrthoVision - a package of clinical software tools
                  optimized to meet special requirements of orthopedic radiology
                  including image stitching to enable full length spine imaging
                  for scoliosis studies.

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 and
accounting for approximately  68.8%,  29.8% and 1.4% respectively of total sales
during the fiscal year ended June 30, 2000.  Included in the 68.8%  indicated in
business  conducted in Switzerland  is monies  received as a result of contracts
entered into with the Romanian Ministry of Finance due to the fact that the down
payment received of approximately  $2,070,000 was guaranteed by the Swiss Export
Risk Guaranty ("ERG") with funding coming from ABN AMRO Bank, which financed the
agreement.  Business  conducted in  Switzerland,  the United  States and Germany
accounted for  approximately  53.3%,  45.3% and 1.4% respectively of total sales
during fiscal year ended June 30, 2001. 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."

                                      -8-

<PAGE>


     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 ddR  Systems  have been  made.  The  Company  submitted  both its AddOn
Bucky(R) and ddR Systems to the FDA for Section  510(k)  clearance.  On November
21, 1997,  the Company's  AddOn  Bucky(R),  the direct  digital  detector of the
ddRMulti-System,  received FDA  clearance and on December 18, 1997 the Company's
ddRMulti-System received FDA clearance; the Company thus receiving authorization
to market the  ddRMulti-System  in the United  States.  The Company's  ddRCombi,
ddRChest  and  ddRModulaire  received  FDA  clearance  in January  2001.  Having
obtained  the  required  clearance  from the FDA,  the Company now sells all the
Systems  in the  United  States  through  its  subsidiaries  and other  channels
including  its U.S.  distributors,  Hitachi  Medical  Systems,  Inc. and Marconi
Healthcare  Products.  See  "Business -- Regulatory  Matters" and  "Distribution
Agreements - The Hitachi Agreement" and "The Marconi Agreement" hereinafter.

     The  percentage  of revenues for fiscal year ended June 30, 1999,  June 30,
2000 and June 30, 2001 attributed to product markets amounted to 81.84%,  91.97%
and 95.62% respectively.

     Service Markets

     The Company  estimates  that the worldwide  market for services  related to
X-ray equipment,  including maintenance management is approximately $44 billion,
of which  approximately  $40.5 billion (or 92%) relate to after-sales  services.
The markets for  maintenance  management  and  capital  planning  amount to $3.4
billion or 8% of the total market for services related to X-ray  equipment.  The
principal markets for after-sales  services are the United States (45%), Western
Europe (26%) and Japan (19%).  The Company expects that as the installed base of
X-ray equipment  grows,  the market for  after-sales  services will also expand.
Additional  growth may  result  from a general  increase  in the demand for such
services.  To date, a significant market for maintenance  management and capital
planning has only  developed  in the United  States as a result of the impact of
managed care plans and health maintenance  organizations  ("HMOs") on the health
care  industry.  The Company  expects that in the future there will be a similar
trend in Europe, which may lead to the development of a market for such services
in Europe. See "-- Products" and "-- Sales and Marketing." The Company currently
intends to continue to concentrate its marketing efforts within  Switzerland and
the U.S. wherein  approximately 98.6% of all Company sales were concluded during
fiscal year ended June 30, 2000 (as  compared  to  approximately  96% for fiscal
year ended June 30, 1999),  with  Switzerland  accounting for 68.8% of all sales
and the U.S.  accounting  for 29.8% of such sales  (with the  balance of 1.4% of
sales being  conducted  in  Germany)  as compared to 73%,  23% and 4% of Company
sales for Switzerland, U.S. and Germany for fiscal year ended June 30, 1999. For
the year ended June 30, 2001,  98.6% of all Company sales were from  Switzerland
and the United States; 53.3% from Switzerland,  45.3% from the United States and
1.4%  from  Germany  and  elsewhere.  See  also  Note  16 to  audited  financial
statements.

     The  percentage  of revenues for fiscal year ended June 30, 1999,  June 30,
2000 and June 30,  2001  attributed  to services  amounted to 18.16%,  8.03% and
4.38% respectively.

Sales and Marketing

     The Company's  customers are universities,  hospitals,  clinics and imaging
centers. The Company markets its products and services primarily through its own
sales force in the United  States,  Switzerland,  Germany and Eastern Europe and
through  resellers in these and other  markets in Europe,  Middle East,  Africa,
Asia,  and  Latin  America.  See also  "Distribution  Agreements  - The  Hitachi
Agreement"  as relates to  Hitachi's  distribution  of SRMI's ddR Systems to end
users  within  certain  defined  territories  within the U.S.  and "The  Marconi
Agreement".  The Company also offers products and services related to networking
and electronic distribution.

                                       -9-

<PAGE>


     Two of the  Company's  products,  the MRS System and the Bucky  Diagnost TS
system,  are distributed  worldwide through Philips Medical Systems;  the latter
pursuant to License Agreement.

     The  Company  believes  that  in the  foreseeable  future  there  will be a
continuous  world-wide  growth  in  the  markets  for  complete  X-ray  systems,
components,  accessories  and related  services  because of the  improvement  of
health  care  services  in  developing  countries  and  Eastern  Europe  and the
necessity to meet  increasingly  stricter  regulations with respect to radiation
dosage  and  other   safety   features   and   environmental   hazards  in  many
jurisdictions.  With the transition from  conventional to digital X-ray systems,
the demand for  products  and  services  related to  networking,  archiving  and
electronic  distribution  of digital  X-ray  images will grow in  industrialized
countries.  In these  markets  the  demand  for  conventional  X-ray  equipment,
accessories and related services will decrease over time.   See "-- Markets."

         Contract with Department of Veteran Affairs

     In May 1998 Swissray Medical Systems, Inc., was awarded a contract from the
Department  of  Veterans  Affairs  ("VA") for the  ddRMulti-System,  with the VA
extending the contract until March 31, 2002. With the official contract award in
hand,  management  has actively  pursued sales to various VA hospitals,  medical
centers and  outpatient  community and outreach  clinics  throughout  the United
States. Since receipt of such award the Company has contracted for the sale of 7
ddR Systems (through June 30, 2001) to different government 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  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
ddRMulti-System. H&H X-Ray, which was to oversee sales in New York, Pennsylvania
and Ohio has ceased business operations and the Company is currently  conducting
its own distribution in such areas.  Similarly,  the Company's contract with RES
has terminated and the Company is conducting its own distribution.

     Medika, covers ddRMulti-System 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 and continues in
effect subject to its original terms and conditions except that either party has
the right to terminate the  agreement  with or without cause upon 30 days notice
to the other party.

     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,
further renewed through July 31, 2001 and again renewed through July 31, 2002.

                                      -10-

<PAGE>



     Representative sales of ddRMulti

     In July of 1998  the  Company  sold  its  ddRMulti-System,  to the  largest
Diagnostic Out Patient Center in Warsaw,  Poland,  the Diagnostic Center Luxmed.
This order represented Swissray's first sale within the Eastern European Market,
complementing  sales  previously  made in both  Western  Europe  and the  United
States.

     In  February  of 1999  the  Company  announced  the  sale of  three  of its
ddRMulti-System,  to  Houston,  Texas - based  Kelsey-Seybold  Clinic and to the
Federal Maximum Security Facility in Florence,  Colorado. The two Kelsey-Seybold
systems  were  viewed in clinical  use by  attendees  of the annual  Society for
Computer  Applications  (SCAR) meeting in Houston in May 1999 while the Colorado
sale was made  through  the above  indicated  contract  with the  Department  of
Veterans Affairs.

     In October 1999 the Company was awarded a purchase  order for 32 of its ddR
Systems   from  the  Romanian   Ministry  of  Health  for  its   multifunctional
ddRMulti-System, valued at over US$13,800,000.  Installation was made in various
hospitals  throughout  Romania,  The  initial  payment  aggregating  15%  of the
aforesaid  total proceeds (i.e.,  approximately  $2,070,000) was received by the
Company in early March  2000.  The  Company  sold 25 of the 32  ddRMulti-Systems
through  close of its fiscal  year ended  June 30,  2000 while the  balance of 7
Systems  were sold  through  August  2000 with the  Company  receiving  the full
balance of $11,730,000 by such date.

     In October 2000 Swissray entered into a further agreement with the Romanian
Ministry  of Health  for the  latter's  purchase  of 30  ddRChest-Systems  in an
agreement valued at more than $7,000,000 and guaranteed by the Swiss Export Risk
Guaranty.  Financing  of the  agreement  was  provided by ABN AMRO Bank.  All 30
ddRChest-Systems were subsequently sold.


     The Hitachi Agreements

     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
provided  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 consisted 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  contained   provisions  whereby  additional
exclusions existed with respect to various identified  customers reserved to the
Company principally due to the Company's prior contact with and/or dealings with
such clientele.

     In addition  HMSA  utilized and  promoted  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 and
provided HMSA with service training,  installation,  technical support and spare
parts. The Company also warranted to the End-User that its product (exclusive of
product software) would 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.

     The initial term of the  Agreement  expired in August 2000  without  either
party seeking  cancellation

                                      -11-

<PAGE>

thereof and remained in effect subject to all of the terms and conditions as set
forth therein during the period of time that the parties actively negotiated and
subsequently  entered  into a new two (2)  year  sales,  marketing  and  service
agreement (Agreement) effective February 1, 2001.

     The  new  Agreement,  in a  manner  similar  to the  terminated  Agreement,
contains provisions  regarding (a) defined territories in the U.S. to which HMSA
would market Company products, (b) certain additional exclusions with respect to
various  identified  customers reserved to the Company and (c) service training,
installation,  technical support and spare parts provisions as well as a Company
warranty  to End-User - the latter in the same  manner as  indicated  above with
respect to the initial Agreement.

     The new Agreement also contained certain  provisions (since excluded by way
of  amendment  dated  June 12,  2001 when the  Company  entered  into a separate
Distribution Agreement with the Health Care Products Division of Marconi Medical
Systems,  Inc.) see the Marconi  Agreement,  below.  The aforesaid June 12, 2001
amendment also contained, in exchange for such exclusions,  HMSA's waiver of the
Company's  prohibition from selling its products to certain U.S.  customers with
the  exception  of certain  reserved  accounts  which did not exist in the prior
Agreement,  primarily relating to the fact that (a) the Company was to receive a
"marketing fee" of $100,000 per annum payable in equal quarterly payments during
the first year of the Agreement and (b) HMSA was obligated to purchase a minimum
of 25 units during the first year of the Agreement.

     Product  pricing  for  the  second  year of the  Agreement  is  subject  to
adjustment  based  upon  mutual  agreement  between  the  parties.  Absent  such
agreement,  the Agreement will  automatically  terminate on the last day of such
year.  Assuming mutual agreement with respect to items subject to renegotiation,
the Agreement may be renewed for additional periods.

     The Marconi Agreement

     The principal  reason for the Company  entering  into the above  referenced
modification to its ongoing HMSA agreement (see "The Hitachi Agreements", above)
was to permit the Company to enter into a separate  Distributor  Agreement  with
the Health Care Products  Division of Marconi Medical  Systems,  Inc.  ("Marconi
HCP"),  which latter agreement  required,  as a condition to its  effectiveness,
that the Company terminate or amend certain existing  Distributor  Agreements to
the extent  necessary  so as to permit the new Marconi HCP  agreement  to become
effective.  The  Marconi  HCP  Distributor  Agreement  dated June 1, 2001 became
effective as of June 15, 2001 - the date the Company's  notification  to Marconi
HCP of  its  having  concluded  necessary  amendments  to  existing  Distributor
Agreement(s).

     The Marconi HCP Distributor Agreement is to run for a period of three years
during which period of time Marconi HCP is to act as a non-exclusive distributor
of Company products in the U.S. Marconi HCP sells and services a wide variety of
products in medical  imaging and is  considered to maintain a high quality sales
and service  work force  which  calls upon  hospitals,  medical  facilities  and
imaging  centers  (i.e.,  potential end users of the  Company's  ddR  products).
Marconi HCP has agreed that during the term of the Distributor Agreement it will
not market other ddR or competing digital  radiography systems and has agreed to
develop  marketing and sales  programs to maximize  awareness of the benefits of
ddR over CR in the target markets.

     Percentage  of  ddRMulti  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.   HMSA  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.

     During fiscal year ended June 30, 2001 Swissray  contracted for the sale of
66 ddR  Systems

                                     -12-

<PAGE>


(inclusive of its October 2000 contract for the sale of 30  ddRChest-Systems  to
the Government of Romania which remains its single largest customer) with 90% of
such sales being made directly by Swissray's internal staff and sales team.

     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,  June 30, 2000 and June 30,  2001 sales to the  Company's  single  largest
customer accounted for approximately 54%, 49.14% and 34.49% of all revenues. The
single  largest  customer  for both fiscal years June 30, 2000 and June 30, 2001
was the Government of Romania.

     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 ddR Systems increase,  the Company's revenue will be less dependent
on a few large customers.

     In August 1998 the Company entered into a global distributorship  agreement
for its  ddRMulti-System  with  Elscint  Ltd. of Haifa to sell and service  such
product in 14  countries  in Europe,  Canada,  South  America and  Africa.  Soon
thereafter  almost  all of the  assets  of  Elscint  Ltd.  were  sold to  Picker
International and GE Medical Systems respectively.  Neither Picker International
nor GE Medical Systems have executed or honored the distributorship agreement as
of the date hereof and therefore the Company was unable to sell the  anticipated
75  ddRMulti-Systems  (partially  anticipated  to be sold through  Elscint Ltd.)
within  the  fiscal  year  98/99  as  originally  planned.  See  Item  3  "Legal
Proceedings"  regarding certain potential  litigation which the Company may find
necessary  to  institute  against  Elscint  Ltd.  absent  receipt of  acceptable
settlement offer.

Research and Development

     During  fiscal year ended June 30, 2001 research and  development  expenses
amounted to $2,305,  165. During the fiscal year ended June 30, 2000 the Company
incurred expenses regarding  research and development of $1,914,065  (accounting
for 11% of the Company's operating expenses) compared to $1,808,107  (accounting
for 9% of the Company's operating expenses) for fiscal year ended June 30, 1999.
The increase of the Company's research and development  expenses by 20% from the
fiscal year ended June 30, 2000 to the fiscal year ended June 30, 2001  resulted
primarily from costs associated with development of the new products  heretofore
described under Item 1 "Business - New Products".

     It is  currently  anticipated  that  the  Company  will  continue  to incur
significant  research  and  development  expenses  associated  with the  further
development of new products (including diagnostic hardware and software products
and  new  digital  X-ray  products)  and   improvements  to  existing   products
manufactured by the Company.

     New products  developed by or on behalf of the Company  during  fiscal year
ended  June 30,  2000  include a new direct  digital  chest  examination  system
(ddRChest),  a direct  digital  universal  radiography  system  (ddRCombi) and a
multi-functional  floating  table.  Both the ddRChest and ddRCombi were unveiled
(a)  domestically  in the U.S.  at the  scientific  assembly of the RSNA held in
Chicago from November 28 - December 2, 1999 and (b)  internationally at ECR 2000
held in Vienna,  Austria in early March 2000. The ddRChest 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.

                                    -13-

<PAGE>


     New  products  developed  during  fiscal  year  ended  June 30,  2001  (and
exhibited at RSNA 2000 in Chicago in November  2000) included (a) ddR Modulaire,
(b) ddR  Fluoroscopy  (work in progress),  (c) two new tables - IGS2000 (work in
progress)  and  IGS1000 and (d) the  OrthoVisions.  For  summarized  descriptive
information  regarding these products see Item 1 "Business - New Products - 2000
Introduction of Five Additional New Products".

     As of June 30,  2001,  the  Company  employed  15  people in  research  and
development.  The number of people  employed in  research  and  development  has
increased  by 15.3%  since June 30,  2000.  The Company is  outsourcing  certain
research and  development  activities and intends to continue this policy in the
future.

     The Company has  established  a  scientific  advisory  board to support its
research  and  development  projects  and  to  enable  the  Company  to  develop
technologically  advanced products. The Company believes that the integration of
academic  institutions and hospitals will allow the Company to save research and
development  expenses and will provide it with access to clinical and scientific
experience and know-how.

Raw Materials and Suppliers

     The Company has a policy of outsourcing the manufacturing of components for
its  X-ray  equipment  whenever  such  outsourcing  is more  efficient  and cost
effective than in-house production.  In particular,  components for which serial
production is available are produced by third-party  manufacturers  according to
Company specifications. Generally, the X-ray accessories sold by the Company are
manufactured by third parties.

     There is virtually no stock of finished  X-ray  equipment on the  Company's
premises  for any  extended  period of time since X-ray  equipment  is generally
manufactured  at a  customer's  request.  At June  30,  2001  finished  products
accounted  for  approximately  18% of inventory  while raw  material,  parts and
supplies  accounted for  approximately  64% of inventory and work in process for
approximately 18%.

     The  percentage of Company  revenues  derived from products  which included
components then only currently  available from a single source supplier amounted
to 86.14% as of June 30,  2001 as  compared to 64.2% as of June 30, 2000 (all of
which related to both single source  supplier of certain camera  electronics and
single  source  supplier  of optics  since both items are  included  in the same
product)  and  13.6% as of June 30,  1999.  See  below  with  respect  to recent
commencement of in-house production of camera electronics.

(A)      Information With Respect to In-house Production of Camera Electronics

     The agreement with the single source supplier of certain camera electronics
terminated  December 31, 1999 due to the fact that its manufacturing plant where
the camera electronics had been manufactured permanently closed on such date and
Company  management  was not satisfied  with  proposals  submitted to it by such
supplier  regarding the latter's  intentions of establishing a new manufacturing
plant.  Company  agreement  with its then new  supplier  of  camera  electronics
provided for availability of such camera  electronics to the Company  commencing
January 1, 2000. In January of 2000 the Company  entered into a new arms- length
agreement  with its CCD  camera  supplier  Laboratories  d'Electronique  Philips
S.A.S.  whereby the Company has purchased,  from available working capital,  the
production facility (including  necessary tools equipment,  diagrams and related
know-how)  for  approximately  250,000  Swiss  Francs  (US$161,290)  and  it  is
management's  ongoing  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,
reduced  camera costs because at a minimum the Company is no longer  funding its
former  suppliers  profit  margin and has not  incurred  any  material  business
interruptions  regarding CCD camera  availability  in a timely manner.  Further,
such in-house  production has not had any adverse effect upon quality of its ddR
Systems.


                                      -14-

<PAGE>


(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,  64.2% at fiscal  year ended June 30,  2000 and 86.14% at fiscal
year ended June 30, 2001. 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

     At fiscal  year  ended  June 30,  2001  total  order  backlog  amounted  to
approximately  $8,013,600 of which approximately  $6,131,200 represented digital
with the balance representing  conventional X-ray equipment and services.  As of
the end of fiscal year ended June 30,  2000 the Company had an order  backlog of
$8,800,000  which  consisted of $2,080,000 in  conventional  X-ray equipment and
$6,720,000 in digital (i.e.  ddRMulti and information  solutions) as compared to
an order backlog of $12,000,000  which  consisted of $8,000,000 in  conventional
X-ray  equipment  and  $4,000,000  in digital  during fiscal year ended June 30,
1999.

     While  the  Company  expects  to  continue  to have an  order  backlog  for
conventional X-ray equipment in the future because of the Philips OEM Agreement,
the order backlog for digital X-ray  equipment is anticipated to increase due to
the Company's sales focus.

Competition

     X-Ray Equipment Market

     The markets in which the Company  operates are highly  competitive  and are
characterized  by  rapid  and  significant  technological  change.  Most  of the
Company's  competitors are significantly larger than the Company and have access
to  greater  financial  and other  resources  than the  Company.  The  principal
competitors for the Company's conventional X-ray equipment are General Electric,
Siemens, Toshiba, Hologic, Shimatsu 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 ddR Systems of the Company currently
available  are chest  examination  systems and  mammography  systems  offered by
Philips,  IMIX,  Odelft and General  Electric.  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.  Furthermore, there
are two companies,  Hologic and Canon, offering  multifunctional  direct digital
Radiography  systems  competing with the Company's ddR Systems.  The Company has
succeeded  to gain the  leadership  position  in the  market of  multifunctional
direct digital  Radiography systems with currently more than 100 of such systems
installed.

     Service Market

     In the markets for  services  related to imaging  equipment  the  Company's
competitors  are  equipment

                                      -15-

<PAGE>

manufacturers  (including  certain of the Company's
competitors   in  the  X-ray   equipment   market)   and   independent   service
organizations.  In the service markets,  it is the Company's strategy to build a
market  position  based on the confidence of its customers in the quality of its
products and service personnel. See "-- Products," "-- Markets".


Intellectual Property and Patents

     The Company  has  obtained  patent  protection  for certain  aspects of its
conventional  X-ray  technology.  The  Company  has  filed  patent  applications
covering  certain  aspects of its direct  digital  technology  in key markets in
Europe, North America and Asia, including the United States, Canada, Switzerland
and  Germany.  Although the Company  believes  that its products do not infringe
patents  or  violate   proprietary   rights  of  others,  it  is  possible  that
infringement of proprietary  rights of others has occurred,  may occur or may be
claimed.  In the event the Company's  products  infringe  patents or proprietary
rights of  others,  the  Company  may be  required  to modify  the design of its
products or obtain a license. There can be no assurance that the Company will be
able to do so in a timely  manner,  upon  acceptable  terms and conditions or at
all. The failure to do any of the foregoing could have a material adverse effect
upon the Company.  In addition,  there can be no assurance that the Company will
have the  financial or other  resources  necessary to enforce or defend a patent
infringement action and the Company could, under certain  circumstances,  become
liable for  damages,  which also  could  have a material  adverse  effect on the
Company.

     The Company also relies on proprietary know-how and employs various methods
to protect its concepts,  ideas and  technology.  However,  such methods may not
afford  complete  protection  and there can be no assurance that others will not
independently  develop  such  technology  or  obtain  access  to  the  Company's
proprietary know-how or ideas.  Furthermore,  although the Company has generally
entered into  confidentiality  agreements  with its employees,  consultants  and
other parties,  there can be no assurance that such arrangements will adequately
protect the Company. The Company has obtained licenses to use certain technology
which is essential  for certain of the  Company's  products,  including  certain
software  used  for  its  line of  SwissVision(R)  postprocessing  systems.  The
software license is a worldwide,  non-exclusive,  non-transferable  license (was
initially  extended  to July  30,  2000 and  subsequently  further  extended  to
February 29, 2002) to use and distribute  the Agfa software in combination  with
the AddOn Bucky and is based upon certain purchase orders.

     The Company considers the Swissray name as material to its business and has
obtained  trademark  protection in key markets.  The Company is not aware of any
claims or infringement or other  challenges to the Company's  rights to use this
or any other trademarks used by the Company which it considers to have any merit
whatsoever.

     The Company has patented  certain aspects of its proprietary  technology in
certain  markets  and has  filed  patent  applications  for its  direct  digital
technology in key markets,  including the United States.  The European patent as
well as the U.S.  patent  for the AddOn  Bucky  have  been  granted  and  expire
December  2015.  The duration of other  patents range from 2000 to 2016. In many
instances  where  patents  are filed  the  "applicant"  is listed as a  specific
individual  (such as the  Company's  President)  while the patent  ownership  is
listed in the Company's name thereby  assuring that the exclusive  patent holder
is the Company.

     In March of 1999 the European  Patent Office issued patent No. EP 0 804 853
and in July of 1999 the U.S.  Patent Office  issued patent No.  5,920,604 - both
for the Company's  Radiography (ddR) detector,  the AddOn-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
AddOn Bucky(R). The second patent application for optical arrangement and method
for  electronically  detecting  an X-ray image was granted in March 2000 (Patent
No. 6,038,286) in the U.S., while the European patent was granted in April 2001.
The AddOn Bucky(R) is incorporated in Swissray's unique ddR Systems.

                                     -16-

<PAGE>

      The U.S. patent was awarded to Swissray pursuant to application  submitted
by  inventors  R.  G.   Laupper,   Chairman,   President  and  CEO  of  Swissray
International, Inc. and Peter Waegli (Bremgarten,  Switzerland), for the optical
arrangement  and process for  transmitting  and converting  primary X-ray images
generated on a two dimensional  primary image array.  The Company had previously
been awarded,  in March 1999 the European  patent for the  technology  indicated
herein.

     The second patent  application  for the optical  arrangement and method for
electronically  detecting  an X-ray  image was granted (in Europe) in April 2001
while  the  U.S.  patent  therefore  was  granted  to the  Company  (Patent  No.
6,038,286) in March 2000.

Regulatory Matters

     The Company's  X-ray  equipment,  components  and related  accessories  are
subject to  regulation  by national or  regional  authorities  in the markets in
which the Company operates. Pursuant to the Federal Food, Drug and Cosmetic Act,
X-ray  equipment is a class IIb medical  device which may not be marketed in the
United States without prior approval from the FDA and EWG.

     The FDA review process typically requires extended  proceedings  pertaining
to the safety and efficacy of new products.  A 510(k) application is required in
order to market a new or modified  medical device.  If specifically  required by
the FDA, a pre-market  approval ("PMA") may be necessary.  The Company submitted
both its  AddOn Bucky(R)  and the ddRMulti 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,  received  FDA  approval and on December 18, 1997 the
Company's   ddRMulti   received  FDA  approval;   the  Company  thus   receiving
authorization  to market the  ddRMulti in the U.S.  The FDA also  regulates  the
content of  advertising  and marketing  materials  relating to medical  devices.
There can be no assurance that the Company's advertising and marketing materials
regarding its products are and will be in compliance with such regulations.

     The  Company is also  subject to other  federal,  state,  local and foreign
laws,  regulations  and  recommendations  relating to safe  working  conditions,
laboratory  and  manufacturing  practices.  The  electrical  components  of  the
Company's   products  are  subject  to  electrical   safety  standards  in  many
jurisdictions,  including  Switzerland,  EU, Germany and the United States.  The
Company  believes  that  it is in  compliance  in  all  material  respects  with
applicable   regulations.   Failure  to  comply   with   applicable   regulatory
requirements can result in, among other things, fines, suspensions of approvals,
seizures  or  recalls  of   products,   operating   restrictions   and  criminal
prosecutions.  The  effect  of  government  regulation  may  be to  delay  for a
considerable   period   of  time  or  to   prevent   the   marketing   and  full
commercialization  of future  products or services  that the Company may develop
and/or  to  impose  costly  requirements  on the  Company.  There can also be no
assurance that additional regulations will not be adopted or current regulations
amended in such a manner as will materially adversely affect the Company.

     Company product  certifications  may be briefly  summarized as follows:  On
March 8, 1999 Swissray Medical AG, the Company's Swiss research and development,
production  and  marketing  subsidiary  became ISO 9001 and EN 46001  certified.
Appendix II for CE - Certification  was completed in December 1999 thus allowing
the Company to use the CE-Label,  including the medical  device  numbers for all
products manufactured and/or sold through the Company.

Environmental Matters

     The Company is subject to various environmental laws and regulations in the
jurisdictions  in which it operates,  including those relating to air emissions,
wastewater  discharges,  the handling and disposal of solid and hazardous wastes
and the  remediation of  contamination  associated  with the use and disposal of
hazardous  substances.  The Company owns or leases  properties and manufacturing
facilities  in  Switzerland,  the United  States,  Germany,  Czech  Republic and
Romania. The Company, like its competitors,

                                     -17-

<PAGE>

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.

Sale of Substantially All of the Assets of Empower, Inc.

     On April 1, 1997, the Company  acquired  Empower,  Inc.  ("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  September  10, 2001.  The Company is currently  engaged in litigation
with the former CEO of Empower,  to wit: J.  Douglas  Maxwell.  For  information
regarding such litigation reference is made to Item 3 "Legal Proceedings".

     Both the original purchase and subsequent sale referred to in the preceding
paragraph were contracted on an arms-length  basis. The sale of Empower's assets
less than one year after acquisition of Empower related primarily to the sale of
film, chemical and certain servicing of conventional X-ray equipment since these
areas no longer  constituted the Company's "core" business which revolves around
its ddRMulti and filmless digital  technology.  The original purchase of Empower
was for  $120,000  and the  subsequent  sale  referred  to resulted in a gain of
$55,000.  Counsel  representing  the Company  with  respect to this  transaction
determined that such transaction was not material,  did not require  stockholder
approval and advised management which acted upon reliance of such legal advice.

Acquisition of Substantially All of the Assets of Service Support Group LLC

     On October 17, 1997, the Company acquired  substantially  all of the assets
of Service  Support Group LLC ("SSG")  located in Gig Harbor,  Washington (in an
arms-length   transaction),   principally   in  exchange   for  the  payment  of
approximately $622,000 in cash and issuance of 33,333 shares of its Common Stock
in equal thirds to each of SSG's then owners based upon certain  warranties  and
representations  made by them. Counsel  representing the Company with respect to
this  transaction  determined that such  transaction  was not material,  did not
require stockholder approval and advised management which acted upon reliance of
such legal  advice.  Pursuant to the terms of the Asset  Purchase  Agreement and
related  Registration  Rights Agreement both dated October 17, 1997, the holders
of such Company shares were then given the right,  commencing  June 30, 1998 and
terminating  April 16,  1999,  to require the Company to purchase  any or all of
such shares at $45.00 per share.  Since its  formation on October 16, 1996,  SSG
has been in the business of selling  diagnostic  imaging equipment and providing
services  related thereto in the markets on the West Coast of the United States.
Issues  involving  the  aforesaid  Company  shares and a number of other related
matters became the subject of dispute and litigation which was settled on August
31,  1999.  See  Item 3 - "Legal  Proceedings".  The  three  former  SSG  owners
relationship  with the Company (and certain Company

                                    -18-

<PAGE>




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 was appointed Chief Executive
Officer of both Swissray Medical Systems, Inc. and Swissray Healthcare, Inc.

Sale of Conventional X-Ray Division in Germany and Switzerland

     The Company's  primary focus is currently on ddR as opposed to conventional
X-ray equipment.  In that regard the Company's German subsidiary (Swissray GmbH)
and Swissray Medical AG  (Switzerland)  sold their  conventional  X-ray business
divisions  in March 2000 and June 2000  respectively  to an  unaffiliated  third
party in  order to more  extensively  focus  upon  sales  and  marketing  of ddR
equipment.

Employees

     After giving effect to the Empower,  Inc. transaction  hereinabove referred
to the  Company  has 136  employees  worldwide,  of  which 28 were  employed  by
subsidiaries  in the  United  States,  90 in  Switzerland,  and  18 in  European
countries other than  Switzerland.  The Company  believes that its  relationship
with  employees is  satisfactory.  The Company has not suffered any  significant
labor problems during the last five years.

Restrictive Shares Issued In Accordance With Consulting Agreements

         Consulting Agreement with Liviakis Financial Communications, Inc.

     On March 29, 1999 the Company entered into a one year Consulting  Agreement
with  Liviakis  Financial  Communications,   Inc.  ("LFC"  or  "Consultant")  In
accordance  with the terms  and  conditions  of the  Consulting  Agreement,  the
Consultant agreed to provide certain specified consulting services in a diligent
and thorough  manner in return for which and as full and  complete  compensation
thereunder,  the  Company  was  required to and did  compensate  the  Consultant
through  its   issuance   and  delivery  of   3,000,000   "fully   vested,   and
non-forfeitable"  shares of the Company's  restrictive  common stock. As regards
such shares of common stock,  Consultant  agreed that  throughout  the period of
time that it retained beneficial  ownership of all or any portion of such shares
that it shall (a) vote such shares in favor of Ruedi G.  Laupper,  the Company's
President,  continuing to maintain his current  position(s) with the Company and
(b) give Ruedi G. Laupper  and/or his  designee  the right to vote  Consultant's
shares at all Company shareholder  meetings.  These voting right provisions were
subsequently violated by LFC; see below. 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 was 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  provided  for the  issuance of
490,000 "fully vested  non-forfeitable" shares of the Company's common stock and
further provided 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 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  was  terminated  or the Company was  acquired by
another  entity  prior to March 28,  2001).  Since  both the  initial  Agreement
referred  to above and the new  Agreement  entered  into on March  29,  2000 are
identical in all material respects excepting as indicated above, such Consulting
Agreements are hereinafter  referred to collectively as "Consulting  Agreement".
The foregoing  does not purport to set forth each of the terms and conditions of
the  aforesaid  Consulting  Agreement  but rather is designed to summarize  what
management considers to be certain pertinent portions thereof.

     In accordance with the terms of the  aforementioned  consulting  agreement,
LFC agreed that it would generally  provide the following  consulting  services:
(a) advise and assist the Company in developing

                                      -19-

<PAGE>

     and  establishing  an image for the Company in the financial  community and
creating the foundation for subsequent  financial public relations efforts,  (b)
advise and assist the Company in communicating appropriate information regarding
its plans,  strategy and  personnel to the financial  community;  (c) assist and
advise the Company with respect to its (i) stockholder  and investor  relations,
(ii)   relations   with  brokers,   dealers,   analysts  and  other   investment
professionals,  and (iii) financial public relations generally,  (d) perform the
functions  generally  assigned  to  investor/stockholder  relations  and  public
relations  departments in major  corporations,  (e) upon the Company's approval,
(i)  disseminate  information  regarding the Company to  shareholders,  brokers,
dealers,  other investment  community  professionals  and the general  investing
public and (ii)  conduct  meetings  with  brokers,  dealers,  analysts and other
investment  professionals  to  advise  them 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 provided that in the event LFC introduced SRMI (a) to
a lender or equity purchaser, not already having a preexisting relationship with
SRMI,  with whom SRMI  ultimately  financed  or caused  the  completion  of such
financing,  SRMI would 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 would  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 was to be payable in cash and was to be paid in full at
the time the financing or acquisition was closed. It was 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 never became entitled to any compensation under the
provisions of this paragraph.

     LFC  had  represented  to  Swissray  that  it was  founded  in 1985 by John
Liviakis,  its President,  was 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 were claimed
to include  financial  community  and media  relations,  editorial  services and
interactive communications,  as well as administrative,  consulting and advisory
services.  The  overall  purpose of LFC was 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 was to have properly 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).

1)  pro-actively  soliciting  sponsorship  for the  Company's  common stock from
stockholders,  institutions,  and analysts;
2) accepting incoming investor calls
from brokers,  shareholders and financial institutions;
3) assisting the Company in packaging its investor relations  materials;
4) assisting the Company in the writing and  dissemination  of its press
releases;
5) assisting the Company in media relations; and
6) generally advising the Company, upon request, on matters of a corporate
financial nature.

     Additionally,  LFC has introduced the Company and subsequently entered into
an  investment  banking  relationship  with Raymond  James &  Associates  (since
terminated - see "Recent  Developments" below) in order to assist the Company in
evaluating  strategic  alternatives  including,  but not limited to, identifying
proposals from potential suitors or strategic partners as well as supporting the
Company's financing requirements.

     The shares of Swissray  common stock continue to bear a restrictive  legend
and are the subject of a dispute  between the parties as  indicated  in Item 3 -
Legal Proceedings- D "Dispute with Liviakis Financial Communications, Inc.

                                      -20-

<PAGE>

     As a result of the above as well as for more  significant and material acts
or omissions of LFC (and/or  members of its staff) which  management of Swissray
believe  caused  Swissray  (and/or  its   stockholders)   material  and  perhaps
irreparable damages, all matters relating to LFC's ownership and rights to these
Swissray shares  previously  issued to LFC, are currently the subject of pending
litigation. See Item 3 - "Legal Proceedings".

     Consulting Agreement with Rolcan Finance Ltd.

     On March 29, 1999 the Company  entered  into an eighteen  month  Consulting
Agreement with Rolcan Finance Ltd.  ("Rolcan") a firm established in 1993 by its
Managing  Director  and  control  stockholder,  Roland  Kaufmann,  as a business
consulting  firm with  principal  activities  being  conducted  outside the U.S.
Pursuant to such Consulting Agreement, Rolcan agreed to provide certain business
and  consulting  services  outside the United States and in return for which the
Company  became   obligated  to  issue  and  did  issue  as  full  and  complete
compensation thereunder,  800,000 fully vested, and non-forfeitable  restrictive
shares of its common stock.

     In accordance with terms of  aforementioned  Consulting  Agreement,  Rolcan
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,
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.

     The foregoing  summarizes certain pertinent terms and conditions  contained
in the  Agreements  entered  into by the Company and LFC and Rolcan but does not
purport to be a complete  summary of either of such  Agreements.  Copies of such
Agreements are filed with the SEC in a Company 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.

     Valuation of Company shares Issued to LFC and Rolcan

     The issuance of the above referenced  restrictive  shares to LFC and Rolcan
was  based  upon the then bid  price of $0.50  per  share as  quoted on the date
(March  29,  1999)  that  the  parties  each  entered  into and  executed  their
respective Consulting Agreements.  The factors considered by the Company's Board
in  determining  the 10%  discount  from the bid price of $0.50  per share  when
issuing the above reference shares to LFC and Rolcan were based upon the Board's
determination  that there is a difference  between the valuation of free trading
securities and restricted shares. The principal  differences  considered related
to the facts that (a)  restricted  shares may not be sold in the open market and
(b) restrictive  legend  appearing on such restricted  shares may not be removed
for a  period  of at  least  one  year  absent  registration  and  then  only in
accordance  with Rule 144  (assuming  the Company  continues  to meet  necessary
reporting   requirements  for  utilization  of  Rule  144).  The  Board  further
considered the fact that even if the above referenced Rule 144 requirements were
met the  holder  of  restricted  shares  remained  subject  to  specific  volume
limitations  (usually 1% of outstanding common stock) with respect to sales made
within a 3 month period  subsequent to 1 year holding period. In addition to all
of the above,  the Board also considered the fact that the Company's shares have
had a history of substantial and significant volatility.

                                    -21-

<PAGE>

Recent Developments

     Raymond James & Associates, Inc.

     In July of 1999 the Company signed a one year investment  banking agreement
with Raymond James & Associates,  Inc. (NYSE:RJE - news). Under the terms of the
agreement,  Raymond  James  was  to  assist  Swissray  in  evaluating  strategic
alternatives including, but not limited to, identifying and evaluating proposals
from  potential  suitors  or  strategic  partners,  as  well as  supporting  the
Company's financing requirements.  On August 2, 2000 the Company advised Raymond
James  that it did not intend to renew the  agreement  and  forwarded  necessary
notice of  termination.  As of date of termination no monies were due to Raymond
James other than for certain out of pocket  disbursements  which  Raymond  James
claims are due to it.

     Hitachi and Marconi Agreements See Item 1 - "Business - Sales and Marketing
-  Distribution  Agreements - The Hitachi  Agreement and The Marconi  Agreement"
with  respect to the  current  status of each of such  Agreements  entered  into
during fiscal year ended June 30, 2001.

     Additional Romanian Sales

     In October  2000 the  Company  entered  into a further  agreement  with the
Romanian  Ministry of Health (which had  previously  purchased 32 ddR Systems in
October 1999) for the latter's purchase of 30 ddRChest in an agreement valued at
more than $7,000,000 with all 30 ddRChest being subsequently sold.

         The Hillcrest Agreement

     The  Company,  principally  during  December of 2000,  entered into various
negotiations with those persons and/or firms with whom it had entered into prior
financing  agreements,  which  persons  and/or  firms  were then the  holders of
outstanding (a) convertible debentures,  (b) Series A Preferred Stock and/or (c)
promissory   notes.  For  specific   information  with  respect  to  such  prior
financings,  reference is herewith made to Registration Statement under Sec File
No.  333-59829 as declared  effective on August 14, 2000 and in particular,  but
not limited to, those sections entitled "History of Past Financings",  " Selling
Holders ", "Plan of Distribution" and "Description of Capital Stock - Promissory
Notes Subsequently  Converted into Debentures" and "Registration Rights" as well
as to those Risk Factors in such  Registration  Statement  which similarly dealt
with  matters  specifically   relating  to  such  financings  and  are  entitled
"Potential  Adverse Effect Upon Stock Price .. and Regulation D",  "Inability to
Currently Determine Number of Shares .. in Outstanding Shares" and "Requirements
for the Issuance of Additional Shares .. Financing Agreements".

     With respect to the above,  13 of the Selling  Holders named in the section
entitled  "Selling  Holders"  assigned all of their  rights and  interests to an
entity known as Hillcrest Avenue LLC ("Hillcrest"),  a corporation  incorporated
under the laws of the Cayman  Islands.  The Selling  Holders who assigned  their
rights to Hillcrest are as follows:  Dominion Capital Fund,  Sovereign  Partners
LP, Dominion  Investment Fund LLC.,  Aberdeen Avenue LLC, Parkdale LLC, Canadian
Advantage  Limited  Partnership,  Atlantis  Capital Fund Ltd.,  Striker Capital,
Southridge   Capital  Management  LLC,  Fetu  Holding,   Greenfield   Investment
Consultants,  LLC,  Dundurn Street LLC and Southshore  Capital Fund Ltd. Of such
group of 13 the following "Selling Holders" were principal stockholders prior to
such  assignment - Dominion  Capital  Fund  Limited,  Sovereign  Partners LP and
Parkdale LLC.

     Hillcrest  thereafter and in accordance with  negotiations with the Company
entered into written agreements, each dated as of December 29, 2000, pursuant to
which all of those rights acquired by Hillcrest in accordance with the aforesaid
assignments   were  exchanged  for  the  issuance  to  Hillcrest  of  52,442,347
restrictive  shares  of  Company  common  stock  thereby   extinguishing   those
convertible  debentures,   Preferred  Shares  and  promissory  notes  heretofore
assigned to Hillcrest by Selling  Holders.  At the time of  assignment  the debt
instruments indicated had a valuation of $16,907,573  (inclusive of interest and
penalties),  all of which was  extinguished  in  exchange  for  issuance  of the
aforesaid 52,442,347 Company shares to Hillcrest.

                                      -22-

<PAGE>

     As a direct result of the above referenced transaction Hillcrest became and
remains  the single  largest  stockholder  of the Company  owning  approximately
61.88% of all issued and  outstanding  common  stock of the Company as of August
15, 2001.  Notwithstanding such ownership,  Hillcrest has given Ruedi G. Laupper
the  Company's  President,  sole voting  rights over such shares as are owned by
Hillcrest so that Ruedi G. Laupper may vote such shares in such manner as he may
choose  (including  in his favor to continue to maintain  his current  positions
with  the  Company)  and in his  sole  discretion  at  all  Company  shareholder
meetings; such rights being limited, to an extent, by certain exceptions thereto
as are enumerated in Shareholder  Agreement  hereinafter  referred to at Section
2.2b(a)  through (j)  inclusive  thereto.  The  Shareholders  Agreement  (absent
voluntary  agreement to terminate or  receivership,  bankruptcy  or matters of a
similar  nature)  terminates on such date as  Hillcrest's  record and beneficial
ownership  is equal to 9.9% or less of all then  issued and  outstanding  Common
Stock of the Company (although certain provisions of the Shareholders  Agreement
as relate to the  "Anti-Dilution"  provisions  as are  contained  therein  shall
survive such termination).  Notwithstanding Ruedi G. Laupper's voting rights (as
outlined  above),  Hillcrest has retained sole investment power over the Company
shares heretofore referred to.

     The written  agreements  dated  December  29, 2000 as entered  into between
Hillcrest,  the Company and others are  entitled  (a)  Exchange  Agreement,  (b)
Shareholders  Agreement and (c)  Registration  Rights  Agreement  (the latter of
which  requires  that the Company  file a  Registration  Statement  with the SEC
within 60 days from  closing of the  Exchange  Agreement  so as to register  the
aforesaid 52,442,347 shares  notwithstanding the fact that Hillcrest agreed that
it may not sell all or any portion of such shares for a period of no less than 6
months and 1 day from closing the Exchange Agreement.

     Each of the agreements referred to (i.e., Exchange Agreement,  Shareholders
Agreement and  Registration  Rights  Agreement)  were filed with the SEC as Item
7(c) Exhibits to Form 8-K with date of report of December 29, 2000.

     The required  Registration  Statement to register  the  52,442,347  Company
shares issued to Hillcrest was filed with the SEC on February 20, 2001 (File No.
333-55898) and declared effective on March 9, 2001.

     The DIANAssociates Agreement

     In December 2000 the Company announced that it received an order for 10 ddR
Systems from  DIANAssociates,  Inc., a  telemedicine  service  provider based in
Maryland (so as to provide TB screening  services at 10  geographically  diverse
locations in the U.S.).

     The Redington Agreement

     In  March  2001  the  Company  engaged  Redington,  Inc.  ("Redington"),  a
Fairfield,   Connecticut  based  firm  specializing  in  working  with  emerging
technology companies, to perform various investor relations services in order to
improve shareholder  relations and increase corporate awareness in the financial
community.

     It is intended  that  Redington's  work on behalf of Swissray  will include
national  awareness  programs  designed to articulate  the unique  advantages of
Swissray's ddR Systems,  and to help investors  better  understand the potential
market opportunities for this technology.

     The initial term of the contract is for a one year period  ending  February
28, 2002. In addition to an agreed to monetary fee (paid for  approximately  68%
in cash with the  balance  being paid in shares of  Swissray  common  stock) the
Company  is  obligated  to issue  Warrants  (over a period  of up to 5 years) to
purchase up to 500,000 shares of Company common stock at various exercise prices
equal to market price on date of grant.  The  specific  number of Warrants to be
issued will be determined  based upon certain  defined trading price goals being
achieved   and,   accordingly,   may  be  considered  as  a  form  of  incentive
compensation.

                                      -23-

<PAGE>


     To date 100,000 Warrants exercisable through March 15, 2006 (at the closing
bid price on the March 15, 2001 date of issuance)  have been issued.  CAUTIONARY
STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE  SECURITIES
LITIGATION REFORM ACT OF 1995

     As  heretofore  indicated  on the cover  page of this  Form 10-K  under the
heading "Documents  Incorporated by Reference" certain portions of the Company's
recently declared effective  (February 20, 2001)  Registration  Statement and in
particular, but not limited to, the section therein entitled "Risk Factors" have
been  incorporated by reference.  As a result thereof the following  "Cautionary
Statement" should be taken into careful consideration.

     Investment in the securities of the Company involves a high degree of risk.
In evaluating an investment in the Company's Common Stock,  Company stockholders
and prospective investors should carefully consider the information contained in
this Form 10-K for the  fiscal  year  ended  June 30,  2001  including,  without
limitation,  Item 1 "Business" and Item 6 "Management's  Discussion and Analysis
of  Financial  Condition  and  Results of  Operations",  as well as  information
incorporated by reference from the Company's aforesaid Registration Statement.

     This  Form  10-K  includes  forward-looking  statements  that  reflect  the
Company's current views with respect to future events and financial performance,
including  capital  expenditures,  strategic  plans and future cash  sources and
requirements.  These forward-looking statements are subject to certain risks and
uncertainties,  which  could  cause  actual  results to differ  materially  from
historical  results  of  those  anticipated.  The  words,  "believe",  "expect",
"anticipate",   "estimate"  and  similar  expressions  identify  forward-looking
statements.  Readers  are  cautioned  not  to  place  undue  reliance  on  these
forward-looking  statements,  which  speak only as of their  dates.  The Company
undertakes  no  obligation  to publicly  update or revise any  forward-  looking
statements whether as a result of new information, future events or otherwise.

ITEM 2. PROPERTIES

     On May 15, 1997, the Company purchased a new office and production facility
of  approximately  43,000  square feet and moved its entire  production  to this
facility and has since moved the offices and other  facilities  formerly located
in its Hitzkirch  facility to the new Hochdorf  facility.  The Company  believes
that its Hochdorf  facility  provides it with  sufficient  production and office
space to meet its current demand in Switzerland for the foreseeable  future.  In
September  2000 the Company  purchased an additional  approximate  21,000 square
feet (adjacent to its facilities) for production expansion purposes, if and when
advisable.

     The Company also leases  office space in Elmsford,  New York,  Brno,  Czech
Republic, Wiesbaden, Germany and Bucharest, Romania.

ITEM 3.           LEGAL PROCEEDINGS

Legal Proceedings

A. 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

                                     -24-

<PAGE>

Service  Support  Group LLC  ("SSG"),  the assets of which were sold to Swissray
Medical Systems Inc. pursuant to an Asset Purchase Agreement dated as of October
17,  1997.  whereby  Messrs.  Durday,  Montler and Harle  received,  among other
consideration,  33,333  shares of Swissray's  common stock,  together with a put
option entitling these individuals to require Swissray to purchase any or all of
such shares at a purchase  price equal to $45.00 per share (on or after June 30,
1998 and until April 16, 1999).

     On July 17,  1998,  Swissray,  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 was
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 were made in a timely fashion with the final payment having
been made August 15, 2001.

B.  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 judgment 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

                                     -25-

<PAGE>

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 portion  of his claim for  approximately
$320,000 plus interest. Maxwell's application for judgment on the balance of his
claim has been dismissed.

C. Dispute  with  Elscint Ltd. In August 1998 the Company  entered into a global
distributorship  agreement  for its ddRMulti  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  (partially  anticipated to be sold
through  Elscint Ltd.) within the fiscal year 98/99 as originally  planned.  The
Company is currently contemplating instituting legal proceedings against Elscint
Ltd. absent receipt of acceptable settlement offer.

D. Dispute with Liviakis  Financial  Communications,  Inc. Reference is herewith
   made to Item 1

     "Business - Consulting  Agreements with Liviakis Financial  Communications,
Inc."  with  respect  to  various  terms  and  conditions  relating  to the  two
consulting  agreements  entered into between the Company and Liviakis  Financial
Communications,  Inc. ("LFC").

     Those Swissray  shares of common stock issued to LFC in accordance with the
above  referenced  Consulting  Agreements are the subject of dispute between the
parties.   The  parties  are  currently  attempting  to  negotiate  an  amicable
resolution to this matter that would compromise all claims between them and void
litigation.

E. Commencement of Patent Infringement Suit In March 2000 Swissray filed (before
the Tribunal de Grande Instance de Marseille) a patent infringement suit against
a firm known as Apelem  alleging  that the French  part of its  European  patent
number EP 862 748 was infringed by virtue of the  production/offer/sale of x-ray
equipment  by  Apelem.  Apelem  has not as yet filed a  material  answer and the
period for filing opposition does not expire until January 2002.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Company held its Annual Meeting of  Stockholders  for fiscal year ended
June 30,  2000 on November  30, 2000 (in  conjunction  with its  attendance  and
participation  at the  Annual  Radiological  Society of North  America  ("RSNA")
Convention held in Chicago, Illinois.

     With proxies being received for approximately 95% of all shares entitled to
vote, stockholders' (i) elected each of the 5 nominees to the Company's Board of
Directors  by an  overwhelming  majority of all votes cast,  (ii)  approved  the
appointment of Feldman Sherb & Co., P.C. as independent auditors for fiscal year
ended June 30, 2001 and (iii)  approved the proposal to adopt the Company's 2001
Stock Option Plan.

     The  Company has  established  a  tentative  date of November  24, 2001 for
holding its Annual Meeting of  Stockholders  for fiscal year ended June 30, 2001
with the intention that same be held in Chicago, Illinois during the Annual RSNA
Convention . Specific  plans as to exact date,  location and agenda have not yet
been  finalized  but once a more  definitive  time  frame and  agenda  have been
arrived at all  stockholders of record,  as of the chosen record date,  shall be
properly notified.


                                      -26-

<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS.

         (a)      Market Information

     The  Registrant's  common  stock,  $.01 par value (the "Common  Stock") was
listed on the Nasdaq  SmallCap  Market and  traded  under the symbol  SRMI until
October 26, 1998 delisting  (2).  Since January 1999 the Company's  common stock
has been trading on the  Electronic  Over-the-Counter  Bulletin  Board under the
same symbol.  The following  table sets forth,  for the periods  indicated,  the
range of high and low bid  prices on the dates  indicated  for the  Registrant's
securities  indicated  below for each full quarterly  period within the two most
recent fiscal years (if applicable) and any subsequent  interim period for which
financial statements are included and/or required to be included.


Fiscal Year Ended June 30, 2000            Quarterly Common Stock Price
     By Quarter                                      Ranges (1)
---------------------------------          -----------------------------
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


Fiscal Year Ended June 30, 2001            Quarterly Common Stock Price
       By Quarter                                    Ranges (1)
-------------------------------            -----------------------------
Quarter        Date                            High              Low

1st      September 30, 2000                   $2.81             $1.47
2nd      December 31, 2000                    $1.75             $0.30
3rd      March 31, 2001                       $1.00             $0.36
4th      June 30, 2001                        $1.03             $0.35


(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 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) On the date of NASDAQ's  delisting (October 26, 1998) the common stock price
was $.97 per share.

     (b)      Holders

     As of the close of business on August 15, 2001 there were 402  stockholders
of record of the  Registrant's  Common Stock and  84,750,524  shares  issued and
outstanding.

     (c)      Dividends

     The payment by the  Registrant  of  dividends,  if any, in the future rests
within the  discretion  of its Board of Directors  and will depend,  among other
things, upon the Company's earnings,  its capital requirements and its financial
condition,  as well as other  relevant  factors.  The Registrant has not paid or
declared any dividends  upon its Common Stock since its inception and, by reason
of its present  financial  status and its contemplated  financial  requirements,
does not contemplate or anticipate paying any dividends upon its Common Stock in
the foreseeable future.

                                      -27-
<PAGE>

     (d)      Nasdaq Delisting

     On October 26, 1998 Nasdaq  determined to delist Company's  securities from
The Nasdaq Stock Market  effective with the close of business  October 26, 1998.
The Nasdaq Listing and Hearing and Review Council  ("Council") on its own motion
on December 9, 1998 determined to review the Nasdaq Listing Qualifications Panel
("Panel")  delisting  decision.  The Company,  on its own initiative also timely
perfected its appeal.  On April 1, 1999 the Council issued a decision whereby it
reversed   and   remanded   the  decision  of  the  Nasdaq  Panel  with  certain
instructions. The Panel, in a November 5, 1999 decision, opined that the Company
failed to evidence compliance with all requirements for continued listing on the
Nasdaq SmallCap Market and on June 1, 2000 the Council  affirmed the decision of
the  Panel  indicating  that it agreed  with the  Panel's  various  conclusions.
Thereafter  and  pursuant  to NASD Rule  4850(a),  the NASD  Board of  Governors
declined  to call this  decision  for review and the  Company was so notified on
July 28, 2000.

     For detailed summarized information regarding certain pertinent findings of
both the Panel and Council  from initial  delisting  through  conclusion  of the
Nasdaq appeal  process,  reference is herewith  made to the  Company's  Form S-1
Registration Statement (under File No. 333-55898) as declared effective March 9,
2001 and in  particular  to that portion  thereof  entitled  "Market  Prices and
Dividend Policy" subheading "Continued Nasdaq Delisting". See also cover page to
this Form 10-K under the heading "Documents Incorporated by Reference".





                                      -28-
<PAGE>

ITEM 6            SELECTED FINANCIAL DATA

                             Swissray International
                      SELECTED CONSOLIDATED FINANCIAL DATA
                      (in thousands, except per share data)

     The selected consolidated  financial data presented below should be read in
conjunction with "Management's  Discussion  Analysis of Financial  Condition and
Results of Operations"  and the  Consolidated  Financial  Statements and related
notes thereto  included  elsewhere in this document.  The selected  consolidated
financial  data as of and for the fiscal  years  ended June 30,  1997,  June 30,
1998,  June 30,  1999,  June 30,  2000 and June 30,  2001 are  derived  from the
consolidated financial statements of the Company.

<TABLE>
                                                                                              Year Ended
                                                                                               June 30,
                                             2001              2000             1999*             1998              1997*

<CAPTION>
<S>                                           <C>                <C>             <C>              <C>                 <C>
STATEMENT OF OPERATIONS DATA:
Net sales                                    22,161            22,030           17,296           22,893              13,151
Cost of goods sold                           15,859            16,500           13,529           18,082               8,445

Gross profit                                  6,302             5,530            3,767            4,811               4,706
Gross profit margin (%)                         28%               25%              22%              21%                 36%

Selling, general and administrative
     expenses                                13,785            17,011           19,346           18,748              17,450
                                      ---------------   ---------------  ---------------   --------------   -----------------
Operating loss                               (7,483)          (11,481)         (15,579)         (13,937)            (12,744)
Other expenses (income)                         147             (190)             (40)              281               ( 319)
Interest expense                              1,723            10,347            5,639            8,590                 762
                                      ---------------   ---------------  ---------------   --------------   -----------------
Loss from continuing operations,
 before income taxes                         (9,353)          (21,638)         (21,178)         (22,808)            (13,187)
Income tax provision (benefit)                 -                 -                -                -                    110
                                      ---------------   ---------------  ---------------   --------------   -----------------
Loss from continuing operations,             (9,353)          (21,638)         (21,178)         (22,808)            (13,297)

Loss from continuing operations
     per common share                        (0.17)            (1.14)           (3.24)           (8.48)              (8.41)

BALANCE SHEET DATA:
Total assets                                 19,806            25,383           23,511           25,915              24,788
Long-term liabilities                            11            14,150           15,501            7,771               5,635
Common stock subject to put                     320               320            1,820            1,820                 320

</TABLE>

(1) On October 1, 1998 the Company  declared a 1 for 10 reverse stock split. The
financial  statements for all periods present have been  retroactively  adjusted
for the split.

* Restated


                                      -29-

<PAGE>



ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS


     All references herein to the "Registrant"  refer to Swissray  International
Inc. All  references  herein to the "Company"  refer to Swissray  International,
Inc. and its subsidiaries.

GENERAL

     Throughout  fiscal year ended June 30,  2001 the  Company  took a number of
important  steps to  strengthen  its  position  in the field of  radiology  with
specific  emphasis upon its ddR line of products and additions  thereto so as to
expand its dedicated  systems and so as to offer solutions to important  aspects
of digital radiography.

         Market penetration of the Company's flag ship product, the ddR Systems,
continued to increase as a result of the sales efforts of the Company's internal
sales staff as well as the sales and distribution efforts of HMSA and Marconi,
two of the Company's principal distributors.

     While  initial  market  penetration  resulted  in the sale of 8 ddR Systems
during  fiscal  year ended June 30,  1999,  fiscal  year ended June 30, 2000 saw
substantial  and  significant  further  market  penetration  in that the Company
contracted for the sale of 64 ddR Systems (29 of which were  contracted for sale
in the U.S.  with the  balance  being  contracted  for sale  outside  the  U.S.,
inclusive of 32 ddR Systems  contracted  for sale to the Government of Romania).
Fiscal year ended June 30, 2001 saw further  continued  success with the Company
having contracted for the sale of 66 additional ddR Systems.

         As regards sales to Romania, (a) the Company completed sale (primarily
during fiscal year ended June 30, 2000) of all 32 ddRMulti referred to above and
the entire contract, valued at $13,800,000, has been paid in full and (b) during
fiscal year ended June 30, 2001 Romania contracted for the sale of 30 ddRChest
valued at more than $7,000,000 which were subsequently sold.

     During its past fiscal year, the Company has continued to shift its primary
focus and emphasis  from  conventional  X-ray  equipment  to ddR.  This shift in
emphasis has already  proven  successful  with the Company's  German  subsidiary
having (in  September  2000)  contracted  for the sale of two  ddRMulti  and one
ddRCombi to outpatient radiology clinics in Germany.

     With the  introduction  of five new products  the Company has  succeeded in
further  positioning  itself  with a high  tech  image and has  entered  the new
millennium  with a substantial  list of potential ddR and  informatics  business
opportunities.  The  new  products  are  principally  based  upon  the  patented
technology  of the  ddRMulti.  See also Item 1 - "Business - New  Products"  for
further information.

     The Company's  efforts were again recognized for the third consecutive year
(by unaffiliated  third parties) as evidenced by its having been chosen (in July
of 2001) as one of the 50 fastest growing  technology  companies in the New York
City/Westchester/Rockland County areas. This program was sponsored by Deloitte &
Touche.

     Ongoing efforts in the Company's  research and development  department have
recently led to the Company being issued  patents in both the U.S. and in Europe
for the ddR  detector,  the  AddOn-Bucky.  These  patents  relate to the optical
arrangement  and process for  transmitting  and converting  primary X-ray images
generated on a two dimensional primary image array. Furthermore,  the patent for
the mirror optics has been approved in the U.S. for the optical  arrangement and
method for  electronically  detecting an X-ray image while a similar  patent has
been approved in Europe in April 2001.  For the aforesaid  ddRCombi and ddRChest
the Company was granted a design  protection in Switzerland.  Additional  patent
applications  for the design  protection for both Systems have been submitted in
Sweden, Germany,  Benelux, France, Canada and the U.S. and are currently pending
approval.

                                      -30-

<PAGE>



     See Item 1 "Business - Intellectual  Property and Patents" for  information
regarding patent numbers and dates of issuance.

     The Company  received its UL (July 1999) and CE  (December  1999) label for
its ddR Systems.  This  certification is a public statement of compliance with a
known standard and an extremely stringent approval process involving  assessment
and documentation of a product sample by an independent third party organization
followed by on-going periodic product inspections at the manufacturing site.

     Management of the Company  believes that its unique  technology  and vision
for the future have set the stage for continued  growth in the years to come and
anticipate a continued increase in demand for the Company's ddR solutions, which
belief is based upon  results of  clinical  successes  in the U.S. as well as in
Europe.

YEAR ENDED JUNE 30, 2001 COMPARED TO YEAR ENDED JUNE 30, 2000

RESULTS OF OPERATIONS

     Net  sales  amounted  to  $22,161,014  for the year  ended  June 30,  2001,
compared to $22,030,124 for the year ended June 30, 2000 an increase of $130,890
or .6% from the year  ended June 30,  2000.  The .6%  increase  in net sales was
mainly due to the sales of ddRMulti  increasing by 35.01% or $4,949,944  and ddR
related information solutions increasing by 79.55% or $344,752. This significant
increase  was  slightly  offset by a decrease  in  conventional  X-ray of 85.10%
($1,534,874) and conventional OEM-Business of 72.85% ($2,829,084) and service of
45.20%  ($799,828).  The decrease in conventional  X-ray and  conventional  OEM-
Business is due to the  Company's  conscious  effort of  promoting  sales of ddR
Systems with a corresponding  decline of interest in sales of conventional X-ray
and conventional OEM-Business, whereas service is going in line with an increase
in ddR related  service and a decrease in  conventional  and  conventional  OEM-
Business related service.

     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 ddR
Systems - its flagship product.

     Gross profit  increased by $771,466 or 14% to $6,301,594 for the year ended
June 30, 2001, from $5,530,128 for the year ended June 30, 2000. Gross profit as
a percentage of net revenues increased to 28.4% for the year ended June 30, 2001
from 25.1% for the year ended June 30,  2000.  The increase in gross profit as a
percentage of net revenues is  attributable  to the fact that the  percentage of
sales of ddRMulti to total sales increased to 86.14% of total sales for the year
ended June 30, 2001 from 64.2% for the year ended June 30, 2000.

     Operating expenses decreased by $3,226,269 or 19% to $13,784,828,  or 66.2%
of net revenues,  for the year ended June 30, 2001, from $17,011,097 or 77.2% of
net revenues for the year ended June 30, 2000. The principal items were officers
and directors  compensation  of $618,038 or 2.8% of net sales for the year ended
June 30, 2001  compared to  $2,831,662  or 12.9% of net sales for the year ended
June  30,  2000,  salaries  (net of  officers  and  directors  compensation)  of
$4,239,179  or 19.1% of net sales for the year ended June 30,  2001  compared to
$3,762,009  or 17.1% of net sales for the year ended June 30,  2000 and  selling
expenses  of  $3,961,148  or 17.9% of net sales for the year ended June 30, 2001
compared to  $4,352,016  or 19.8% of net sales for the year ended June 30, 2000.

                                      -31-

<PAGE>

Research and development  expenses were $2,305,165 or 10.4% of net sales for the
year ended June 30,  2001  compared to  $1,914,065  or 8.7% of net sales for the
year ended June 30, 2000.  The increase is primarily due to the  development  of
the ddR-Combis and the ddRChest unit as well as  introduction  (during  calendar
year 2000) of five additional new products.  General and administrative expenses
decreased  by  $952,933  or 52.5% to  $863,895 or 3.9% of net sales for the year
ended June 30, 2001 from $1,816,828 or 8.2% of net sales for the year ended June
30, 2000. The decrease in officers and directors  compensation  of $2,213,624 or
78.2% is due to the fact that such officers  received,  during fiscal year ended
June 30, 2000, common stock for services rendered which was valued at $2,165,625
while no shares for services  rendered were issued during the succeeding  fiscal
year.  The  decrease in selling and  general  administrative  expenses is due to
overall savings,  primarily on professional  fees and services.  Other operating
expenses decreased by $319,505 or 36.1% to $564,330 or 2.6% of net sales for the
year ended  June 30,  2001 from  $883,835  or 4% of net sales for the year ended
June 30, 2000.  This decrease is due to the overall  savings,  primarily in rent
and insurance costs.

     Interest expenses  decreased to $1,723,259 for the year ended June 30, 2001
compared  to  $10,347,427  for the year ended June 30,  2000.  This  decrease is
primarily  due to the  decrease  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.

FINANCIAL CONDITION

June 30, 2001 compared to June 30, 2000

     Total  assets of the Company on June 30, 2001  decreased by  $5,576,779  to
$19,806,235 from $25,383,014 on June 30, 2000,  primarily due to the decrease of
current assets.  Current assets  decreased  $5,073,841 to $8,757,660 on June 30,
2001 from  $13,98313501on  June 30,  2000.  The  decrease  in current  assets is
attributable  to the  decrease  of cash  and  cash  equivalents  of  $1,422,693,
restricted cash of $1,385,600, the decrease of accounts receivable of $1,081,014
of which approximately  $1,840,250 arises from the receipt of cash from the sale
of ddRMulti to Romania,  the  decrease in inventory of $358,792 and the decrease
in prepaid expenses and sundry  receivables of $525,742.  Other assets decreased
$620,075 to  $4,630,822 on June 30, 2001 from  $5,250,897 on June 30, 2000.  The
decrease  is  primarily  attributable  to  the  amortization  of  the  licensing
agreement, patents & trademark, software development cost and the goodwill.

     On June 30, 2001, the Company had total liabilities of $13,855,792 compared
to  $35,384,045  on June 30, 2000. On June 30, 2001,  current  liabilities  were
$13,845,281  compared to $21,233,649 on June 30, 2000.  Working  capital at June
30, 2001 was $(5,087,621) compared to $(7,402,148) at June 30, 2000.

CASH FLOW AND CAPITAL EXPENDITURES YEAR ENDED JUNE 30, 2001 COMPARED TO YEAR
ENDED JUNE 30, 2000.

     Cash used for operating  activities for the years ended June 30, 2001, June
30,  2000  and  June  30,  1999  was   $2,265,666,   $4,360,009  and  $9,788,606
respectively.  Cash used for investing activities for years ended June 30, 2001,
June  30,  2000  and  June  30,  1999  was   $743,170,   $639,778  and  $879,303
respectively.  Cash flow from  financing  activities  for  years ended June 30,
2001, June 30, 2000 and June 30, 1999 was $1,646,817, $6,215,558 and $11,068,406
respectively.

Liquidity

     The Company  anticipates  that its use of cash will remain  substantial for
the  foreseeable  future.  In  particular,  management  of the  Company  expects
substantial  expenditures  in  connection  with the  production  of the  planned
increase of sales,  the continuation of the  strengthening  and expansion of the
Company's marketing  organization and, to a lesser degree,  ongoing research and
development  projects.  The Company expects that funding for these  expenditures
will be available out of the Company's  future cash flow which will be dependent

                                      -32-

<PAGE>


to a significant  extent on the  marketability  of the Company's ddR Systems and
related products. Accordingly, if such expectations are not met, the Company may
engage  in some form of  equity  and/or  debt  financing  so as to meet  capital
expenditures and working capital requirements. There can be no assurance whether
or not such financing will be available on terms satisfactory to management,  if
and when needed.

     To  the  extent  any  of  the  debentures  referred  to  hereinafter  under
"Liquidity"  had not been fully  converted  or subject to  mandatory  conversion
(which  date has  since  passed)  same  have been  cancelled,  extinguished  and
replaced in  consideration  of issuance of shares of Company common stock (since
registered  under SEC File No.  333-55898) in accordance  with December 29, 2000
agreement  with  Hillcrest  Avenue LLC  ("Hillcrest")  whereby  all  unconverted
balances  inclusive of principal,  interest and liquidated damages were assigned
to  Hillcrest  as was various  rights  under  outstanding  promissory  notes and
Convertible   Preferred  Shares.  See  "Recent   Developments  -  The  Hillcrest
Agreement".

     On March 16, 1998, the Company issued $5,500,000 aggregate principal amount
of 6% convertible  debentures (the "Convertible  Debentures"),  convertible into
Common Stock of the Company to the following  financing  participants - Atlantis
Capital Fund, Ltd.,  Canadian  Advantage Limited  Partnership,  Dominion Capital
Fund, Ltd. and Sovereign Partners LP. After deducting legal fees of $35,000, and
placement agent fees of $550,000  directly  attributable  to such offering,  the
Company  received a net  amount of  $4,915,000.  The  Company  received  written
representations  from each investor to the effect that they were each accredited
investors as defined in Rule 501(a) of Regulation D. One Hundred  percent of the
face amount of the Convertible Debentures were convertible into shares of Common
Stock of the Company at the earlier of May 15, 1998 or the  effective  date of a
Registration   Statement  (since  declared  effective  August  14,  2000)  at  a
conversion  price  equal to 80% of the  average  closing  bid  price for the ten
trading days preceding the date of conversion. Any Convertible Debentures not so
converted  were  subject  to  mandatory  conversion  by the  Company on the 24th
monthly anniversary of the date of issuance of the Convertible  Debentures.  All
of these debentures have been converted.

     In June of 1998, the Company issued $2,000,000  aggregate  principal amount
of 6% convertible  debentures (the "Convertible  Debentures"),  convertible into
Common Stock of the Company to the following  financing  participants - Canadian
Advantage  Limited  Partnership,  Dominion  Capital  Fund,  Ltd.  and  Sovereign
Partners LP. After  deducting  fees directly  attributable  to such offering the
Company  received a net  amount of  $1,760,000.  The  Company  received  written
representations  from each investor to the effect that they were each accredited
investors as defined in Rule 501(a) of Regulation D. One Hundred  percent of the
face amount of the Convertible Debentures were convertible into shares of Common
Stock of the Company at the earlier of August 14, 1998 or the effective  date of
a  Registration  Statement  (since  declared  effective  August  14,  2000) at a
conversion  price  equal to 80% of the  average  closing  bid  price for the ten
trading days preceding the date of conversion. Any Convertible Debentures not so
converted  were  subject  to  mandatory  conversion  by the  Company on the 24th
monthly anniversary of the date of issuance of the Convertible  Debentures.  All
of these debentures have been converted.

     On August 31, 1998 the Company issued $3,832,849 aggregate principal amount
of 5% convertible  debentures  (the  "Convertible  Debentures")  including a 25%
premium and accrued  interest,  convertible  into Common Stock of the Company to
the following  financing  participants - Atlantis Capital Fund,  Ltd.,  Canadian
Advantage  Limited  Partnership,  Dominion  Capital  Fund,  Ltd.  and  Sovereign
Partners LP. The Company did not receive any cash  proceeds from the offering of
the Convertible Debentures.  The full amount was paid by investors to holders of
the Company's Convertible Debentures issued on March 16, 1998 holding $3,000,000
of such Convertible Debentures as repayment in full of the Company's obligations
under such  Convertible  Debentures.  During the same period the Company  issued
$2,311,000 aggregate principal amount of 5% Convertible Debentures,  convertible
into Common Stock of the Company.  After deducting fees,  commissions and escrow
fees in the  aggregate  amount of $311,000 the Company  received a net amount of
$2,000,000. The face amount of both Convertible Debentures were convertible into
shares of Common Stock of the Company  commencing  March 1, 1999 at a conversion
price  equal to 82% of the average  closing  bid price for the ten trading  days

                                     -33-

<PAGE>

preceding the date of the conversion or $1.00 whichever is less. Any convertible
Debentures  not so  converted  became  subject to  mandatory  conversion  by the
Company  on  the  24th  monthly  anniversary  of the  date  of  issuance  of the
Convertible  Debentures.   All  of  these  debentures  have  been  converted  in
accordance with 2 year mandatory conversion provisions.

     On October 6, 1998 the Company issued $2,940,000 aggregate principal amount
of 5% convertible debentures (the "Convertible  Debentures")  including, as part
of the  terms of this  financing,  $540,000  repurchase  of stock  (717,850  and
747,150  shares from  Dominion  Capital  Fund,  Ltd. and  Sovereign  Partners LP
respectively),  convertible  into Common  Stock of the Company to the  following
financing  participants - Dominion Capital Fund, Ltd. and Sovereign Partners LP.
After  deducting fees,  commissions  and escrow fees in the aggregate  amount of
$300,000 the Company received a net amount of $2,100,000. The face amount of the
Convertible  Debentures  became  convertible  into shares of Common Stock of the
Company any time after the closing  date at a  conversion  price equal to 82% of
the average closing bid price for the ten trading days preceding the date of the
conversion  or  $1.00  whichever  is less.  Any  Convertible  Debentures  not so
converted  became  subject to  mandatory  conversion  by the Company on the 24th
monthly anniversary of the date of issuance of the Convertible  Debentures.  All
of these  debentures  have been  converted in accordance  with 2 year  mandatory
conversion provisions.

     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 a  result  of the  Company  entering  into a  December  2000  agreement  with
Hillcrest Avenue LLC (see "Recent  Developments - The Hillcrest  Agreement") any
unconverted balances previously due inclusive of interest and liquidated damages
were extinguished.

     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 Company received a net amount of
$1,020,000.  The Company received written  representations from each investor to
the effect that they were each accredited investors as defined in Rule 501(a) of
Regulation  D.  Any  Convertible  Debenture  not so  converted  are  subject  to
mandatory  conversion by the Company on the 24th anniversary date of issuance of
the Convertible Debentures. None of these convertible debentures as of September
12,  2000  have  been  converted.  As a result of the  Company  entering  into a
December 2000 agreement with  Hillcrest  Avenue LLC (see "Recent  Developments -
The Hillcrest  Agreement") any unconverted  balances previously due inclusive of
interest and liquidated damages were extinguished.

                                     -34-

<PAGE>

     On March  2,  1999  the  Company  entered  into a  second  promissory  note
(contingent  convertible  debenture  financing)  with  the same  lenders  as the
December 1998 transaction  described directly above (i.e.,  Dominion  Investment
Fund LLC and Sovereign Partners LP) with terms and conditions identical to those
set forth above  excepting (a) gross proceeds  amounted to  $1,110,000,  (b) the
initial  due date of such  notes  was May 31,  1999,  (c) the  potential  60 day
extension  date on such  promissory  notes was July 30, 1999, but such extension
right was never utilized, (d) the conversion price was 80% of the 10 day average
closing bid price for the 10  consecutive  trading  days  immediately  preceding
conversion  date and (e)  Warrants  were issued  (similarly  exercisable  over 5
years) to purchase up to 50,000  shares of common stock at 125% of the average 5
day closing bid price of the Company's  common stock  immediately  preceding the
date of  closing  but in no event at less  than  $1.00 per  share.  In all other
respects the terms and conditions of each of the documents executed with respect
to this  transaction  are identical in all material  respects to those described
above regarding December 1998 transaction. The promissory notes were not paid by
their  due  date  and the  terms  of a  Contingent  Subscription  Agreement  and
Registration Rights Agreement automatically went into effect. As a result of the
Company  entering into a December 2000 agreement with Hillcrest  Avenue LLC (see
"Recent  Developments  - The  Hillcrest  Agreement")  any  unconverted  balances
previously due inclusive of interest and liquidated damages were extinguished.

     On  March  26,  1999  the  Company  entered  into a third  promissory  note
(contingent convertible debenture financing) with terms and conditions identical
to those set forth in the March 2, 1999  promissory  note financing  referred to
directly above excepting (a) the lender is different,  to wit:  Aberdeen Avenue,
LLC, (b) gross proceeds  amounted to $550,000,  (c) the initial due date of such
note  was  June  25,  1999,  (d) the  potential  60 day  extension  date on such
promissory  note was August 24, 1999 but such extension right was never utilized
(e) Warrants were issued (similarly  exercisable over 5 years) to purchase up to
27,500  shares of common stock at 125% of the average 5 day closing bid price of
the Company's common stock  immediately  preceding the date of closing but in no
event at less  than  $1.00  per  share.  In all  other  respects  the  terms and
conditions  of each of the documents  executed with respect to this  transaction
are  identical  in all  material  respects  to  those  described  in  the  above
referenced  March 2, 1999  transaction.  The  promissory  notes were not paid by
their  due  date  and the  terms  of a  Contingent  Subscription  Agreement  and
Registration Rights Agreement automatically went into effect. As a result of the
Company  entering into a December 2000 agreement with Hillcrest  Avenue LLC (see
"Recent  Developments  - The  Hillcrest  Agreement")  any  unconverted  balances
previously due inclusive of interest and liquidated damages were extinguished.

     From  May 14,  1999 to June 9,  1999 (in a single  financing)  the  Company
issued a  principal  aggregate  amount of  $850,000  of  convertible  debentures
("Convertible Debentures"),  convertible into Common Stock of the Company to the
following  financing  participants - Endeavor Capital Fund SA, Excaliber Limited
Partnership  and Carbon Mesa  Partners LLC at a  conversion  price of 80% of the
average  closing  bid  price  for the ten  trading  days  preceding  the date of
conversion  together with accrued  interest of 5%. After deducting fees directly
attributable to such offering the Company received a net amount of $772,727. The
Company received written  representations  from each investor to the effect that
they were each  accredited  investors as defined in Rule 501(a) of Regulation D.
Any Convertible  Debenture not so converted are subject to mandatory  conversion
by the  Company on the 24th  anniversary  date of  issuance  of the  Convertible
Debentures.  As a result of the Company  entering into a December 2000 agreement
with Hillcrest Avenue LLC (see "Recent Developments - The Hillcrest  Agreement")
all Excaliber Limited Partnership's unconverted balance previously due inclusive
of interest and liquidated damages was extinguished.  As of January 31, 2001 all
unconverted  balances of Cabon Mesa Partners LLC and  Endeavour  Capital Fund SA
were converted.

     On  July  9,  1999  the  Company  entered  into a  fourth  promissory  note
(contingent convertible debenture financing) with terms and conditions identical
to those set forth in the March 2, 1999  promissory  note financing  referred to
above excepting (a) the lender is different,  to wit: Southshore  Capital,  Ltd.
now assigned to Parkdale LLC (b) gross proceeds amounted to $1,100,000,  (c) the
due date of such note was  August  23,  1999 with no right to extend and (d) the
debenture  holder did not receive any warrants.  In all other respects the terms
and  conditions  of  each  of  the  documents  executed  with  respect  to  this

                                     -35
-

<PAGE>

transaction  are  identical in all material  respects to those  described in the
above referenced March 2, 1999  transaction.  The promissory notes were not paid
by  their  due  date  and the  terms  of a  Contingent  Subscription  Agreement,
Convertible Debenture and Registration Rights Agreement  automatically went into
effect.  As a result of the Company entering into a December 2000 agreement with
Hillcrest Avenue LLC (see "Recent  Developments - The Hillcrest  Agreement") any
unconverted balances previously due inclusive of interest and liquidated damages
were extinguished.

     On  August  11,  1999 the  Company  entered  into a fifth  promissory  note
(contingent convertible debenture financing) with terms and conditions identical
in all material respects to those set forth in the March 2, 1999 promissory note
financing  referred  to above  excepting  (a) the lender is  different,  to wit:
Aberdeen  Avenue,  LLC, (b) gross proceeds  amounted to $1,400,000,  (c) the due
date of such note was  November  11,  1999  with no right to extend  and (d) the
debenture  holder did not receive any warrants.  In all other respects the terms
and  conditions  of  each  of  the  documents  executed  with  respect  to  this
transaction  were identical in all material  respects to those  described in the
above referenced March 2, 1999 transaction.  The promissory note was not paid on
its due date and the terms of the Contingent Subscription Agreement, Convertible
Debenture and Registration Rights Agreement automatically went into effect. As a
result of the Company  entering into a December 2000  agreement  with  Hillcrest
Avenue LLC (see "Recent Developments - The Hillcrest Agreement") any unconverted
balances  previously  due  inclusive  of interest  and  liquidated  damages were
extinguished.

     Pursuant to an agreement  entered  into on  September 2, 1999,  the Company
authorized  a purchaser to purchase  1,000,000  shares at $1.00 per share (which
occurred on September 7, 1999) and up to an additional 2,000,000 shares at $1.50
per share so long as the first  1,000,000  shares  were  purchased  on or before
September 30, 1999 and as long as the purchaser purchased at least an additional
1,000,000  shares within 60 days of its first purchase.  The first purchase,  as
aforesaid,  was made on  September  7, 1999 (at $1.00 per share)  while the next
1,000,000 shares were purchased on October 19, 1999 (500,000 shares at $1.50 per
share) and November 1, 1999 (500,000 shares at $1.50 per share).  Having met the
purchase  requirements,  the purchaser was entitled  (through  March 1, 2000) to
purchase  the  balance of the  shares  referred  to at $1.50 but only  purchased
666,667  shares at such price in  December  1999.  The  investment  participants
involved in the above  transactions  and the number of shares (an  aggregate  of
2,666,667 shares) and purchase price per share paid by each of such participants
is as follows:  Parkdale  LLC - 1,000,000  shares at $1.00,  Southridge  Capital
Management  LLC - 333,334 shares at $1.50,  Striker  Capital - 833,334 shares at
$1.50,  Alfred  Hahnfeldt - 333,332 shares at $1.50 and  Greenfield  Investments
Consultants LLC - 166,667 shares at $1.50.

     In  February  2000  the  Company   entered  into  an  additional   separate
transaction  whereby it sold 333,333  restrictive  shares of its common stock at
$3.00 per share to Dundurn Street LLC.

     In December  2000 the  Company  borrowed  $3,000,000  from Kew Court LLC in
accordance with the terms and conditions of a promissory note whereby  principal
and interest are payable in full on or before December 29, 2001.

YEAR ENDED JUNE 30, 2000 COMPARED TO YEAR ENDED JUNE 30, 1999

RESULTS OF OPERATIONS

     Net  sales  amounted  to  $22,030,124  for the year  ended  June 30,  2000,
compared  to  $17,295,882  for the year  ended  June  30,  1999 an  increase  of
$4,734,242 or 27.4% from the year ended June 30, 1999. The 27.4% increase in net
sales  was  mainly  due to  the  sales  of  ddRMulti  increasing  by  486.5%  or
$11,728,441.  This  significant  increase was  slightly  offset by a decrease in
conventional  X-ray of 32.3% ($861,006) and  conventional  OEM-Business of 60.4%
($5,923,145).  The decrease in conventional X-ray and conventional  OEM-Business
is due to the Company's  conscious  effort of promoting sales of ddRMulti with a
corresponding   decline  of  interest  in  sales  of   conventional   X-ray  and
conventional OEM-Business.

                                     -36-

<PAGE>

     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 - its flagship product.

     Gross profit  increased by $1,763,547  or 46.8% to $5,530,128  for the year
ended June 30, 2000,  from  $3,766,581  for the year ended June 30, 1999.  Gross
profit as a  percentage  of net  revenues  increased to 25.1% for the year ended
June 30, 2000 from 21.8% for the year ended June 30, 1999. The increase in gross
profit as a  percentage  of net  revenues is  attributable  to the fact that the
percentage of sales of ddRMulti to total sales increased to 64.2% of total sales
for the year ended June 30, 2000 from 13.9% for the year ended June 30, 1999.

     Operating  expenses  decreased by  $2,334,842 or 12.1% to  $17,011,097,  or
77.2% of net revenues,  for the year ended June 30, 2000,  from  $19,345,939  or
111.9% of net  revenues for the year ended June 30, 1999.  The  principal  items
were officers and directors compensation of $2,831,662 or 12.9% of net sales for
the year ended June 30, 2000  compared to $5,014,293 or 29% of net sales for the
year ended June 30, 1999, salaries (net of officers and directors  compensation)
of $3,762,009 or 17.1% of net sales for the year ended June 30,2000  compared to
$3,784,305  or 21.9% of net sales for the year ended June 30,  1999 and  selling
expenses  of  $4,352,016  or 19.8% of net sales for the year ended June 30, 2000
compared to  $3,207,646  or 18.5% of net sales for the year ended June 30, 1999.
Research and  development  expenses were $1,914,065 or 8.7% of net sales for the
year ended June 30, 2000  compared to  $1,808,107  or 10.5% of net sales for the
year ended June 30, 1999.  The increase is primarily due to the  development  of
the  ddR-Combos  and the ddR Chest  unit.  General and  administrative  expenses
decreased by $667,928 or 26.9% to  $1,816,828  or 8.2% of net sales for the year
ended  June 30,  2000 from  $2,484,756  or 14.4% of net sales for the year ended
June 30, 1999. The decrease in officers and directors compensation of $2,182,631
or 43.5% is due to the fact that within  fiscal 1999 common  stock issued to the
President in exchange for  extinguishment  of certain bonus rights  contained in
his  employment  agreement  amounted to $4,320,000  whereas  common stock issued
within  fiscal year 2000 to directors  and  officers  for  services  amounted to
$2,165,625.  The decrease in selling and general administrative  expenses is due
to overall savings, primarily on professional fees and services. Other operating
expenses  decreased by $182,204 or 17.1% to $883 ,835 or 4% of net sales for the
year ended June 30, 2000 from $1,066,039 or 6.2% of net sales for the year ended
June 30,  1999.  This  decrease  is  primarily  due to the  decrease in rent and
insurance costs.

     Interest expenses increased to $10,347,427 for the year ended June 30, 2000
compared  to  $5,638,928  for the year ended June 30,  1999.  This  increase  is
primarily  due to the  increase  of  interest  expense  for  accrual  of penalty
interest on periodic payments  required by terms of financing  agreements and an
increase in amortization of Debenture issuance cost and Conversion Benefit.

     Loss on  extinguishment  of debt was $0 for the year  ended  June 30,  2000
compared  to a  loss  of  $832,849  for  the  year  ended  June  30,  1999.  The
extinguishment gain or loss resulted from refinancing of Convertible debentures.

FINANCIAL CONDITION

June 30, 2000 compared to June 30, 1999

     Total  assets of the Company on June 30, 2000  increased by  $1,871,825  to
$25,383,014 from $23,511. 189 on June 30, 1999, primarily due to the increase of
current assets.  Current assets increased  $1,902,120 to $13,831,501 on June 30,
2000 from  $11,929,381  on June 30,  1999.  The  increase  in current  assets is
attributable  to the  increase  of cash  and  cash  equivalents  of  $1,729,886,

                                      -37-

<PAGE>

restricted  cash of  $1,385,600  and the  increase  of  accounts  receivable  of
$736,520 of which  approximately  $1,840,250 arises from the sale of ddRMulti to
Romania  which was  partially  offset by the decrease in inventory of $2,695,249
caused  by the sales of these  units to  Romania  and the  increase  in  prepaid
expenses and sundry  receivables of $445,363.  Other assets decreased $47,871 to
$5,250,897 on June 30, 2000 from  $5,298,768  on June 30, 1999.  The decrease is
primarily attributable to the amortization of the licensing agreement, patents &
trademark, software development cost and the goodwill.

     On June 30, 2000, the Company had total liabilities of $35,384,045 compared
to  $30,445,812  on June 30, 1999. On June 30, 2000,  current  liabilities  were
$21,233,649  compared to $14,944,865 on June 30, 1999.  Working  capital at June
30, 2000 was $(7,402,148) compared to $(3,015,484) at June 30, 1999.

CASH FLOW AND CAPITAL  EXPENDITURES  YEAR ENDED JUNE 30,  2000  COMPARED TO YEAR
ENDED JUNE 30, 1999.

     Cash used for  operating  activities  for the year ended June 30,  2000 was
$4,360,009  compared to $9,788,606  for the year ended June 30, 1999.  Cash used
for investing  activities was $639,778 for the year ended June 30, 2000 compared
to  $879,303  for the year  ended  June  30,  1999.  Cash  flow  from  financing
activities  for the  year  ended  June  30,  2000  was  $6,215,558  compared  to
$11,068,406 for year ended June 30, 1999.

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).

INFLATION

     Inflation  can affect the costs of goods and services  used by the Company.
The  competitive  environment in which the Company  operates limits somewhat the
Company's  ability to recover higher costs through  increasing  selling  prices.
Moreover, there may be differences in inflation rates between countries in which
the Company  incurs the major portion of its costs and other  countries in which
the Company sells its products, which may limit the Company's ability to recover
increased  costs, if not offset by future  increase of selling prices.  To date,
the Company's sales to  high-inflation  countries have either been made in Swiss
Francs  or US  dollars.  Accordingly,  inflationary  conditions  have  not had a
material effect on the Company's operating results.

SEASONALITY

     The  Company's  business has  historically  experienced  a slight amount of
seasonal  variation with sales in the first fiscal  quarter  slightly lower than
sales in the other  fiscal  quarters  due to the fact that the  Company's  first
quarter coincides with the summer vacations in certain of the Company's markets.


BACKLOG

     Management  estimates that as of the end of fiscal year ended June 30, 2001
the Company had an order backlog of $8,013,600  which consisted of $1,882,400 in
conventional  X-ray  equipment  and services and  $6,131,200  in digital  (i,e.,
ddRMulti  and  information  solutions)  as  compared  to  an  order  backlog  of
$8,800,000  which  consisted of $2,080,000 in  conventional  X-ray equipment and
$6,720,000 in ddRMulti as of the fiscal year ended June 30, 2000.

                                      -38-

<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

     The Company has adopted Statement of Financial  Accounting Standard No. 133
("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities"
for the year  ended June 30,  2001.  SFAS No.  133  establishes  a new model for
accounting for  derivatives  and hedging  activities and supersedes and amends a
number of existing  standards.  The application of the new pronouncement did not
have a material impact on the Company's financial statements.

     In March  2000,  the  Financial  Accounting  Standards  Board  issued  FASB
Interpretation  No. 44,  "Accounting  for Certain  Transactions  Involving Stock
Compensation,  an  Interpretation  of APB Opinion No. 25". With the exception of
certain  provisions that required earlier  application,  this  interpretation is
effective for all applicable  transactions  beginning July 1, 2000. The adoption
of  this  interpretation  did  not  have a  material  impact  on  the  Company's
consolidated financial statements.

     In 2000,  the Emerging  Issues Task Force  ("EITF") of the FASB issued EITF
Issue No. 00-2, "Website  Development  Costs," which established  guidelines for
accounting  for website  development  costs and became  effective  for  quarters
beginning  after June 30, 2000. The adoption of EITF Issue No. 00-2 did not have
a significant effect on the Company's financial statements.

     In June 2001, the Financial Accounting Standards Board issued Statements of
Financial  Accounting  Standards No. 141,  Business  Combinations,  and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite  lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives. The Company will apply the new
rules on accounting for goodwill and other  intangible  assets  beginning in the
first quarter of 2002.  Application  of the  non-amortization  provisions of the
Statement are not expected to have a material effect on the Company's  financial
position or operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following  financial  statements  have been prepared in accordance  with the
requirements of Regulation S-X and supplementary  financial information included
herein, if any, has been prepared in accordance with Item 301 of Regulation S-K.

                         INDEX TO FINANCIAL STATEMENTS

                                                                     Page

Audited Financial Statements for Fiscal Years Ended
 June 30, 2001, 2000 and 1999

Independent Auditors Report                                           F 1

Consolidated Balance Sheets at June 30, 2001 and 2000                 F 2-3

Consolidated Statements of Operations for the years ended
 June 30, 2001, 2000 and 1999                                         F 4

Consolidated Statements of Stockholders Equity for the years ended
 June 30, 2001, 2000 and 1999                                         F 5

Consolidated Statements of Cash Flows for the years ended
 June 30, 2001, 2000 and 1999                                         F 6-7

Notes to Consolidated Financial Statements                            F 8-22

                                      -39-
<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, 2001 and 2000, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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, 2001 and 2000, and the results of its
operations, changes in stockholders' equity and cash flows for each of the three
years then ended in conformity with accounting principles generally accepted in
the United States of America.



                                                /s/ Feldman Sherb & Co., P.C.
                                                    Feldman Sherb & Co., P.C.
                                                    Certified Public Accountants

New York, New York
August 10, 2001

                                       F 1
   The accompanying notes are an integral part of these financial statements.
<PAGE>




                           SWISSRAY INTERNATIONAL INC.
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                                June 30,             June 30,
                                                 2001                 2000
                                            -------------          ------------


CURRENT ASSETS
Cash and cash equivalents                  $   1,588,490          $  3,011,183
Restricted cash                                     -                1,385,600
Notes receivable - short-term                       -                  300,000
Accounts receivable, net of allowance
for doubtful accounts of $ 134,700
and $ 170,883                                  2,104,385             3,185,399
Inventories                                    4,278,360             4,637,152
Prepaid expenses and sundry receivables          786,425             1,312,167
                                              -----------          ------------
Total Current Assets                           8,757,660            13,831,501
                                              -----------          ------------
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation of $ 1,705,622
and $ 1,393,689                                6,417,753             6,300,616

OTHER ASSETS
Loan receivable affiliiates                      963,249               768,647
Licensing agreement, net of accumulated
amortization of $ 2,855,781
and $ 2,359,124                                2,110,794             2,607,451
Patents and trademarks, net of accumulated
amortization of $ 167,548 and  $ 141,464         145,782               171,866
Software develompent costs, net of
accumulated amortization of $ 436,674
and $ 335,818                                    161,099               256,380
Security deposits                                 33,546                36,873
Goodwill, net of accumulated amortization
of $ 716,923 and $ 523,595                     1,216,352             1,409,680
                                              -----------          ------------
TOTAL OTHER ASSETS                             4,630,822             5,250,897
                                              -----------          ------------
Total Assets                               $  19,806,235          $ 25,383,014
                                              ===========          ============


                                       F 2
   The accompanying notes are an integral part of these financial statements.
<PAGE>


                           SWISSRAY INTERNATIONAL INC.
                           CONSOLIDATED BALANCE SHEETS

                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                June 30,             June 30,
                                                 2001                 2000
                                            -------------          -------------
CURRENT LIABILITIES
Current maturities of long-term debt       $      40,495          $    229,700
Notes payable - banks                          2,262,481             3,578,339
Notes payable - short-term                     3,045,226             1,352,502
Loan payable                                     110,634               119,885
Accounts payable                               4,995,528             4,340,033
Accrued expenses                               1,885,586            10,727,576
Restructuring                                       -                  100,000
Customer deposits                              1,505,333               785,614
                                            -------------          ------------
TOTAL CURRENT LIABILITIES                     13,845,283            21,233,649
                                            -------------          ------------


CONVERTIBLE DEBENTURES, net of
conversion benefit                                  -               14,067,294

LONG-TERM DEBT, less current maturities           10,511                83,102

COMMON STOCK SUBJECT TO PUT                      319,985               319,985

STOCKHOLDERS' EQUITY
Common stock                                     843,809               233,999
Additional paid-in capital                   112,088,028            88,207,532
Treasury stock                                (2,040,000)           (2,040,000)
Deferred compensation                            (16,291)             (998,399)
Accumulated deficit                         (103,590,902)          (94,130,543)
Accumulated other comprehensive loss          (1,334,203)           (1,273,620)
Common stock subject to put                     (319,985)             (319,985)
                                            -------------          ------------
TOTAL STOCKHOLDERS' EQUITY                     5,630,456           (10,321,016)
                                            -------------          ------------

TOTAL LIABILITIES AND
 STOCKHOLDERS' EQUITY                      $  19,806,235          $ 25,383,014
                                            =============          ============


                                       F 3
   The accompanying notes are an integral part of these financial statements.
<PAGE>


                           SWISSRAY INTERNATIONAL INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS




                                             Year ended June 30,
                                    --------------------------------------------
                                         2001          2000          1999
                                    -------------  ------------   ------------

NET SALES                           $  22,161,014  $ 22,030,124   $ 17,295,882
COST OF SALES                          15,859,420    16,499,996     13,529,301
                                    -------------  ------------   ------------
GROSS PROFIT                            6,301,594     5,530,128      3,766,581
                                    -------------  ------------   ------------


OPERATING EXPENSES
Officers and directors compensation       618,038     2,831,662      5,014,293
Salaries                                4,239,179     3,762,009      3,784,305
Selling                                 3,961,148     4,352,016      3,207,646
Research and development                2,305,165     1,914,065      1,808,107
General and administrative                863,895     1,816,828      2,484,756
Other operating expenses                  564,330       883,835      1,066,039
Bad debts                                (104,813)       93,570        706,877
Depreciation and amortization           1,337,887     1,357,112      1,273,916
                                    -------------  ------------   ------------
TOTAL OPERATING EXPENSES               13,784,829    17,011,097     19,345,939
                                    -------------  ------------   ------------

LOSS BEFORE OTHER INCOME (EXPENSES)    (7,483,235)  (11,480,969)   (15,579,358)
                                    -------------  ------------   ------------

Other income (expenses)                  (146,415)      190,316         40,385
Interest expense                       (1,723,259)  (10,347,427)    (5,638,928)
                                    -------------  ------------   ------------
OTHER INCOME (EXPENSES)                (1,869,674)  (10,157,111)    (5,598,543)
                                    -------------  ------------   ------------
LOSS FROM CONTINUING OPERATIONS
 BEFORE EXTRAORDINARY ITEMS            (9,352,909)  (21,638,080)   (21,177,901)

Extraordinary expense                        -             -          (832,849)
                                    -------------  ------------     ----------
NET LOSS                               (9,352,909)  (21,638,080)   (22,010,750)

Imputed Preffered Stock Dividend         (107,450)         -              -
                                    -------------  ------------     ----------
Loss available to common
 shareholders                       $  (9,460,359) $(21,638,080)  $(22,010,750)
                                    =============  ============     ==========
LOSS PER COMMON SHARE BASIC
 AND DILUTED
Loss from continuing operations     $       (0.17) $      (1.14)  $      (3.24)
Extraordinary items                          -             -             (0.13)
                                    -------------  ------------     ----------
                                    $       (0.17) $      (1.14)  $      (3.37)
                                    =============  ============     ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING                     57,100,074    18,927,303      6,525,423
                                    =============  ============     ==========


                                       F 4
   The accompanying notes are an integral part of these financial statements.
<PAGE>
SWISSRAY INTERNATIONAL, INC.
CONSOLITATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2001, 2000 and 1999
<TABLE>
<CAPTION>

                                                                                           Additional
                                         Conv. Prefered Stock       Common Stock            Paid-in
                                         ---------------------   ---------------------      Capital       Treasury Stock
                                         Shares       Amount      Shares       Amount      (Restated)
                                         ---------------------   -------------------------------------------------------
<S>                                         <C>   <C>             <C>        <C>           <C>              <C>
BALANCE - JUNE 30, 1998                     -     $     -         4,142,622  $   41,426    $ 58,074,793     $      -

COMPREHENSIVE LOSS:
 Net loss                                   -           -              -           -               -               -
 Foreign currency translation loss
  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            -
Issuance of common stock in lieu of
 interest payment                           -           -           199,830       1,998         126,109            -
Shares issued for services                  -           -         3,801,500      38,015       1,673,110            -
Shares issued to officers for services      -           -         2,000,000      20,000       4,300,000            -
Treasury stock - at cost                    -           -              -           -               -           (540,000)
Beneficial conversion feature of
 convertible debentures                     -           -              -           -          1,633,164            -
Interest expense on option value
 per black scholes                          -           -              -           -             91,763            -
                                         ------------------------------------------------------------------------------
BALANCE - JUNE 30, 1999                     -           -        14,006,239     140,062      69,028,012        (540,000)

COMPREHENSIVE LOSS:
 Net loss                                   -           -              -           -               -               -
 Foreign currency translation gain
  net of taxes $ -0-                        -           -              -           -               -               -

TOTAL COMPREHENSIVE LOSS                    -           -              -           -               -               -

Issuance of common stock for cash           -           -         6,269,621      62,696       9,781,278            -
Stock options exercised for cash            -           -         1,125,500      11,255       2,124,894            -
Issuance of common stock in lieu of
 interest payment                           -           -           165,450       1,655         277,945            -
Issuance of common stock "Settelment"       -           -           150,000       1,500         673,500            -
Amortization of shares issued for
 services                                   -           -              -           -               -               -
Shares issued to officers/employees
 for services                               -           -         1,157,065      11,571       2,798,365            -
Shares issued for services                  -           -           526,000       5,260       1,325,941            -
Purchase of 33,333 shares subject to put    -           -              -           -               -         (1,500,000)
Beneficial conversion feature of
 convertible debentures                     -           -              -           -          1,131,061            -
Interest expense on option value per
 black scholes                              -           -              -           -          1,066,536            -
                                         ------------------------------------------------------------------------------
BALANCE - JUNE 30, 2000                     -           -        23,399,875     233,999      88,207,532      (2,040,000)

COMPREHENSIVE LOSS:
 Net loss                                   -           -              -           -               -               -           -
 Foreign currency translation loss
  net of taxes $ -0-                        -           -              -           -               -               -

TOTAL COMPREHENSIVE LOSS                    -           -              -           -               -               -

Issuance of convertible preferred
 shares "Penalty"                          7,000   7,000,000           -           -               -               -
Conversion of convertible preferred
 into common                              (7,000) (7,000,000)    21,515,035     215,150       6,784,850            -
Conversion of convertible debentures,
 notes payable and accrued interest
 into common                                -           -        39,289,293     392,893      16,913,288            -
Stock warrants exercised for cash           -           -           150,000       1,500         148,500            -
Amortization of shares issued for
 services                                   -           -              -           -               -               -
Shares issued for services                  -           -            26,681         267          59,733            -
Cost related to refinancing                 -           -              -           -           (175,000)           -
Imputed prefered stock dividend             -           -              -           -            107,450            -
Interest expense on option value
 per black scholes                          -           -              -           -             41,675            -
                                       --------------------------------------------------------------------------------
BALANCE - June 30, 2001                     -     $     -        84,380,884  $  843,809    $112,088,028$     (2,040,000)
                                       ================================================================================

                                       F 5
   The accompanying notes are an integral part of these financial statements.
<PAGE>

SWISSRAY INTERNATIONAL, INC.
CONSOLITATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2001, 2000 and 1999

                                                       Accumulated      Other
                                         Defferred       Deficit     Comprehensive  Common Stock         Total
                                         Compensation   (Restated)       Loss       Subject to Put    (Restated)
                                         -------------------------------------------------------------------------
BALANCE - JUNE 30, 1998                  $     -      $ (50,481,713)  $(1,475,779)  $ (1,819,985)    $  4,338,742

COMPREHENSIVE LOSS:
 Net loss                                      -        (22,010,750)         -              -         (22,010,750)
 Foreign currency translation loss
  net of taxe $-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
Issuance of common stock in lieu of
 interest payment                              -               -             -              -             128,107
Shares issued for services               (1,282,500)           -             -              -             428,625
Shares issued to officers for services         -               -             -              -           4,320,000
Treasury stock - at cost                       -               -             -              -            (540,000)
Beneficial conversion feature of
 convertible debentures                        -               -             -              -           1,633,164
Interest expense on option value per
 black scholes                                 -               -             -              -              91,763
                                         -------------------------------------------------------------------------

BALANCE - JUNE 30, 1999                  (1,282,500)    (72,492,463)   (1,787,735)    (1,819,985)      (8,754,608)

COMPREHENSIVE LOSS:
 Net loss                                      -        (21,638,080)         -              -         (21,638,080)
 Foreign currency translation gain
  net of taxe $-0-                             -               -          514,115           -             514,115
                                                                                                       -----------
TOTAL COMPREHENSIVE LOSS                       -               -             -              -         (21,123,965)
                                                                                                       -----------
Issuance of common stock for cash              -               -             -              -           9,843,974
Stock options exercised for cash               -               -             -              -           2,136,149
Issuance of common stock in lieu of
 interest payment                              -               -             -              -             279,600
Issuance of common stock "Settelment"          -               -             -              -             675,000
Amortization of shares issued for
 services                                 1,282,500            -             -              -           1,282,500
Shares issued to officers/employees
 for services                                  -               -             -              -           2,809,936
Shares issued for services                 (998,399)           -             -              -             332,802
Purchase of 33,333 shares subject to put       -               -             -         1,500,000             -
Beneficial conversion feature of
 convertible debentures                        -               -             -              -           1,131,061
Interest expense on option value per
 black scholes                                 -               -             -              -           1,066,536
                                         -------------------------------------------------------------------------

BALANCE - JUNE 30, 2000                    (998,399)    (94,130,543)   (1,273,620)      (319,985)     (10,321,016)

COMPREHENSIVE LOSS:
 Net loss                                      -         (9,352,909)         -              -          (9,352,909)
 Foreign currency translation loss
  net of taxe $-0-                             -               -          (60,583)          -             (60,583)
                                                                                                       -----------
TOTAL COMPREHENSIVE LOSS                       -               -             -              -          (9,413,492)
                                                                                                       -----------
Issuance of convertible preferred
 shares "Penalty"                              -               -             -              -           7,000,000
Conversion of convertible preferred
 into common                                   -               -             -              -                -
Conversion of convertible debentures,
 notes payable and accrued interest
 into common                                   -               -             -              -          17,306,181
Stock warrants exercised for cash              -               -             -              -             150,000
Amortization of shares issued for services  998,399            -             -              -             998,399
Shares issued for services                     -               -             -              -              60,000
Cost related to refinancing                    -               -             -              -            (175,000)
Imputed prefered stock dividend                -           (107,450)         -              -                -
Interest expense on option value per
 black scholes                              (16,291)           -             -              -              25,385
                                         -------------------------------------------------------------------------
BALANCE - June 30, 2001                   $ (16,291)  $(103,590,902) $ (1,334,203)    $ (319,985)     $ 5,630,456
                                         =========================================================================
</TABLE>






                                       F 5
   The accompanying notes are an integral part of these financial statements.
<PAGE>

                           SWISSRAY INTERNATIONAL INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                     Year Ended
                                                      June 30,
                                        ----------------------------------------
                                             2001        2000           1999
                                         ------------  ----------    -----------



CASH FLOWS FROM OPERATING ACTIVITES

Net loss                                $(9,352,909) $(21,638,080) $(22,010,750)
Adjustment to reconcile net loss to net
 cash used by operating activities
 Depreciation and amortization            1,440,710     1,438,719     1,327,395
 Provision for bad debts                    (36,183)      (49,110)      931,146
 Provision for non-operating loans          400,386          -             -
 Operating expenses through issuance
  of stock options and common stock          78,765     2,809,936     4,755,925
 Issuance of common stock in lieu of
  interest payments                       1,453,017       279,600       128,107
 Interest expense on debt issuance cost
  and conversion benefit                       -        1,131,061     3,070,784
 Interest expense on option value per
  black scholes                                -        1,066,536        91,763
 Settelment expense paid through
  issuance of common stock                     -          675,000          -
 Amortization of deferred compensation    1,005,109     1,615,302          -
 Early extinguishment of debt                  -             -          832,849

(Increase) decrease in operating assets:
 Accounts receivable                      1,086,811      (687,410)      (51,866)
 Inventories                                358,792     2,695,249       368,744
 Prepaid expenses and sundry receivables    455,742      (445,363)      635,106
Increase (decrease) in operating liabilities:
 Accounts payable                           655,495    (1,082,288)      391,873
 Accrued expenses                          (431,120)    7,723,732      (361,606)
 Restructuring                             (100,000)     (400,000)         -
 Customers deposits                         719,719       507,107       101,924
                                          ---------     ---------     ----------
NET CASH USED BY OPERATING ACTIVITIES    (2,265,666)   (4,360,009)   (9,788,606)
                                          ---------     ---------     ----------
CASH FLOW FROM INVESTING ACTIVITIES
 Acquisition of property and equipment     (740,922)     (633,419)     (692,954)
 Other intangibles                           (5,575)      (13,469)       (1,518)
 Increase in notes receivable                  -             -         (199,132)
 Security deposits                            3,327        (8,838)       10,245
 Increase in loan receivable                   -           15,948         4,056
                                          ---------     ---------     ----------
NET CASH USED BY INVESTING ACTIVITIES      (743,170)     (639,778)     (879,303)
                                          ---------     ---------     ----------
CASH FLOWS FROM FINANCING ACTIVITIES
 Proceeds (repayments) of short-term
  borrowings                                378,410      (459,767)    8,923,070
 Proceeds related to debentures not
  funded                                       -             -         (227,273)
 Proceeds related to debentures                -       (1,238,558)         -
 Principal payment of long-term
  borrowings                                (72,591)     (111,993)     (245,580)
 Decrease (Increase)  in restricted
  cash                                    1,385,600    (1,385,600)         -
 Note receivable- short-term                   -         (300,000)         -
 Loan receivable affiliates                (194,602)     (768,647)         -
 Issuance of common stock for cash             -        9,843,974     3,160,396
 Exercise of stock options and warrants
  for cash                                  150,000     2,136,149          -
 Purchase of treasury stock                    -       (1,500,000)     (540,000)
 Payment to stockholders and officers          -             -           (2,207)
                                          ---------     ---------    -----------
CASH PROVIDED BY FINANCING ACTIVITIES     1,646,817     6,215,558    11,068,406
                                          ---------     ---------    -----------

EFFECT OF EXCHANGE RATE ON CASH             (60,584)      514,115      (400,752)
                                          ---------     ---------     ----------
NET INCREASE (DECREASE) IN CASH          (1,422,603)    1,729,886          (255)
CASH AND CASH EQUIVALENTS -
 beginning of year                        3,011,183     1,281,297     1,281,552
                                          ---------     ---------     ----------
CASH AND CASH EQUIVALENTS -
 end of year                            $ 1,588,580   $ 3,011,183   $ 1,281,297
                                          =========     =========     =========


                                       F 6
    The accompanying notes are an integral part of these financial statements

<PAGE>


                       SUPPLEMENTAL CASH FLOW INFORMATION

                                                     Year Ended
                                                      June 30,
                                        ----------------------------------------
                                             2001        2000         1999
                                         ------------  ----------  -----------

Cash paid for interest                   $   164,223   $ 154,157    $ 462,997

Shares issued in lieu of
 notes and interest payments               1,294,200     279,600      128,107

Beneficial conversion feature
 recorded as additional paid-in capital         -      1,131,061    1,633,164

Convertible debentures converted to
 common stock                             14,067,294   1,238,558         -

















                                       F 7

    The accompanying notes are an integral part of these financial statements

<PAGE>
SWISSRAY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JUNE 30, 2001, 2000 AND 1999

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 are eliminated in consolidation.

REVENUE RECOGNITION

The Company follows the guidelines of SEC Staff Accounting Bulletin No., 101
"Revenue Recognition in Financial Statements". Revenues from direct sales of
products to end-users are recorded when the products are shipped, installed,
collection of the purchase price is probable and the Company has no significant
further obligations to the customer. Revenues from direct sales of products to
distributors are recorded when the products are shipped, collection of the
purchase price is probable and the Company has no significant further
obligations to the customer. Costs of remaining insignificant Company
obligations, if any, are accrued as costs of revenue at the time of revenue
recognition.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.



                                       F 8
<PAGE>

WARRANTY

The company accrues a warranty allowance at the time of sale. The warranty
allowance is based upon the company's 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 carried at cost and are depreciated using the
straight-line method over the estimated useful lives of the respective assets.
Leasehold improvements are amortized over the shorter of the estimated useful
lives of the improvements, or the term of the facility lease.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews long-lived assets to assess recoverability from future
operations using undiscounted cash flows. When necessary, charges for
impairments of long-lived assets are recorded for the amount by which the
present value of future cash flows exceeds the carrying value of these assets.

INTANGIBLE ASSETS

Intangible assets are stated at cost and are being amortized using the straight
line method over the estimated useful lives of the respective assets.

                                       F 9
<PAGE>

SOFTWARE DEVELOPMENT COSTS

Capitalization of software development costs begins upon the establishment of
technological feasibility of new or enhanced software products. Technological
feasibility of a computer software product is established when the Company has
completed all planning, designing, coding and testing that is necessary to
establish that the software product can be produced to meet design
specifications including functions, features and technical performance
requirements. All costs incurred prior to establishing technological feasibility
of a software product are charged to research and development as incurred.

ADVERTISING AND PROMOTION

Advertising and promotion costs are expensed as incurred and included in
"Selling" expenses. Advertising and promotion expense for the years ended June
30, 2001, 2000 and 1999 were $ 3,034,235, $ 2,601,410 and $ 1,452,309,
respectively.

RESEARCH AND DEVELOPMENT

Costs associated with research, new product development, and product cost
improvements are treated as expenses when incurred.

CONVERTIBLE DEBT

Convertible debt is recorded as a liability until converted into common stock,
at which time it is recorded as equity.

INCOME TAXES

Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.

EXPENSES RELATED TO SALES AND ISSUANCE OF SECURITIES

All costs incurred in connection with the sale of the Company's common stock
have been capitalized and charged to additional paid-in capital.

NET LOSS PER COMMON SHARE

Basic earnings per share is computed by dividing the net income (loss) available
to common shareholders by the weighted average number of outstanding common
shares. The calculation of diluted earnings per share is similar to basic
earnings per share except the denominator includes dilutive common stock
equivalents such as stock options and convertible debentures. Common stock
options and the common shares underlying the convertible debentures are not
included as their effect would be anti-dilutive.

ACCOUNTING FOR STOCK OPTIONS

The Company accounts for stock-based compensation using the intrinsic value
method as prescribed under Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations.

                                      F 10

<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.

SHIPPING AND HANDLING COSTS

The Company  accounts for shipping and handling costs as a component of "Cost of
Sales".

NEW ACCOUNTING PRONOUNCEMENTS

The Company has adopted  Statement  of  Financial  Accounting  Standard  No. 133
("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities"
for the year  ended June 30,  2001.  SFAS No.  133  establishes  a new model for
accounting for  derivatives  and hedging  activities and supersedes and amends a
number of existing  standards.  The application of the new pronouncement did not
have a material impact on the Company's financial statements.

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25". With the exception of
certain provisions that required earlier application, this interpretation is
effective for all applicable transactions beginning July 1, 2000. The adoption
of this interpretation did not have a material impact on the Company's
consolidated financial statements.

In 2000, the Emerging Issues Task Force ("EITF") of the FASB issued EITF Issue
No. 00-2, "Website Development Costs," which established guidelines for
accounting for website development costs and became effective for quarters
beginning after June 30, 2000. The adoption of EITF Issue No. 00-2 did not have
a significant effect on the Company's financial statements.

In June 2001,  the Financial  Accounting  Standards  Board issued  Statements of
Financial  Accounting  Standards No. 141,  Business  Combinations,  and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite  lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives. The Company will apply the new
rules on accounting for goodwill and other  intangible  assets  beginning in the
first quarter of 2002.  Application  of the  non-amortization  provisions of the
Statement is not expected to have a material  effect on the Company's  financial
position or operations.

                                      F 11
<PAGE>

NOTE 2 - INVENTORIES

Inventories are summarized by major classification as follows:


                                                     June 30,
                                             -----------------------
                                                2001          2000
                                             ----------    ---------
       Raw materials, parts and supplies    $ 2,750,510  $ 2,682,558
       Work in process                          749,938    1,295,575
       Finished goods                           777,912      659,019
                                             ----------    ---------
                                            $ 4,278,360  $ 4,637,152
                                             ==========    =========

NOTE 3  - PREPAID EXPENSES AND SUNDRY RECEIVABLES

Prepaid expenses and sundry receivables consist of the following:

                                                     June 30,
                                             -----------------------
                                                2001          2000
                                             ----------    ---------
       Prepaid expenses, deposits
        and advance payments                $   402,686  $   892,077
       Prepaid and refundable taxes             373,882      414,090
       Employee loans                             9,857        6,000
                                             ----------    ---------
                                            $   786,425  $ 1,312,167
                                             ==========    =========

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

                                    Estimated                June 30,
                                   Useful Lives     ----------------------
                                     (years)          2001        2000
                                  --------------    ---------   ---------
Land                                    -          $  785,792  $  596,982
Building                               30           5,030,096   4,976,657
Equipment                               5           1,670,267   1,866,720
Office furniture and equipment         3-5            473,421     253,946
Leasehold Improvements                 10             163,799        -
                                                    ---------   ---------
                                                    8,123,375   7,694,305
Less: Accumulated depreciation                      1,705,622   1,393,689
                                                    ---------   ---------
                                                   $6,417,753  $6,300,616
                                                    =========   =========

Depreciation and amortization expense, for property and equipment, for the years
ended June 30, 2001, 2000 and 1999 were $ 623,641, $ 615,873 and $ 547,693
respectively.

                                      F 12

<PAGE>

NOTE 5 - INTANGIBLE ASSETS

Intangible assets at June 30, 2001 and 2000 consisted of the following

                                   Estimated            June 30,
                                  Useful Lives   ----------------------
                                    (Years)        2001         2000
                                  ------------   ---------    ---------
Excess of cost over fair value
 of net assets acquired               10        $1,933,275   $1,933,275
Licensing (a)                         10         4,966,575    4,966,575
Software development cost            5-8           597,773      592,198
Patents and Trademarks                10           313,330      313,330
                                                 ---------    ---------
                                                 7,810,953    7,805,378
Less: Accumulated amortization                   4,176,926    3,360,001
                                                 ---------    --------
                                                $3,634,027   $4,445,377
                                                 =========    =========

Amortization expense, for intangible assets, for the years ended June 30, 2001,
2000 and 1999 were $ 817,069, $ 822,876 and $ 830,194, respectively.

(a) The Company entered into a licensing agreement in June of 1995 with an
unaffiliated individual. The agreement is for an exclusive field-of-use license
within the United States and Canada to use the proprietary information,
including the patent rights, for certain technology regarding the integration of
computer technology with diagnostic x-ray and radiology medical equipment
through digital imaging systems. The total cost of the license was $4,966,575.
This agreement is for an indefinite term or until all of the proprietary
information becomes public knowledge and the patent rights expire.

NOTE 6 - NOTES PAYABLE - BANKS

The Company has negotiated a revolving line-of-credit agreement with Migros Bank
of Switzerland, dated March 23, 1998, for up to $ 440,263. The Company has also
negotiated an agreement for up to $ 1,206,200 for the issuance of guarantees and
letters of credit, both with a commission of 15% per $ 1,000,000, quarterly
while outstanding. There were $ 1,320,813 in outstanding guarantees and $ 0 in
letter of credits as of June 30, 2001. The Company also negotiated a fixed line
of credit for up to $ 2,352,090 with an agreed repayment of $ 60,310 per 180
days first time applicable as of June 30, 2001. All lines of credit are based on
the Exchange rate in effect on June 30, 2001.



                                      F 13
<PAGE>




Notes payable are summarized as follows:

                                                             June 30,
                                                     -----------------------
                                                         2001          2000
                                                      ----------    ---------
Migros  Bank,  on demand with six
week notice,  with  interest as of June 30,          $ 1,950,900  $ 2,231,470
2001  and 2000 at 4.75%  and  3.78%  per
annum,  collateralized  by land and
building

Union Bank of Switzerland, due on demand,
with interest at 7.5% per annum,
collateralized by the cash on deposit at
Union Bank of Switzerland and accounts
receivable. Cash balances on deposit at
Union Bank of Switzerland at June 30,
2001 and 2000 were $ 821,510 and $ 2,429,258,
respectively                                             267,967    1,346,869

Migros  Bank,  on  demand,  collateralized
by  certain  accounts  receivable
totalling  $ 44,592  with  interest  at 4.75%.
Cash  balances  on deposit at
Migros Bank at June 30, 2001 was $6,222.                  43,614         -
                                                      ----------    ----------
                                                     $ 2,262,481  $ 3,578,339
                                                      ==========    ==========

NOTE 7 - LOAN PAYABLE

The Company has negotiated a 4% demand loan from a private foundation fund. The
loan balance payable at June 30, 2001 and 2000 was $ 110,634 and $ 119,885
respectively.

NOTE 8 - SHARES ISSUED FOR COMPENSATION

In June 1999, the Company incurred additional compensation to the President of
the Company of 2,000,000 fully vested, nonforfeitable shares with a fair market
value of $2.16 per share or $4,320,000 (based on the bid price of $2.40 per
share on the date of issuance less a 10% discount for restrictions on the resale
of such shares). The compensation was in consideration of the President's
agreement to extinguish his rights contained in his employment agreement which
entitled him to a 25% bonus of the Company's earnings (as defined).

In 1999, the Company issued 3,800,000 fully vested, nonforfeitable shares of
common stock with a fair market value of $.45 per share or $1,710,000 (based on
the bid price of $.50 per share on the date of issuance less a 10% discount for
restrictions on the resale of such shares) to consultants for services to be
rendered over a term of one year to eighteen months. Such amount has been
deferred and is being amortized over the term of the consulting agreements.

In October 1999 the Company issued 1,050,000 fully vested, nonforfeitable shares
of common stock with a fair market value of $2.475 per share or $2,165,625
(based on the bid price of $2.75 per share on the date of issuance less a 10%
discount for restrictions on the resale of such shares) to officers and/or
directors as additional compensation. Such amount has been expensed and is
included in results of operations.

                                      F 14

<PAGE>

On April 4, 2000 the Company issued 490,000 fully vested, nonforfeitable shares
of common stock with a fair market value of $2.5308 per share or $1,240,092
(based on the bid price of $.50 per share on the date of issuance less a 10%
discount for restrictions on the resale of such shares) to a consultant for
services to be rendered over twelve months commencing April 1, 2000. Such amount
has been deferred and is being amortized over the term of the consulting
agreement. In addition the agreement provided for the issuance of 36,000
restrictive shares of Company Common stock (based on 3,000 shares per month)
throughout the period of the Consultant's performance.

NOTE 9 - CONVERTIBLE DEBENTURES

Through  December 29, 2000, the Company  converted all  outstanding  convertible
debentures  and notes  payable  into  39,289,293  restrictive  shares of Company
common stock thereby extinguishing those convertible debentures,  and promissory
notes previously outstanding.

NOTE 10 - NOTES PAYABLE - SHORT-TERM

                                                         June 30,
                                                -------------------------
                                                   2001            2000
                                                ----------       --------
Promissory note, dated June 11, 1999,
collateralized by inventory.                   $     -         $  350,000

Promissory note, dated August 31, 1999,
$500,000, with interest at 8%, payable
monthly through August 15, 2001.(a)                45,226         302,502

Promissory note, dated May 2000, with
interest payable at 3% per month due
December 31, 2000.                                   -            500,000

Promissory note, dated June 2000, with
interest payable at 3% per month due
December 31, 2000.                                   -            200,000

Promissory note, dated December 29, 2000
with interest payable at 2.025% per month
due December 29, 2001.(b)                       3,000,000            -
                                                ---------       ---------
                                               $3,045,226      $1,352,502
                                                =========       =========


(a) This promissory note is a settlement agreement with former owners of
Swissray America, Inc.

(b) The Company has borrowed $3,000,000 from an affiliate of the majority
shareholder. The obligation is secured by a second priority lien on the
Company's office building in Switzerland and certain purchase orders and
receivables. The note bears interest at the rate of 24.3% per annum and is due
(principal and interest) on December 29, 2001.

                                      F 15

<PAGE>

NOTE 11 - LONG-TERM DEBT

Long-term debt consists of the following:

                                                        June 30,
                                                  -------------------
                                                    2001        2000
                                                  -------      ------

Note payable - Other                             $ 50,518    $ 87,450

Note payable - Union Bank of Switzerland,            -        163,824

Capitalized leases                                    489      61,528
                                                  -------     -------
                                                   51,006     312,802
Less: Current portion                             (40,495)   (229,700)
                                                  -------     -------
                                                 $ 10,511    $ 83,102
                                                  =======     =======


The aggregate long-term debt principal payments are as follows:

                Year Ending June 30,
                        2002                        $  40,495
                        2003                           10,511

NOTE 12 - SHAREHOLDERS' EQUITY

Authorized Shares

On March 12, 1997, the Company amended its certificate of incorporation to
change the number of authorized common shares from 15,000,000 to 30,000,000 of
$.01 par value common shares. On December 26, 1997, the Company amended its
certificate of incorporation to change the number of authorized common shares
from 30,000,000 to 50,000,000 of $.01 par value common shares. On July 20, 2000,
the Company amended its certificate of incorporation to change the number of
authorized common shares from 50,000,000 to 100,000,000 of $.01 par value common
shares.

Preferred Stock

In July 1999, the Company amended its Certificate of Incorporation to authorized
the issuance of 1,000,000 shares of preferred stock, $.01 par value per share.


                                      F 16

<PAGE>

During the quarter ended September 30, 2000, the Company issued 7,000 shares of
Series A Preferred Stock ("Series A") par value $.01 per share. These shares
were issued in accordance with terms and provisions of liquidated damage
provisions contained in underlying financing documents.

The holders of the Series A Shares shall be entitled to receive a 3% per annum
non-cumulative dividend payable on the date of each conversion (the "Dividend
Payment Date"). The dividend shall be payable in cash or in common stock par
value $.01 per share of the Company (the "Common Stock"), at the Company's
option. Such dividends shall be payable in preference to dividends on any Common
Stock or stock of any class ranking, as to dividend rights, junior to the Series
A Shares. If paid in Common Stock, the number of shares of the Company's Common
Stock to be received shall be determined, in the same method as conversion of
the Series A, by dividing the dollar amount of the dividend by the then
applicable Market Price, as of the Dividend Payment Date. "Market Price" shall
mean the lesser of (i) 85.35% of the 10-day average closing bid price, as
reported by Bloomberg, LP, for the ten (10) consecutive trading days immediately
preceding the Dividend Payment Date or (ii) $4.00 (each being referred to as the
"Conversion Price"). If the dividend is to be paid in cash, the Company shall
make such payment within 10 business days of the Dividend Payment Date. If the
dividend is to be paid in Common Stock, said Common Stock shall be delivered to
the holder, or per holder's instructions, within 10 business days of the
Dividend Payment Date. Dividends shall be fully non-cumulative and shall accrue
(whether or not declared and whether or not there shall be funds legally
available for the payment of dividends), without interest, and shall be payable
on the Dividend Payment Date. No interest shall accrue on any unpaid dividends
on the Series A Preferred Stock.

On December 29, 2000 the 7,000 shares of Series A Preferred Stock was converted
into 21,515,035 shares of the Company's common stock (See Note 9).

Stock Option

The Stock Option Plans ("Plans") provide for the grant of options to officers,
directors, employees, consultants, attorneys and advisors to the Company.
Options may be either incentive stock options or non-qualified stock options,
except that only employees may be granted incentive stock options. Options vest
at the discretion of the Board of Directors. All options granted in the plans
vest immediately. The maximum term of an option is ten years. The remaining
options available for grant under the plans was 3,417,500 at June 30, 2001. In
Fiscal 2001, 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 2001         Fiscal 2000
                          -----------------    ---------------
                              As      Pro         As       Pro
                           Reported  Forma     Reported   Forma
                           --------  ------    --------  -------
Net loss (in thousands)     $9,353   $9,679    $21,638   $22,616
Basic and diluted net
 loss per share             $ 0.17   $ 0.17    $  1.22   $  1.27


                                      F 17
<PAGE>




The fair value of each option grant is estimated on the date of grant using the
Black Scholes option-pricing method with the following weighted average
assumptions used for grants in 2000; dividend yield 0%, expected volatility 50%,
risk-free interest rate 5.7%, expected lives in years-1 year.

The weighted average fair value of stock options granted during the year ended
June 30, 2001 and 2000 was $.35 and $ 2.36, respectively.

A summary of the status of the Stock Option Plans at June 30, 2001, 2000 and
1999 and the changes during the years then ended is presented below:
<TABLE>
<CAPTION>

                                     2001                           2000                            1999
                            ------------------------------- ------------------------------ --------------------------------
                                                Weighted                       Weighted                         Weighted
                               Shares           Average        Shares           Average       Shares            Average
                             Underlying         Exercise     Underlying        Exercise     Underlying          Exercise
                               Options           Price         Options           Price        Options            Price
                            --------------    ------------- --------------    ------------ --------------     -------------
Outstanding
<S>                             <C>        <C>                    <C>      <C>                   <C>      <C>
at beginning of year            2,051,000  $          4.60        194,500  $        23.40        180,000  $          23.40

Granted                         2,649,000  $          0.35      2,987,000  $         2.36         15,000  $           0.44

Cancelled/Expired                (201,500) $         18.47           -     $          -             -     $            -

Exercised                            -     $           -       (1,130,500) $         1.93        (1,000)  $           7.30
                            --------------    ------------- --------------    ------------ --------------     -------------
Outstanding
At end of year                 4,493,500   $          1.52      2,051,000  $         4.60        194,500  $          23.40
                            ==============    ============= ==============    ============ ==============     =============
Exercisable at end of year      4,493,500  $          1.52      2,051,000  $         4.60        194,500  $          23.40
                            ==============    ============= ==============    ============ ==============     =============
</TABLE>

The following table summarizes information about stock options under the Stock
Option Plans at June 30, 2001

                       Options Outstanding and Exercisable
         ---------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                            Weighted Average          Weighted Average
                                       Number            Remaining Contractual        -----------------
    Range of Exercise Pr             Outstanding                  Life                 Exercise Price
  --------------------------       ----------------    ---------------------------    ------------------
<S>      <C>    <C>                      <C>                      <C>                             <C>
         $.35 - $.37                     2,649,000                2.0                             $0.35
       $2.625 - $2.625                   1,799,000                1.3                            $2.625
       $7.30 - $10.00                       18,900                1.0                             $8.05
       $35.00 - $40.00                      27,500                1.6                            $37.27
                                   ----------------
                                         4,493,500
                                   ================

</TABLE>

Stock Warrants

In Fiscal 2001 and 1999, the Company issued 462,500 warrants. The Company
recognized compensation cost for the warrants issued of $92,000. Such value was
determined using the Black-Scholes method with the following weighted average
assumptions; dividend yield 0%, expected volatility 70%, risk-free interest rate
7%, expected lives in years 1. The following table summarizes information about
stock warrants at June 30, 2001:


                                      F 18

<PAGE>

<TABLE>
<CAPTION>


                                          Warrants
                                      Outstanding and
                                        Exercisable
 Range of Exercise Price             Number Outstanding       Remaining Contractual Life         Average Exercise
                                                                                                       Price
<S>   <C>     <C>                         <C>                         <C>  <C>                         <C>
      $.438 - $9.38                       287,500                     2.00-5.75                        $.85

</TABLE>
NOTE 13 - 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, 2001, 2000 and 1999, were $ 654,837, $475,176 and $509,959,
respectively.

NOTE 14 - INCOME TAXES

Deferred income tax assets as of June 30, 2001 of $24,000,000 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,
                                                         -------------------------------------------------------------------
                                                                2001                  2000                      1999
                                                         -------------------    ------------------        ------------------
<S>                                               <C>                                                  <C>
   Statutory federal income tax (benefit)         $        (3,200,000)       $        (7,400,000)      $        (5,600,000)
   Foreign income tax (benefit) in excess of
   domestic rate                                              400,000                     77,000                    377,000
   Benefit not recognized on operating loss                 2,300,000                  4,973,000                 3,693,000
   Permanent and other differences                            500,000                   2,350,000                 1,530,000
                                                         -------------------    ------------------        ------------------
                                                  $              -           $          -              $          -
                                                         ===================    ==================        ==================

</TABLE>
                                      F 19
<PAGE>


Net operating loss carryforwards at June 30, 2001 were approximately as follows:


United States (expiring through June 30, 2016)      $   42,000,000

Switzerland (expiring through June 30, 2011)            39,000,000
                                                      ------------
                                                    $   81,000,000
                                                      ============

These  carryforwards  are subject to limitations on annual  utilization  because
there are "equity  structure shifts" or "owner shifts" involving 5% stockholders
(as these terms are defined in Section 382 of the Internal Revenue Code),  which
have resulted in a more than 50% change in ownership.

NOTE 15 - EXTRAORDINARY ITEMS

In Fiscal 1999 the Company recognized a loss from early extinguishment of debt
of $832,849, net of income taxes of $-0-.

NOTE 16 -  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,  2001,  2000 and 1999  there  were  sales to
customers that exceeded 10% of net consolidated  sales. Sales to these customers
were:  2001 customer B, $ 3,031,000  (14%)  customer C $ 7,200,000  (32%),  2000
customer A, $8,180,866 (23%),and customer B $ 10,825,000 (49%), 1999 customer A,
$ 9,253,480 (54%). 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, 2001, 2000 and 1999 were as follows:

                           2001           2000                      1999
                       -----------     -----------       ------------------
 United States        $ 10,043,047    $  6,561,669     $          4,026,931
 Switzerland            11,802,827      15,164,707               12,625,381
 Germany                   312,072         303,748                  643,570
 Other export sales          3,068            -                         -
                       -----------     -----------       ------------------
                      $ 22,161,014    $ 22,030,124     $         17,295,882
                       ===========     ===========       ==================

                                      F 20
<PAGE>

The following summarizes identifiable assets by geographic area:

                           2001           2000
                       -----------     -----------
 United States        $  6,918,589    $  8,344,431
 Switzerland            12,316,508      16,782,132
 Germany                   203,605         184,157
 Romania                   102,646          72,293
 Venezuela                 264,887            -
                       -----------     -----------
                      $ 19,806,235    $ 25,383,014
                       ===========     ===========

The following summarizes operating losses before provision for income tax:

                           2001           2000             1999
                       -----------     -----------     -----------
 United States        $ (2,995,063)   $(16,801,696)   $(14,542,148)
 Switzerland            (5,600,280)     (4,277,240)     (5,392,436)
 Germany                   (46,190)       (409,272)       (243,317)
 Romania                  (391,719)           -               -
 Venezuela                (319,657)           -               -
                       -----------     ------------    -----------
                      $ (9,352,909)   $(21,638,080)   $(20,177,901)
                       ===========     ===========     ===========

NOTE 17 - COMMITMENTS

The Company leases various facilities under operating lease agreements  expiring
through  September  2003. The  facilities  lease  agreements  provide for a base
monthly payment of $22,285 per month.  Rent expense for the years ended June 30,
2001, 2000 and 1999 was $ 245,165, $ 361,757 and $ 325,000 respectively.  Future
minimum annual lease payments,  based on the exchange rate in effect on June 30,
2001 under all lease  agreements are as follows:  2002$ 654,756,  2003$ 517,898,
2004$ 348,688, 2005$ 258,931, 2006$ 242,637, thereafter $0.

The Company has employment agreements with three of its executives. Minimum
compensation under these agreements are as follows:

                       Year Ended
                      June 30, 2002           $          622,170
                      June 30, 2003                      622,170
                      June 30, 2004                      622,170
                      June 30, 2005                      476,579
                      June 30, 2006                      174,360
                                                 ----------------
                                              $        2,517,449
                                                 ================
NOTE 18 - RESTRUCTURING

During the year ended June 30, 1998 the Company recorded restructuring charges
of $500,000, as a result of its decision to relocate two facilities. The charges
consisted primarily of the present value of the remaining lease obligations of
those facilities.

                                      F 21

<PAGE>

NOTE 19-VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>


                                      Balance at   Additions
                                      Beginning    Charged to
                                       of Year     Expenses     Deductions   Balance at End                     of Year
                                      --------    ----------   -----------   ----------------
Allowance for doubtful accounts:
<S>                  <C> <C>         <C>         <C>          <C>           <C>
 Year ended December 31, 2001        $ 170,883   $ 102,755    $  138,938    $ 134,700
 Year ended December 31, 2000        $ 219,993   $  93,570    $  142,680    $ 170,883
 Year ended December 31, 1999        $  32,356   $ 706,877    $  519,240    $ 219,993

</TABLE>


NOTE 20 - RESTATEMENT

The accompanying financial statements have been restated to properly record the
accounting for the value of common stock issued to an officer and consultants as
compensation during the year ended June 30, 1999 and the accrual of an
additional $1,000,000 for interest expense for the accrual of penalty interest
on periodic payments required by terms of financing agreements.

The effect of such restatements on the Company's 1999 financial statement is as
follows:

                                 As                              As
                               Reported      Adjustments       Restated
                             -----------     -----------      -----------
Balance Sheet Adjustments
 Assets                     $ 23,761,189    $  (250,000)     $ 23,511,189
 Liabilities                  29,695,812        750,000        30,445,812
Statement of Operations
 Adjustments
 Operating expenses         $ 15,581,217    $ 3,764,722      $ 19,345,939
 Loss from continuing
  Operations                 (16,413,179)     4,764,722       (21,177,901)
 Net Loss                    (17,246,028)     4,764,722       (22,010,750)
 Net loss per common
 Share basic                $      (2.65)   $     (0.72)     $      (3.37)




                                      F 22
<PAGE>


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL MATTERS

None - during the  Company's  two most  recent  fiscal  years or any  subsequent
interim period.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Set forth below is certain information concerning each current director and
executive  officer  of the  Registrant,  including  age,  position(s)  with  the
Registrant, present principal occupation and business experience during the past
five years.

         Name       Age  Position(s) Held
         ----       ---  ----------------
Ruedi G. Laupper    51   Chairman of the Board of Directors,
                          President and Chief Executive Officer,
Josef Laupper       56   Secretary, Treasurer and Director
Ueli Laupper        31   Vice President and Director
Dr. Erwin Zimmerli  54   Director and Member of the Independent Audit Committee
Dr. Sc Dov Maor     54   Director and Member of the Independent Audit Committee
Michael Laupper     28   Chief Financial Officer

                                      -40-

<PAGE>

Directors are elected to serve until the next annual meeting of stockholders and
until their  successors  have been  elected  and have  qualified.  Officers  are
appointed  to serve until the meeting of the Board of  Directors  following  the
next annual meeting of stockholders and until their successors have been elected
and have qualified.

     Ruedi G. Laupper has been President, Chief Executive Officer and a director
of the  Registrant  since May 1995 and Chairman of the Board of Directors  since
March 1997. In addition,  he is Chairman of the Board of Directors and President
of the  Company's  principal  operating  subsidiaries.  Ruedi G.  Laupper is the
founder of the predecessors of the Company and was Chief Executive Officer of SR
Medical AG from its inception in June 1988 until May 1995. He has  approximately
23 years of  experience  in the  field of  radiology.  Ruedi G.  Laupper  is the
brother of Josef Laupper and the father of Ueli and Michael Laupper.

     Josef  Laupper  has  been  Secretary,  Treasurer  (until  January  1998 and
recommencing January 1999) and a director of the Registrant since May 1995 (with
the  exception  of not having  served as  Secretary  from  December  23, 1997 to
February 23, 1998). He has held comparable positions with SR Medical Holding AG,
SR Medical AG, and their respective  predecessors  since 1990. He is principally
in charge of the Company's  administration.  Josef Laupper has  approximately 19
years of experience within the medical device business.

     Ueli  Laupper  has  overall  Company   responsibilities   in  the  area  of
international  marketing and sales with approximately  eight years of experience
within the  international  X-ray  market.  He has been a Vice  President  of the
Company since March 1997 and a director of the  Registrant  since March 1997. He
was Chief Executive  Officer of SR Medical AG from July 1995 until June 30, 1997
having previously been employed by the Company from January 1993 to July 1995 as
Export  Manager.  Since the  beginning of July 1998 he has been in charge of the
Company's U.S.  operations and currently  serves as CEO of both Swissray America
Inc. since its formation in September 1998 and Swissray Healthcare, Inc.

     Dr.  Erwin  Zimmerli has been a director of the  Registrant  since May 1995
and, since March 1998, a 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.

     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.

                                      -41-
<PAGE>

The Board of Directors

     The Board of Directors has  responsibility for establishing broad corporate
policies and for overseeing the  performance of the  Registrant.  Members of the
Board of Directors  are kept  informed of the  Registrant's  business by various
reports and/or  documents sent to them in anticipation of Board meetings as well
as  by  operating  and  financial  reports  presented  at  Board  meetings.  The
Registrant  pays its directors  fees or  compensation  for services  rendered in
their  capacity as  directors.  The current  Board of Directors  was elected and
assumed  office as of December 23, 1997 with the exception that Dr. Sc. Dov Maor
assumed his position on March 26, 1998.

     The Board does not currently  have a standing  nominating  or  compensation
committee or any committee or committees performing similar functions, but acts,
as a whole, in performing the functions of such committees.  At a meeting of the
Board of Directors  held on March 26, 1998, an Independent  Audit  Committee was
established.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section  16(a)  of the  Exchange  Act  requires  the  Company's  directors,
officers  and  persons  who own  more  than  10% of a  registered  class  of the
Company's equity securities, to file initial reports of ownership and reports of
changes  in  ownership  with  the  Securities  and  Exchange   Commission   (the
"Commission").  Such  persons  are  required  by the  Commission  to furnish the
Company  with copies of all Section  16(a) forms they file.  Based solely on its
review of the copies of Forms 3, 4 and 5 received  by it, the  Company  believes
that,  with the  exception of those  persons  indicated  below,  all  directors,
officers and 10% stockholders complied with such filing requirements.

     According to the Company's  records,  the following  filings  appear not to
have been timely made: one initial  statement of beneficial  ownership on Form 3
and three statements of changes in beneficial  ownership on Form 5 covering four
transactions  (such  Form 5  representing  a  delinquent  Form 4) were not filed
timely by Ruedi G. Laupper;  one initial  statement of beneficial  ownership was
not filed timely by Ueli Laupper;  one initial statement of beneficial ownership
on Form 3 and two  statements  of  changes  in  beneficial  ownership  on Form 5
covering two  transactions  (such Form 5 representing a delinquent  Form 4) were
not filed timely by Tomlinson Holding, Inc.; one initial statement of beneficial
ownership on Form 3 was not filed timely by Josef Laupper; one initial statement
of  beneficial  ownership  was not filed  timely by Ulrich  Ernst;  one  initial
statement of  beneficial  ownership  was not filed  timely by Berkshire  Capital
Management and one initial statement of beneficial  ownership,  one statement of
changes in beneficial  ownership on Form 5 covering one transaction (such Form 5
representing  a delinquent  Form 4) were not filed timely by Erwin  Zimmerli and
one initial  statement of  beneficial  ownership on Form 3 and one  statement of
changes in beneficial  ownership on Form 5 covering one transaction (such Form 5
representing a delinquent Form 4) was not filed timely by Michael Laupper.

ITEM 11.          EXECUTIVE COMPENSATION

Employment Agreements

     Ruedi  G.  Laupper  entered  into a  five-year  employment  agreement  with
Swissray Management AG, a wholly owned subsidiary of the Registrant, on December
18, 1997, which agreement  provided for automatic renewal for another five years
unless  terminated  by  either  party no later  than  December  31,  2001.  Such
agreement  also  provided for (i) an annual  salary of 299,000  Swiss francs (or
$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%

                                      -42-

<PAGE>

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  at June  30,  2000)  including  any  bonus.  The
Registrant guarantees the obligation of Swissray Management AG in the event of a
default.

     Pursuant  to  June  30,  1999  Board  meeting  (attended  by the  Company's
President, Ruedi G. Laupper, who absented himself from the meeting prior to vote
upon and adoption of resolutions)  the EBIT bonus  provisions  referred to above
were  extinguished  in exchange for (a) extending the duration of the employment
agreement to December 18, 2007 and (b) issuance to Ruedi G. Laupper of 2,000,000
fully vested, and non- forfeitable shares of restrictive Company common stock in
exchange for and in consideration of his agreeing to cancel the above referenced
EBIT  provisions in his employment  contract which otherwise would have entitled
him to receive 25% of all Company  earnings  before  interest and taxes ("EBIT")
payable in shares of Company  Common Stock  during each year of such  employment
contract,  which contract  expires  December,  2007 EBIT, in thousands,  for the
years  ended  June 30,  1997,  1998,  1999 and  2000 was  $(12,425),  $(14,218),
$(15,539),  $(10,294)  and  $(11,291)  respectively.  Accordingly,  no bonus was
payable.  Valuation  assigned  to the  aforesaid  2,000,000  fully  vested,  and
non-forfeitable  shares was based upon Board members  agreement  that such price
would be based upon 75% of bid price at the time proposal was initially made and
agreed to on March 12, 1999,  i.e. 75% of $0.50 bid price on March 12, 1999. The
Board resolution  approving the above referenced  transaction (and utilizing the
aforesaid agreed to valuation date) occurred on June 30, 1999, at which time the
bid price of the common stock was $2.625 and at which time the above  referenced
shares  were issued to Mr.  Laupper.  In  accordance  with SEC  guidelines  (and
notwithstanding  the  percentage  discount from bid price  discussed  above) the
Company's  financial  statements reflect a 10% (as opposed to 25%) discount from
bid price with respect to this transaction at date of issuance.

     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
(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 to the  Government  of Romania.  The contract for sale of
ddRMulti 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
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
installed and sold 25 of the 32 ddRMulti  through close of its fiscal year ended
June 30, 2000 while the balance of 7 Systems  were  installed  and sold  through
August 2000 with the Company receiving the full balance aggregating  $11,730,000
by such latter date.

     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.

                                      -43-
<PAGE>

     The above  referenced  proposal was initially  orally made to the Company's
President  by its Board of  Directors on March 12, 1999 and the key meeting with
respect to  discussion  thereon  occurred on such date,  and such  agreement was
subsequently  finalized (i.e. reduced to writing) at the Company's June 30, 1999
Board meeting  wherein  discussions  were  basically  limited to those set forth
above and at which the only persons present were Board members and at which time
Board  members  again  agreed that  valuation  assigned to shares  issued  would
reflect price at time of initial proposal as previously agreed to. There were no
offers or  counter-offers  between  the  Company  and its  President  but rather
directors  agreed to and  voted in favor of  issuance  of the  above  referenced
2,000,000  restrictive shares and the Company's  President  (abstaining  himself
from such vote) agreed to such resolution.  All material  factors  considered by
the Board consisted of those referred to above and were what it considered to be
"positive" factors without any negative factors or implications being discussed.
The Company has quantified all material factors to the extent practicable.

     Management obtained stockholder  ratification regarding this matter on July
12, 2000 after advising stockholders that even absent ratification the Board, in
all likelihood,  would leave the agreement in effect,  as is. Such  ratification
was sought and  received  in an effort to comply with  NASDAQ  Marketplace  Rule
4310(c)(25)(H)(i)(a).  Notwithstanding  ratification the NASD Board of Governors
on July 28, 2000  advised the Company that it had declined to review the June 1,
2000 decision of the Nasdaq Council. See also Items 5(d).

     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 Swissray or broadly based plans and  arrangement  including
other employees (e.g., ESPOS). In a case where the shares are issued to a person
not  previously  employed  by  Swissray,  as  an  inducement  essential  to  the
individual's  entering  into an employment  contract  with Swissray  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".

     Swissray  is not  currently  on NASDAQ  but  nevertheless  wished to obtain
stockholder  ratification  regarding  issuance of  restrictive  shares of 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.

     Swissray has entered into four (4) year employment  agreements with Michael
Laupper its Chief Financial Officer and Ueli Laupper its Vice President. Each of
such agreements will automatically renew for an additional 4 years unless notice
is given six (6) months prior to the initial  expiration  date.  Ueli  Laupper's
employment  agreement  commenced July 1, 2000 while the employment  agreement of
Michael Laupper commenced November 1, 2000. The employment agreements of Michael
Laupper and Ueli  Laupper  provide for annual  compensation  of  CHF182,000  and
US$104,000 per annum  respectively.  In accordance with the terms of each of the
two (2)  agreements  each  employee  is  entitled  to  certain  cost  of  living
adjustments,  the use of a Swissray  automobile and  compensation  in the sum of
$500,000  in the event  that the  employment  agreement  is  dissolved  prior to
expiration date on grounds for which employee is not responsible. The agreements
further  provide  for  non-accountable  monthly  expense  allowances  to Michael
Laupper - CHF1,000 and Ueli Laupper - $1,500.

     Notwithstanding  certain  information  contained  above with respect to the
Company's  President,  the Company also entered into new  employment  agreements
with both its Chairman, President and Chief Executive Officer, Ruedi G. Laupper,
and  its  Secretary/Treasurer  and  director,   Josef  Laupper.  Each  of  these
agreements  commenced April 1, 2001 and each replaced agreements entered into in
December of 1997. The Company's  President's agreement is for a term of five (5)
years while the Secretary/Treasurer's agreement is for a term of four (4) years.
In both instances the agreements will automatically  renew for an additional two
(2) years unless notice of termination is given within 6 months prior to the end
of  its  initial  term.  Ruedi  G.  Laupper's   agreement  provides  for  annual
compensation of CHF370,500 while Josef Laupper's  agreement  provides for annual

                                      -44-

<PAGE>

compensation  of  CHF162,500  with  both of such  agreements  having  provisions
relating  to  cost  of  living  adjustments,   use  of  Company  automobile  and
non-accountable  expense  allowances  of  CHF1,500  per month for the  Company's
President  and CHF1,000 per month for its  Secretary/Treasurer.  The  agreements
further  provide  for  compensation  in the sums of  US$2,000,000  for  Ruedi G.
Laupper  and  $500,000  for  Josef  Laupper  in the  event  that the  employment
agreements is dissolved  prior to its  expiration  date on grounds for which the
employee is not responsible.

     The foregoing is intended to summarize certain  pertinent  information with
respect to current  employment  agreements  between  the Company and each of its
officers and does not purport to be a complete summary of such agreements.

         All of these employment agreements are covered by Swiss law.

         Summary Compensation Table

     (A) The following Summary Compensation Table sets forth certain information
for the  years  ended  June 30,  1999,  2000 and  2001  concerning  the cash and
non-cash compensation earned by or awarded to the Chief Executive Officer of the
Registrant and the three other most highly compensated executive officers of the
Registrant as of June 30, 2001 (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>
Ruedi G. Laupper                    2001    $228,109           ---          $15,000           $45,220(6)     ___
  President and Chief Executive     2000    $200,878           ---          $695,625(1)(4)    181,250(5)     ---
  Officer, Chairman of the          1999    $194,121         $8,377       $4,335,000(1)(3)      ---          ---
  Board of Directors

Josef Laupper                       2001    $102,693           ---          $12,000           $12,920 (6)     ___
  Secretary, Treasurer              2000    $109,468           ---          $383,250(1)(4)    200,000(5)     ---
                                    1999    $ 83,566          $6,494         $12,000 (1)                     ---

Ueli Laupper                        2001    $120,401           ---          $10,000           $32,300(6)      ___
  Vice President International      2000    $114,494           ---          $628,750(1)(4)    218,750(5)     ---
  Sales                             1999    $ 94,924          $7,077         $10,000 (1)                     ---

Michael Laupper                     2001    $113,991           ---          $ --              $32,300(6)      ___
  Chief Financial Officer           2000    $ 80,600           ---          $371,250(4)       125,000(5)     ---

Erich A. Kalbermatter               1999    $153,333           ---           ---                ---          ---
  Chief Operating Officer  (2)
</TABLE>

------------------

(1) Fees for service on the Board of Directors of the Company.
(2) Erich A.  Kalbermatter  joined the Company on April 14, 1998 and resigned in
    February 1999.
(3) 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.
(4) 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.
(5) See "Stock Option Grants in Fiscal Year Ended June 30, 2000".
(6) See "Stock Option Grants in Fiscal Year Ended June 30, 2001".

                   STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

     The  following  sets  forth  certain  information  concerning  the grant of
options to purchase shares of the Common Stock to each of the executive officers
of the Registrant,  as well as certain  information  concerning the exercise and

                                      -45-

<PAGE>

value of such stock  options  for each of such  individuals.  Options  generally
become  exercisable  upon  issuance  and expire no later than ten years from the
date of grant.

            STOCK OPTIONS GRANTED IN FISCAL YEAR ENDED JUNE 30, 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 OPTIONS GRANTED IN FISCAL YEAR ENDED JUNE 30, 2000

     With  respect to the named  Executive  Officers  there were no  granting of
stock options under either the Company's  1996,  1997. 1999 or 2000 Stock Option
Plans (the "Plans") during fiscal year ended June 30, 2000 excepting for options
granted  (October  27, 1999 when the bid price was $2.625) from the 1999 Plan as
follows:  Ruedi G.  Laupper,  Josef  Laupper,  Ueli Laupper and Michael  Laupper
181,250, 200,000, 218,750 and 125,000 options respectively.  All of such options
are exercisable at $2.625 per share for a period of three years.


          AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED JUNE 30, 1999
                          AND YEAR-END OPTION VALUES(1)

                               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

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

(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 OPTIONS GRANTED IN FISCAL YEAR ENDED JUNE 30, 2000

         Name       Options Granted (a)  Exercised (b)        Balance
Ruedi G. Laupler        181,250             25,000            156,250
Josef Laupper           200,000             25,000            175,000
Ueli Laupper            218,750             25,000            193,750
Michael Laupper         125,000             25,000            100,000
Erwin Zimmerli           93,750             25,000             68,750
Dov Maor                 31,250              -0-               31,250
                        -------           -----------         --------
         Totals         850,000            125,000            725,000

                                      -46-
<PAGE>

            STOCK OPTIONS GRANTED IN FISCAL YEAR ENDED JUNE 30, 2001

         Name       Options Granted (c)      Exercised (d)       Balance
Ruedi G. Laupler       350,000                  -0-              350,000
Josef Laupper          100,000                100,000              -0-
Ueli Laupper           250,000                  -0-              250,000
Michael Laupper        250,000                  -0-              250,000
Erwin Zimmerli          30,000                 30,000              -0-
Dov Maor                20,000                  -0-               20,000
                      ---------               ----------         --------
         Totals      1,000,000                 130,000           870,000


(a)      All granted on October 27, 1999.
(b)      All exercised on January 19, 2000.
(c)      All options granted on December 27, 2000 and are exercisable at$0.35
         per share for a period of 2-1/2 years from date of grant.
(d)      Exercised in July 2001, i.e., after close of June 30, 2001 fiscal year.

Stock Option Plans

     On January 30, 1996,  the Board of  Directors  adopted the  Company's  1996
Non-Statutory Stock Option Plan (the "1996 Plan"). All of the options under such
1996 Plan have  been  granted.  Consequently,  the  Board of  Directors  and the
Registrant's  stockholders approved the Swissray International,  Inc. 1997 Stock
Option Plan (the "Stock Option Plans").

     The purpose of the Stock Option Plans is to provide directors, officers and
employees  of,  and  consultants  to  the  Company  and  its  subsidiaries  with
additional  incentives by increasing  their ownership  interests in the Company.
Directors,  officers and other employees of the Company and its subsidiaries are
eligible to participate  in the Stock Option Plans.  Options may also be granted
to  directors  who are not  employed by the Company  and  consultants  providing
valuable services to the Company and its subsidiaries. In addition,  individuals
who have agreed to become an employee  of,  director of or a  consultant  to the
Company and its subsidiaries are eligible for option grants, conditional in each
case on actual employment,  directorship or consultant status. Awards of options
to purchase  Common Stock may include  incentive stock options under Section 422
of the  Internal  Revenue  Code  ("ISOs")  and/or  non-qualified  stock  options
("NQSOs").  Grantees who are not employees of the Company or a subsidiary  shall
only receive NQSOs.

     The maximum  number of options that may be granted under this Plan shall be
options to purchase  200,000  shares of Common Stock.  As of September 12, 2000,
none of such options have been granted.

     The  Compensation  Committee will  administer  the Stock Option Plans.  The
Compensation  Committee generally will have discretion to determine the terms of
any option grant,  including the number of option shares,  exercise price, term,
vesting schedule,  the  post-termination  exercise period, and whether the grant
will be an ISO or NQSO.  Notwithstanding  this  discretion:  (i) the  number  of
shares subject to options granted to any individual in any calendar year may not
exceed  200,000;  (ii) the term of any option  may not  exceed 10 years  (unless
granted as an ISO to an individual or entity who possesses  more than 10% of the
voting  power of the Company,  which term may not exceed five  years);  (iii) an
option will  terminate  as  follows:  (a) if such  termination  is on account of
permanent and total  disability (as determined by the  Compensation  Committee),
such options shall terminate one year thereafter;  (b) if such termination is on
account of death,  such options shall  terminate six months  thereafter;  (c) if
such  termination  is for cause (as determined by the  Compensation  Committee),
such options shall  terminate  immediately;  (d) if such  termination is for any
other reason, such options shall terminate three months thereafter; and (iv) the
exercise  price of each share subject to an ISO shall be not less than 100%, or,
in the case of an ISO granted to an individual described in Section 422(b)(6) of
the Code,  110% of the fair market value  (determined in accordance with Section
422 of the  Code) of a share of the Stock on the date  such  option is  granted.

                                      -47-

<PAGE>

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.  As of December 27, 2000, all of
these options have been granted.

     Pursuant to October 1999 Board of Directors  approval and  subsequent  July
12, 2000  stockholder  approval,  the Registrant  adopted its 2000 Non Statutory
Stock  Option Plan,  whereby it reserved for issuance up to 4,000,000  shares of
its common stock.  Thereafter in August 2000 the Registrant filed a Registration
Statement  on Form S-8 (File No.  0-26972)  so as to  register  those  shares of
common stock  underlying  the  aforesaid  options.  As of August 15,  2001,  all
3,000,000 options have been granted.

     Pursuant to  September  2000 Board of  Directors  approval  and  subsequent
November 30, 2000 stockholder approval,  Swissray adopted its 2001 Non-Statutory
Stock  Option Plan,  whereby it reserved for issuance up to 2,000,000  shares of
its  common  stock.   Thereafter  in  January  29,  2001  the  Company  filed  a
Registration  Statement on Form S-8 (File No. 333-54510) so as to register those
shares of common stock  underlying the options.  None of these options have been
granted through June 30, 2001.

     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.

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,  2001,  2000 and 1999,  were  $654,837,  $475,176  and  $509,959
respectively.

Director Compensation

     Directors  of the  Registrant  receive  $10,000  annually  for  serving  as
directors except for Josef Laupper,  who receives $12,000 and Ruedi Laupper, the
Chairman of the Board of Directors, who receives $15,000.

Compensation Committee Interlocks and Insider Participation

     The Company had no Compensation  Committee during the last completed fiscal
year. The Corporation's  executive compensation was supervised by all members of
the Company's Board of Directors and the following  directors were  concurrently
officers of the Company in the following capacities:  Ruedi G. Laupper (Chairman

                                      -48-

<PAGE>

of the Board of Directors, President and Chief Executive Officer); Josef Laupper
(Secretary,  Treasurer  and  director)  and Ueli  Laupper  (Vice  President  and
director).  No executive  officer of the Company served as a member of the Board
of  Directors  or  compensation  committee  of any entity  which has one or more
executive officers who serve on the Company's Board of Directors.

     While the  Company  did not issue any shares of its Common  Stock to any of
its officers  during  fiscal year ended June 30, 1998 it did issue 48,259 shares
of Common  Stock to a company  controlled  by Ruedi G.  Laupper  pursuant  to an
agreement  between  Ruedi G.  Laupper  and the Company in  consideration  of Mr.
Laupper's agreement to cancellation of 160,863 post split shares of Common Stock
held by Ruedi G. Laupper or companies controlled by him.

     The  Company  did not issue any  shares of its  Common  Stock to any of its
officers  during  fiscal year ended June 30, 1999  excepting for the issuance of
2,000,000  restrictive  shares  to  Ruedi  G.  Laupper  in  exchange  for and in
consideration  of  cancellation  of  certain  bonus   provisions   contained  in
employment  contract.  See Item 11 -  "Employment  Agreements".  With respect to
shares of common  stock  issued to officers and  directors  during  fiscal years
ended June 30, 2000 and 2001 see Item 13.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following  table sets forth certain  information  regarding  beneficial
ownership  of the Common  Stock as of August 15, 2001  (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.

                                          No. Of Shares      Percentage of
                                          Beneficially       Shs. Beneficially
Name and Address of Beneficial Owner       Owned (1)            Owned (1)
------------------------------------    --------------      ----------------

Ruedi G. Laupper (2)(9)                    3,291,074             3.86%
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland

Josef Laupper (3)                            425,000              * %
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland

Erwin Zimmerli (4)                           148,750              * %
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland

Ueli Laupper (5)                             693,750             * %
100 Grasslands Road
Elmsford, New York 10523

Dov Maor (6)                                  51,250             * %
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland

                                      -49-
<PAGE>

Michael Laupper (7)                          500,000             * %
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland

Hillcrest Avenue LLC                      52,442,347 (8)      61.88%
c/o Citco Trustees (Cayman) Limited
Corporate Centre
Windward One
West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands

All directors and officers as
 a group (six persons)                     5,109,824 (10)      5.92%

     * Represents less than 1% of the 84,750,524 shares outstanding as of August
     15, 2001.

(1)  Unless otherwise indicated,  the Company believes that all persons named in
     the table have sole voting and investment  power with respect to all shares
     of the Common  Stock  beneficially  owned by them. A person is deemed to be
     the  beneficial  owner of  securities  which may be acquired by such person
     within 60 days from the date indicated  above upon the exercise of options,
     warrants or convertible  securities.  Each  beneficial  owner's  percentage
     ownership is determined by assuming that options,  warrants or  convertible
     securities  that are held by such  person  (but not those held by any other
     person)  and which  are  exercisable  within 60 days of the date  indicated
     above, have been exercised.
(2)  Includes (i) 37,500 shares owned  indirectly by Ruedi G. Laupper through SR
     Medical  Equipment  Ltd., a corporation  which is wholly owned by him; (ii)
     460,324  shares  owned  indirectly  by Ruedi G. Laupper  through  Tomlinson
     Holding  Inc., a  corporation  which is wholly  owned by him,  (iii) 12,000
     shares  which may be  acquired  upon  exercise of  immediately  exercisable
     options,  which options are owned indirectly by Ruedi G. Laupper through SR
     Medical Equipment Ltd., a corporation which is wholly owned by him and (iv)
     an additional 156,250 shares which may be acquired upon exercise of balance
     of immediately exercisable options issued in October 1999 as well as (v) an
     additional 350,000 options issued December 27, 2000.
(3)  Includes 175,000 shares which may be acquired upon exercise of balance
     of immediately exercisable options issued in October 1999.
(4)  Includes  68,750  shares which may be acquired  upon exercise of balance of
     immediately exercisable options.
(5)  Includes  193,750  shares which may be acquired upon exercise of balance of
     immediately  exercisable  options  issued  in  October  1999  as well as an
     additional 250,000 options issued December 27, 2000.
(6)  Includes  31,250 shares which may be acquired upon exercise of  immediately
     exercisable  options issued in October 1999 as well as an additional 20,000
     options issued December 27, 2000.
(7)  Includes  100,000  shares which may be acquired upon exercise of balance of
     immediately  exercisable  options  issued  in  October  1999  as well as an
     additional 250,000 options issued December 27, 2000.
(8)  In accordance with terms and conditions of Exchange  Agreement entered into
     on December 29, 2000,  Hillcrest Avenue LLC ("Hillcrest") is by and far the
     single largest stockholder of Swissray.  Notwithstanding such statement and
     in accordance with terms and conditions of Shareholders

                                      -50-

<PAGE>



     Agreement,  Swissray's President,  Ruedi G. Laupper, has sole voting rights
     with  respect to those shares  owned by  Hillcrest  without any  limitation
     thereon  (excepting  as set forth in aforesaid  Shareholders  Agreement) so
     long  as  same  are   owned  by   Hillcrest.   Hillcrest,   in  turn,   and
     notwithstanding  the fact that those  shares  owned by it were  registered,
     could not sell any of such shares until July 1, 2001.  See also  footnote 9
     hereto. Hillcrest is managed and directed by Navigator Management Ltd., its
     sole  director.  Voting  control  of  Hillcrest's  shares is  exercised  by
     Livingstone Asset Management Limited, a Bahamas company controlled by David
     Sims.
 (9) When taking into account the number of shares owned  beneficially  by Ruedi
     G. Laupper (2,772,824) as well as those Hillcrest owned Company shares over
     which he exercises  voting control (as indicated in footnote 8 above) Ruedi
     G. Laupper exercises voting control over approximately 65.15% of all voting
     shares as of August 15, 2001. This is exclusive of an additional  3,526,000
     Company shares owned by Liviakis Financial Communications,  Inc. over which
     Ruedi G. Laupper claims to maintain,  pursuant to written  agreement,  sole
     voting  rights.  See Item 3 "Legal  Proceedings".
(10) Includes  1,607,000 shares issuable upon option exercise.

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Reference is herewith  made to  Compensation  Committee  Interlock,  second
paragraph regarding (a) 48,259 restrictive shares of Company common stock issued
to its  President  during  fiscal  year  ended June 30,  1998 and (b)  2,000,000
restrictive  shares  issued to its  President  during fiscal year ended June 30,
1999. For further  information with respect to the latter transaction  reference
is herewith made to "Management - Employment Agreements", second paragraph. With
respect to both  transactions  referred to herein the Company's Board determined
same to be as fair to the  Company  as could  have been  made with  unaffiliated
parties and both of such  transactions  were  unanimously  approved by its Board
with the Company's President abstaining from voting.

     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.

     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

         During January 2000 and July 2001 the follow officers and/or directors
exercised options and were issued shares as follows:

                                         January 2000              July 2001


         Ruedi G. Laupper                    25,000                        -0-
         Josef Laupper                       25,000                    100,000
         Michael Laupper                     25,000                        -0-
         Ueli Laupper                        25,000                        -0-
         Erwin Zimmerli                      25,000                      30,000
                                            -------                     -------

                  Totals                    125,000                     130,000

                                      -51-
<PAGE>


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  Reference is herewith made to the  consolidated  financial  statements  and
notes thereto included in this Form 10-K.

(b) No exhibits are being filed with this Form 10-K.

(c) During the last  quarter of the  Company's  fiscal year ended June 30, 2000,
the following Forms 8-K were filed.

1) None.


                                      -52-

<PAGE>



                                   SIGNATURES



     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                               SWISSRAY INTERNATIONAL, INC.


Dated: September 21, 2001                  By: /Ruedi G. Laupper/
                                              --------------------------------
                                              Name: Ruedi G. Laupper
                                              Title:Chairman of the Board of
                                                    Directors, President &
                                                    Principal Executive Officer



     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.


Signature                    Title                                   Date



/Ruedi G. Laupper/                                        Dated:  Sept. 21, 2001
------------------------     Chairman of the Board of
Ruedi G. Laupper             Directors, President &
                             Principal Executive Officer


/Josef Laupper/                                           Dated:  Sept. 21, 2001
------------------------     Secretary, Treasurer and a
Josef Laupper                Director



/Michael Laupper/                                         Dated:  Sept. 21, 2001
------------------------     Principal Financial Officer
Michael Laupper              & Controller



/Ueli Laupper/                                            Dated:  Sept. 21, 2001
------------------------     Vice President and a Director
Ueli Laupper



/Dr. Erwin Zimmerli/                                      Dated:  Sept. 21, 2001
------------------------     Director
Dr. Erwin Zimmerli



/Dr. Sc. Dov Maor/                                        Dated:  Sept. 21, 2001
------------------------     Director
Dr. Sc. Dov Maor


                                      -53-

<PAGE>


Supplemental Information

     Supplemental  Information  to be Furnished  With Reports Filed  Pursuant to
Section 15(d) of the Act by  Registrants  Which Have Not  Registered  Securities
Pursuant to Section 12 of the Act.

Not Applicable.


                                      -54-