<PAGE>  
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                              Amendment No. 2 to
                                    FORM 10-K

               [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                     For the fiscal year ended June 30, 1998

               TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

       For the transition period from _______________ to _________________

                         Commission file number 0-26972

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

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

           200 East 32nd Street, Suite 34-B, New York, New York 10016
              (Address of Principal Executive Office) (Zip Code)

         United States - 212-545-0095 Switzerland - 011 41 41 914 12 00
                (Issuer's Telephone Number, Including Area Code)

       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:

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

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

                               Yes  xx (1)           No
                                   ----                  ----
<PAGE>

Indicate by check mark if there is no disclosure of delinquent  filers  pursuant
to Item 405 of Regulation  S-K is not contained in this form,  and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]

State issuer's revenues for its most recent fiscal year - $22,892,978.

The number of shares  outstanding of each of the Registrant's  classes of Common
Stock,  as of September  24, 1998 is  4,638,976  shares (2), all of one class of
common stock,  $.01 par value. Of this number a total of 4,190,717 shares having
an  aggregate  market  value of  $9,177,670,  based on the closing  price of the
Registrant's common stock of $2.19 on September 28, 1998 as quoted on the NASDAQ
Small Cap market, were held by non-affiliates* of the Registrant.

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

(1)  Excepting  for the fact that this Form 10-K  should  have been  filed on or
before October 13, 1998 and the further fact that the Registrant has not yet
filed its Form 10-Q for quarter ended September 30, 1998.

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

                 ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                           DURING THE PAST FIVE YEARS

Check  whether the issuer has filed all  documents  and  reports  required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the  distribution  of
securities under a plan confirmed by a court.

                          Yes  _____         No   _____
                             

Not Applicable

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:  4,638,976 shares as of September 24,
1998.


                       DOCUMENTS INCORPORATED BY REFERENCE

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

None
<PAGE>   
         TABLE OF CONTENTS

<TABLE>
<CAPTION>
PART I
<S>               <C>                                                                      <C>
Item 1.           Business                                                                           4

Item 2.           Properties                                                                        11

Item 3.           Legal Proceedings                                                                 11

Item 4.           Submission of Matters to a Vote of Security Holders                               12

PART II

Item 5.           Market For Registrant's Common Equity and Related
                  Stockholder Matters                                                               12

Item 6.           Selected Financial Data                                                           14

Item 7.           Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                                               15

Item 8.           Financial Statements and Supplementary Data                               26, 26A & F(1)-F(25)

Item 9.           Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure                                              27

PART III

Item 10.          Directors and Executive Officers of the Registrant                               27

Item 11.          Executive Compensation                                                           28

Item 12.          Security Ownership of Certain Beneficial Owners and
                  Management                                                                       32

Item 13.          Certain Relationships and Related Transactions                                   33

PART IV

Item 14.          Exhibits, Financial Statement Schedules, and
                  Reports on Form 8-K                                                              33

SIGNATURES                                                                                         34

SUPPLEMENTAL INFORMATION                                                                           35
</TABLE>


<PAGE>

ITEM 8.         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

                                       25

<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  sheet  of  Swissray
International,  Inc.  and  subsidiaries  as of June  30,  1998  and the  related
consolidated statements of operations,  changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall consolidated  financial statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Swissray  International,  Inc.
and subsidiaries as of June 30, 1998, and the results of its operations, changes
in  stockholders'  equity and cash  flows for the year then ended in  conformity
with generally accepted accounting principles.




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

New York, New York
November 20, 1998

                                       26
<PAGE>

                    [LETTERHEAD OF BEDERSON & COMPANY LLP]

                         INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders
Swissray International, Inc.
New York, New York


We have  audited  the  accompanying  consolidated  balance  sheets  of  Swissray
International, Inc., and its subsidiaries, as of June 30, 1997 and 1996, and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for the years then ended. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated  financial  statements based on our audits. We did
not audit the  financial  statements  of Swissray  (Deutschland)  Rontgentechnik
GmbH,  a  wholly-owned  subsidiary,  which  statements  reflect  total assets of
$437,021 as of June 30, 1997 and total  revenues of $1,255,140 for the year then
ended.  Those  statements  were audited by other  auditors whose report has been
furnished to us, and our opinion,  insofar as it related to the amounts included
for Swissray  (Deutschland)  Rontgentechnick GmbH, is based solely on the report
of the other auditors.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our  opinion,  based on our  audit  and the  report  of other  auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material respects, the financial position of Swissray International, Inc., and
its subsidiaries,  at June 30, 1997 and 1996 and the results of their operations
and their cash  flows for the year then  ended,  in  conformity  with  generally
accepted accounting principles.


                                          /s/ BEDERSON & COMPANY LLP
                                          ---------------------------
                                              Bederson & Company LLP


West Orange, New Jersey
September 16, 1997
Except for Notes 17, 20 and 22, as of March 6, 1998, and Note 1, 16, 23, 25, 26,
 27, 29 30, 31 and 32, as of November 16, 1998

Member  of  TAG  International   with  offices  in  principal  cities  worldwide
Affiliated with the American Institute of CPAs Division for Firms

<PAGE>
                           INDEPENDENT AUDITORS' REPORT


Board of Directors of
Swissray (Duetschland) Rontegentechnik Gmbh
Wiesbaden, Germany

     We have audited the balance sheet of Swissray (Duetschland) Rontegentechnik
Gmbh as of June 30, 1997 and the related  statements of income and stockholder's
equity  for  the  year  then  ended.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on the financial statements based on our audit.

         We conducted  our audit in  accordance  to all laws  governed by German
regulations and with generally  accepted auditing  standards  promulgated by the
American Institute of Certified public accountants. Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining on a test basis,  evidence  supporting the amounts and  disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audit provides a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all  material  respects,  the  financial  position of Swissray  (Duetschland)
Rontegentechnik  Gmbh as of June 30, 1997 and the results of its  operations for
the year then ended.


                                                  /s/ Theo Lepper
                                                  Theo Lepper
                                                  Certified Public Accountant

Wiesbaden, Germany
August 8, 1997



<PAGE> 
                           SWISSRAY INTERNATIONAL INC.
                           CONSOLIDATED BALANCE SHEET
                             JUNE 30, 1998 and 1997
                                     ASSETS

<TABLE>
<CAPTION>
                                                                         ------------------------------
                                                                              1998              1997
                                                                         ------------------------------
                                                                                             (Restated)
<S>                                                                       <C>                 <C>
CURRENT ASSETS
Cash and cash equivalents                                                 $ 1,281,552       $ 3,091,307
Accounts receivable, net of allowance for doubtful
accounts of $ 32,356 and $ 148,390                                          2,584,651         5,154,794
Inventories                                                                 7,701,145         3,911,107
Prepaid expenses and sundry receivables                                     1,501,909         1,936,138
                                                                         ------------------------------
TOTAL CURRENT ASSETS                                                       13,069,257        14,093,346
                                                                         ------------------------------
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation
of $ 581,077 and $ 320,110                                                  6,010,378         4,336,617
                                                                         ------------------------------

OTHER ASSETS
Due from stockholders                                                              --            69,587
Loan receivable                                                                20,005            17,396
Accounts receivable - long-term, net of allowance of $ 891,409
and $ 814,178 for doubtful account                                                 --           240,912
Licensing agreement, net of accumulated amortization of                     3,600,766         4,097,424
$ 1,365,809 and $ 869,151
Patents and trademarks, net of accumulated amortization of                    230,614           206,003
$ 82,716 and $ 54,941
Software development costs, net of accumulated amortization of                455,318           317,524
$ 121,892 and $ 34,512
Organization cost, net of accumulated amortization of                              --             5,921
$ 8,385 and $ 2,464
Security deposits                                                              38,280            43,728
Note receivable - long-term, net of allowance of $ 30,733 and $ -0-           513,643           513,643
Goodwill, net of accumulated amortization of $ 136,939 and $ 9,023          1,796,336
410,814
Debt issance costs on convertible debentures, net of accumulated
amortization of $ 60,000 and $ 200,566                                        180,000           435,319
                                                                         ------------------------------

TOTAL OTHER ASSETS                                                          6,834,962         6,358,271
                                                                         ------------------------------
TOTAL ASSETS                                                              $25,914,597       $24,788,234
                                                                         ==============================
</TABLE>

                                       F 1
    The accompanying notes are an integral part of these financial statements
<PAGE>   
                            SWISSRAY INTERNATIONAL
                    CONSOLIDATED BALANCE SHEET (Continued)
                            JUNE 30, 1998 and 1997

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<S>                                              <C>                 <C>
CURRENT LIABILITIES
Current maturities of long-term debt             $    233,746        $    243,135
Notes payable - banks                               3,551,091           3,834,706
Loan payable                                          125,029             133,008
Accounts payable                                    5,030,449           5,336,749
Accrued expenses                                    2,365,450           1,401,938
Restructuring                                         500,000                  --
Customer deposits                                     176,583             170,436
Due to stockholders and officers                        2,206             139,826
                                                 ---------------------------------
TOTAL CURRENT LIABILITIES                          11,984,554          11,259,798
                                                 ---------------------------------

CONVERTIBLE DEBENTURES                              7,645,969           6,000,000
Conversion Benefit                                   (315,327)           (689,441)
                                                 ---------------------------------
Net Convertible Debentures                          7,330,642           5,310,559
                                                 ---------------------------------

LONG-TERM DEBT, less current maturities               440,674             524,689
COMMON STOCK SUBJECT TO PUT                         1,819,985             320,000

STOCKHOLDERS' EQUITY
Common stock                                           41,426              19,694
Additional paid-in capital                         58,074,793          35,957,659
Common stock to be issued to officer
  (48,259 shares in 1997)                                  --           1,122,973
Accumulated deficit                               (50,481,713)        (27,978,604)
Accumulated other comprehensive loss               (1,475,779)         (1,428,534)
Common stock subject to put                        (1,819,985)           (320,000)
                                                 ---------------------------------
TOTAL STOCKHOLDERS' EQUITY                          4,338,742           7,373,188
                                                 ---------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $ 25,914,597        $ 24,788,234
                                                 =================================
</TABLE>

                                       F 2
    The accompanying notes are an integral part of these financial statements
<PAGE>   
                           SWISSRAY INTERNATIONAL INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                    YEARS ENDED JUNE 30, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                          ----------------------------------------------------
                                               1998                1997                1996
                                                                 (Restated)         (Restated)
                                          ----------------------------------------------------
<S>                                       <C>                 <C>                 <C>
NET SALES                                 $ 22,892,978        $ 13,151,701        $ 10,899,222
COST OF SALES                               18,081,786           8,445,414           5,793,306
                                          ----------------------------------------------------
GROSS PROFIT                                 4,811,192           4,706,287           5,105,916
                                          ----------------------------------------------------

OPERATING EXPENSES
Officers and directors compensation            569,816           1,816,879             612,776
Salaries                                     4,168,540           2,059,396           1,829,535
Selling                                      3,740,391           1,873,389           1,140,604
Research and development                     3,542,149           5,786,158           1,731,502
General and administrative                   2,612,262           2,879,257           7,535,759
Restructuring cost                             500,000                  --                  --
Other operating expenses                     1,735,877           1,645,800           1,098,346
Bad debts                                      133,196             619,160             491,487
Depreciation and amortization                1,745,498             770,294             526,138
                                          ----------------------------------------------------
TOTAL OPERATING EXPENSES                    18,747,729          17,450,333          14,966,147
                                          ----------------------------------------------------

LOSS BEFORE OTHER INCOME (EXPENSES)
  AND INCOME TAXES                         (13,936,537)        (12,744,046)         (9,860,231)

Other income (expenses)                       (281,227)            318,763           1,003,933
Interest expense                            (8,590,268)           (762,168)           (193,930)
                                          ----------------------------------------------------
OTHER INCOME (EXPENSES)                     (8,871,495)           (443,405)            810,003
                                          ----------------------------------------------------

LOSS FROM CONTINUING OPERATIONS
  BEFORE INCOME TAXES AND
  EXTRAORDINARY ITEMS                      (22,808,032)        (13,187,451)         (9,050,228)

INCOME TAX PROVISION (BENEFIT)                      --             110,223            (364,648)
                                          ----------------------------------------------------

LOSS FROM CONTINUING OPERATIONS
  BEFORE EXTRAORDINARY ITEMS               (22,808,032)        (13,297,674)         (8,685,580)

Extraordinary income (expenses) net of
 taxes                                         304,923            (387,514)            419,500
                                          ----------------------------------------------------
NET LOSS                                  $(22,503,109)       $(13,685,188)       $ (8,266,080)

                                          ====================================================


LOSS PER COMMON SHARE BASIC
Loss from continuing operations                  (8.48)              (8.41)              (6.69)
Extraordinary items                               0.11               (0.24)               0.32
                                          ----------------------------------------------------
NET LOSS                                         (8.37)              (8.65)              (6.37)

                                          ====================================================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING                           2,690,695           1,581,757           1,297,475
                                          ============           =========           =========
</TABLE>


                                       F 3
    The accompanying notes are an integral part of these financial statements
<PAGE> 
                           SWISSRAY INTERNATIONAL INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   YEARS ENDED JUNE 30, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                    ----------------------------------------------------
                                                                        1998                1997                1996
                                                                    ----------------------------------------------------
                                                                                         (Restated)           (Restated)
<S>                                                                 <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITES
Net loss                                                            $(22,503,109)       $(13,685,188)       $ (8,266,080)
Adjustment to reconcile net loss to net
        cash used by operating activities
        Depreciation and amortization                                  1,874,206             770,294             526,138
        Provision for bad debts                                          (38,803)            552,725             336,706
        Write-off of affiliate receivable                                     --             166,384                  --
        Interest expense on Debt issuance cost and
          conversion benefit                                           7,905,225             511,125                  --
        Operating expenses through issuance of stock
         options and common stock to be issued                           449,376           2,442,385           6,374,468
        Early extinguishment of  Debt (gain)                            (304,923)                 --                  --
        Gain on Sale of marketable securities                                 --                  --            (762,500)

        (Increase) decrease in operating assets:
        Accounts receivable                                            2,887,427          (1,857,662)         (1,870,866)
        Accounts receivable - affiliates                                      --              31,533             (31,533)
        Accounts receivable - long-term                                  163,680             283,603              22,138
        Inventories                                                   (3,790,038)           (998,271)         (1,420,393)
        Prepaid expenses and sundry receivables                          434,229            (860,457)           (976,664)
        Increase (decrease) in operating liabilities:
        Accounts payable                                                (306,300)          1,601,074           1,514,465
        Accounts payable-affiliates                                           --              (1,541)              1,541
        Accrued expenses                                               1,463,512             266,245             855,041
        Customers deposits                                                 6,147              92,763              38,874
                                                                    ----------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES                                (11,759,371)        (10,684,988)         (3,658,665)
                                                                    ----------------------------------------------------
<PAGE>
CASH FLOW FROM INVESTING ACTIVITIES
        Acquisition of property and equipment                         (2,849,205)         (3,431,375)           (932,066)
        Capitalized Computer Software                                   (225,174)           (352,036)                 --
        Purchase of marketable securities                                     --                  --            (200,000)
        Patents and trademarks                                           (52,386)            (12,925)            (45,309)
        Goodwill                                                        (802,107)           (299,837)                 --
        Organization costs                                                    --                  --              (8,385)
        Asset Purchase net of cash received                             (591,108)                 --                  --
        Collection of note receivable                                         --             448,857                  --
        Security deposits                                                  5,448             (23,776)            (19,952)
        (Repayment of) loan receivable                                    (2,608)              2,896                  --
        Repayments from (advances to) affiliates                              --                  --              34,592
                                                                    ----------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES                                 (4,517,140)         (3,668,196)         (1,171,120)

CASH FLOWS FROM FINANCING ACTIVITIES
        Proceeds from short-term borrowings                           10,342,060           9,198,821           2,069,828
        Proceeds from long-term borrowings                                    --             248,987                  --
        Principal payment of short-term borrowings                    (3,852,075)         (2,093,074)         (2,711,086)
        Principal payment of long-term borrowings                        (21,748)           (442,681)           (281,004)
        Principal payment of long-term borrowings with stock             (62,267)                 --                  --
        Issuance of common stock for cash                              8,461,262           7,753,222           7,250,000
        Repayment from (payment to) stockholders and officers            (68,032)             87,653             141,054
        Public offering expenses                                              --                  --            (680,098)
                                                                    ----------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES                                 14,799,200          14,752,928           5,788,694
                                                                    ----------------------------------------------------
EFFECT OF EXCHANGE RATE ON CASH                                         (332,444)           (561,122)           (383,050)
                                                                    ----------------------------------------------------

NET INCREASE (DECREASE) IN CASH                                       (1,809,755)           (161,378)            575,859
CASH AND CASH EQUIVALENT - beginning of period                         3,091,307           3,252,685           2,676,826
                                                                    ----------------------------------------------------
CASH AND CASH EQUIVALENTS - end of period                           $  1,281,552        $   3,091,307       $  3,252,685

                                                                    ====================================================
</TABLE>

                                      F 4
    The accompanying notes are an integral part of these financial statements
<PAGE>  
                       SUPPLEMENTAL CASH FLOW INFORMATION



             Cash  payments  for the years ended June 30,  1998,  1997 and 1996,
include interest of $161,093, $122,427 and $193,930, respectively. Cash payments
for the years  ended June 30, 1997 and June 30, 1996  included  income  taxes of
$56,562  and $-0-,  respectively.  No income  taxes had to be paid in the fiscal
year ended June 30, 1998

             NON-CASH OPERATING ACTIVITIES
             In April of 1997, the Company issued options to an officer under
the 1996  non-statutory  stock option plan. The excess of the then quoted market
price  over the  option  price  has been  recorded  as  additional  compensation
amounting to $25,000.

             For the years  ended June 30,  1997 and 1996,  the  Company  issued
options to various  individuals  and companies for services  rendered  under the
1996  non-qualified  stock  option  plan.  The excess of the fair value over the
option price has been charged to  operations  in the amounts of  $1,161,462  and
$6,374,468, for the years ended June 30, 1997 and 1996, respectively. No options
have been issued during the fiscal year ended June 30, 1998

             For the years  ended June 30, 1998 and June 30,  1997,  the Company
issued  60,999  shares of common  stock in the  amount  of  $449,376  in lieu of
interest payments due on convertible debentures and 7,061 shares of common stock
in the  amount of  $132,950  in lieu of  interest  payments  due on  convertible
debentures respectively.

            NON-CASH INVESTING AND FINANCING  ACTIVITIES 
            For the year ended June 30, 1996 the Company received a note 
receivable for $962,500 from the sale of marketable securities. No cash was 
received.

            On April 1, 1997,  the  Company  acquired a  subsidiary  through the
issuance  of 8,000  shares of common  stock at the then quoted  market  price of
$120,000 ($15 per share). This transaction was accounted for as a purchase.

            On May 15, 1997 and June 13, 1997,  the Company  issued  convertible
debentures  which were convertible into common shares at a price equal to eighty
(80%) of the average  closing bid price for the five (5) trading days  preceding
the date of the conversion.  A beneficial  conversion  feature of $1,000,000 was
charged to additional  paid-in  capital and is being  amortized  over the period
from  the  date  of  issuance  to the  first  available  conversion  date of the
respective debenture.

        During 1997, pursuant to agreements with an officer of the Comany, dated
December  1996 and June 1997 (as described in Note 16), the Company was required
to issue 48,259  shares of common stock with a fair value of  $1,122,973 in lieu
of cash compensation.

            On July 31,  1997,  the Company  issued  convertible  debentures  in
exchange for  $4,262,500  (including  interest of  $262,500)  of 6%  convertible
debentures dated May 15, 1997 and June 13, 1997. The Company did not receive any
cash proceeds from this  transaction.  The  debentures,  due July 31, 2000,  are
convertible into common shares at a price equal to eighty (80%) of the average
closing bid price for the five (5) trading days preceding the date of
conversion.

            On August 19, 1997, the Company issued  $5,000,000 of 6% convertible
Debentures  which were convertible into common shares at a price equal to eighty
(80%) of the average  closing bid price for the five (5) trading days  preceding
the date of  conversion.  A  beneficial  conversion  feature of  $1,250,000  was
charged to additional  paid-in  capital and is being  amortized  over the period
from  the  date  of  issuance  to the  first  available  conversion  date of the
respective debenture.

            On October 17, 1997, the Company acquired  substantially  all of the
assets of Service Support Group LLC ("SSG")  located in Gig Harbor,  Washington,
in exchange  for the payment of  approximately  $621,892 in cash and issuance of
33,333 shares of its Common.

                                       F 5
<PAGE>  

            Between  November 26, 1997 and December 11, 1997, the Company issued
$2,158,285  of  convertible  debentures  including  a 15%  premium  and  accrued
interest,  convertible into Common shares at a price equal to 75% of the average
closing  bid  price  for  the  five  (5)  trading  days  preceding  the  date of
conversion.  The  registrant did not receive any cash proceeds from the offering
of the Convertible Debentures.  An amount of $2,158,285 was paid by investors to
holders of the Company's Convertible Debentures issued on August 19,1997 holding
$1,850,000 of such Convertible  Debentures as repayment in full of the Company's
obligations  under  such  Convertible  Debentures.  During  the same  period the
Company issued $3,690,000 aggregate principal amount of convertible  debentures,
convertible  into Common  shares at a price equal to 75% of the average  closing
bid price for the five (5)  trading  days  preceding  the date of  conversion  A
beneficial  conversion  feature of $1,949,426 was charged to additional  paid-in
capital and is being  amortized over the period from the date of issuance to the
first available conversion date of the respective debenture.

            On  March  16,  1998,  the  Company  issued  $5,500,000  convertible
debentures convertible into Common shares at a price equal to 80% of the average
closing  bid  price  for  the  ten  (10)  trading  days  preceding  the  date of
conversion.   A  beneficial  conversion  feature  of  $875,500  was  charged  to
additional  paid-in capital and is being amortized over the period from the date
of issuance to the first available conversion date of the respective debenture.

            On  June  15,  1998,  the  Company  issued  $2,000,000   convertible
debentures convertible into Common shares at a price equal to 80% of the average
closing bid price for the ten (10) trading days preceding the date of
conversion.   A  beneficial  conversion  feature  of  $420,436  was  charged  to
additional  paid-in capital and is being amortized over the period from the date
of issuance to the first available conversion date of the respective debenture.

                                       F 6
<PAGE>   
SWISSRAY INTERNATIONAL, INC.
CONSOLITATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                                             Common
                                                                                        Additional            Stock
                                                                                          Paid-in             to be
                                                                  Common Stock            Capital             issued
                                                              Shares         Amount      (Restated)         (Restated) )
                                                             -----------------------------------------------------------
<S>             <C>                                          <C>          <C>            <C>                <C>
BALANCE - July, 1, 1995                                      1,203,506    $     12,035   $ 12,828,314       $     --

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

     TOTAL COMPREHENSIVE LOSS                                       --              --             --             --

Issuance of common stock for cash                              110,000           1,100      5,198,900             --
Stock options exercised for cash                               105,000           1,050      2,048,950             --
Stock options granted for services                                                          6,374,468             --
Public offering expenses                                                                     (680,098)            --
                                                             -----------------------------------------------------------

BALANCE - June 30, 1996                                      1,418,506          14,185     25,770,534             --

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

     TOTAL COMPREHENSIVE LOSS                                       --              --             --             --

Issuance of common stock for cash                              519,776           5,197      7,630,495             --
Stock options exercised for cash                                16,100             161        117,369             --
Issuance of common stock in lieu of interest payment             7,061              71        132,879             --
Beneficial conversion feature of convertible debentures             --              --      1,000,000             --
Stock options granted as compensation                               --              --         25,000             --
Stock options granted for services                                  --              --      1,161,462             --
Shares to be issued to officers for services                        --              --             --      1,122,973
Purchase of subsidiary for stock                                 8,000              80        119,920             --
Common stock subject to put                                         --              --             --             --
                                                             -----------------------------------------------------------

BALANCE - JUNE 30, 1997                                      1,969,443          19,694     35,957,659      1,122,973

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

     TOTAL COMPREHENSIVE LOSS                                       --              --             --             --

Issuance of common stock for cash                            2,013,688          20,137     13,581,739             --
Stock options exercised for cash                                16,900             169        123,201             --
Shares issued to officers for services                          48,259             483      1,122,490     (1,122,973)
Issuance of common stock in lieu of interest payment            60,999             610        448,766
    --
Beneficial conversion feature of convertible debentures             --              --      5,738,149             --
Early extinguishment of Debt                                        --              --       (396,875)            --
Issuance of common stock for asset purchase                     33,333             333      1,499,664             --
Common Stock subject to put                                         --              --             --             --
                                                             -----------------------------------------------------------
BALANCE - JUNE 30, 1998                                      4,142,622    $     41,426   $ 58,074,793   $         --

                                                             ===========================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                             Accumulated        Other
                                                               Deficit      Comprehensive  Common Stock      Total
                                                              (Restated)         Loss      Subject to Put  s (Restated)
                                                            -----------------------------------------------------------
<S>             <C>                                          <C>             <C>                           <C>
BALANCE - July, 1, 1995                                      $ (6,027,336)   $   (436,180)  $        --    $  6,376,833

COMPREHENSIVE LOSS:
     Net loss of the year                                      (8,266,080)             --            --      (8,266,080)
     Foreign currency transaction losses net of taxes        $        -0-        (399,867)           --        (399,867)
                                                                                                          --------------
     TOTAL COMPREHENSIVE LOSS                                          --              --            --      (8,665,947)
                                                                                                          --------------
Issuance of common stock for cash                                      --              --            --       5,200,000
Stock options exercised for cash                                       --              --            --       2,050,000
Stock options granted for services                                     --              --            --       6,374,468
Public offering expenses                                               --              --            --        (680,098)
                                                            ------------------------------------------------------------

BALANCE - June 30, 1996                                       (14,293,416)       (836,047)            0     10,655,256

COMPREHENSIVE LOSS:
     Net loss of the year                                     (13,685,188)             --            --     (13,685,188)
     Foreign currency transaction losses net of taxes $ -0-            --        (592,487)           --        (592,487)
                                                                                                          --------------
     TOTAL COMPREHENSIVE LOSS                                          --              --            --     (14,277,675)
                                                                                                          --------------
Issuance of common stock for cash                                      --              --            --       7,635,692
Stock options exercised for cash                                       --              --            --         117,530
Issuance of common stock in lieu of interest payment                   --              --            --         132,950
Beneficial conversion feature of convertible debentures                --              --            --       1,000,000
Stock options granted as compensation                                  --              --            --          25,000
Stock options granted for services                                     --              --            --       1,161,462
Shares to be issued to officers for services                           --              --            --       1,122,973
Purchase of subsidiary for stock                                       --              --            --         120,000
Common Stock subject to put                                            --              --      (320,000)       (320,000)
                                                            ------------------------------------------------------------

BALANCE - JUNE 30, 1997                                       (27,978,604)     (1,428,534)     (320,000)      7,373,188

COMPREHENSIVE LOSS:
     Net loss of the year                                     (22,503,109)             --            --     (22,503,109)
     Foreign currency transaction losses net of taxes $ -0-                       (47,245)           --         (47,245)
                                                                                                         --------------
     TOTAL COMPREHENSIVE LOSS                                          --              --            --     (22,550,354)
 
Issuance of common stock for cash                                      --              --            --      13,601,876
Stock options exercised for cash                                       --              --            --         123,370
Shares issued to officers for services                                 --              --            --              --
Issuance of common stock in lieu of interest payment                   --              --            --         449,376
Beneficial conversion feature of convertible debentures                --              --            --       5,738,149
Early extinguishment of Debt                                           --              --            --        (396,875)
Issuance of common stock for asset purchase                            --              --            --       1,499,997
Common Stock subject to put                                            --              --    (1,499,983)     (1,819,985)
                                                            ------------------------------------------------------------

BALANCE - JUNE 30, 1998                                      $(50,481,713)   $ (1,475,779)  $(1,819,985)   $  4,338,742

                                                            ============================================================
</TABLE>

                                       F 7
    The accompanying notes are an integral part of these financial statements
<PAGE>  
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  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  Company  changed  its name to  Swissray  International,  Inc.  The
Company's  operations are being conducted  principally  through its wholly owned
subsidiaries,  SR Medical  Holding  AG (known as SR Medical AG until  renamed in
February 1998), the latter's wholly owned subsidiaries,  SR Medical AG (known as
Teleray AG until  renamed  in  February  1998),  a Swiss  corporation,  Swissray
(Deutschland) Roentgentechnik GmbH (formerly known as SR Medical GmbH), a German
limited  liability  company and Teleray  Research  and  Development  AG (a Swiss
corporation),  as well as through the Company's other wholly owned subsidiaries,
SR Management AG (formerly SR Finance AG), a Swiss corporation, Swissray Medical
Systems, Inc. (formerly Swissray Corporation), a Delaware corporation,  Swissray
Healthcare,  Inc., a Delaware corporation,  and Swissray Information  Solutions,
Inc., a Delaware corporation and Empower,  Inc. (whose assets were substantially
sold in June 1998), a New York corporation.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated. Investments which are recorded on a equity
method and have operated at a Loss in excess of equity are carried at a zero
value. See Note 9 Investments

BUSINESS ACQUISITION

On April 1, 1997, Swissray International,  Inc. exchanged 8,000 shares of common
stock at the then quoted  market  price of $120,000  ($15 per share) for all the
outstanding  shares  of  Empower,   Inc.The  consolidated  financial  statements
presented include the accounts of Empower,  Inc.(whose assets were substantially
sold in June 1998),  from April 1, 1997 (date of  acquisition) to June 30, 1998.
The  acquisition has been accounted under the purchase  accounting  method.  The
contract  requires the Company to repurchase the 8,000 shares of common stock at
$40 per share for a period of one year commencing two years from the date of the
contract at the option of the former owner of Empower, Inc. On October 17, 1997,
the  Company  acquired  substantially  all of the  assets  and  assumed  certain
liabilities  of  Service  Support  Group,  LLC  (SSG)  located  in  Gig  Harbor,
Washington  pursuant to an asset purchase  agreement.  The  acquisition has been
accounted  under the  purchase  accounting  method.  SSG is in the  business  of
selling diagnostic imaging equipment and related services in markets on the West
Coast of the United  States.  The  purchase  price  consisted of (1) cash in the
amount of $621,892,  (2) 33,333  shares of the Company's  common  stock,  (3) an
amount  equal to fifty  percent of certain  accounts  receivable  net of certain
accounts  payable and (4) the  assumptions  of certain other  liabilities.  As a
result of these transactions,  the Company recorded goodwill of $1,933,275.  The
contract  requires the Company to repurchase the 33,333 common shares at $45 per
share  during the period  June 30,  1998 to April 17,  1999 at the option of the
former owners of SSG.

REVENUE AND INCOME RECOGNITION POLICIES

The Company maintains its records on the accrual basis of accounting.

Revenues  from the sale of products is recorded  when the  products are shipped,
collection of the purchase  price is probable and the Company has no significant
further  obligations to the customer.  Cost of remaining  insignificant  company
obligations,  if any,  are  accrued  as costs of  revenue at the time of revenue
recognition.

USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS

The preparation of financial  statements in conformity  with generally  accepted
accounting  principles require management to make estimates and assumptions that
effect the  reported  amounts  of assets  and  liabilities  and  disclosures  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenue and expenses during this period.  Actual results
could differ from those estimates
                                      F 8

<PAGE>   
WARRANTY

The  company  accrues a warranty  allowance  at the time of sale.  The  warranty
allowance is based upon the companies  experience  and varies between 0.5 and 2%
of the net sales amount.
                                     
FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standard No. 107 "Disclosures about Fair Value
of  Financial  Instruments"  (SFAS 107)  requires the  disclosure  of fair value
information about financial instruments whether or not recognized on the balance
sheet,  for which it is practicable  to estimate the value.  Where quoted market
prices are not readily available,  fair values are based on quoted market prices
of comparable instruments. The carrying amount of cash and equivalents, accounts
receivable  and accounts  payable  approximates  fair value because of the short
maturity of those instruments.

CASH EQUIVALENTS

The Company considers all highly liquid  investments  purchased with an original
maturity of three months or less to be cash equivalents.

INVENTORIES

Inventories  are  stated  at the  lower  of  cost or  market,  with  cost  being
determined on the first-in,  first-out  (FIFO) method.  Inventory  costs include
material, labor, and overhead.

PROPERTY AND EQUIPMENT

Property  and  equipment  are  stated  at cost  and are  depreciated  using  the
straight-line  method over the estimated useful lives of the respective  assets,
which are three years for Computers and Telecommunication Equipment, five to ten
years for  Equipment,  Office  furniture  and Equipment and Office and leasehold
improvements  and  thirty  years  for  Buildings.   Leasehold  improvements  are
amortized over the shorter of the estimated useful lives of the improvements, or

the term of the facility lease.

Expenditures for repairs and maintenance are charged to expense as incurred. The
cost of major renewals and  betterment's  are capitalized  and depreciated  over
their  useful  lives.  Upon  disposition,   the  cost  and  related  accumulated
depreciation  of property  and  equipment  are removed from the accounts and any
resulting gain or loss is reflected in operations.

The Company is  required to review  long-lived  assets for  impairment  whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be  recoverable,  in  accordance  with the  provisions  of  Statement of
Financial Accounting Standards No.121,  "Accounting for Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of" ("SFAS 121"). Accordingly,  when
indicators of impairment are present,  the Company  evaluates the carrying value
of property,  plant, and equipment and intangibles using projected  undiscounted
future cash flows and operating income for each subsidiary to determined whether
material impairment of these assets exists.

INTANGIBLE ASSETS

Excess of cost over fair value of net assets acquired ("goodwill") resulted from
the  acquisition  of Empower and SSG and is being  amortized over ten years from
the date of acquisition using the straight-line  method.  Patents and Trademarks
are  capitalized  and are amortized  using the  straight-line  method over their
estimated  useful lives (10 year).Debt  issuance  costs are amortized  using the
straight-line method over the term of the related debts, which range from two to
six months.  Periods of  amortization  are evaluated  periodically  to determine
whether  later  events and  circumstances  warrant  revised  estimates of useful
lives. At each balance sheet date, the Company  evaluates the  recoverability of
unamortized  goodwill based upon  expectations of  nondiscounted  cash flows and
operating income.  Impairments, if any, would be recognized in operating results
if a permanent diminution in value were to occur.
<PAGE>

Capitalization  of software  development  costs begins upon the establishment of
technological  feasibility of new or enhanced software  products.  Technological
feasibility of a computer  software  product is established when the Company has
completed  all  planning,  designing,  coding and testing  that is  necessary to
establish   that  the   software   product   can  be  produced  to  meet  design
specifications   including   functions,   features  and  technical   performance
requirements. All costs incurred prior to establishing technological feasibility
of a software  product are charged to research and development as incurred.  The
Company amortizes  capitalized software development costs over the related sales
on a  product-by-product  basis at the greater of the amount  computed using (a)
the ratio of current  gross  revenues  for a product to the total of current and
anticipated future gross revenues or (b) the straight-line method over the
estimated  remaining economic life of the software  products,  generally five to
eight years.

All  cost  incurred  by  the  Company  in  connection  with   incorporation   of
subsidiaries  have been  capitalized and are being amortized over a period up to
60 months.

ADVERTISING AND PROMOTION

Advertising and promotion cost are expensed as incurred and included in "Selling
Expenses".  Advertising and promotion expense for the years ended June 30, 1998,
1997 and 1996 were $ 1,737,935, $ 781,189 and $ 740,044, respectively

RESEARCH AND DEVELOPMENT

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

CONVERTIBLE DEBT

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

INCOME TAXES

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

EXPENSES RELATED TO SALES AND ISSUANCE OF SECURITIES

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

NET LOSS PER COMMON SHARE

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share",
which established new standards for computation of earnings per share. SFAS No.
128 requires the presentation on the face of the income statement of "basic"
earnings per share and "diluted" earnings per share.

Basic earnings per share is computed by dividing the net income (loss) available
to common  shareholders  by the weighted  average number of  outstanding  common
shares.  The  calculation  of  diluted  earnings  per share is  similar to basic
earnings  per share  except  the  denominator  includes  dilutive  common  stock
equivalents  such as stock  options and  convertible  debentures.  Common  stock
options and the common shares  underlying  the  convertible  debentures  are not
included  for the years  ended June 30,  1998  ("Fiscal  1998"),  June 30,  1997
("Fiscal  1997") and June 30,  1996  (`Fiscal  1996') as their  effect  would be
anti-dilutive.
<PAGE>

ACCOUNTING FOR STOCK OPTIONS

As permitted by Statement of Financial  Accounting  Standards No. 123 ("SFAS No.
123"), "Accounting for Stock Based Compensation", the Company applies Accounting
Principles Board Opinion No. 25,  "Accounting for Stock Issued to Employees" and
related interpretations in accounting for the Swissray International,  Inc. 1996
Non-Statutory  Stock  Option  Plan and the 1997 Stock  Option  Plan (the  "Stock
Option  Plans").  Accordingly,  no  compensation  cost has been  recognized  for
options  granted under the Stock Option Plans except for  $1,186,462  for Fiscal
1997,  and  $6,374,468  for Fiscal  1996  related to the fair value of  services
rendered in exchange for options  granted to consultants.  However,  the Company
has  disclosed  in Note 16,  Shareholders'  Equity  the pro  forma  effects  had
compensation  cost been determined  based on the fair value of the options,  not
including the options for which expense has been previously  recognized,  at the
grant date.

RECLASSIFICATIONS

Certain reclassifications have been made to prior year's financial statements to
conform to the June 30, 1998 presentation.

FOREIGN CURRENCY TRANSLATION

Assets and  liabilities  of  subsidiaries  operating  in foreign  countries  are
translated  into U.S.  dollars  using  both the  exchange  rate in effect at the
balance sheet date or historical rate, as applicable.  Results of operations are
translated using the average exchange rates prevailing  throughout the year. The
effects of exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are included in stockholders  equity  (Accumulated
other  comprehensive  loss),  while  gains and  losses  resulting  from  foreign
currency transactions are included in operations.

NEW ACCOUNTING PRONOUNCMENTS

The Company  will adopt  Statement  of Financial  Accounting  Standards  No. 131
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") for the year ended June 30,  1999.  SFAS No. 131  requires  the Company to
report  selected   information   about  operating   segments  in  its  financial
statements. It also establishes standards for related disclosures about products
and services,  geographic areas, and major customers. The application of the new
pronouncement  is not  expected  to  have a  material  impact  on the  Company's
disclosures.

The Company will adopt Statement of Financial Accounting Standards No. 132
("SFAS No. 132"), "Employers' Disclosures about Pensions and Other
Postretirement Benefits" for the year ended June 30, 1999. SFAS No. 132 revises
employers' disclosures about pension and other postretirement benefit plans. The
application of the new pronouncement is not expected to have a material impact
on the Company's financial statements.

The Company will adopt Statement of Financial Accounting Standard No. 133 ("SFAS
No. 133"), "Accounting for Derivative Instruments and Hedging Activities" for
the year ended June 30, 2000. SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing standards. The application of the new pronouncement is not
expected to have a material impact on the Company's financial statements.
<PAGE>

STOCK SPLIT

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

NOTE 2 - NOTE RECEIVABLE

On June 20, 1996 the Company sold marketable securities for a 5% promissory note
in the amount of $962,500  originally  due on October 20, 1996 of which $100,000
was paid on December 10, 1996. On January 15, 1997, the Company renegotiated the
terms  of  the  unpaid  balance.  A new  note  in the  amount  of  $862,500  was
renegotiated,  with interest at 6% cumulative  and payable when the note matures
on January 1, 2000.  At June 30,  1997,  principal  payments  of  $348,857  were
received leaving a balance due of $513,643.  Interest payments were also paid to
June 30, 1997. At June 30, 1998 no payments were received.

NOTE 3 - INVENTORIES

Inventories are summarized by major classification as follows:
<TABLE>
<CAPTION>
                                            June 30,
                                    -----------------------
                                       1998         1997
                                    ----------   ----------
<S>                                 <C>          <C>
Raw materials, parts and supplies   $7,047,001   $2,632,256
Work in process                        160,064      468,204
Finished goods                         494,080      810,647
                                    -----------------------
                                    $7,701,145   $3,911,107
                                    ==========   ==========
</TABLE>

 
NOTE 4  - PREPAID EXPENSES AND SUNDRY RECEIVABLES

Prepaid expenses and sundry receivables consist of the following:

<TABLE>
<CAPTION>
                                    June 30,
                                                  -----------------------
                                                     1998         1997
                                                  -----------------------
<S>                                               <C>          <C>
Prepaid expenses, deposits and advance payments   $  616,183   $  681,742
Insurance claim for fire damage                      165,655      352,996
Prepaid and refundable taxes                         708,246      888,169
Employee loans                                        11,825       13,231
                                                  -----------------------
                                                  $1,501,909   $1,936,138
                                                  ==========   ==========
</TABLE>
<PAGE>

NOTE 5  - PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                            June 30,
                                                   -----------------------
                                                      1998         1997
                                                   -----------------------
<S>                                                <C>          <C>
Land and building                                  $4,956,328   $3,022,772
Equipment                                           1,305,092    1,223,572
Office furniture and equipment                        328,258      161,223
Office and leasehold improvements                       1,777      249,160
                                                   -----------------------
                                                    6,591,455    4,656,727
Less:  Accumulated depreciation and amortization      581,077      320,110
                                                   -----------------------
                                                   $6,010,378   $4,336,617
                                                   =======================
</TABLE>

Depreciation and amortization expense, for property and equipment, for the years
ended June 30,  1998,  1997 and 1996 were  $1,077,074,  $233,040  and $ 103,176,
respectively.

NOTE 6   INTANGIBLE ASSETS

Intangible Assets at June 30, 1998 and 1997 consisted of the following

<TABLE>
<CAPTION>
                                                       June 30,
                                               -----------------------
                                                  1998         1997
                                               -----------------------
<S>                                            <C>          <C>
Excess of cost over fair value of net assets
 acquired                                      $1,933,275   $  419,837
Licensing                                       4,966,575    4,966.575
Software development cost                         577,210      352,036
Patents and Trademarks                            313,330      260,944
Other                                               8,385        8,385
                                               -----------------------
                                                7,798,775    6,007,777
Less:  Accumulated amortization                 1,715,741      970,091
                                               -----------------------
                                               $6,083,034   $5,037,686
                                               =======================
</TABLE>

Amortization  expense, for Intangible Assets, for the years ended June 30, 1998,
1997 and 1996 were $1,227,719, $ 537,254, and $ 401,472, respectively.


NOTE 7 - ACCOUNTS RECEIVABLE - LONG-TERM

The Company sold  merchandise  to a customer in 1995. In June  1996,the  Company
renegotiated  payment terms with the customer and agreed that the customer would
pay the Company  approximately $5,000 to $30,000 per month based on usage of the
merchandise for a period of 5 years. The amount due the Company at June 30, 1997
was $240,912  after a provision  for doubtful  collection in the total amount of
$814,178. The balance of the account receivable,  totaling $ 124,697 was written
during Fiscal 1998.

 NOTE 8 - LICENSING AGREEMENT

The  Company  entered  into a  licensing  agreement  in  June  of  1995  with an
unaffiliated individual.  The agreement is for an exclusive field-of-use license
within  the  United  States  and  Canada  to use  the  proprietary  information,
including the patent rights, for certain technology regarding the integration of
computer  technology  with  diagnostic  x-ray and  radiology  medical  equipment
through  digital  imaging  systems.  The agreement  required a fee of $5,000,000
consisting  of  $1,200,000  in cash and 66,000  shares of the  Company's  common
stock.  The cash payment  requirement  consisted of $900,000 upon the signing of
the  agreement  and the $300,000  balance due on December 31, 1996.  The fee has
been  discounted  at 7.5% for  imputed  interest of $33,425  resulting  in a net
capitalized  cost of  $4,966,575.
<PAGE>
  This  agreement is for an indefinite  term or until all of the proprietary 
information becomes public knowledge and the patent
rights expire.

The   Licensing   Agreement   is   amortized   over  the  related   sales  on  a
product-by-product  basis at the  greater of the amount  computed  using (a) the
ratio of  current  gross  revenues  for a product  to the total of  current  and
anticipated  future  gross  revenues  or (b) the  straight-line  method over the
estimated  remaining  economic life,  generally ten years. At each balance sheet
date, the Company evaluates the  recoverability  of the unamortized  License Fee
based upon expectations of nondiscounted  cash flows and operating income of its
US-Operation. Impairments, if any, would be recognized in operating results if a
permanent diminution in value were to occur.


NOTE 9 - INVESTMENTS

The  Company  has made  various  investments  which are  recorded  on the equity
method.  These  entities  have  operated  at a loss in  excess  of  equity,  and
therefore, the Company is carrying these investments as follows:

<TABLE>
<CAPTION>
                                                        June 30, 1998          June 30, 1997
                                                        -------------          -------------
                                         Ownership               Carrying                Carrying
                                             %          Cost       Value       Cost        Value
                                         ---------    --------   ---------  ---------  --------
<S>                                      <C>          <C>        <C>        <C>        <C>

Swissray SR Medical GmbH, Willich            34%      $ 16,892   $     --   $ 16,892   $    --
Swissray Medical, s.r.o., Bratislava         34%         6,757         --      6,757        --
Swissray Medical, s.r.o., Brno               34%         6,757         --      6,757        --
Teleray s.r.o., Willich                      49%        38,403         --     38,403        --
Teleray s.r.o., Brno                         34%         6,757         --      6,757        --
Digitec GmbH, Neuss                          20%        59,641         --     59,641        --
Total                                                 $135,207    $    --   $135,207   $     --
                                                      ========    ========   ========   =======
</TABLE>

NOTE 10 - NOTES PAYABLE - BANKS

The Company has negotiated a revolving line-of-credit agreement with Migros Bank
of Switzerland, dated March 23, 1998, for up to $1,314,924. The company has also
negotiated an agreement for up to $1,314,924  for the issuance of guarantees and
letter of credit,  both with a  commission  of 15 % per $  1,000,000,  quarterly
while  outstanding.  There were $ 971,644  outstanding  guarantees  and $ -0- of
letter of credits as of June 30, 1998 The Company  also  negotiated a fixed line
of credit for up to  $2,630,000.  All lines of credit are based on the  Exchange
rate in effect on June 30, 1998

The Company had  negotiated a  line-of-credit  agreement  with the Union Bank of
Switzerland  dated July 16, 1996 for borrowing  availability  up to $ 376,310 in
excess of cash balances on deposit with the bank, based on the

exchange  rate in effect on June 30,  1997.  As of October  31,  1997,  the bank
reduced the line of credit to the cash balances on deposit with the bank.

The  Company  had  negotiated  a  line-of-credit  agreement  with the Swiss Bank
Corporation  for up to $1,505,240,  based on the exchange rate in effect on June
30, 1997. This line of credit was terminated during Fiscal 1998.

The Company had  negotiated a  line-of-credit  agreement  with  Cantonal Bank of
Lucerne for up to $ 1,368,400,  based on the exchange rate in effect on June 30,
1997. The line of credit was terminated during Fiscal 1998.
<PAGE>



Empower, Inc., a subsidiary,  had negotiated a line-of-credit agreement with the
State Bank of Long Island dated October 21, 1996 with a maximum  borrowing  base
of  $450,000 as of June 30,  1997.  The  maximum  borrowing  base was reduced by
$25,000  per  quarter  beginning  January 1,  1997.  The full line of credit was
terminated during Fiscal 1998. .

Notes payable are summarized as follows:

<TABLE>
<CAPTION>
                                                                      June 30,
                                                               -----------------------
                                                                  1998         1997
                                                               ----------   ----------
<S>                                                            <C>          <C>
Migros Bank revolving line of credit, due on
demand,with interest at 4.75% per
annum, collateralized by certain accounts
receivable                                                     $  408,786   $       --

Migros  Bank,  on demand with six week notice,
with  interest at 4 % per annum, collateralized 
by land and building                                            2,630,000           --

Union  Bank of  Switzerland,  due on  demand,  
with  interest  at 8% per  annum, collateralized  
by the cash on deposit at Union Bank of Switzerland  
and certain accounts  receivable.  Cash balances on
deposit at Union Bank of  Switzerland at June 30, 
1998 and 1997 were $627,625 and $2,805,747, respectively          512,305    1,421,075


Swiss Bank Corporation, due on demand, with interest
 at 5.25% per annum, collaterized by the cash on
deposit at Swiss Bank Corporation and accounts
receivable of $ -0- and $ 853,065 as of June 30,
1998 and 1997, respectively. . Cash balances on deposit at
Swiss Bank Corporation at June 30, 1997 were $106,007                  --      695,231

State Bank of Long  Island,  due on demand,  with  
interest at prime plus 2.25%, (prime rate as June 30, 
1997 was 8.5.%) collateralized by the assets of Empower,
Inc. and guaranteed by the Company Total assets of
Empower, Inc. were $1,983,502 at June 30, 1997                         --      350,000

Cantonal Bank of Lucerne,  on demand with three months 
notice,  with interest at 5.25% payable quarterly, 
collateralized by land and building                                    --    1,368,400
                                                               ----------   ----------
                                                               $3,551,091   $3,834,706
                                                               ==========   ==========
</TABLE>

                                     F 14
<PAGE>  
NOTE 11 - LOAN PAYABLE

The Company has negotiated a 5% demand loan from a private  foundation fund. The
loan  balance  payable  at June 30,  1998 and 1997  was  $125,029  and  $133,008
respectively. Interest expenses for the years ended June 30, 1998, 1997 and 1996
were $3,223, $16,258 and $ -0-, respectively.

NOTE 12 - DUE FROM STOCKHOLDERS

The  Company  made  unsecured  advances  to its former  Chairman of the Board of
Directors  (a  principal  stockholder)  during  the year  ended  June  30,  1997
requiring interest at 6% per annum. The balance at June 30, 1997 was $69,587 and
by June 30, 1998 had been repaid.  Interest  charged to the  stockholder for the
year  ended  June 30,  1997 was  $3,460.  No  interest  had been  charged to the
stockholder  for the year ended June 30, 1998  because  repayment  took place on
July 1, 1997.

NOTE 13 - DUE TO STOCKHOLDERS AND OFFICERS

In June 1997,  the  President  of the  Company (a  principal  stockholder)  made
non-interest bearing advances to the Company in the amount of $5,862. The amount
of the non-interest-bearing advance for June 30, 1998 was $2,207

Prior to the  acquisition  of Empower,  Inc.,  the  president  of Empower,  Inc.
advanced that company funds for operating expenses at 8.25% interest. As part of
the  acquisition,  the Company  agreed to continue to pay this  obligation.  The
balance  due the  stockholder  of the  Company  at June 30,  1997  was  $112,013
including  unpaid interest of $25,695.  Interest  payable to the stockholder for
the period from April 1, 1997 (date of acquisition) to June 30, 1997 was $2,315.
The whole amount was repaid during Fiscal 1998. The balance at June 30, 1998 was
$0

An officer of Swissray  Corporation  made  non-interest  bearing advances to the
subsidiary for operating  expenses during 1997. The balance due at June 30, 1997
was $21,951. The amount was repaid and the balance was $0 at June 30, 1998.

Pursuant to  agreements  between the  President  of the Company and the Company,
dated as of  December  1996 and  June  1997,  the  Company  incurred  additional
compensation  to the  officer  payable  as 48,259  shares  with a fair  value of
$1,122,973. The compensation was in consideration of the officer's agreement for
the  cancellation  of  1,608,633  shares of common  stock held by the officer or
companies  controlled  by him which allowed the Company to maintain a sufficient
number of shares of common stock to meet certain  obligations  of the Company to
issue common stock and to permit certain financings prior to the increase in the
number of  authorized  shares of common  stock  from  15,000,000  to  30,000,000
shares.  The shares  were  issued by the Compny on July 22, 1997 and at June 30.
1997 are  recorded  as  "Common  Stock to be Issued to  Officer"  in the  equity
section of the balance sheet.
<PAGE>

NOTE 14 - CONVERTIBLE DEBENTURES

Convertible debentures consist of the following:

<TABLE>
<CAPTION>
                                                                                            June 30,
                                                                                       1998           1997
                                                                                   -----------    -----------
<S>                                                                                <C>            <C>
Convertible debenture dated April 28, 1997 and due April 28, 1998 with
interest at 6% per annum. The principle shall be convertible into common shares
one year from the issue date of the note at the greater of eighty (80%) percent
of bid price or $2.50 per share on the date of conversion. Interest due on the
note shall similarly be paid in common stock at the time of conversion             $         0    $  2,000,000
2,000,000


Convertible  debenture  dated May 15, 1997 and due May 15, 2000 with interest at
6% per annum. The debentures are convertible into common shares at a price equal
to eighty  (80%) of the average  closing bid price for the five (5) trading days
preceding the date of conversion.  One-half of the debentures are convertible at
the earlier of a registration effective date or August 7, 1997.
</TABLE>

<TABLE>
<S>                                                                                <C>            <C>
The remainder are convertible 30 days thereafter. Any debenture not so converted
is subject to mandatory conversion on May 15, 2000 Debt issuance cost was
$327,310, beneficial conversion feature was $500,000                                         0      2,000,000

Convertible debenture dated June 13, 1997 and due June 13, 2000 with interest
at 6% per annum. The debentures are convertible into common shares at a price
equal to eighty (80%) of the average closing bid price for the five (5) trading
days preceding the date of conversion. One-half of the debentures are
convertible at the earlier of a registration effective date or September 13,
1997. The remainder are convertible 30 days thereafter. Any debenture not so
converted is subject to mandatory conversion on June 13, 2000. Debt
issuance cost was $308,575, beneficial conversion feature was $500,000                       0       2,000,000
2,000,000
<PAGE>

Convertible debenture dated December 11, 1997 and due December 11,
1999 with interest at 8% per annum. The debentures are convertible into common
shares at a price equal to seventy five (75%) of the average closing bid price
for the five (5) trading days preceding the date of conversion. Twenty five
percent (25%) of the debentures are convertible at the earlier of a registration
effective date or March 21, 1998. Additionally twenty five percent (25%) of the
debentures are convertible at the earlier of 30 days after the effective date of
the Registration Statement or April 20, 1998. Additionally twenty five percent
(25%) of the debentures are convertible at the earlier of 60 days after the
effective date of the Registration Statement or May 20, 1998. The remaining
twenty five percent (25%) are convertible at the earlier of 90 days after the
effective date of the Registration Statement or June 20, 1998. Any debenture not
so converted is subject to mandatory conversion on December 11, 1999. Debt
issuance cost was $690,000, beneficial conversion feature was $1,949,428               145,969     0


Convertible  debenture dated March 14, 1998 and due March 14, 2000 with interest
at 6% per annum.  The debentures are  convertible  into common shares at a price
equal to eighty (80%) of the average  closing bid price for the ten (10) trading
days preceding the date of conversion.  All of the debentures are convertible at
the earlier of a registration  effective date or May 14, 1998. Any debenture not
so converted is subject to  mandatory  conversion  on March 14, 2000 On July 21,
1998 and  August 13,  1998 a total of  $1,500,000  was  converted  into  484,254
shares.  On August 31, 1998 the amount of $3,000,000 was refinanced (See Note 25
- Subsequent Events) Debt issuance cost was $615,000, beneficial conversion
feature was $857,500                                                                 5,500,000              0


Convertible debenture dated June 15, 1998 and due June 15, 2000 with interest at
6% per annum. The debentures are convertible into common shares at a price equal
to eighty  (80%) of the average  closing bid price for the ten (10) trading days
preceding the date of conversion.  All of the debentures are  convertible at the
earlier of a registration effective date or August 15, 1998

Any debenture not so converted is subject to mandatory conversion on June 15,
2000. Debt issuance cost was $240,000, beneficial conversion feature was $420,436    2,000,000           0
                                                                                   -----------    -----------
                                                                                     7,645,969      6,000,000
Less discount due to beneficial conversion features,  net of accumulated
amortization of $105,109 and $310,559 respectively                                    (315,327)      (689,441)
(689,441)
                                                                                   -----------    -----------
                                                                                   $ 7,330,642    $ 5,310,559
                                                                                   ===========    ===========
</TABLE>
The Company is currently in  violation of certain  covenants in their  debenture
agreements. Such covenants have been waived by the holders.
<PAGE>

NOTE 15 - LONG-TERM DEBT

Long-term debt consists of the following:
<TABLE>
<CAPTION>
                                                                                        June 30,
                                                                                  --------------------
                                                                                     1998       1997
                                                                                   --------   --------
<S>                                                                                <C>        <C>
Note payable - Edward Coyne, in weekly installments of $817, including principal
and interest at 8% per annum, maturing on October 9, 2002                          $153,603   $182,617


Note payable - Thatcher  Company of New York, in monthly  installments  of $855,
including   interest  at  10.25%  per  annum,   maturing  on  October  3,  2001,
collateralized by various x-ray chemical mixing machines. The full note was
assumed by the purchaser of Empower during Fiscal 1998                                   --     35,623


Note  payable  - Union  Bank  of  Switzerland,  related  to the  acquisition  of
equipment sold to a customer (see Accounts  Receivable  -Long-Term),  in monthly
installments of $12,589 With imputed interest at 6.0% per annum, maturing on
September 30, 2000                                                                  335,062    450,417

Capitalized  leases related to the  acquisition  of various  computer and office
equipment in payable  monthly  installments  over periods  ranging up to June 4,
2001 with interest imputed at rates ranging from 9.1% to 28.3%. These leases are
collaterlized by the specific equipment                                              13,377     30,747

Note payable - Dr. Zeman-Wiegand Helga,
due on demand, requires interest only
payments at 7% per annum with no current
amortization required. The note was repaid during Fiscal 1998                            --     68,420

Capitalized  leases related to the  acquisition  of various  computer and office
equipment in monthly  installments  over  periods  ranging up to April 2001 with
interest imputed at rates ranging from 18% - 21%. These leases are collaterlized
by the specific equipment                                                           172,378         --
                                                                                   --------   --------
                                                                                    674,420    767,824
Less:  Current portion                                                             (233,746)  (243,135)
                                                                                   --------   --------
                                                                                   $440,674   $524,689
                                                                                   ========   ========
</TABLE>

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

<TABLE>
<CAPTION>
Years Ending
 June 30,
-----------
<S>               <C>
1999              $233,746
2000               247,275
2001               142,154
2002                40,006
2003                11,239
                  --------
                  $674,420
                  ========
</TABLE>

                                     F 17
<PAGE> 
NOTE 16 - 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.

The Company's  outstanding  shares of common stock of $.01 par value at June 30,
1998 and 1997 were 4,142,622 and 1,969,443, respectively.

Common Stock

The Company issued  2,030,588 shares for $13,725,246 for the year ended June 30,
1998  (including  16,900 shares for $123,370 issued under stock option plan) and
535,876 shares for $7,753,222 (including 16,100 shares for $117,530 issued under
stock  option  plan) for the year ended  June 30,  1997 and  215,000  shares for
$7,250,000  (includes  105,000 shares for  $2,050,000  issued under stock option
plan) for the year ended June 30, 1996.

Stock Option

The Stock Option Plans provide for the grant of options to officers,  directors,
employees  and  consultants.  Options may be either  incentive  stock options or
non-qualified stock options, except that only employees may be granted incentive
stock  options.  The maximum  number of shares of Common  Stock with  respect to
which  options may be granted  under the Stock Option  Plans is 500,000  shares.
Options vest at the discretion of the Board of Directors. All options granted in
1997 and 1996 vested  immediately.  The maximum  term of an option is ten years.
The 1996 Stock  Option Plan will  terminate  in January,  2006,  though  options
granted prior to  termination  may expire after that date. The 1997 Stock Option
Plan will terminate at the discretion of the Board of Directors. In Fiscal 1998.
there were no grants or vesting of stock  options.  In Fiscal 1997 and 1996, had
compensation  cost for the Stock Option Plans been determined  based on the fair
value at the grant dates for awards  under the Stock  Option  Plans,  except for
grants  to  consultants  for  which  compensation  expense  has been  recognized
consistent  with  the  method  of SFAS  No.  123,  as  discussed  in Note 1, the
Company's net loss and net loss per share would have  increased to the pro forma
amounts indicated below:


<TABLE>
<CAPTION>
                          Fiscal 1997                Fiscal 1996
                          ------------------------   ------------------------
                                As         Pro            As           Pro
                            Reported      Forma        Reported       Forma
                          ----------    ----------    ----------   ----------
<S>                       <C>           <C>           <C>          <C>
Net loss (in thousands)   $  (13,685)   $  (13,959)   $   (8,266)  $   (8,365)
Basic and diluted
 net loss per share       $    (8.65)   $    (8.82)   $    (6.37)  $    (6.45)
</TABLE>

The fair value of each option  grant is estimated on the date of grant using the
Black  Scholes   option-pricing  method  with  the  following  weighted  average
assumptions used for grants.

<TABLE>
<CAPTION>
                             1997       1996
                           -------    -------
<S>                        <C>        <C>
Dividend yield                   0%         0%
Expected volatility           61.6%      23.1%
Risk-free interest rate       6.25%      6.25%
Expected lives, in years         1          1
</TABLE>

A summary  of the  weighted-average  fair  market  values  and  weighted-average
exercise  prices,  both as of the date of grant, is presented  below. No options
were granted in Fiscal year 1998.

                                     F 18
<PAGE> 
<TABLE>
<CAPTION>
                                    1997                       1996
                                    --------     --------      --------    -------
                                    Weighted     Weighted      Weighted    Weighted
                                    Average      Average       Average     Average
                                    Fair         Exercise      Fair        Exercise
                                    Value        Price         Value       Price
                                    --------     -------       ------      ------
<S>                                 <C>          <C>           <C>         <C>
Options granted above fair value    $  -         $   -         $ 7.20      $48.90
Options granted below fair value    $22.80       $ 7.60        $29.20      $21.60
</TABLE>

A summary of the status of the Stock  Option  Plans at June 30,  1998,  1997 and
1996 and the changes during the years then ended is presented below:
<TABLE>
<CAPTION>
                                       1998                          1997                       1996
                                       ------------------------      ----------------------     -----------------------
                                       Weighted                      Weighted                   Weighted
                                       Shares          Average       Shares        Average      Shares        Average
                                       Underlying      Exercise      Underlying    Exercise     Underlying
Exercise
                                       Options         Price         Options       Price        Options        Price
                                       --------        --------      ---------     --------     --------       --------
<S>                                     <C>            <C>           <C>           <C>                 <C>     <C>
Outstanding at beginning of year        318,000        $  23.40      238,500       $  25.20            0
$     --
Granted                                      --        $     --       79,500       $  17.80      238,500       $  25.20
Exercised                               (16,900)       $   7.30
Outstanding at end of year              301,100        $  24.30      318,000       $  23.40      238,500       $  25.20
                                        ========       ========      =========     ========     ========       ========
 Exercisable at end of year             301,100        $  24.30      318,000       $  23.40      238,500       $  25.20
                                        ========       ========      =========     ========     ========       ========
</TABLE>

The following table summarizes  information  about stock options under the Stock
Option Plans at June 30, 1998:

<TABLE>
<CAPTION>
                         Options Outstanding                            Options Exercisable
                         -------------------                            -------------------
                                        Weighted
                                        Average      Weighted                       Weighted
                                        Remaining    Average                        Average
    Range of          Number            Contractual  Exercise       Number          Exercisable
 Exercise Price       Outstanding       Life         Price          Exercisable     Price
 --------------       -----------       -----------  ---------      ------------    -----------
<S>                   <C>               <C>          <C>            <C>             <C>
$ 7.30 - $ 10.00        40,100           8.4         $   8.00        40,100         $   8.00
$20.00 - $ 40.00       227,500           7.8         $  22.10       227,500         $  22.10
$47.50 - $ 65.00        33,500           7.5         $  58.70        33,500         $  58.70
                       -------                                      -------
                       301,100                                      301,100
                       =======                                      ========

</TABLE>
<PAGE>
NOTE 17 - 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, 1998, 1997 and 1996, were $ 347,854, $274,009 and $198,722,
respectively.

Effective March 1, 1992, Empower,  Inc., a U.S. subsidiary,  adopted a qualified
401(k)  retirement  plan for the benefit of all its  employees.  Under the plan,
employees  can  contribute  and defer  taxes on  compensation  contributed.  The
subsidiary   matches,   within  prescribed  limits,  the  contributions  of  the
employees. The subsidiary also has the option to make an additional contribution
to the plan. The  subsidiary's  contribution to the plan for the period April 1,
1997 (date of  acquisition)  to June 30,  1998 and 1997 was $ 10,260 and $4,185,
respectivly.

Effective April 3, 1992, Empower,  Inc., a U.S.  subsidiary,  adopted a "Section
125" employee  benefits plan,  which is also referred to as a "Cafeteria"  plan.
The subsidiary pays for  approximately 85% of the employees' health coverage and
the  employee  pays  approximately  15%  of  the  cost  of  coverage.  With  the
implementation  of the Cafeteria plan, the employees'  payments for coverage are
on a pre-tax  basis.  A new employee  has only a ninety (90) day waiting  period
before he or she becomes eligible to participate in the group insurance plan and
the Cafeteria plan.

NOTE 18 - OTHER INCOME (EXPENSES)
<TABLE>
<CAPTION>
                                                                      Year Ended June 30,
                                                        1998              1997              1996
                                                    ----------        ----------        ----------
<S>                                                 <C>               <C>               <C>
Interest income                                     $   58,902        $   68,950        $  131,166
Interest income - stockholder and officer                   --             4,351            12,530
Foreign currency income                                (87,148)          484,846           377,587
Miscellaneous income                                    60,648             6,833               512
Loss from investments                                       --          (246,217)               --
Loss on sale of certain asset and Liabilities          313,629                --                --
Licensing income                                            --                --           482,138
                                                    ----------        ----------        ----------
TOTAL OTHER INCOME (EXPENSES)                       $ (281,227)       $  318,763        $1,003,933
                                                    ==========        ==========        ==========
</TABLE>
<PAGE>

NOTE 19 - INCOME TAXES

Deferred  income tax assets as of June 30, 1998 of $9,500,000 as a result of net
operating losses, have been fully offset by valuation allowances.  The valuation
allowances have been  established  equal to the full amounts of the deferred tax
assets, as the Company is not assured that it is more likely than not that these
benefits will be realized.

A  reconciliation  between the statutory United States corporate income tax rate
(34%) and the effective  income tax rates based on  continuing  operations is as
follows:

<TABLE>
<CAPTION>
                                                              Year Ended June 30,
                                                -------------------------------------------------
                                                    1998               1997               1996
                                                -----------        -----------        -----------
<S>                                             <C>                <C>                <C>
Statutory federal income tax (benefit)          $(7,754,000)       $(4,101,913)       $(3,077,078)
Foreign income tax (benefit) in
           excess of domestic rate                  543,000            509,203           (325,715)
Benefit not recognized on operating loss          5,111,000          2,816,057          3,038,145
Permanent, timing and other differences           2,100,000            886,886                 --
                                                -----------        -----------        -----------

                                                  $    -0-         $   110,223        $  (364,648)
                                                ===========        ===========        ===========
</TABLE>

Net operating loss carryforwards at June 30, 1998 were approximately as follows:

United States (expiring through June 30, 2013)       $15,200,000
Switzerland (expiring through June 30, 2008)          15,600,000
                                                     -----------
                                                     $30,800,000
                                                     ===========

The  income  tax  related  to the  extraordinary  gain  on  sale  of  marketable
securities was approximately $343,000 for the year ended June 30, 1996.

                                     F 20
<PAGE>  
No income tax  benefit has been  recognized  related to the  extraordinary  loss
incurred as a result of fire damage or the year ended June 30, 1997.

NOTE 20 - EXTRAORDINARY ITEMS

In June of 1996, the Company sold marketable  securities for $962,500, at a cost
of $200,000,  resulting in an extraordinary gain of $419,500 ($ 0.32 per share),
net of income taxes of approximately $343,000.

On April 12, 1997,  the Company  sustained  significant  fire damage at a leased
production  and  office  facility  in  Hochdorf,  Switzerland,  resulting  in an
extraordinary loss, net of insurance proceeds,  of $387,514 ($ 0.24) per share),
net of income taxes of $-0-.

On July 31, 1997 the Company refinanced Convertible debentures issued in May and
June 1997.  A gain on  extinguishment  of debt of  $154,212  resulted  from that
transaction net of income taxes of $-0-.

In December,  1997 the Company  refinanced  part of the  Convertible  debentures
issued in August 1997.  A gain on  extinguishment  of debt of $150,711  resulted
from that transaction net of income taxes of $-0-.

Note 21  SIGNICIANT CUSTOMER AND CONCENTRATION OF CREDIT RISK

The company sells its products to various customers primarily in Europe and 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,  1998.  1997 and 1996 there were sales to four
customers that exceeded 10% of net consolidated  sales. Sales to these customers
were: 1998 customer A, $ 0 (0%), customer B $7,647,354 (33%), customer C $0 (0%)
and  customer  D  $1,209,390  (5%);  1997  customer  A , $0 (0%),  customer  B $
1,899,084  (14%)  customer  C $0 (0%) and  customer  D  $2,389,613  (18%);  1996
customer A $1,603,631 (15%),  customer B $1,505,954 (14%), customer C $1,390,308
(13%) and customer D $0 (0%) 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, 1998, 1997 and 1996 were as follows:.
<PAGE>
<TABLE>
<CAPTION>
                                                              1998              1997             1996
<S>                                                           <C>               <C>              <C>
         United States                                        $ 9,127,569       $  2,000,608     $          0
         Switzerland                                           12,851,115          2,184,161        2,002,374
         Germany                                                  914,294          1,393,072        4,976,503
         Other export sales                                            --          7,573,860        3,920,345
                                                              -----------       ------------     ------------
         Total                                                $22,892,978       $ 13,151,701     $ 10,899,222
</TABLE>



The following summarizes identifiable assets by geographic area:

<TABLE>
<CAPTION>
June 30,

                                                                   1998           1997                1996
<S>                                                           <C>              <C>              <C>
         United States                                        $  8,075,151     $ 2,008,307      $         --
         Switzerland                                            17,454,379      22,031,388        18,129,362
         Germany                                                   385,067         748,539           664,076
                                                              ------------      -----------      -----------
                                                              $ 25,914,597     $24,788,234      $ 18,793,438
                                                              ============      ===========      ===========
</TABLE>

                                     F 21
<PAGE>
The following summarizes operating losses before provision for income tax:


<TABLE>
<CAPTION>
June 30,

                                                              1998              1997             1996
<S>                                                           <C>               <C>              <C>
         United States                                        $(13,962,842)     $(   175,254)    $         --
         Switzerland                                           ( 8,803,842)      (12,678,800)      (8,986,555)
         Germany                                                   (42,184)         (333,397)         (63,673)
                                                              ------------      ------------     ------------
                                                              $(22,808,032)     $(13,187,451)    $ (9,050,228)
                                                              ============      ============     ============
</TABLE>

NOTE 22 - COMMITMENTS

The Company  leases  various  facilities  and  vehicles  under  operating  lease
agreements expiring through September 2003. The company has excluded all vehicle
leases  in its  presentation  because  they are  deemed  to be  immaterial.  The
facilities  lease  agreements  provide for a base monthly payment of $22,285 per
month.  Rent  expense  for the  years  ended  June 30,  1998,  1997 and 1996 was
$324,726,  $ 297,926 and $ 242,658  respectively  Future  minimum  annual  lease
payments,  based on the  exchange  rate in  effect on June 30,  1998,  under the
facilities lease agreements are as follows: 1999 $267,422,  2000 $173,549,  2001
$162,526, 2002 $166,995, 2003 $137,994, Thereafter $0

On January 1, 1996, the Company entered into a long term purchase agreement with
a major vendor to supply the camera module for a product the Company  sells.  At
June 30, 1998, future minimum payments under this contract,  which is cancelable
with four months notice, are as follows:  1999 $ 7,717,921.  The Company's total
purchases  under this agreement was for the year ended June 30, 1998  $1,685,611
respectively for the year ended June 30, 1997 $ 1,534,646.--. Due to a change of
the  production  plant of its vendor  from  Europe to the USA this  contract  is
presently in process to be  renegotiated.  The company believes that the outcome
of this  renegotiations  will  have a  positive  impact  to lower  the  existing
commitments into the future.

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

<TABLE>
<CAPTION>

         Year Ended
         ----------
<S>                                     <C>
         June 30, 1999                 $  963,000
         June 30, 2000                    843,000
         June 30, 2001                    500,000
         June 30, 2002                    273,000
         June 30, 2003                    147,000
                                       ----------
                                       $2,726,000
                                       ==========
</TABLE>
<PAGE>

NOTE 23 - LITIGATION

In October 1997, the Registrant and Swissray Healthcare, Inc. were served with a
complaint by a company engaged in the business of providing services related to
imaging equipment alleging that defendant

received  benefits from breach of fiduciary duties and contract  obligations and
misappropriation   of  trade  secrets  by  certain  former   employees  of  such
competitor. Such company also obtained a temporary restraining order against the
Registrant and Swissray Healthcare,  Inc. On November 10, 1997, the Court denied
a Motion for a preliminary  injunction and the temporary  restraining  order was
vacated.  On December 1, 1997 and January 30, 1998 the  Registrant  answered the
Complaint  and  Amended  Complaint   respectively  by  denying  the  allegations
contained  therein.  The  Plaintiff in such action (on December 2, 1997) filed a
Motion to reargue and renew its prior denied Motion for a Preliminary Injunction
and such Motion was (by Order and  Decision  dated June 17,  1998)  denied.  The
Company  denied  the  allegations,   vigorously   defended  the  litigation  and
thereafter  settled such  litigation  and all  outstanding  matters with respect
thereto for $60,000 in July 1998.

Dispute  with Gary J. Durday  ("Durday"),  Kenneth R.  Montler  ("Montler")  and
Michael  E.  Harle  ("Harle").  On July 17,  1998,  two legal  proceedings  were
commenced by Swissray,  and two of its subsidiaries against Durday,  Montler and
Harle. Harle and Montler are former Chief Executive Officers of Swissray Medical
Systems Inc.  and  Swissray  Healthcare  Inc.,  respectively,  and Durday is the
former  Chief  Financial  Officer of both of those  companies.  Each of them was
employed pursuant to an Employment Agreement dated October 17, 1997. In addition
these three  individuals were owners of a company by the name of Service Support
Group LLC  ("SSG"),  the assets of which were sold to Swissray  Medical  Systems
Inc. pursuant to an Asset Purchased Agreement dated as of October 17, 1997.

whereby Messrs.  Durday,  Montler and Harle received,  among other consideration
33,333  shares  of the  Company's  common  stock,  together  with  a put  option
entitling these  individuals to require  Swissray to purchase any or all of such
shares at a purchase price equal to $ 45.00 per share (on or after June 30, 1998
and until April 16, 1999, subject to certain  adjustments set forth in the Asset
Purchase Agreement).

On July 17, 1998,  Swissray and its subsidiaries,  Swissray Medical Systems Inc.
and Swissray  Healthcare  Inc.  commenced an arbitration  proceeding  before the
American Arbitration  Association in Seattle,  Washington (Case No. 75 489 00196
98)  alleging  that  Messrs.  Durday,  Montler  and Harle  fraudulently  induced
Swissray and its  subsidiaries to enter into the above referenced Asset Purchase
Agreement  and  otherwise  breached  that  Agreement.  The relief  sought in the
arbitration  proceeding is the recovery of damages  suffered as a result of this
alleged  wrongful conduct and a rescission of the put option provided for in the
Asset Purchase  Agreement.  Messrs.  Durday,  Montler and Harle responded to the
allegations  made  in the  arbitration  proceeding  and  asserted  counterclaims
against  Swissray  and its  subsidiaries  claiming  a  breach  by them of  their
obligations under the Asset Purchase Agreement and other relief.

The current status with respect to this matter is that an  arbitration  has been
selected, but no date has yet been set for a hearing.

In addition to the above  referenced  arbitration  proceeding,  Swissray and its
subsidiaries  commenced an action against Messres  Durday,  Montler and Harle in
the  Supreme  Court  of the  State  of New  York,  County  of  New  York  (Index
603512/98),  alleging that these individuals breached the obligations undertaken
by them in their respective  Employment  Agreements.  Messrs. Durday Montler and
Harle have  removed  this  action to the United  States  District  Court for the
Southern  District of New York (File No. 98 Civ. 5895; Judge McKenna),  where it
is now  pending.  Counsel  for  Messrs.  Durday,  Montler  and Harle  have since
acknowledged  that the action was  improperly  removed to federal court and have
agreed to remand  that  action  to the  Supreme  Court of the State of New York,
County of New York.  Counsel  for  Messrs.  Durday,  Montler and Harle have also
indicated that it is their  intention to attempt to dismiss or stay the New York
action in order to have the issues  raised in the action  consolidated  with the
issues to be determined in the American Arbitration Association proceeding,  but
no formal action has been taken in that regard.
<PAGE>

While the above may be  considered  to be in its early  stage of  litigation  or
arbitration as indicated,  it is the Company's management's intention to contest
each of these matters  vigorously  since  Swissray  believes that its claims are
meritorious, and that it has meritorious defenses to the claims asserted against
them.

NOTE 24 - RESTRUCTURING

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

NOTE 25 - SUBSEQUENT EVENTS

On August 31, 1998 the Company issued $3,832,849  aggregate  principal amount of
5% convertible debentures (the "Convertible Debentures") including a 25% premium
and accrued interest,  convertible into Common Stock of the Company. The Company
did  not  receive  any  cash  proceeds  from  the  offering  of the  Convertible
Debentures.  The full amount was paid by investors  to holders of the  Company's
Convertible  Debentures  issued on March 14,  1998  holding  $3,000,000  of such
Convertible  Debentures as repayment in full of the Company's  obligations under
such  Convertible  Debentures.   During  the  same  period  the  Company  issued
$2,311,000 aggregate principal amount of 5% Convertible Debentures,  convertible
into Common Stock of the Company.  After deducting fees,  commissions and escrow
fees in the  aggregate  amount of $311,000 the Company  received a net amount of
$2,000,000.  The face amount of both Convertible Debentures are convertible into
shares of Common Stock of the Company  commencing  March 1, 1998 at a conversion
price  equal to the lesser of 82% of the  average  closing bid price for the ten
trading days  preceding  the date of the  conversion or $1.00.  Any  Convertible
Debentures  not so converted are subject to mandatory  conversion by the Company
on the 24th  monthly  anniversary  of the date of  issuance  of the  Convertible
Debentures.

Subsequent  to the  closing of the  Company's  June 30, 1998  fiscal  year,  the
Company held a Special Meeting of Stockholders on August 31, 1998, at which time
Company  stockholders  were  asked to  consider  and act upon  proposals  to (1)
reverse  stock  split the  currently  issued and  outstanding  shares of Company
Common  Stock on the basis of no less than 1 : 4 and no  greater  than 1 for 10;
the exact number,  (if any) within such  parameter to be determined by the Board
of  Directors in its  discretion  and (2)  authorize  the creation of a class of
Preferred  Stock.  The  number of shares of Common  Stock  voted at the  Special
Meeting  approximated  75 % of all issued and  outstanding  securities as of the
record  date  and  approximately  88 % of  those  shares  voted  in favor of the
aforesaid  reverse  stock  split  proposal  (while the Company did not receive a
sufficient  number of affirmative votes for the creation of a class of Preferred
Stock).

On October 6, 1998 the Company issued $2,940,000 aggregate principal amount of
5% convertible  debentures (the  "Convertible  Debentures")  including  $540,000
repurchase  of  stock,  convertible  into  Common  Stock of the  Company.  After
deducting fees,  commissions and escrow fees in the aggregate amount of $300,000
the  Company  received  a net  amount  of  $2,100,000.  The face  amount  of the
Convertible Debentures is convertible into shares of Common Stock of the Company
any time after the closing date at a conversion price equal to the lesser of 82%
of the average  closing bid price for the ten trading days preceding the date of
the conversion or $1.00. Any Convertible Debentures not so converted are subject
to mandatory  conversion by the Company on the 24th monthly  anniversary  of the
date of issuance of the Convertible Debentures.
<PAGE>

NOTE 26 - RESTATEMENT

The accompanying  financial statements have been restated to properly record the
accounting  treatment of certain benefical conversion features and debt issuance
costs of convertible  debentures issued during the year ended June 30, 1997, the
accounting  for the value of stock options  granted  during the years ended June
30, 1997 and 1996, and the accounting for the value of common stock to be issued
to an officer as additional compensation during the year ended June 30, 1997.

The  effect  of such  restatements  on the  Company's  1997 and  1996  financial
statements follow:
<TABLE>
<CAPTION>
                                                        1997                                            1996
                                      -----------------------------------------       -----------------------------------------
                                         As                               As             As                               AS
                                      Reported       Adjustments       Restated       Reported       Adjustments
Restated
                                      --------       -----------       --------       --------       -----------       --------
<S>                                  <C>             <C>              <C>             <C>           <C>               <C>
Balance Sheet Adjustments
 Assets                              $24,352,915    $  435,319        $24,788,234     $18,793,438    $       --     $18,793,438
 Liabilities                          17,784,487      (689,441)        17,095,046       8,138,182            --       8,138,182
 Stockholders' equity                  6,568,428     1,124,760          7,693,188      10,655,256            --      10,655,256

Statement of Operations
 Adjustments
  Operating expenses                 $15,165,898    $2,284,435        $17,450,333     $ 8,591,679    $6,374,468     $14,966,147
  Other income (expenses)                 67,720      (511,125)          (443,405)        810,003            --         810,003
  Loss from operations               (10,502,114)   (2,795,560)       (13,297,674)     (2,311,112)   (6,374,468)     (8,685,580)
  Net loss                           (10,889,628)   (2,795,560)       (13,685,188)     (1,891,612)   (6,374,468)     (8,266,080)
  Net loss per common share basic    $      (.69)   $     (.17)       $      (.86)    $      (.15)   $     (.49)$          (.64)
</TABLE>

                                     F 24
<PAGE>  
Stockholders' equity has been restated to reflect the following:

<TABLE>
<CAPTION>
                                                Additional          Accumulated
                                              Paid-in Capital         Deficit
                                              ---------------       -----------
<S>                                           <C>                  <C>

As originally reported, June 30, 1996         $19,268,400          $ (7,918,948)
Value of stock options granted                  6,374,468            (6,374,468)
                                              -----------          -------------
As restated, June 30, 1996                    $25,642,868          $(14,293,416)
                                              ===========          =============

As originally reported, June 30, 1997         $26,608,594          $(18,808,576)
Effect of 1996 restatement                      6,374,468            (6,374,468)
                                              -----------          -------------
                                               32,983,062           (25,183,044)


Beneficial conversion feature                   1,000,000              (310,559)
Debt issuance cost                                635,885              (200,566)
Value of stock options granted                  1,161,462            (1,161,462)
value of common stock to be issued                     --            (1,122,973)
                                              -----------          -------------
                                              $35,780,409          $(27,978,604)
                                              ===========          =============
</TABLE>
NOTE 27 - UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS

The following unaudited proforma condensed combined statements of operations for
the  years  ended  June  30,  1998  and  1997  give  retroactive  effect  of the
acquisition of Empower, Inc. on April 1, 1997 and SSG on October 17, 1997, which
has been accounted for as a purchase.  The unaudited proforma condensed combined
statements of operations give retroactive effect to the foregoing transaction as
if it had  occurred  at the  beginning  of each  year  presented.  The  proforma
statements do not purport to represent what the Company's  results of operations
would  actually  have  been if the  foregoing  transactions  had  actually  been
consummated on such dates or project the Company's results of operations for any
future period or date.

The  proforma  statements  should  be read in  conjunction  with the  historical
financial statements and notes thereto.

                           SWISSRAY INTERNATIONAL, INC
  UNAUDITED PROFORMA CONDENSED COMBINED CONSOLIDATED STATEMENT
OF OPERATIONS
               FOR THE YEAR ENDED JUNE 30, 1998 AND JUNE 30, 1997

<TABLE>
<CAPTION>
                                                                                      Year Ended June 30
                                                                                      ------------------
                                                                                   1998               1997
                                                                              ------------       ------------
<S>                                                                           <C>                <C>
Revenues                                                                      $ 23,837,000       $ 21,223,000
Loss before extraordinary items                                                (21,963,000)       (13,568,000)
Net loss                                                                       (22,403,000)       (13,956,000)
Loss per share                                                                       (8.33)             (8.79)
Weighted average number of shares outstanding                                    2,690,695          1,587,757
</TABLE>

It was not practicable to include information for SSG for the year ended
June 30, 1997

                                     F 25
<PAGE>

                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                          SWISSRAY INTERNATIONAL, INC.


                          By /s/ Ruedi G. Laupper
                          -------------------------------
                          Ruedi G. Laupper, Chairman of the Board of Directors,
                          President & Chief Executive Officer

Date: December 3, 1998

         In accordance  with the Exchange act, This report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated.



<PAGE>


<TABLE>
<S>                                <C>                                         <C>
 /s/ Ruedi G. Laupper              Chairman of the Board                       Dated:  December 3, 1998
------------------------           of Directors, President &
Ruedi G. Laupper                   Chief Executive Officer

 /s/ Josef Laupper                 Secretary and a Director                    Dated:  December 3, 1998
------------------------
Josef Laupper

/s/ Dr. Sc. Dov Maor               Director                                    Dated:  December 3, 1998
-------------------------
Dr. Sc. Dov Maor


/S/ Ueli Laupper                   Vice President and a Director               Dated:  December 3, 1998
------------------------
Ueli Laupper


/s/ Dr. Erwin Zimmerli             Director                                    Dated:  December 3, 1998
------------------------
Dr. Erwin Zimmerli


/s/ Erich A. Kalbermatter          Chief Operating Officer                     Dated:  December 3, 1998
------------------------
Erich A. Kalbermatter

/s/ Herbert Laubscher               Chief Financial Officer                    Dated:  December 3, 1998
------------------------            and Treasurer
Herbert Laubscher
</TABLE>