<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                 FORM 10-KSB/A3

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

                     For the fiscal year ended June 30, 1997

               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.
                 (Name of Small Business Issuer 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 41 919 90 50
                (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)

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

                             Yes  xx         No
                                 ----           ----

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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-KSB
or any amendment to this Form 10-KSB. [  ]

State issuer's revenues for its most recent fiscal year - $13,151,701

The number of shares outstanding of each of the Registrant's classes of Common
Stock, as of September 10, 1997 is 20,857,051 shares, all of one class of common
stock, $.01 par value. Of this number a total of 16,304,461 shares having an
aggregate market value of $27,521,930, based on the closing price of the
Registrant's common stock of $1.688 on September 10, 1997 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.

                   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  xx
                                 ----           ----

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: 20,857,051 shares as of September 10,
1997.

Transitional Small Business Disclosure Format:   Yes    No [x]

                       DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (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

          The Company previously filed Form 10-KSB/A for the following purposes:

     (A)  Part III of such First Amendment included a revised Exhibit 10.2 and
          added Exhibit 10.6, both of which were incorporated by reference to
          the Registrant's Registration Statement on Form S-1, filed October 20,
          1997; and

     (B)  Such Form 10-KSB/A amended the Form 10-KSB filed September 30, 1997
          (the "Original Report"). Items 9, 10, 11 and 12 of Part III of the
          Original Report were incorporated by reference to the Registrant's
          definitive Proxy Statement. Accordingly, Registrant filed such First
          Amendment to the Original Report to provide the information required
          by Items 9, 10, 11 and 12 of Part III of Form 10-KSB, which
          information now also appears herein in the same manner as heretofore
          set forth in aforesaid Form 10-KSB/A.

          The Company subsequently filed Form 10-KSB/A2 for purposes of
     providing revised Exhibits 10.4 and 10.5.

          This Form 10-KSB/A3 is being filed due to the fact that financial
     statements heretofore filed for fiscal years ended June 30, 1997 and 1996
     have been restated. For further information with respect to the effect of
     such restatement, reference is made to Item 6, Management's Discussion and
     Analysis, and in particular, but by no means limited to, the subheading
     General (fourth paragraph thereunder) as well as to the specific restated
     financial statements and notes thereto included herein.
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                                TABLE OF CONTENTS



                                                                          Page
                                                                          Number
                                                                          ------
PART I

Item 1.    Description of Business                                          2

Item 2.    Description of Property                                         13

Item 3.    Legal Proceedings                                               13

Item 4.    Submission of Matters to a Vote of Security Holders             13

PART II

Item 5.    Market For Common Equity and Related Stockholder Matters        13

Item 6.    Management's Discussion and Analysis or Plan of Operation       16

Item 7.    Financial Statements                               27 & F(1)-F(23)

Item 8.    Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure                                        28

PART III

Item 9.    Directors, Executive Officers, Promoters and Control Persons;   29
           Compliance With Section 16(a) of the Exchange Act

Item 10.   Executive Compensation                                          30

Item 11.   Security Ownership of Certain Beneficial Owners and             
           Management                                                      32

Item 12.   Certain Relationships and Related Transactions                  33

Item 13.   Exhibits, List and Reports on Form 8-K                          34
<PAGE>   3
                                     PART I


ITEM 1.        DESCRIPTION OF BUSINESS

BACKGROUND SUMMARY

         The Registrant was incorporated under the laws of the State of New York
on January 2, 1968 under the name CGS Units Incorporated. On June 15, 1994, the
Registrant merged with Direct Marketing Services, Inc. and changed its name to 
DMS Industries, Inc. In May of 1995 the Registrant discontinued the operations 
then being conducted by DMS Industries, Inc. and acquired all of the 
outstanding securities of SR-Medical AG, a Swiss corporation engaged in the
business of manufacturing and selling X-ray equipment, components and
accessories. On June 5, 1995 the Registrant changed its name to Swissray
International Inc. The Registrant's operations are being conducted principally
through its wholly owned subsidiaries, SR-Medical AG, the latter's wholly owned
subsidiaries, Teleray AG, a Swiss corporation, and Swissray Deutschland
(Rontgentechnik) GmbH (formerly known as SR-Medical GmbH), a German limited
liability company, as well as through the Company's wholly owned subsidiaries,
SR Management AG (formerly SR Finance AG), a Swiss corporation, Swissray Medical
Systems Inc. (formerly Swissray Corporation), a Delaware corporation, and
Empower, Inc., a New York corporation (d/b/a Swissray Empower Inc.). Unless
otherwise specifically indicated, all references hereinafter to the "Company"
refer to the Registrant and its subsidiaries.

BUSINESS

         The Company is active in the markets for diagnostic imaging devices for
the health care industry. Diagnostic imaging devices include X-ray equipment for
plane projections, computer tomography ("CT") systems and magnetic resonance 
imaging ("MRI") systems for three dimensional projections, nuclear medicine 
("NM") imaging devices and ultrasound devices. The Company is primarily engaged
in the business of manufacturing and selling diagnostic X-ray equipment for all
radiological applications. In addition, the Company is in the business of 
selling imaging systems and components and accessories for X-ray equipment and 
providing related services. In Switzerland, the Company is the exclusive 
distributor of CT systems, MRI systems and NM systems manufactured by 
Elscint Ltd., a leading Israeli manufacturer of diagnostic imaging systems and 
other technologically advanced products.

         X-rays were discovered in 1895 by Wilhelm Konrad Rontgen. Shortly
thereafter, X-ray imaging found numerous applications for medical diagnostic and
non-medical purposes. Today, medical X-ray imaging is a fundamental tool in bone
and soft tissue diagnosis. X-ray diagnosis is primarily used in orthopedics,
traumatology, gastro-enterology, angiography, urology, mammography and
pulmology. The principal elements of a diagnostic X-ray system are the X-ray
generator, the X-ray tube and the bucky device. The generator generates high
tension, which is converted into X-rays in the X-ray tube. The X-rays so created
are then penetrating a patient's body and subsequently expose a polyester based
film contained in the bucky device. Different types of diagnostic X-ray
equipment have been developed for different uses. A typical room used for
general


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X-ray examinations (bucky room) contains an X-ray system which includes a table
with a bucky device for examinations of recumbent patients (bucky table) and a
wall stand with a second bucky device for examinations of sitting and standing
patients (bucky wall stand).

         The Company's marketing strategy is to offer to its customers a
complete package of products and services in the field of radiology, including
equipment, accessories and related services. The Company's products include a
full range of conventional X-ray equipment, the direct digital 
AddOn-Multi-System and the SwissVision(TM) line of DICOM 3.0 compatible 
postprocessing work stations operating on a Windows NT platform. Instead of 
using a bucky device which contains a cassette, a screen and a polyester-based 
film as in a conventional X-ray system, the bucky of a direct digital X-ray 
system contains a detector which directly converts the X-rays into digital 
information. The AddOn-Multi-System, which uses the Company's AddOn Bucky(TM) 
as a detector, for the first time makes possible all plane X-ray examinations 
on the recumbent, upright and sitting patient without the use of cassettes, 
films, chemicals or phosphor plates. The AddOn-Multi-System includes a 
SwissVision(TM) workstation which permits the postprocessing of digital image 
data and the transfer of such data through central networks or via 
telecommunications systems.

         During the 100 years in which X-ray imaging has been used for medical
purposes, there has been a continuous trend to improve image quality, to reduce
the radiation dose and to improve the ergonomic features of X-ray equipment.
Management believes that the direct digital radiography (ddR) technology
developed by the Company will take this development to the next level because
the ergonomically advanced AddOn-Multi-System provides an excellent image 
quality with minimal radiation doses and at the same time reduces operating 
expenses through the elimination of films, phosphor plates or cassettes and the
handling, development and storage thereof.

         Based on the results of marketing and technical research undertaken by
the Company, the Company decided during the fiscal year ended June 30, 1997 not
to market the Company's direct digital detector, the AddOn Bucky(TM), as a
retrofit product for conventional X-ray systems, but rather to offer a complete
multi-functional direct digital X-ray system which combines the functions of a
conventional bucky table and a bucky wall stand. The primary reason for the
Company's new strategy was management's belief that potential customers can
achieve cost benefits with a multi-functional X-ray system compared to
retrofitting existing equipment. These cost benefits result primarily from the
fact that a multi-functional direct digital X-ray system only requires one
detector, the most expensive part of a direct digital X-ray system, to replace
the two bucky devices used in a typical conventional bucky room. Additional
reasons were an upcoming regulatory change in Europe, quality concerns and
potential problems in the after-sales market. As a result, management of the
Company came to the conclusion that market acceptance of a complete direct
digital system would be greater than that of a digital detector alone. The
Company's new strategy with respect to its direct digital technology required
the incurrence of significant additional research and development expenses. Due
to this effort, the AddOn-Multi-System was developed during the fiscal year
ended June 30, 1997. The first product has been delivered to a customer during
the first quarter


                                       -3-
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of the 1997/98 fiscal year and additional deliveries are scheduled for the
second quarter. See Item 1 - "Research and Development" and Item 6 - "General".

         Services provided by the Company include the installation of imaging
equipment, after-sales services for imaging equipment, consulting services and
application training of radiographers.

         During the fiscal year ended June 30, 1997, the Company had aggregate
sales of $13,151,701 and a net loss of $12,562,215, compared with aggregate
sales of $10,899,222 and a net loss of $8,266,080 during the fiscal year ended
June 30, 1996. The increase in the Company's operating loss is due to the
significant expenses associated with the development of the Company's products
and the building of the Company's organization and market position on the one
hand and the absence of a significant increase in sales as a result of the
delay in the market introduction of certain of the Company's products, in
particular the AddOn-Multi-System and the Bucky Diagnost TS, on the other hand.

         The Company estimates that the global market for X-ray equipment,
accessories and related services is approximately $5 billion, 45% of which is in
the United States, 26% in Western Europe, 19% in Japan and 10% in the rest of
the world (Sources: National Electrical Manufacturers Association; Market Line).
The Company's principal markets for its X-ray equipment, components and
accessories by country are Switzerland, the United States and Germany
constituting 17%, 15% and 11% of the Company's sales during the fiscal year
ended June 30, 1997 respectively. For the fiscal year ended June 30, 1997, 22%
of the Company's sales were made in Eastern Europe, primarily attributable to
the delivery of conventional X-ray equipment to hospitals located in Eastern
Europe under a contract financed by the Swiss government. The Company believes
that because of the need to bring medical services to Western standards Eastern
Europe continues to offer interesting opportunities as a market for the
Company's conventional X-ray equipment and accessories. The Company has also
been able to gain access to markets in Asia, the Middle East and Africa.

         The Company believes that the principal markets for its direct digital
X-ray equipment are located in North America and Western Europe, where the first
sales of the AddOn-Multi-System have been made. The Company submitted both its
AddOn Bucky(TM) and the AddOn-Multi-System to the United States Food and Drug
Administration ("FDA") for Section 510(k) clearance. The Company expects that
the necessary authorization to market the AddOn-Multi-System in the United
States should be forthcoming. However, no assurance can be given as to when or
if at all such authorization will be obtained. Upon obtaining the required
approval from the FDA, the Company intends to sell the AddOn-Multi-System in the
United States through its subsidiaries and other channels.

         Consistent with the Company's marketing strategy, during the fiscal
year ended June 30, 1997 the Company has made a significant effort to build a
market position in the United States and Germany, the biggest European market.
On November 6, 1996 it formed Swissray Corporation (which has been renamed
Swissray Medical Systems, Inc.), a Delaware corporation located in Azusa,
California, to conduct market research in the United States, develop strategies
for the penetration of the US imaging and health care servicing market and
explore various strategic alternatives for the Company. On April 1, 1997 the
Company acquired a controlling interest in Empower, Inc. ("Empower"), located in
Glen Cove, New York. Empower is engaged in distributing and servicing diagnostic
X-ray equipment and accessories in the New York/New Jersey/Connecticut area.
During the fiscal year ended June 30, 1997, the Company also significantly
increased its research and development capacities and created a new Information
Solution Division which will be engaged in


                                       -4-
<PAGE>   6
developing imaging software and Picture Archiving and Communications Systems
(PACS), as well as consulting activities. This division will be located in Gig
Harbor, Washington and headed by Michael J. Baker, who has more than 20 years
experience in radiology, most recently as head of cd Lockheed Martin's Medical
Imaging Systems division. (see Item 1 - "Research and Development").

PRODUCTS

         The Company's products include a full range of conventional X-ray 
equipment, a multi-functional direct digital X-ray system, the AddOn-Multi-
System, and the SwissVision(TM), line of DICOM 3.0 compatible postprocessing 
Work Stations operating on a Windows NT platform. Currently, most of the 
Company's X-ray equipment is manufactured and developed in Switzerland. On 
July 26, 1996, SR Medical AG, the Company's marketing subsidiary, was ISO 
9002 and EN 46002 certified.

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

         The Company manufactures and sells conventional diagnostic X-ray
equipment for radiological applications. The conventional X-ray equipment
manufactured by the Company includes X-ray generators, basic X-ray equipment,
bucky table systems, mobile X-ray systems, mobile C-arm systems, fluoroscopy
systems, urology systems and remote controlled examination systems. In addition,
the Company is selling components and accessories for X-ray systems. In general,
the components and accessories for X-ray equipment sold by the Company are
manufactured by third parties. In Switzerland, the Company is the exclusive
distributor of CT systems, MRI systems and NM systems manufactured by Elscint
Ltd., a leading Israeli manufacturer of diagnostic imaging systems and other
technologically advanced products.

Original Equipment Manufacturing (OEM)

         On June 11, 1996, the Company entered into a new OEM Agreement (the
"Philips OEM Agreement") with Philips Medical Systems GmbH which replaced a
previous OEM Agreement with Philips, dated July 29, 1992. The Philips OEM
Agreement provides for the production of two conventional X-ray systems, the
Bucky Diagnost TS bucky table and a multi-radiography system (MRS), which is
approved by the World Health Organization (WHO) as a World Health Imaging System
for Radiology (WHIS-RAD). As a result, the Company's MRS system may be tendered
in projects financed by the World Bank. Under the Philips OEM Agreement these
two products are marketed by Philips through its existing distribution network.
The initial term of the Philips OEM Agreement expires on December 31, 2000 and
may be extended for additional periods of 12 months.

Digital AddOn-Multi-System/SwissVision

         The AddOn-Multi-System is the first multi-functional direct digital
radiography (ddR) system available which allows all plane X-ray examinations in
a direct digital way. The AddOn-Multi-System is able to perform on the
recumbent, upright and sitting patient all radiological examinations necessary
in orthopedics, traumatology, chest examination rooms and emergency


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<PAGE>   7
rooms. The AddOn-Multi-System uses the Company's AddOn Bucky(TM) as the digital
detector, which is able to make available an X-ray image in a direct digital way
for diagnostic study within 16 to 20 seconds. The Company's direct digital
technology eliminates the handling, development and storage of cassettes, films,
chemicals or phosphor plates. As a consequence, operating costs are
significantly reduced and the efficiency and the throughput of the bucky room
can be increased. The Company believes that an additional advantage of the
Company's AddOn-Multi-System is the fact that all such X-ray examinations can be
made with the use of only one digital detector, the most expensive part of an
X-ray system using direct digital technology. The AddOn-Multi-System includes a
SwissVision(TM) workstation for the postprocessing of the digital X-ray images.
See Part I, Item 1 - "Business" and "Competition".

         The Company's line of SwissVision(TM) postprocessing workstations 
permit the postprocessing of digital X-ray images, including section, zooming, 
enlargement, soft tissue and bone structure imaging, accentuation of the 
limitation of the joints, noise suppression, presentation of different fields 
of interest within an area and archiving and transferring the data through 
central networks and telecommunication systems. In addition, the 
SwissVision(TM) post-processing workstations are able to analyze data stored 
with respect to a particular patient. As a result, consistent image quality of 
different images of the same patient can be achieved. The workstations 
operate on a Windows NT platform and are DICOM 3.0 compatible.

Services

         The services offered by the Company include the installation and after
sales servicing of imaging equipment, consulting services and application
training of radiographers. In the future, the Company plans to also offer
products and services related to networking, archiving and electronic
distribution of digital X-ray images, including Picture Archiving and
Communications Systems (PACS).

CUSTOMERS AND DISTRIBUTION

         The Company's customers are hospitals, clinics, radiology centers and
physicians generally. The Company is marketing its products and services
directly through its own sales force in Switzerland, Germany and the United
States and through resellers in these and other markets. The Company is 
primarily active in the markets for complete X-ray systems, individual 
components (retrofitting), X-ray accessories and related services. The Company 
plans to also enter the markets for products and services related to 
networking, archiving and electronic distribution of digital X-ray images. The 
Company believes that in the foreseeable future there will be a continuous 
growth world-wide in the markets for complete X-ray systems, components, 
accessories and related services because of the improvement of health care 
services in developing countries and Eastern Europe and the necessity to meet 
increasingly stricter regulations with respect to radiation dosage and other 
safety features and environmental hazards in many jurisdictions. With the 
transition from conventional to digital X-ray systems, the demand for products 
and services related to networking, archiving and electronic distribution of 
digital X-ray images will grow in industrialized countries. In these markets


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the demand for conventional X-ray equipment, accessories and related services
will decrease over time.

         In the past, the Company has made a significant amount of sales to a
few large customers. For the fiscal year ended June 30, 1997 sales to the
Company's two largest customers accounted for approximately 33% of all revenues
while sales to the Company's single largest customer during such period
accounted for approximately 18% of all revenues. The Company considers the
relationship with its largest customers to be satisfactory. Historically, the
identity of the Company's largest customers and the volumes purchased by them
has varied. The loss of one or more of the Company's current two largest
customers or a reduction of the volume purchased by either of them would have an
adverse effect upon the Company's sales until such time, if ever, as significant
sales to other customers can be made. The Company expects that as sales of its
AddOn-Multi-System increase, the Company's revenue will be less dependent on a
few large customers. See also note 27 to the Company's consolidated financial
statements for additional information with respect to both the Company's two
largest customers and single largest customer for the fiscal year ended June 30,
1997.

RESEARCH AND DEVELOPMENT

         During the fiscal year ended June 30, 1997, the Company incurred
expenses related to research and development of $5,786,158 (accounting for 35%
of the Company's operating expenses), compared to $1,731,502 (accounting for 12%
of the Company's operating expenses) during the previous fiscal year. The
increase of the Company's research and development costs by 234% resulted
primarily from the Company's decision not to market the AddOn Bucky(TM) as a
retrofit product for existing conventional bucky table X-ray systems, but rather
to offer a complete multi-functional direct digital X-ray system which combines
a conventional bucky table and a bucky wall stand and includes a postprocessing
system. The Company will continue to have significant research and development
expenses associated with the development of new products (including diagnostic
hardware and software products and new digital X-ray products) and improvements
to existing products manufactured by the Company. New products currently being
developed by or on behalf of the Company include a new digital C-arm system, a
digital remote controlled fluoroscopy system, a conventional bucky-table system
and a multi-functional floating table.

         On June 30, 1997, the Company employed six people in research and
development. The number of people employed in research and development has been
increased by 50% since June 30, 1996. The Company is outsourcing certain
research and development activities (such as the development of the Company's
mobile units, C-arm systems and fluoroscopy tables) and intends to continue this
policy in the future. On April 1, 1997, Dr. Felix Riedel, a well-known
specialist in radiology and nuclear medicine with twenty years of clinical and
scientific experience in the United States and Europe joined the Company as head
of the Company's research and development department. Dr. Riedel has received
numerous awards for his achievements in diagnostic radiology from scientific and
academic institutions. He is a member of the Swiss Society of Radiology, a full
voting member of the International Society of Magnetic Resonance Imaging and a
corresponding member of the North American Society of Radiology.


                                       -7-
<PAGE>   9
         The Company has established a scientific board to support its research
and development projects and to enable the Company to develop technologically
advanced products. The Company believes that the integration of academic 
institutions and hospitals will allow the Company to save research and 
development expenses and will provide it with access to clinical and 
scientific experience and know-how. Currently, the following individuals have 
been appointed to this scientific board: Dr. Felix Riedel, Chairman, Prof. Dr. 
med. Michael Meves, head of the Central Radiology Department at the Northeast 
Hospital in Frankfurt/Main, Germany, Prof. Dr. med. Hanfried Weigand, head of 
the Central Radiology Department of the Dr. Horst-Schmidt-Clinic in Wiesbaden, 
Germany, Dr. med. Paul Jegge, Co-head of the Radiology Department at the 
Regional Hospital, Langenthal, Switzerland, Hans Behrendt, General Manager of 
Elscint GmbH, and Michael L. Baker, head of the Company's Information Solution 
division.

RAW MATERIALS AND SUPPLIERS

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

         There is virtually no stock of finished X-ray equipment on the
Company's premises for any extended period of time since X-ray equipment is
generally manufactured at a customer's request. The Company stocks such
components and accessories as it deems necessary. At June 30, 1997 finished
products accounted for approximately 21% of inventory while raw material, parts
and supplies accounted for approximately 67% of inventory and work in process
for approximately 12%.

         In general, key components for the Company's X-ray equipment can be
obtained from several sources and the Company has entered into supply agreements
with certain of its suppliers. The CCD camera, a key component of the AddOn
Bucky(TM), has been developed on the Company's behalf by the Philips Components
division of Philips GmbH, Hamburg. Philips Components has entered into an
exclusive supply agreement with the Company (which is currently being restated)
and the Company considers its relationship with Philips Components to be
satisfactory. While other suppliers of CCD cameras are available, a significant
amount of time would be required to integrate a CCD camera of another supplier
into the Company's AddOn-Multi-System and there can be no assurance that such
integration could be achieved in a timely manner. The Company believes that 
there is no anticipated shortage in the supply of key components for its
X-ray equipment.


                                       -8-
<PAGE>   10
COMPETITION

         The markets in which the Company operates are highly competitive. Most
of the Company's competitors are significantly larger than the Company and have
access to greater financial and other resources than the Company. The principal
competitors for the Company's X-ray equipment are General Electric, Siemens,
Toshiba, Trex Medical, Shimatsu, Picker and Philips. In the market for
conventional X-ray equipment, the Company's strategy is to focus on niche
products and standard equipment.

         The only direct digital X-ray systems other than the AddOn-Multi-System
currently available are chest examination systems offered by Philips and IMIX, a
Finnish manufacturer. None of these systems is able to perform bone examinations
on extremities. The Company's AddOn-Multi-System is the only multi-functional
direct digital X-ray system currently available which allows all plane X-ray
examinations on the recumbent, upright and sitting patient without the use of
cassettes, films, chemicals or phosphor plates. A number of companies, including
certain of the Company's competitors in the markets for conventional X-ray
equipment, are currently developing direct digital X-ray detectors or direct
digital X-ray systems for specific applications (such as mammography). To the 
Company's knowledge there is no competing multi-functional X-ray system 
currently being developed.

INTELLECTUAL PROPERTY

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

         The Company also relies on proprietary know-how and employs various
methods to protect its concepts, ideas and technology. However, such methods may
not afford complete protection and there can be no assurance that others will
not independently develop such technology or obtain access to the Company's
proprietary know-how or ideas. Furthermore, although the Company has generally
entered into confidentiality agreements with its employees, suppliers and
developers, there can be no assurance that such arrangements will adequately
protect the Company. The Company has obtained licenses to use certain technology
which is essential for certain of the Company's products, including certain
software used for its line of SwissVision(TM) postprocessing systems.


                                       -9-
<PAGE>   11
         The Company considers the Swissray name as material to its business and
has obtained, or is in the process of obtaining, trademark protection in key
markets. The Company is not aware of any claims or infringement or other
challenges to the Company's rights to use this or any other trademarks used by
the Company.


REGULATORY MATTERS

         The Company's X-ray equipment, components and related accessories are
subject to regulation by national or regional authorities in the markets in
which the Company operates. Pursuant to the Federal Food, Drug and Cosmetic Act,
X-ray equipment is a class II medical device which may not be marketed in the
United States without prior approval from the FDA. The Company submitted both
its AddOn-Bucky(TM) and the AddOn-Multi-System for Section 510(k) clearance with
the FDA. The Company expects that the necessary authorization to market the
AddOn-Multi-System in the United States should be forthcoming. However, no
assurance can be given as to when or if at all such authorization will be
obtained. The electrical components of the Company's products are subject to
electrical safety standards in many jurisdictions, including Switzerland, EU,
Germany and the United States. The Company believes that it is in compliance in
all material respects with applicable regulations.

ENVIRONMENTAL MATTERS

         The Company is subject to various environmental laws and regulations in
the jurisdictions in which it operates, including those relating to air
emissions, wastewater discharges, the handling and disposal of solid and
hazardous wastes and the remediation of contamination associated with the use
and disposal of hazardous substances. The Company owns or leases properties and
manufacturing facilities in Switzerland, the United States and Germany. The
Company, like its competitors, has incurred, and will continue to incur, capital
and operating expenditures and other costs in complying with such laws and
regulations in both the United States and abroad. As a result of the operation
of the Company's business, the Company may have potential liability with respect
to the remediation of past contamination in certain of its presently and
formerly owned or leased facilities in both the United States and abroad. In
addition, certain of the Company's facilities may have used substances or
generated and disposed of wastes which are or may be considered hazardous. It is
possible that such sites, as well as disposal sites owned by third parties to
which the Company has sent wastes, may in the future be identified and become
the subject of remediation. Accordingly, although the Company believes that it
is in substantial compliance with applicable environmental requirements and the
Company to date has not incurred material expenditures in connection with
environmental matters, it is possible that the Company could become subject to
additional environmental liabilities in the future that could result in an
adverse effect on the Company's financial condition or results of operations.



                                      -10-
<PAGE>   12
EMPLOYEES

         As of June 30, 1997, the Company had approximately 110 employees. Of
these 53 were employed in Switzerland, 47 in the United States and 10 in
European countries other than Switzerland. The Company believes that its
relationship with employees is satisfactory. The Company has not suffered any
significant labor problems during the last five years.

ACQUISITION OF EMPOWER

         On April 1, 1997, the Company acquired from J. Douglas Maxwell a
controlling interest in Empower, and the right to acquire the remaining interest
in Empower, which is being held in escrow pending the payment in full of a
certain payment obligation to the former holder thereof, in exchange for a
consideration consisting of (i) 80,000 shares of Common Stock of the Registrant,
(ii) the right to receive an additional 30,000 shares of Common Stock of the
Registrant in the event Empower meets certain performance goals, (iii) options
to purchase 125,000 shares of Common Stock of the Registrant at an exercise
price of $4.00 under the Registrant's 1996 Non-Statutory Stock Option Plan, (iv)
a convertible debenture, due February 28, 2000, in the principal amount of
$62,266.49 and convertible into common stock of the Registrant at 80% of the
market price at the date of conversion and (v) the assumption of a payment
obligation in the aggregate amount of approximately $72,600 as of the date of
closing of the transaction to the holder of the remaining interest in Empower.
The last payment is scheduled to be made in April, 1998. In connection with this
transaction, the Company also issued 150,000 options to purchase shares of
Common Stock of the Registrant at an exercise price of $3.50 to 14 employees of
Empower under the Company's 1996 Stock Option Plan. During the nine-month period
ended March 31, 1997, Empower had net sales of $4,218,355 and a net loss of
$232,342. As of March 31, 1997, Empower had assets in an aggregate amount of
$2,043,330.



                                      -11-
<PAGE>   13
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

         The Directors and Executive Officers of the Company, as of September
28, 1997, were as follows:

<TABLE>
<CAPTION>
Name                 Position(s) Held                                       Age
----                 ----------------                                       ---
<S>                  <C>                                                    <C>
Ruedi G. Laupper     Chairman of the Board of Directors,                    47
                      President and Chief Executive Officer
Josef Laupper        Secretary, Treasurer and a Director                    52
Ueli Laupper         Vice President International Sales and Director        27
Dr. Erwin Zimmerli   Director                                               50
Herbert Laubscher    Chief Financial Officer                                31
</TABLE>

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

         Ruedi G. Laupper has been President and a director of the Registrant
since May 1995 and Chairman of the Board of Directors since March 1997. In
addition, he is Chairman of the Board of Directors and President of the
Company's principal operating subsidiaries. Ruedi G. Laupper is the founder of
the predecessor of SR-Medical AG and was Chief Executive Officer of SR-Medical
AG until May 1995. He has approximately 22 years of experience in the field of 
radiology.

         Josef Laupper is the brother of Ruedi G. Laupper and has been 
Secretary, Treasurer and a director of the Registrant since May, 1995. He has 
held comparable positions with SR-Medical AG, Teleray AG and their respective 
predecessors since 1990. He is principally in charge of the Company's 
administration. Josef Laupper has in excess of 18 years of experience within 
the medical device business.

         Ueli Laupper, 27 years of age, is the son of the Company's President
with overall Company responsibilities in the area of international marketing and
sales with approximately seven years of experience within the international
X-ray market. He was Chief Executive Officer of SR Medical AG from July 1995
until June 30, 1997.

         Dr. Erwin Zimmerli has been a director of the Company since May, 1995.
Since receiving his Ph.D. degree in law and economics from the University of St.
Gall, Switzerland in 1979, Dr. Zimmerli has served as head of the White Collar
Crime Department of the Zurich State Police (1980- 86), an expert of a Swiss
Parliamentary Commission for penal law and Lecturer at the Universities of St.
Gall and Zurich (1980-87), Vice President of an accounting firm (1987-1990) and
Executive Vice President of a multinational aviation company (1990-92). Since
1992 he has been actively engaged in various independent consulting capacities
primarily within the Swiss legal community.

         Herbert Laubscher joined the Company as a manager responsible for
finance and controlling


                                      -12-
<PAGE>   14
on August 2, 1996. He was appointed Chief Financial Officer of the Registrant on
September 15, 1997. Herbert Laubscher obtained his graduate degree in business
administration from the University of St. Gall, Switzerland in October 1992.
From October 1992 until June 1995 he was an accountant with Price Waterhouse in
Zurich. Prior to joining the Company he served as group financial officer of AZ
Zibatra Holding GmbH in Leipzig, Germany.

ITEM 2.       DESCRIPTION OF PROPERTY

         The Company leases approximately 13,000 square feet of office and
showroom space in Hitzkirch, Switzerland. On April 12, 1997, the production
facility rented by the Company in Hochdorf, Switzerland was affected by a fire
in an adjacent facility. On May 15, 1997, the Company purchased a new office and
production facility of approximately 43,000 square feet and moved its entire
production to this facility. The Company plans to move the offices and other
facilities located in its Hitzkirch facility to the new Hochdorf facility during
the third quarter of the fiscal year ending June 30, 1998. The Company believes
that its new Hochdorf facility provides it with sufficient production and office
space to meet its demand in Switzerland in the foreseeable future.

         The Company also leases approximately 9,000 square feet of office and
warehouse space in Glen Cove, New York. In addition, the Company also leases
office space in New York City, Azusa, California, Gig Harbor, Washington and 
Wiesbaden, Germany.

ITEM 3.       LEGAL PROCEEDINGS


           On or about July 7, 1995, the Company commenced litigation against a
           former officer and director of a corporate predecessor alleging
           certain improprieties on the part of such officer and seeking
           monetary compensation as a result thereof. Such defendant responded
           (in September 1995) by filing certain affirmative defenses and
           counterclaims against the Company and others and subsequently brought
           (together with certain of his family members) an action against the
           Company in the same court which action raised issues and claims
           substantially similar to those raised in the aforesaid counterclaims.
           The two actions were assigned to the same judge and the Company moved
           successfully to dismiss both the counterclaims and the second action.
           Leave to replead both claims were granted and amended counterclaims
           and an amended complaint were served and filed and the Company again
           successfully moved to dismiss both pleadings. Following the most
           recent dismissal, counsel for the Company and the aforesaid former
           officer entered into settlement discussions. Both the Company and
           defendant have agreed to dismiss all claims and counter claims
           against each other, and are awaiting for formal written releases to
           be executed.

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

         Not applicable.

                                     PART II

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

MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

         (a) Market Information. The Registrant's common stock is listed on the
Nasdaq SmallCap Market and traded under the symbol SRMI. The following table
sets forth, for the periods indicated, the range of high and low bid prices on
the dates indicated for the Company's securities indicated below for each full
quarterly period within the two most recent fiscal years (if applicable) and any
subsequent interim period for which financial statements are included and/or
required to be included.


                                      -13-
<PAGE>   15
<TABLE>
<CAPTION>
                Fiscal Year Ended June 30, 1996         Quarterly Common Stock Price
                          By Quarter                             Ranges (1)
                -------------------------------         ----------------------------
Quarter                   Date                           High                Low
-------                   ----                           ----                ---
<C>             <C>                                     <C>                  <C>
1st                       September 30, 1995(1)          $6.8125             $6.00
2nd                       December 31, 1995(1)           $7.875              $5.50
3rd                       March 31, 1996(1)              $7.25               $4.4375
4th                       June 30, 1996                  $6.50               $5.25
</TABLE>

<TABLE>
<CAPTION>
                Fiscal Year Ended June 30, 1997         Quarterly Common Stock Price
                          By Quarter                             Ranges (1)
                -------------------------------         ----------------------------
Quarter                   Date                           High                Low
-------                   ----                           ----                ---
<C>             <C>                                     <C>                  <C>    
1st                       September 30, 1996             $5.0625             $3.6875
2nd                       December 31, 1996              $4.00               $2.375
3rd                       March 31, 1997                 $3.5625             $1.6875
4th                       June 30, 1997                  $3.250              $1.4063
</TABLE>

(1)      The Registrant's common stock, $.01 par value (the "Common Stock"),
         began trading on the Nasdaq SmallCap market on March 20, 1996 with an
         opening bid of $4.75. The following statement specifically refers to
         the Common Stock activity, if any, prior to March 20, 1996. The
         existence of limited or sporadic quotations should not of itself be
         deemed to constitute an "established public trading market". To the
         extent that limited trading in the Registrants's Common Stock took
         place, such transactions have been limited to the over-the-counter
         market. Until March 20, 1996, all prices indicated are as reported to
         the Company by broker-dealer(s) making a market in its common stock in
         the National Quotation Data Service ("pink sheets") and in the
         Electronic Over-the-Counter Bulletin Board. Through such date the
         Registrant's Common Stock was not traded or quoted on any automated
         quotation system other than as indicated herein. The over-the-counter
         market and other quotes indicated reflect inter-dealer prices without
         retail mark-up, mark-down or commission and do not necessarily
         represent actual transactions.

         (b) Holders. As of September 10, 1997 there were 748 stockholders of
the Registrant's Common Stock (as indicated on its transfer agent's certified
list of stockholders as of September 10, 1997).


                                      -14-
<PAGE>   16
         (c) Dividends. The payment by the Registrant of dividends, if any, in
the future rests within the discretion of its Board of Directors and will
depend, among other things, upon the Company's earnings, its capital
requirements and its financial condition, as well as other relevant factors. The
Registrant has not paid or declared any dividends upon its Common Stock since
its inception and, by reason of its present financial status and its
contemplated financial requirements, does not contemplate or anticipate paying
any dividends upon its Common Stock in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

         (a) Title and Amount of Securities and Date of the Transaction. On
August 19, 1997, the Registrant issued $5,000,000 aggregate principal amount of
6% convertible debentures (the "Convertible Debentures"), convertible into
Common Stock of the Registrant in the manner described under (e) below.

         (b) Name of the Placement Agent. Rolcan Finance Ltd., London, United
Kingdom.

         (c) Consideration Received. The aggregate offering price of the
Convertible Debentures was $5,000,000. After deducting underwriting discounts,
commissions and escrow fees in the aggregate amount of $706,250 the Registrant
received a net amount of $4,293,750.

         (d) Persons or Classes of Persons to whom the Securities Were Sold and
Exemption from Registration Claimed. All Convertible Debentures were issued to
accredited investors as defined in Rule 501(a) of Regulation D promulgated under
the Act ("Regulation D") and the Company has received written representations
from each investor to that effect.

         (e) Terms of Conversion. 50% of the face amount of the Convertible
Debentures are convertible into shares of Common Stock of the Registrant at any
time after November 3, 1997 and the remaining 50% of the face value of the
Convertible Debentures are convertible into shares of Common Stock of the
Registrant after December 3, 1997, in each case at a conversion price equal to
80% of the average closing bid price for the five trading days preceding the
date of conversion. Any Convertible Debentures not so converted are subject to
mandatory conversion by the Registrant on the 36th monthly anniversary of the
date of issuance of the Convertible Debentures.

         On each of May 15, 1997 and on June 15, 1997, the Registrant issued
$2,000,000 principal amount of 6% convertible debentures convertible into Common
Stock on terms similar to those of the above mentioned issuance to accredited 
investors as defined in Rule 501(a) of Regulation D. Placement agent for such 
convertible debentures was Rolcan Finance Ltd. The aggregate offering price for
such convertible debentures was $4,000,000. After deducting underwriting 
discounts, commissions and escrow fees in the aggregate amount of $528,610, the
Registrant received an aggregate net amount of $3,458,890. Such convertible 
debentures were refinanced on July 31, 1997, with the proceeds of $4,262,500 
principal amount of convertible debentures issued to non-US persons under 
Regulation S.


                                      -15-
<PAGE>   17
ITEM 6.       MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL

         The fiscal year ended June 30, 1997 brought major changes to the
Company. Based on the results of marketing and technical research undertaken by
the Company, the Company decided not to market its direct digital detector, the
AddOn Bucky(TM), as a retrofit product for conventional X-ray systems as it
previously intended, but rather to offer a complete multi-functional direct
digital X-ray system which combines the functions of a conventional bucky table
and a bucky wall stand and which is able to perform all examinations necessary
in orthopedics, traumatology, chest examination rooms and emergency rooms. The
primary reason for the Company's new strategy was management's belief that
potential customers can achieve cost benefits with a multi-functional direct
digital X-ray system compared to retrofitting existing equipment. These cost
benefits result primarily from the fact that a multi-functional direct digital
X-ray system only requires one detector, the most expensive part of a direct
digital X-ray system, to replace the two bucky devices used in a typical
conventional bucky room. In addition, because of an upcoming regulatory change
in Europe, CE qualification will be required for all elements in an X-ray system
if any components are exchanged. The Company was also concerned that the high
quality of its product could not be guaranteed in a retrofitted X-ray system.
Finally, a complete system offers significant advantages for potential customers
and the Company in the after-sales market because suppliers of X-ray equipment
typically are reluctant to extend product warranties and services to a product
that is retrofitted with third party products. As a result, the Company believes
that market acceptance of a complete system would be greater than that of the
AddOn Bucky alone.

         The Company's new strategy with respect to the Company's direct digital
technology required the incurrence of significant additional research and
development expenses. Due to this effort, the AddOn-Multi-System could be
developed during the fiscal year ended June 30, 1997 and the first product has
been delivered to a customer during the first quarter of the 1997/98 fiscal year
and additional deliveries are scheduled for the second quarter.

         During the fiscal year ended June 30, 1997, the Company also built up
its position in the United States because management of the Company believes
that the United States will be an important market for its AddOn-Multi-System.

         This Form 10-KSB is being amended due to the fact that the financial
statements heretofore filed for the fiscal years ended June 30, 1997 and 1996
have been restated so as to properly record the accounting treatment of certain
beneficial conversion features and debt issuance cost of convertible debentures
issued during the year ended June 30, 1997 and the accounting for the value of
stock options granted during the year ended June 30, 1997 and 1996. The net
effect of such restatements on the Company's 1997 financial statements resulted
in an increase in total assets of $435,619, a decrease in total liabilities of
$689,441, an increase in stockholders' equity of $1,124,760, and an increase in
the net loss of $1,672,587 or $(.10) per common share. The restated net loss
for 1997 of $12,562,215 or $(.79) per common share compared to the previously
reported loss of $10,889,628 or $(.69) per common share. The net effect of such
restatements on the Company's 1996 financial statement resulted in no change in
total assets, total liabilities or total stockholders' equity and an increase
in net loss of $6,374,468 or ($.49) per common share. The restated net loss of
$8,266,080 or $(.64) per common share compared to the previously reported net
loss of $1,891,612 or $(.15) per common share. There was no effect to the
Company's cash flows for either 1997 or 1996. Wherever necessary these changes
similarly appear in the applicable sections of this Form 10-KSB-A and most
particularly (and almost entirely) in this Item 6.

RESULTS OF OPERATION

         Net sales for the fiscal year ended June 30, 1997 were $13,151,701
compared to $10,899,222 for the fiscal year ended June 30, 1996.

         The 21% increase in net sales was partially due to the acquisition of
Empower on April 1, 1997. The Company could also increase by approximately 21%
sales in Swiss Francs of its conventional X-ray equipment, accessories and
imaging equipment purchased from third parties to customers in Europe and other
markets outside the United States. Contributing factors to this increase were
sales made under the Philips OEM Agreement and an order to deliver X-ray


                                      -16-
<PAGE>   18
equipment to 21 hospitals located in Eastern Europe, which was filled in part
during the fiscal year ended June 30, 1997. The Company made no sales of the
AddOn-Multi-System during the fiscal year ended June 30, 1997.

         Gross profits amounted to $4,706,287 or 35.8% of net sales for the
fiscal year ended June 30, 1997 compared to $5,105,916 or 46.9% for the fiscal
year ended June 30, 1996.

         The decrease in gross profits as a percentage of net revenues is
primarily attributable to the fact that sales of low-margin products increased
substantially. This is mainly attributable to increased sales of accessories,
which are generally low-margin products, during the fourth quarter as a result
of the acquisition of Empower and increased sales of CT systems from Elscint.
Each of the foregoing contributed approximately 15% to the Company's net sales.

         Operating expenses for the fiscal year ended June 30, 1997 were
$16,327,360 or 124.1% of net sales compared to $14,966,147 or 137.3% of net
sales for the fiscal year ended June 30, 1996. The principal items were research
and development expenses of $5,786,158 or 46% of net sales for the fiscal year
ended June 30, 1996 compared to $1,731,502 or 15.9% of net sales for the fiscal
year ended June 30, 1997 and salaries (net of directors and officers
compensation), which amounted to $2,059,396 or 15.6% of net sales for the fiscal
year ended June 30, 1997 compared to $1,829,535 or 16.8% of net sales for the
fiscal year ended June 30, 1996. General and adminstrative expenses for years
ended June 30, 1997 and 1996 include value of stock options granted in the
amount of $1,161,462 and $6,374,468, respectively.

         Research and development expenses increased by 234% mainly due to the
significant additional research necessary to implement the Company's new
strategy with respect to its direct digital technology. Additional research and
development expenses have also been incurred to develop the Bucky Diagnost TS
system for Philips and to maintain the technological advantages of the Company's
conventional X-ray equipment. Management considers the relative size of the
research and development expenses for the fiscal year ended June 30, 1997 as
extraordinarily high and expects a reduction of their relative size in the near
future. However, significant research and development expenses will continue to
be incurred for the development of new technologically advanced products and the
continuing improvement of existing products. The increase of 64% in selling
expenses is the result of the continuing strong efforts of the Company to build
its market position in key markets (including the United States and Germany),
develop new markets and to lay the groundwork for a successful market
introduction of the Company's direct digital AddOn-Multi-System. In addition,
the Company has incurred expenses to develop products which are complementary to
its AddOn-Multi-System (such as a digital C-arm system and a digital remote
controlled fluoroscopy system). This will allow the Company to offer a full line
of digital X-ray equipment.

         The Company's operating loss increased to $11,621,073 for the fiscal
year ended June 30, 1997 from $9,860,231 for the fiscal year ended June 30,
1996. The increase in the Company's


                                      -17-
<PAGE>   19
operating loss is due to the significant expenses associated with the 
development of the Company's products and the building of the Company's 
organization and market position on the one hand and the absence of a 
significant increase in sales as a result of the delay in the market 
introduction of certain of the Company's products, in particular the 
AddOn-Multi-System and the Bucky Diagnost TS, on the other hand. After taking 
into account income tax benefits and extraordinary items of income (loss) the 
resulting net loss of the Company for the fiscal year ended June 30, 1997 
increased to $12,562,215 from $8,266,080 for the fiscal year ended June 30,
1996. Extraordinary expenses include the write off of inventory and clean-up
costs as a consequence of the fire which affected the Company's previous
manufacturing facility.

FINANCIAL CONDITION

         Total assets of the Company on June 30, 1997 increased by $5,994,796 to
$24,788,234 from $18,793,438 on June 30, 1996, primarily due to the acquisition
of Empower and the new Hochdorf facility. Current Assets increased $2,522,432 to
$14,093,346 on June 30, 1997 from $11,570,914 on June 30, 1996. The increase in
current assets is primarily attributable to the increase of accounts receivable
as a consequence of the acquisition of Empower and the increase in inventory due
to an increased amount of orders to be filled within the first quarter of the
fiscal year ending June 30, 1998. Other Assets increased $274,029 to $6,358,271
on June 30, 1997 from $6,084,242 on June 30, 1996. The increase in other assets 
was primarily due to an increase in intangible assets net of a decrease in 
long-term accounts receivable. 

         On June 30, 1997, the Company had total liabilities of $17,095,046
compared to $8,138,182 on June 30, 1996. On June 30, 1997, current liabilities
were $11,259,798 compared to $8,138,182 on June 30, 1996. The increase in
current liabilities is primarily due to the incurrence of a mortgage to finance
in part the acquisition of the new Hochdorf facility. Management currently
intends to refinance this mortgage, which may be terminated on three months
notice, with a long-term mortgage. In addition, as a result of the acquisition
of Empower, there was an increase in accounts payable. On June 30, 1997, the
Company also had $5,310,559 (net of discounts) principal amount of convertible
subordinated debentures. Such debentures bear interest at 6% per annum and are
repayable at maturity in Common Stock of the Registrant. As of June 30, 1997,
all of such convertible debentures could be converted into Common Stock of the
Registrant at a price equal to 80% of the average closing price during the five
trading days preceding the date of conversion, subject, with respect to $2
million principal amount of debentures with a maturity date of April 28, 1998,
to a minimum conversion price of $2.50. $2 million principal amount of the
remaining debentures with a maturity date of May 15, 2000 and $2 million
principal amount of such debentures with a maturity date of June 13, 2000 were
refinanced on July 31, 1997 with the proceeds of the issuance of $4,262,500
principal amount of convertible debentures. Such debentures may have a dilutive
effect on the investment of stockholders of the Registrant upon conversion or
payment of the principal at maturity, but no funds of the Company are expected
to be used for their repayment.


                                      -18-
<PAGE>   20
         At June 30, 1997, long-term debt net of the current portion thereof
amounted to $524,689 compared to $0 at June 30, 1996. The increase in long-term
debt resulted from the incurrence of new debt obligations and the
reclassification of certain existing debt as long-term debt.

         Working capital at June 30, 1997 was $2,833,548 compared to $3,432,732
at June 30, 1996.

CASH FLOW AND CAPITAL EXPENDITURES

         Cash used by operating activities for the fiscal year ended June 30,
1997 increased to $10,684,988 from $3,658,665 for the fiscal year ended June 30,
1996 and cash used by investing activities increased to $3,668,196 for the
fiscal year ended June 30, 1997 from $1,171,120 for the fiscal year ended June
30, 1996. Cash flow from financing activities for the fiscal year ended June 30,
1997 was $14,752,928 compared to $5,788,694 for the fiscal year ended June 30,
1996.

         The Company's capital expenditures totaled $3,431,375 for the fiscal
year ended June 30, 1997 compared to $932,066 for the fiscal year ended June 30,
1996. Capital expenditures are primarily for the purchase of the Hochdorf
facility and equipment. The increased financing needs resulted primarily from
the significant research and development expenses necessary in connection with
the development of the AddOn-Multi-System, the purchase of the Hochdorf facility
and the initiation and expansion of the Company's sales organization in Europe
and in the United States.

         The Company financed its liquidity needs during the fiscal year ended
June 30, 1997 primarily through the issuance of $13,300,000 principal amount of
convertible debentures and the issuance of Common Stock for a consideration of
$2 million in the aggregate. The Company anticipates that its use of cash will
be substantial for the foreseeable future. In particular, management of the
Company expects substantial expenditures in connection with the improvement of 
the new Hochdorf facility, the continuation of the strengthening and expansion 
of the Company's marketing organization and, to a lesser degree, ongoing 
research and development projects. The Company expects that funding for these 
expenditures will be available out of the Company's cash reserves, future cash 
flow and, with respect to the improvements of the Hochdorf facility, the 
incurrence of mortgaged debt. However, the availability of a sufficient future 
cash flow will depend to a significant extent on the marketability of the 
Company's AddOn-Multi-System. Accordingly, the Company may be required to issue
additional convertible debentures or equity securities to finance such capital 
expenditures and working capital requirements. There can be no assurance 
whether or not such financing or the anticipated debt financing of the 
improvements to the Hochdorf facility will be available.

EFFECT OF CURRENCY ON RESULTS OF OPERATIONS

         The result of operations and the financial position of the Company's
subsidiaries outside of the United States is reported in the relevant foreign
currency (primarily in Swiss Francs) and then translated into U.S. dollars at
the applicable foreign exchange rate for inclusion in the Company's consolidated
financial statements. Accordingly, the results of operations of such
subsidiaries as reported in U.S. dollars can vary significantly as a result of
changes in currency exchange rates (in


                                      -19-
<PAGE>   21
particular the exchange rate between the Swiss Franc and the U.S. dollar). For
the fiscal year ended June 30, 1996 the Swiss Franc depreciated by approximately
11% against the US dollar compared to the rate in effect during the fiscal year
ended June 30, 1996. If such exchange rate had remained in effect, the Company's
net sales and net loss would have been higher by approximately $2,788,209 and
$2,335,548, respectively.

TAXES

         The Company is subject to taxation in many jurisdictions throughout the
world. The Company's effective tax rate and tax liability is affected by a
number of factors, such as the amount of taxable income in particular
jurisdictions, the tax rates in such jurisdictions, tax treaties between
jurisdictions, the extent to which the Company transfers funds between
jurisdictions and income is repatriated, and future changes in law. Generally,
the tax liability for each legal entity is determined either (i) on a
non-consolidated basis or (ii) on a consolidated basis only with other entities
incorporated in the same jurisdiction, in either case without regard to the
taxable losses of non-consolidated affiliated entities. As a result, the Company
may pay income taxes in certain jurisdictions even though the Company on an
overall basis incurs a net loss for the period.

ENVIRONMENTAL MATTERS

         The Company is subject to various environmental laws and regulations in
the jurisdictions in which it operates. The Company, like many of its
competitors, has incurred, and will continue to incur, capital and operating
expenditures and other costs in complying with such laws and regulations. The
Company does not currently anticipate any material capital expenditures for
environmental control technology. Some risk of environmental liability is
inherent in the Company's business, and there can be no assurance that material
environmental costs will not arise in the future. However, the Company does not
anticipate any material adverse effect on its results of operations or financial
condition as a result of future costs of environmental compliance. See Part 1,
Item 1 -"Business-Environmental Matters."

INFLATION

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

SEASONALITY


                                      -20-
<PAGE>   22
         The Company's business has historically experienced a slight amount of
seasonal variation with sales in the first fiscal quarter slightly lower than
sales in the other fiscal quarters due to the fact that the Company's first
quarter coincides with the summer vacations in certain of the Company's markets.

BACKLOG

         Management estimates that as of the end of the fiscal year ended June
30, 1997, the Company had an order backlog of $10,500,000 for conventional X-ray
equipment and $30,000,000 for digital X-ray equipment.

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS

         On occasion, the Company enters into currency forward contracts as a
hedge against anticipated foreign currency exposures and not for speculative
purposes. Such contracts, which are types of financial derivatives, limit the
Company's exposure to both favorable and unfavorable currency fluctuations. In
the past, the Company has used forward contracts exclusively in connection with
the purchase of material in currencies other than Swiss Francs or US dollars. In
the event of a default of the supplier under the purchase contract with respect
to which a forward contract has been concluded combined with an adverse currency
fluctuation, the Company may be exposed to a loss under the respective forward
contract. However, the Company believes that any such loss, should it occur,
would not have a material adverse effect on the results of the Company.

CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

         Investment in the securities of the Company involves a high degree of
risk. In evaluating an investment in the Company's Common Stock, Company
stockholders and prospective investors should carefully consider the risk
factors discussed hereafter and the information detailed in this Annual Report
for the fiscal year ended June 30, 1997 on Form 10-KSB including, without
limitation, Item 1 "Business" and Item 6 "Management's Discussion and Analysis
of Financial Condition and Results of Operations", as well as information
contained in the Company's other filings with the Securities and Exchange
Commission.

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


                                      -21-
<PAGE>   23
following risks could cause actual results to differ materially from historical
results or those anticipated.

History of Losses; Profitability Uncertain

         As of June 30, 1995 the Registrant has accumulated losses on a
consolidated basis of approximately $6,000,000. A substantial part of such
losses resulted from activities unrelated to the Company's present operations. 
Since June 30, 1995, the Company has incurred additional net losses aggregating
approximately $22,000,000. Such losses resulted from the significant
expenses associated with the development of the Company's products and the
building of the Company's organization and market position on the one hand and
the absence of a significant increase in sales as a result of the delay in the
market introduction of certain of the Company's products, in particular the
AddOn-Multi-System and the Bucky Diagnost TS, on the other hand. The likelihood
of the success of the Company must be considered in light of the problems,
expenses, difficulties, complications and delays frequently encountered in
connection with the development of new products and the competitive environment
in which the Company operates. Although the Company is deriving operating
revenue from its current operations, such revenue has not been sufficient to
make the Company's operations profitable. There can be no assurance that the
Company will be able to develop significant additional sources of revenue or
that it will become profitable. Results of operations may fluctuate
significantly and will depend upon numerous factors, including regulatory
actions, market acceptance of the Company's products, efficient manufacturing,
new product introductions and competition.

Need for Market Acceptance of the AddOn-Multi-System

         The Company's future performance will depend to a substantial degree
upon market acceptance of the AddOn-Multi-System. The Company's marketing
efforts to date have generated considerable awareness about the
AddOn-Multi-System among radiologists. However, the extent of, and rate at
which, market acceptance and penetration can be achieved by the 
AddOn-Multi-System are functions of many variables including, but not limited 
to, price, effectiveness, acceptance by potential customers and manufacturing, 
training capacity and marketing and sales efforts. There can be no assurance 
that the AddOn-Multi-System will achieve or maintain acceptance in its target 
markets. Similar risks may confront other products developed by the Company in 
the future.

Reliance on a Single Product

         The Company has concentrated its efforts primarily on the development
of the AddOn-Multi-System and will be dependent to a significant extent upon
acceptance of that product to generate additional revenues. There can be no
assurance that the AddOn-Multi-System will be successfully commercialized.

Risk of Currency Fluctuations

         The Company is subject to risks and uncertainties resulting from
changes in currency exchange rates. Future currency fluctuations, to the extent
not adequately hedged, could have an adverse effect on the Company's business,
financial condition and results of operations.


                                      -22-
<PAGE>   24
For a discussion of these risks, see Item 6, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" - "Effect of Currency
on Results of Operations."

Risks Associated with International Operations

         The Company does business in numerous countries, including Switzerland,
the United States and Germany. In addition to the currency risks discussed
above, the Company's international operations are subject to the risk of new and
different legal and regulatory requirements in local jurisdictions, tariffs and
trade barriers, potential difficulties in staffing and managing local
operations, credit risk of local customers and distributors, potential inability
to obtain regulatory approvals, different requirements as to product standards,
potential difficulties in protecting intellectual property, risk of
nationalization of private enterprises, potential imposition of restrictions on
investments or transfer of funds, potentially adverse tax consequences,
including imposition or increase of withholding and other taxes on remittances
and other payments by subsidiaries, and local economic, political and social
conditions, including the possibility of hyper-inflationary conditions, in
certain countries. Any adverse change in any of these conditions could have a
material adverse effect on the Company's business or financial condition.

Competition; Improvements in Technology

         The markets in which the Company operates are highly competitive. The
Company competes with numerous competitors, many of which are well-established
in the Company's markets. Most competitors are divisions of larger companies
with potentially greater financial and other sources than the Company.

         The Company's competitors can be expected to continue to improve the
design and performance of their products and to introduce new products with
competitive price and performance characteristics. Although the Company believes
that it has certain technological and other advantages over its competitors,
realizing and maintaining these advantages will require continued investment by
the Company in research and development, sales and marketing and customer
service and support. There can be no assurance that the Company will have
sufficient resources to continue to make such investments or that the Company
will be successful in maintaining such advantages.

Dependence on Patents and Proprietary Licensed Technology

         The Company has patented certain aspects of its proprietary technology
in certain markets and has filed patent applications for the key technology of
the AddOn Bucky(TM) in key markets, including the United States. However, there
can be no assurance that such applications will be granted. There can be no
assurance that the Company's issued patents or other patents issued in the
future will afford protection from material infringement or that such patents
will not be challenged. The Company also relies on trade secrets and proprietary
and licensed know-how, which it protects, in part, through confidentiality 
agreements with employees, consultants and other parties. There can be no 
assurance that these agreements will not be breached, that the Company would 
have adequate


                                      -23-
<PAGE>   25
remedies for any breach or that the Company's trade secrets will not otherwise
become known to, or independently developed by, competitors.

Litigation, Potential Unavailability of Insurance

         The medical device industry has been the subject of extensive
litigation regarding patents and other intellectual property rights, and the
Company may institute or otherwise be involved in such litigation to enforce its
patents, protect its trade secrets or know-how, challenge the validity of
proprietary rights of others or defend against alleged infringement by the
Company of proprietary rights of others. An adverse determination in any
litigation could limit the value of any patents awarded to the Company or result
in invalidation of those patents, subject the Company to significant liabilities
to third parties, require the Company to seek licenses from third parties or
prevent the Company from manufacturing and selling its products, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.

Government Regulation

         The Company's services, products and manufacturing activities are
subject to extensive and rigorous government regulation, including the
provisions of the Federal Food, Drug and Cosmetic Act. Commercial distribution
in certain foreign countries is also subject to government regulations. The
process of obtaining required regulatory approvals can be lengthy, expensive and
uncertain. Moreover, regulatory approvals, if granted, may include significant
limitations on the indicated uses for which a product may be marketed. The FDA
actively enforces regulations prohibiting marketing without compliance with the
premarket approval provisions of products. While the Company has submitted the
AddOn Bucky(TM) and the AddOn-Multi-System for Section 510(k) approval with the
FDA, there can be no assurance that such approval will be obtained and that the
AddOn-Multi-System may be marketed in the United States. Failure to comply with
applicable regulatory requirements can result in, among other things, fines,
suspensions of approvals, seizures or recalls of products, operating
restrictions and criminal prosecutions. Furthermore, changes in existing
regulations or adoption of new regulations could affect the timing of, or
prevent the Company from obtaining, future regulatory approvals. The effect of
government regulation may be to delay for a considerable period of time or to
prevent the marketing and full commercialization of future products or services
that the Company may develop and/or to impose costly requirements on the
Company. There can also be no assurance that additional regulations will not be
adopted or current regulations amended in such a manner as will materially
adversely affect the Company.

Sales to Health Care Industry

         The Company's products are used exclusively in the health care
industry. The health care industry in key markets for the Company's products,
including the United States, has experienced a significant pressure to reduce
costs, which has led in some jurisdictions to substantial reorganizations and
consolidations of health care providers or payors. It is also possible that
legislation could be adopted in any of these jurisdictions which could increase
such pressures or which could otherwise result in a modification of the private
or public health care system or both or


                                      -24-
<PAGE>   26
impose limitations on the ability of the Company to market its products in any
such jurisdiction. Any such event or condition could have an adverse impact on
the Company's business, financial condition or results of operations.

Reliance on Key Management

         The Company's business is highly dependent on the principal members of
its management, marketing, research and development and technical staffs, and
the loss of their services might impede the achievement of the Company's
business objectives. In addition, the Company's future success will depend in
part upon its ability to retain highly qualified management, scientific,
technical and marketing personnel. There can be no assurance that the Company
will be successful in retaining such qualified personnel or hiring additional
qualified personnel. Losses of key personnel could have a material adverse
effect on the Company's business. The Company has no key man life insurance
policies with respect to any of its senior executives.

Limited Manufacturing History with Respect to AddOn-Multi-System; Dependence on
Sole Source Suppliers

         The Company has limited experience with the manufacture and assembly of
the AddOn-Multi-System in the volumes that will be necessary for the Company to
generate significant revenues from the sale of the AddOn-Multi-System. The
Company may encounter difficulties in scaling up its production or in hiring and
training additional personnel to manufacture the AddOn-Multi-System. Future
interruptions in supply or other production problems could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company has only single sources for certain
essential components of the AddOn-Multi-System. Interruptions in the supply of
such components might result in production delays, each of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Future Capital Needs and Uncertainty of Additional Financing

         There can be no assurance that the Company will not be required to seek
additional equity or debt capital to finance its operations in the future. In
addition, there can be no assurance that any such financings, if needed, will be
available to the Company or that adequate funds for the Company's operations,
whether from the Company's revenues, financial markets, collaborative or other
arrangements with corporate partners or from other sources, will be available
when needed or on terms attractive to the Company. The inability to obtain
sufficient funds may require the Company to delay, scale back or eliminate some
or all of its research and product development programs, sales and marketing
efforts, manufacturing and slide processing operations, clinical studies and/or
regulatory activities or to grant licenses to third parties to commercialize
products or technologies that the Company would otherwise seek to market and
sell itself.


                                      -25-
<PAGE>   27
Potential Litigation; Potential Unavailability of Insurance

         The medical device industry has been characterized by significant
malpractice litigation. As a result, the Company faces a risk of exposure to
product liability, errors and omissions or other claims in the event that the
use of its X-ray equipment, components, accessories or related services or other
future potential products is alleged to have resulted in a false diagnosis and
there can be no assurance that the Company will avoid significant liability.
There also can be no assurance that the Company will be able to obtain adequate
insurance coverage or that, if obtained, such coverage will continue to be
available at an acceptable cost, if at all. Consequently, such claims could have
a material adverse effect on the business or financial condition of the Company.

Dilution; Effect of Outstanding Convertible Debentures, Warrants and Certain
Shares

         The Company has outstanding convertible debentures, options and
warrants to purchase Common Stock at prices that may be below the per share
price to purchasers of the Company's Common Stock in the market. The exercise of
such convertible debentures, options and warrants may have a dilutive effect on
the investment of a holder of the Company's Common Stock. The market price of
the Company's Common Stock may also be adversely affected by sales of
substantial amounts of Common Stock in the public market, including sales of
Common Stock under Rule 144 or after the expiration of the applicable holding
period under Regulation S. In addition, the Company is required to file a
registration statement with respect to the Common Stock issuable upon conversion
of the convertible debentures issued on August 19, 1997, which could adversely
affect the ability of the Company to sell Common Stock for its own account, the
market price of the Company's Common Stock and could require the Company to
incur significant expenses.

Limited Public Market; Liquidity; Possible Volatility of Stock Price

         The Common Stock is quoted on the Nasdaq National Market System under
the symbol "SRMI." There can be no assurance that an active public market for
the Common Stock can be sustained. The market price of the Common Stock could
fluctuate significantly as a result of the Company's financial results,
regulatory approval filings, clinical studies, technological innovations or new
commercial products introduced by the Company or its competitors, developments
concerning patents or proprietary rights, trends in the health care industry or
in health care generally, litigation, the adoption of new laws or regulations or
new interpretations of existing laws or regulations and other factors.

Environmental Matters

         The Company is subject to various environmental laws and regulations in
the jurisdiction in which it operates. For a discussion of risks relating to
environmental matters, see "Environmental Matters" above and Item 1 -
"Business-Environmental Matters."


                                      -26-
<PAGE>   28
ITEM 7.       FINANCIAL STATEMENTS

         The financial statements required by Item 310 of Regulation S-B are set
forth on pages F-1 through F-23 inclusive of this Form 10-KSB.




                                      -27-
<PAGE>   29
                     [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 years then ended, in conformity with generally
accepted accounting principles.


                                          BEDERSON & COMPANY LLP


                                          /s/ Bederson & Company LLP


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





                                      F(1)
<PAGE>   30
                          SWISSRAY INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEETS
                             JUNE 30, 1997 AND 1996
                                     ASSETS
<TABLE>
<CAPTION>
                                                                                             1997             1996
                                                                                       ------------       -------------
                                                                                        (Restated)           (Restated)
<S>                                                                                    <C>                <C>       
CURRENT ASSETS:
  Cash and cash equivalents                                                            $  3,091,307       $  3,252,685
  Accounts receivable, net of allowance for doubtful accounts of
    $148,390 and $109,843                                                                 5,154,794          3,335,679
  Accounts receivable - affiliates                                                           -                  31,533
  Note receivable                                                                            -                 962,500
  Inventories                                                                             3,911,107          2,912,836
  Prepaid expenses and sundry receivables                                                 1,936,138          1,075,681
                                                                                       ------------       ------------
  TOTAL CURRENT ASSETS                                                                   14,093,346         11,570,914
                                                                                       ------------       ------------
PROPERTY AND EQUIPMENT, NET                                                               4,336,617          1,138,282
                                                                                       ------------       ------------
OTHER ASSETS:
  Due from stockholders                                                                      69,587             17,414
  Due from affiliate                                                                         -                 166,384
  Loan receivable                                                                            17,396             20,292
  Accounts receivable - long-term, net of allowance for doubtful account
    of $814,178 and $300,000                                                                240,912          1,038,693
  Licensing agreement, net of accumulated amortization of $869,151 and $372,493           4,097,424          4,594,082
  Patents and trademarks, net of accumulated amortization of $54,941 and $28,001            206,003            220,018
  Capitalized computer software, net of accumulated amortization of $34,512                 317,524             -
  Organization cost, net of accumulated amortization of $2,464 and $978                       5,921              7,407
  Security deposits                                                                          43,728             19,952
  Note receivable - long-term                                                               513,643             -
  Goodwill, net of accumulated amortization of $9,023                                       410,814             -
  Debt issuance costs on convertible debentures, net of accumulated
    amortization of $200,566                                                                435,319             -
                                                                                       ------------       ------------
  TOTAL OTHER ASSETS                                                                      6,358,271          6,084,242
                                                                                       ------------       ------------
TOTAL ASSETS                                                                           $ 24,788,234       $ 18,793,438
                                                                                       ============       ============
</TABLE>

                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>

<S>                                                                                    <C>               <C>       
CURRENT LIABILITIES:
  Current maturities of long-term debt                                                 $    243,135      $     511,101
  Notes payable - banks                                                                   3,834,706          2,069,828
  Loan payable                                                                              133,008            156,254
  Accounts payable                                                                        5,336,749          4,186,092
  Accounts payable - affiliates                                                              -                   1,541
  Accrued expenses                                                                        1,401,938          1,135,693
  Customer deposits                                                                         170,436             77,673
  Due to stockholders and officers                                                          139,826             -
                                                                                       ------------       ------------
  TOTAL CURRENT LIABILITIES                                                              11,259,798          8,138,182
                                                                                       ------------       ------------
CONVERTIBLE DEBENTURES                                                                    5,310,559             -
                                                                                       ------------       ------------
LONG-TERM DEBT, less current maturities                                                     524,689             -
                                                                                       ------------       ------------
STOCKHOLDERS' EQUITY:
  Common stock                                                                              196,944            141,851
  Additional paid-in capital                                                             35,780,409         25,642,868
  Accumulated deficit                                                                   (26,855,631)       (14,293,416)
  Accumulated other comprehensive loss                                                   (1,428,534)          (836,047)
                                                                                       ------------       ------------
  TOTAL STOCKHOLDERS' EQUITY                                                              7,693,188         10,655,256
                                                                                       ------------       ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                             $ 24,788,234       $ 18,793,438
                                                                                       ============       ============
</TABLE>

                   The accompanying notes are an integral part
                         of these financial statements.
                                       F(2)
<PAGE>   31
                          SWISSRAY INTERNATIONAL, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                       YEARS ENDED JUNE 30, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                      1997               1996
                                                                 ------------        ------------
                                                                  (Restated)           (Restated)
<S>                                                              <C>                 <C>         
NET SALES                                                        $ 13,151,701        $ 10,899,222
                                                                
COST OF SALES                                                       8,445,414           5,793,306
                                                                 ------------        ------------
                                                                
GROSS PROFIT                                                        4,706,287           5,105,916
                                                                 ------------        ------------
                                                                
OPERATING EXPENSES:                                             
  Officers and directors compensation                                 693,906             612,776
  Salaries                                                          2,059,396           1,829,535
  Selling                                                           1,873,389           1,140,604
  Research and development                                          5,786,158           1,731,502
  General and administrative                                        2,879,257           7,535,759
  Other operating expenses                                          1,645,800           1,098,346
  Bad debts                                                           619,160             491,487
  Depreciation and amortization                                       770,294             526,138
                                                                 ------------        ------------
                                                                
  TOTAL OPERATING EXPENSES                                         16,327,360          14,966,147
                                                                 ------------        ------------
                                                                
LOSS BEFORE OTHER INCOME (EXPENSES)                             
  AND INCOME TAXES                                                (11,621,073)         (9,860,231)
                                                                
OTHER INCOME (EXPENSES)                                              (443,405)            810,003
                                                                 ------------        ------------
                                                                
LOSS FROM CONTINUING OPERATIONS                                 
  BEFORE INCOME TAXES AND                                       
  EXTRAORDINARY ITEMS                                             (12,064,478)         (9,050,228)
                                                                
INCOME TAX PROVISION (BENEFIT)                                        110,223            (364,648)
                                                                 ------------        ------------
                                                                
LOSS FROM CONTINUING OPERATIONS                                 
  BEFORE EXTRAORDINARY ITEMS                                      (12,174,701)         (8,685,580)
                                                                
EXTRAORDINARY ITEMS, net of income tax                          
  of approximately $-0- and $343,000                                 (387,514)            419,500
                                                                 ------------        ------------
                                                                
NET LOSS                                                         $(12,562,215)       $ (8,266,080)
                                                                 ============        ============
                                                                
                                                                
LOSS PER COMMON SHARE:                                          
  Loss from continuing operations                                $       (.77)       $       (.67)
  Extraordinary items                                                    (.02)                .03
                                                                 ------------        ------------
                                                                
  NET LOSS                                                       $       (.79)       $       (.64)
                                                                 ============        ============
                                                                
WEIGHTED AVERAGE NUMBER OF                                      
  SHARES OUTSTANDING                                               15,817,571          12,974,749
                                                                 ============        ============
</TABLE>


                     The accompanying notes are an integral
                       part of these financial statements.

                                      F(3)
<PAGE>   32
                          SWISSRAY INTERNATIONAL, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                       YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
                                                                                                                                  
                                                                      Common Stock              Additional                        
                                                                -------------------------        Paid-in           Accumulated    
                                                                  Shares          Amount         Capital             Deficit      
                                                                ----------       --------       ----------         -----------    
                                                                                                (Restated)         (Restated)     
<S>                                                             <C>              <C>            <C>                 <C>           
BALANCE - July 1, 1995                                          12,035,064       $120,351       $ 12,719,998        $ (6,027,336) 
                                                                                                                                  
  COMPREHENSIVE LOSS:
    Net loss for the year                                             --             --                 --            (8,266,080) 
    Other comprehensive loss net of taxes $-0-
      foreign currency translation adjustments                        --             --                 --                  --    
                                                                                                                                  
    TOTAL COMPREHENSIVE LOSS                                          --             --                 --                  --    
                                                                                                                                  
  Issuance of common stock for cash                              1,100,000         11,000          5,189,000                --    
  Stock options exercised for cash                               1,050,000         10,500          2,039,500                --    
  Stock options granted for services                                  --             --            6,374,468                --    
  Public offering expenses                                            --             --             (680,098)               --    
                                                                ----------       --------       ------------        ------------  
BALANCE - June 30, 1996                                         14,185,064        141,851         25,642,868         (14,293,416) 
                                                                                                                                  
  COMPREHENSIVE LOSS:
    Net loss for year                                                 --             --                 --           (12,562,215) 
    Other comprehensive loss net of taxes $-0-
      foreign currency translation adjustments                        --             --                 --                  --    
                                                                                                                                  
    TOTAL COMPREHENSIVE LOSS                                          --             --                 --                  --    
                                                                                                                                  
  Issuance of common stock for cash                              5,197,759         51,977          7,583,715                --    
  Stock options exercised for cash                                 161,000          1,610            115,920                --    
  Issuance of common stock in lieu of interest payment              70,610            706            132,244                --    
  Beneficial conversion feature of convertible debentures             --             --            1,000,000                --    
  Stock options granted as compensation                               --             --               25,000                --    
  Stock options granted for services                                  --             --            1,161,462                --    
  Purchase of subsidiary for stock                                  80,000            800            119,200                --    
                                                                ----------       --------       ------------        ------------  

BALANCE - June 30, 1997                                         19,694,433       $196,944       $ 35,780,409        $(26,855,631) 
                                                                ==========       ========       ============        ============  
</TABLE>

<TABLE>
<CAPTION>
                                                                Accumulated
                                                                  Other
                                                               Comprehensive
                                                                   Loss               Total
                                                               -------------        ----------
                                                                                    (Restated)
<S>                                                              <C>                <C>         
BALANCE - July 1, 1995                                           $  (436,180)       $  6,376,833
                                                                                    ------------
  COMPREHENSIVE LOSS:
    Net loss for the year                                               --            (8,266,080)
    Other comprehensive loss net of taxes $-0-
      foreign currency translation adjustments                      (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                                             (836,047)         10,655,256
                                                                                    ------------
  COMPREHENSIVE LOSS:
    Net loss for year                                                   --           (12,562,215)
    Other comprehensive loss net of taxes $-0-
      foreign currency translation adjustments                      (592,487)           (592,487)
                                                                                    ------------
    TOTAL COMPREHENSIVE LOSS                                            --           (13,154,702)
                                                                                    ------------
  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
  Purchase of subsidiary for stock                                      --               120,000
                                                                 -----------        ------------

BALANCE - June 30, 1997                                          $(1,428,534)       $  7,693,188
                                                                 ===========        ============
</TABLE>



              The accompanying notes are an integral part of these
                              financial statements.
                                      F(4)
<PAGE>   33
                          SWISSRAY INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                       YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
                                                                            1997                 1996
                                                                       ------------          -----------
                                                                         (Restated)           (Restated)
<S>                                                                    <C>                   <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                             $(12,562,215)         $(8,266,080)
  Adjustment to reconcile net loss to net
    cash from operating activities:
    Depreciation and amortization                                           770,294              526,138
    Debt issue costs and discount on convertible debentures                 511,125                 --
    Provision for bad debts                                                 552,725              336,706
    Write off of affiliate receivable                                       166,384                 --
    Operating expenses through issuance of stock options                  1,319,412            6,374,468
    Gain on sale of marketable securities                                      --               (762,500)
    (Increase) decrease in operating assets:
      Accounts receivable                                                (1,857,662)          (1,870,866)
      Accounts receivable - affiliates                                       31,533              (31,533)
      Accounts receivable - long-term                                       283,603               22,138
      Inventories                                                          (998,271)          (1,420,393)
      Prepaid expenses and sundry receivables                              (860,457)            (976,664)
    Increase(decrease) in operating liabilities:
      Accounts payable                                                    1,601,074            1,514,465
      Accounts payable - affiliates                                          (1,541)               1,541
      Accrued expenses                                                      266,245              855,041
      Customer deposits                                                      92,763               38,874
                                                                       ------------          -----------

  NET CASH USED BY OPERATING ACTIVITIES                                 (10,684,988)          (3,658,665)
                                                                       ------------          -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of property and equipment                                  (3,431,375)            (932,066)
  Licensing agreement                                                      (352,036)                --
  Purchase of marketable securities                                            --               (200,000)
  Patents and trademarks                                                    (12,925)             (45,309)
  Goodwill                                                                 (299,837)                --
  Organization cost                                                            --                 (8,385)
  Collection of note receivable                                             448,857                 --
  Security deposits                                                         (23,776)             (19,952)
  Repayments from affiliates                                                   --                 34,592
  Repayment of loan receivable                                                2,896                 --
                                                                       ------------          -----------
  NET CASH USED BY INVESTING ACTIVITIES                                  (3,668,196)          (1,171,120)
                                                                       ------------          -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from short-term borrowings                                     9,198,821            2,069,828
  Proceeds from long-term borrowings                                        248,987                 --
  Principal payment of short-term borrowings                             (2,093,074)          (2,711,086)
  Principal payments of long-term borrowings                               (442,681)            (281,004)
  Issuance of common stock for cash                                       7,753,222            7,250,000
  Repayment from stockholder and officers                                    87,653              141,054
  Public offering expenses                                                     --               (680,098)
                                                                       ------------          -----------
  NET CASH PROVIDED BY FINANCING ACTIVITIES                              14,752,928            5,788,694
                                                                       ------------          -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH                                    (561,122)            (383,050)
                                                                       ------------          -----------
NET INCREASE (DECREASE) IN CASH                                            (161,378)             575,859
CASH AND CASH EQUIVALENTS - beginning of period                           3,252,685            2,676,826
                                                                       ------------          -----------

CASH AND CASH EQUIVALENTS - end of period                              $  3,091,307          $ 3,252,685
                                                                       ============          ===========
</TABLE>

                     The accompanying notes are an integral
                       part of these financial statements.

                                      F(5)
<PAGE>   34
                          SWISSRAY INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 1997 AND 1996



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 "C.G.S. Units, Inc." On May 23,
           1994, the Company acquired 100% of the outstanding securities of
           Direct Marketing Services, Inc., a company incorporated in the State
           of Delaware on June 3, 1993. On June 6, 1994, the Company merged with
           Direct Marketing Services, Inc. and the surviving corporation changed
           its name to DMS Industries, Inc. DMS Industries, Inc. was principally
           engaged in the promotion and sales of its proprietary brand of
           cigarettes on a commission basis. In May of 1995 the Company
           discontinued its operations and changed its name to Swissray
           International, Inc.

           PRINCIPLES OF CONSOLIDATION
           The accompanying consolidated financial statements include the
           accounts of Swissray International, Inc. (Parent), and its
           wholly-owned subsidiaries SR Medical AG and SR Management AG (both
           Swiss corporations), Swissray Corporation and Empower, Inc. (both
           U.S. corporations) and SR Medical AG's wholly-owned subsidiaries
           Teleray AG (a Swiss Corporation) and Swissray (Deutschland)
           Rontgentechnik GmbH (a German corporation). All material intercompany
           transactions and balances have been eliminated in consolidation.

           SR Medical AG (a Swiss corporation) was organized in 1988 and markets
           and services diagnostic x-ray medical equipment.

           Teleray AG (a Swiss corporation) was organized in 1994 and is engaged
           in research, development and assembly activities related to
           diagnostic x-ray medical equipment and accessories.

           Swissray (Deutschland) Rontgentechnik GmbH (a German corporation) was
           organized in 1988 and is engaged in sales and marketing of diagnostic
           x-ray medical equipment and accessories. The Company in 1997 changed
           its name from SR Medical GmbH to Swissray (Deutschland)
           Rontgentechnik GmbH.

           SR Management AG (a Swiss corporation) was organized in December of
           1995 as a service oriented company serving only the other companies
           within the consolidated group in the areas of consultation,
           bookkeeping, logistics, and employment services. The Company in 1997
           changed its name from SR Finance AG to SR Management AG.

           Swissray Corporation (a U.S. corporation) was organized in November
           of 1996 and is engaged in sales and marketing of diagnostic x-ray
           medical equipment and accessories.

           Empower, Inc. (a U.S. corporation) was organized in 1985 and was
           acquired by Swissray International, Inc. on April 1, 1997. The 
           Company is engaged in the sale of diagnostic x-ray supplies.

           See Note 30 - Subsequent Events

           BUSINESS ACQUISITION
           On April 1, 1997, Swissray International, Inc. exchanged 80,000
           shares of common stock at the then quoted market price of $120,000
           ($1.50 per share) for all the outstanding shares of Empower, Inc. The
           consolidated financial statements presented include the accounts of
           Empower, Inc., from April 1, 1997 (date of acquisition) to June 30,
           1997. The acquisition has been accounted for as a purchase. The
           contract requires the Company to repurchase the 80,000 shares of
           common stock at $4 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.

           BASIS OF ACCOUNTING
           The Company maintains its records on the accrual basis of accounting.
           Revenues are recognized when the products are delivered and expenses
           are recorded when incurred.



                                      F(6)
<PAGE>   35
                          SWISSRAY INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 1997 AND 1996




NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

           CERTAIN SIGNIFICANT RISK AND UNCERTAINTIES
           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.

           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 including significant betterments, are
           recorded at cost. Upon retirement or disposal of properties, the cost
           and accumulated depreciation are removed from the accounts, and any
           gain or loss is included in income. Maintenance and repair costs are
           charged to expense as incurred.

           DEPRECIATION
           Depreciation of property and equipment is provided for over the
           estimated useful lives of the respective assets. Depreciation is
           recorded on the straight-line method. The estimated useful lives of
           each asset category are as follows:

                                                                      Years

                 Automobiles                                           3
                 Equipment                                           5  - 10
                 Office furniture and equipment                      5  - 10
                 Office and leasehold improvements                     10
                 Building                                              40

           INTANGIBLE ASSETS
           Licensing agreement is stated at cost less imputed interest net of
           accumulated amortization computed on the straight-line method over
           its estimated economic life of 10 years. Amortization commenced on
           October 1, 1995 upon the initial sale of the Company's products
           within the defined territories of the agreement. Amortization
           expense, for the licensing agreement, for the years ended June 30,
           1997 and 1996 was $465,293 and $372,493, respectively.

           Patents and trademarks are stated at cost less accumulated
           amortization computed on the straight-line method over their
           estimated economic lives of 10 years. Amortization expense, for
           patents and trademarks, for the years ended June 30, 1997 and 1996
           was $26,940 and $28,001, respectively.

           Capitalized computer software is stated at cost less accumulated
           amortization computed on the straight-line method over its estimated
           useful lives of 5 to 8 years. Amortization commenced on January 1,
           1997. Amortization expense, for capitalized computer software, for
           the year ended June 30, 1997 was $34,512. No amortization expense has
           been provided for the year ended June 30, 1996.

           All costs incurred by the Company in connection with incorporation of
           subsidiaries have been capitalized and are being amortized over a
           period of sixty (60) months. Amortization expense, for organization
           cost, for the years ended June 30, 1997 and 1996 was $1,486 and $978,
           respectively.


                                      F(7)
<PAGE>   36
                          SWISSRAY INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 1997 AND 1996



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

           Goodwill has been recorded for the amount of cost in excess of fair
           value of the net assets of Empower, Inc. which was acquired in a
           purchase transaction on April 1, 1997. The goodwill is being
           amortized on a straight-line method over 10 years. Amortization
           charged to operations amounted to $9,023 for the year ended June 30,
           1997. No amortization was charged during the year ended June 30,
           1996.

           Debt issuance costs on convertible debentures are stated at cost less
           accumulated amortization computed on the straight-line method over
           the period from the date of issuance to the first available
           conversion date of the respective debenture. Amortization expense,
           charged to interest, was $200,566 for the year ended June 30, 1997.
           No amortization was charged during the year ended June 30, 1996.

           The Company reevaluates intangible assets based on expectations of
           cash flows and operating income to determine whether any potential
           impairment exists. If necessary, the Company writes down the recorded
           cost of the intangible asset to the fair value when recorded costs,
           prior to impairment, are higher.

           ADVERTISING AND PROMOTION
           Advertising and promotion cost are expensed as incurred and included
           in "Selling Expenses". Advertising and promotion expenses for the
           years ended June 30, 1997 and 1996 were $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. Research and
           development costs expended for the years ended June 30, 1997 and 1996
           were $5,786,158 and $1,731,502, respectively.

           DEFERRED INCOME TAXES
           Deferred income taxes are provided on a liability method whereby
           deferred income tax assets are recognized for deductible temporary
           differences and operating loss carryforwards and deferred income tax
           liabilities are recognized for taxable temporary differences.
           Temporary differences are the differences between the reported
           amounts of assets and liabilities and their tax bases. Deferred
           income tax assets are reduced by a valuation allowance when, in the
           opinion of management, it is more likely than not that some portion
           or all deferred tax assets will not be realized. Deferred income tax
           assets and liabilities are adjusted for the effects of changes in tax
           laws and rates on the date of enactment.

           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
           Loss per common share is computed by dividing the net loss by the
           weighted average number of shares of common stock outstanding during
           the periods. Convertible debentures, a common stock equivalent, were
           not included in the computations since the effect would be
           anti-dilutive.

           RECLASSIFICATIONS
           Certain reclassifications have been made to prior year's financial
           statements to conform to the June 30, 1997 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 the 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,
           while gains and losses resulting from foreign currency transactions
           are included in operations.


                                      F(8)
<PAGE>   37
                          SWISSRAY INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 1997 AND 1996



NOTE 2 - CONCENTRATION OF CREDIT RISK AND RISK ARISING FROM CASH DEPOSITS IN
           EXCESS OF INSURED LIMITS

           The Company sells its products to various customers primarily in
           Europe, Asia and Africa. 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 maintains reserves for potential credit
           losses and such losses have been within management's expectations.

           The Company maintains its cash balances with major United States,
           Swiss and German financial institutions. Funds on deposit with
           financial institutions in the United States are insured by the
           Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At
           June 30, 1997, all funds on deposit in the United States are insured.
           The cash balances at Swiss and German financial institutions are not
           insured. At June 30, 1997 and 1996, cash in the amount of $3,021,843
           and $3,252,685, respectively, was not insured.

NOTE 3 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

           The Company measures its financial assets and liabilities in
           accordance with generally accepted accounting principles. For certain
           of the Company's financial instruments, including cash and cash
           equivalents, trade and other accounts receivable, notes receivable,
           accounts payable, accrued expenses, notes and loans payable, the
           carrying amounts approximate fair value due to their short term
           maturities. The amounts shown for long-term receivables also
           approximate fair value.

           Investments in affiliated companies for which there is no quoted
           market price are accounted for by the equity method resulting in no
           carrying value which the Company considers a fair value.

NOTE 4 - ACCOUNTS RECEIVABLE - AFFILIATES

           The Company sells merchandise to affiliated sales companies in the
           normal course of business. No amounts were due to the Company at June
           30, 1997 whereas at June 30, 1996 the amounts due to the Company were
           $31,533.

NOTE 5 - 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.

NOTE 6 - INVENTORIES

           Inventories are summarized by major classification as follows:
<TABLE>
<CAPTION>
                                                             June 30,
                                                   -----------------------------
                                                       1997               1996
                                                   ----------         ----------
<S>                                                <C>                <C>       
         Raw materials, parts and supplies         $2,632,256         $1,854,322
         Work in process                              468,204            853,657
         Finished goods                               810,647            204,857
                                                   ----------         ----------

                                                   $3,911,107         $2,912,836
                                                   ==========         ==========
</TABLE>


                                      F(9)
<PAGE>   38
                          SWISSRAY INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 1997 AND 1996




NOTE 7  - PREPAID EXPENSES AND SUNDRY RECEIVABLES

             Prepaid expenses and sundry receivables consist of the following:
<TABLE>
<CAPTION>
                                                                             June 30,
                                                                 -----------------------------
                                                                      1997               1996
                                                                 ----------         ----------
<S>                                                              <C>                <C>       

         Prepaid expenses, deposits and advance payments         $  681,742         $  258,373
         Insurance claim for fire damage                            352,996               --
         Prepaid and refundable taxes                               888,169            806,138
         Employee loans                                              13,231              1,378
         Interest receivable                                           --                9,792
                                                                 ----------         ----------

                                                                 $1,936,138         $1,075,681
                                                                 ==========         ==========
</TABLE>

NOTE 8  - PROPERTY AND EQUIPMENT

             Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                            June 30,
                                                                  -----------------------------
                                                                     1997               1996
                                                                  ----------         ----------
<S>                                                               <C>                <C>       

         Land and building                                        $3,022,772         $     --
         Equipment                                                 1,223,572          1,031,849
         Office furniture and equipment                              161,223            121,404
         Office and leasehold improvements                           249,160            219,024
                                                                  ----------         ----------
                                                                   4,656,727          1,372,277
         Less:  Accumulated depreciation and amortization            320,110            233,995
                                                                  ----------         ----------
                                                                  $4,336,617         $1,138,282
                                                                  ==========         ==========
</TABLE>

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

NOTE 9  - DUE FROM STOCKHOLDERS

             The Company has made unsecured advances to its President (a
             principal stockholder) requiring interest only payments at 6% per
             annum. The balance at June 30, 1996 was $17,414 and by June 30,
             1997 had been repaid. Interest charged the stockholder for the
             years ended June 30, 1997 and 1996, was $891 and $12,530,
             respectively.

             The Company also 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. Interest charged to the stockholder
             for the year ended June 30, 1997 was $3,460.

NOTE 10 - DUE FROM AFFILIATE
             The Company has made non-interest bearing advances to Swissray
             Medical GmbH, Willich, an affiliated sales company. The balance due
             to the Company at June 30, 1996 was $166,384, which was written off
             in 1997.


                                     F(10)
<PAGE>   39
                          SWISSRAY INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 1997 AND 1996


NOTE 11 - 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 and 1996 was
             $240,912 and $1,038,693, respectively, after applying a discount
             for imputed interest and a provision for doubtful collection in the
             total amount of $814,178 and $300,000, respectively.

NOTE 12 - 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 660,000 shares of the
             Company's common stock. The cash payment requirement consisted of
             $900,000 upon the signing of the agreement and the $300,000 balance
             due on December 31, 1996. The fee has been discounted at 7.5% for
             imputed interest of $33,425 resulting in a net capitalized cost of
             $4,966,575. This agreement is for an indefinite term or until all
             of the proprietary information becomes public knowledge and the
             patent rights expire.

NOTE 13 - 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, 1997                 June 30, 1996
                                                                 ------------------------      ---------------------------
                                                   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., Bratislaua          34%          6,757            --             6,757             --
         Swissray Medical, s.r.o., Brno                34%          6,757            --             6,757             --
         Teleray s.r.o., Willich                       49%         38,403            --            28,362             --
         Teleray s.r.o., Brno                          34%          6,757            --             6,757             --
         Digitec GmbH, Neuss                           20%         59,641            --            11,484             --
                                                                  -------         -------         -------
         Total                                                   $135,207       $    --           $77,009         $   --
                                                                 ========       =========         =======         ========
</TABLE>

NOTE 14 - NOTES PAYABLE - BANKS

             The Company has negotiated a line-of-credit agreement with the
             Union Bank of Switzerland dated July 16, 1996 for $376,310, based
             on the exchange rate in effect on June 30, 1997, for borrowing
             availability in excess of cash balances on deposit with the bank.
             The bank is reducing the amount available in excess of the cash on
             deposit with the bank by $102,630 per month until October of 1997.

             The Company has also negotiated a line-of-credit agreement with the
             Swiss Bank Corporation for $1,505,240, based on the exchange rate
             in effect on June 30, 1997.

             Empower, Inc., a subsidiary, has 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 is reduced in the future by $25,000 per
             quarter terminating on December 31, 2001.



                                      F(11)
<PAGE>   40
                                           SWISSRAY INTERNATIONAL, INC.
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                              JUNE 30, 1997 AND 1996




NOTE 14 - NOTES PAYABLE - BANKS (CONTINUED)

             Notes payable are summarized as follows:
<TABLE>
<CAPTION>
                                                                                         June 30,
                                                                                 ---------------------------         
                                                                                    1997             1996
                                                                                 ----------       ----------

<S>                                                                              <C>              <C>  
         Union Bank of Switzerland, due on demand, with interest at 8% per
         annum, collateralized by the cash on deposit at Union Bank of
         Switzerland and accounts receivable. Cash balances on deposit at
         Union Bank of Switzerland at June 30, 1997 and 1996 were
         $2,805,747 and $1,596,200, respectively                                 $1,421,075       $2,069,828

         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. 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%, 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 the land and building                       1,368,400             --
                                                                                 ----------       ----------
                                                                                 $3,834,706       $2,069,828
                                                                                 ==========       ==========         
</TABLE>

NOTE 15 - LOAN PAYABLE

             The Company has negotiated a 5% demand loan from a private
             foundation fund. The loan balance payable at June 30, 1997 and 1996
             was $133,008 and $156,254, respectively.

NOTE 16 - 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.

             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.

             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.



                                     F(12)
<PAGE>   41
                          SWISSRAY INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 1997 AND 1996





NOTE 17 - CONVERTIBLE DEBENTURES

             Convertible debentures consist of the following:
<TABLE>
<CAPTION>

                                                                                          June 30,
                                                                                     1997              1996
                                                                                 -----------        ----------

<S>                                                                              <C>                <C>
         Convertible promissory note 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                                                           $ 2,000,000        $     --

         Convertible promissory 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. The
         remainder are convertible 30 days thereafter. Any debenture not so
         converted is subject to
         mandatory conversion on May 15, 2000                                      2,000,000              --

         Convertible promissory 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                                     2,000,000              --
                                                                                 -----------        ----------

                                                                                   6,000,000              --

         Less discount due to beneficial conversion features,
           net of accumulated amortization of $310,559                              (689,441)             --
                                                                                 -----------        ----------

                                                                                 $ 5,310,559        $     --
                                                                                 ===========        ==========
</TABLE>

             See Note 30 - Subsequent Events


                                     F(13)
<PAGE>   42
                          SWISSRAY INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 1997 AND 1996





NOTE 18 - LONG-TERM DEBT

             Long-term debt consists of the following:
<TABLE>
<CAPTION>
                                                                                         June 30,
                                                                                   1997           1996
                                                                                 --------       --------
<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                                                         $182,617       $   --

         Note payable - Thatcher Company of New York, in monthly
         installments of $855, including principal interest at 10.25%
         per annum, maturing on October 3, 2001, secured by various
         x-ray chemical mixing machines                                            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%, expiring on September 30, 2000                 450,417           --

         Capitalized leases related to the acquisition of various
         computer and office equipment in 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 secured by 
         the specific equipment leased                                             30,747           --

         Note payable - Dr. Zeman-Wiegand Helga,
         due on demand, requires interest only
         payments at 7% per annum with no current
         amortization required                                                     68,420         87,070

         Note payable - Carba, AG, due July 1, 1996, requiring interest
         only payments at 6% per annum with no current amortization 
         required                                                                    --          293,426

         Note payable - Carbamed-Ruegge Reduktion, due July 1, 1996,
         requiring interest only payments at 6% per annum with no
         current amortization required                                               --          130,605
                                                                                 --------       --------
                                                                                  767,824        511,101
         Less:  Current portion                                                   243,135        511,101
                                                                                 --------       --------
                                                                                 $524,689       $   --
                                                                                 ========       ========
</TABLE>

                                      F(14)
<PAGE>   43
                          SWISSRAY INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 1997 AND 1996


NOTE 18 - LONG-TERM DEBT (CONTINUED)

             The aggregate long-term debt payment are as follows:
<TABLE>
<CAPTION>
                 Years Ending
                    June 30,
                 ------------
<S>                                                                            <C>        
                      1998                                                     $   243,135
                      1999                                                         180,834
                      2000                                                         190,321
                      2001                                                          99,889
                      2002                                                          43,134
                      Thereafter                                                    10,511
                                                                               -----------
                                                                               $   767,824
                                                                               ===========
</TABLE>

NOTE 19 - COMMON STOCK

          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. See Note 30
          - Subsequent Events.

          The Company's outstanding shares of common stock of $.01 par value at
          June 30, 1997 and 1996 were 19,694,433 and 14,185,064, respectively.

NOTE 20 - ISSUANCE OF COMMON STOCK FOR CASH

          The Company issued 5,358,759 shares for $7,753,222 (including 161,000
          shares for $117,530 issued under stock option plan) for the year ended
          June 30, 1997 and 2,150,000 shares for $7,250,000 (includes 1,050,000
          shares for $2,050,000 issued under stock option plan) for the year
          ended June 30, 1996.

NOTE 21 - PENSION AND EMPLOYEE BENEFIT PLANS

          The Swiss and Germany Subsidiaries, mandated by government
          regulations, are required to contribute approximately five (5%)
          percent of eligible, as defined, employees' salaries into a government
          pension plan. The subsidiaries also contribute approximately five (5%)
          percent of eligible employee salaries into a private pension plan.
          Total contributions charged to operations for the years ended June 30,
          1997 and 1996, were $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 substantially 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, 1997 was $4,185.

          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.


                                      F(15)
<PAGE>   44
                          SWISSRAY INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 1997 AND 1996


NOTE 22 - OTHER INCOME (EXPENSES)
<TABLE>
<CAPTION>
                                                             Year Ended June 30,
                                                             -------------------
                                                             1997           1996
                                                           ---------      ---------
<S>                                                        <C>            <C>      
         Interest income                                   $  68,950      $ 131,166
         Interest income - stockholder and officer             4,351         12,530
         Foreign currency income                             484,846        377,587
         Miscellaneous income                                  6,833            512
         Loss from investments                              (246,217)          --
         Interest expense                                   (759,853)      (193,930)
         Interest expense - stockholder                       (2,315)          --
         Licensing income                                       --          482,138
                                                           ---------      ---------

         TOTAL OTHER INCOME (EXPENSES)                     $(443,405)     $ 810,003
                                                           =========      =========
</TABLE>

NOTE 23 - INCOME TAXES

             Deferred income tax assets as of June 30, 1997 and 1996 of
             $7,122,142 and $4,499,614, respectively, 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,
                                                           ----------------------------
                                                              1997             1996
                                                           -----------      -----------
<S>                                                        <C>              <C>         
         Statutory federal income tax (benefit)            $(4,101,913)     $(3,077,078)
         State and foreign income tax                           79,296             --
         Foreign income tax (benefit) in
           excess of domestic rate                             509,203         (325,715)
         Benefit not recognized on operating loss              114,233             --
         Valuation allowance                                 2,622,528        3,038,145
         Permanent, timing and other differences               886,886             --
                                                           -----------      -----------

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

          Net operating loss carryforwards at June 30, 1997 were approximately
          as follows:
<TABLE>

<S>                                                                       <C>        
                   United States (expiring through June 30, 2012)         $12,300,000
                   Switzerland (expiring through June 30, 2007)            15,200,000
                                                                          -----------
                                                                          $27,500,000
                                                                          ===========
</TABLE>

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

          No income tax benefit has been recognized related to the extraordinary
          loss incurred as a result of fire damage for the year ended June 30,
          1997.


                                      F(16)
<PAGE>   45
                          SWISSRAY INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 1997 AND 1996





NOTE 24 - 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 $419,500 ($.03 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
             $387,514 ($.02) per share), net of income taxes of $-0-.

NOTE 25 - SUPPLEMENTAL CASH FLOW INFORMATION

             Cash payments for the years ended June 30, 1997 and 1996, include
             interest of $122,427 and $193,930, respectively, and income taxes
             of $56,562 and $-0-, respectively.

             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-compensation 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.

             During 1997, the Company issued 70,610 shares of common stock in
             the amount of $132,950 in lieu of interest payments due on
             convertible debentures.

             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 80,000 shares of common stock at the then quoted market
             price of $120,000 ($1.50 per share). This transaction was accounted
             for as a purchase.

             On May 15, 1997 and June 13, 1997, the Company issued convertible
             promissory 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.

NOTE 26 - STOCK OPTIONS
             The Board of Directors, on January 30, 1996, adopted a
             non-statutory stock option plan and reserved 3,000,000 shares for
             issuance to eligible full and part-time employees, officers,
             directors and consultants. Options are non-transferrable and are
             exercisable during a term of not more than ten (10) years from the
             grant date. The options are issuable in such amounts and at such
             prices as determined by the Board of Directors, except that each
             option price of each grant will not be less than twenty (20%)
             percent of the fair value of such shares on the date the options
             are granted.


                                      F(17)
<PAGE>   46
                          SWISSRAY INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 1997 AND 1996


NOTE 26 - STOCK OPTIONS (CONTINUED)

             The following table summarizes the non-statutory stock options
outstanding as of June 30, 1997.
<TABLE>
<CAPTION>
                                         Option         Grant
                                        Price Per      Date Fair       Options        Options         Options
                  Date Granted            Share         Value          Granted        Exercised      Outstanding
              -----------------         ---------      ---------       ---------     ----------      -----------
<S>                                     <C>            <C>             <C>           <C>              <C>
               March 11, 1996             $1.00         $4.81             50,000         50,000          -
               March 11, 1996              2.00          4.81          2,000,000      1,000,000       1,000,000
               July 22, 1996                .73          3.63            200,000        151,000          49,000
               January 24, 1997            4.00          2.47            125,000         -              125,000
               January 24, 1997            3.50          2.47            150,000         -              150,000
               April 4, 1997               1.00          1.38             50,000         -               50,000
               June 13, 1997                .73          2.87            270,000         10,000         260,000
                                                                       ---------      ---------       ---------
                                                                       2,845,000      1,211,000       1,634,000
                                                                       =========      =========       =========
</TABLE>

             The Company has also issued other stock options as follows:
<TABLE>
<CAPTION>
                                          Option        Grant
                                        Price Per      Date Fair       Options         Options         Options
                  Date Granted            Share         Value          Granted        Exercised      Outstanding
               -----------------        ---------      ---------       --------       ---------      -----------
<S>                                     <C>            <C>             <C>            <C>              <C>    
               September 20, 1995         $6.50          $6.50          200,000           -            200,000
               June 8, 1996                5.00           6.32          100,000           -            100,000
               May 16, 1996                4.75           6.76           35,000           -             35,000
                                                                       --------       ---------        -------
                                                                        335,000           -            335,000
                                                                       ========       =========        =======
</TABLE>

NOTE 27 - SIGNIFICANT CUSTOMER AND GEOGRAPHIC AREAS

             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, 1997 and 1996 were as
             follows:
<TABLE>
<CAPTION>
                                                                             1997         1996
                                                                         -----------    ---------

<S>                                                                     <C>            <C>       
               United States                                             $ 2,000,608   $        -
               Switzerland                                                 2,184,161     2,002,374
               Germany                                                     1,393,072     4,976,503
               Other export sales                                          7,573,860     3,920,345
                                                                         -----------   -----------
                                                                         $13,151,701   $10,899,222
                                                                         ===========   ===========
</TABLE>

             The following summarizes customers sales in excess of 10% or more
             of the total revenues for the years ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
                                          1997            1996
                                      ----------      ----------
<S>                                   <C>             <C>
         Largest customers:
           Sales                      $4,288,697      $4,499,893
           Percentage                         33%             41%
           Number of customers                 2               3

         Single largest customer:
           Sales                      $2,389,613      $1,603,631
           Percentage                         18%             15%
</TABLE>



                                      F(18)
<PAGE>   47
                          SWISSRAY INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 1997 AND 1996




NOTE 27 - SIGNIFICANT CUSTOMER AND GEOGRAPHIC AREAS (CONTINUED)

             The accounts receivable balance at June 30, 1997 from the two
             largest customers amounted to approximately $1,150,800 representing
             approximately 22% of total trade accounts receivable with the
             single largest customer balance of approximately $835,700
             representing approximately 16% of total trade receivables. The
             accounts receivable balance at June 30, 1996 from the three largest
             customers amounted to approximately $1,650,000 representing
             approximately 48% of total trade accounts receivable with the
             single largest customer balance of approximately $1,500,000
             representing approximately 44% of total trade accounts receivable.

             The following summarizes operating losses before provision for
             income tax by geographic areas for the years ended June 30, 1997
             and 1996:
<TABLE>
<CAPTION>
                                                       1997             1996
                                                  ------------      -----------
<S>                                               <C>               <C>      
         United States                            $   (175,254)     $      --
         Switzerland                               (11,555,827)      (8,986,555)
         Germany                                      (333,397)         (63,673)
                                                  ------------      -----------
                                                  $(12,064,478)     $(9,050,228)
                                                  ============      ===========
</TABLE>

             The following summarizes identifiable assets by geographic area:
<TABLE>
<CAPTION>
                                                              June 30,
                                                   ----------------------------
                                                          1997            1996
                                                   -----------     -----------
<S>                                                <C>             <C>        
         United States                             $ 2,028,307     $      --
         Switzerland                                22,011,388      18,129,362
         Germany                                       748,539         664,076
                                                   -----------     -----------
                                                   $24,788,234     $18,793,438
                                                   ===========     ===========
</TABLE>

NOTE 28 - COMMITMENTS

             The Company leases various facilities and vehicles under operating
             lease agreements expiring through September 2002. The Company has
             excluded all vehicle leases in the schedule below because they are
             deemed to be immaterial. The facilities lease agreements provide
             for a base monthly payment of $20,767 per month. Rent expense for
             the years ended June 30, 1997 and 1996 was $297,926 and $242,658,
             respectively.

             Future minimum annual lease payments, based on the exchange rate in
             effect on June 30, 1997, under the facilities lease agreements are
             as follows:
<TABLE>
<CAPTION>
                  Year Ended
                    June 30,
                  ----------
<S>                                                         <C>
                     1998                                   $249,212
                     1999                                    179,612
                     2000                                    165,512
                     2001                                    110,869
                     2002                                     98,525
                     Thereafter                               24,631
</TABLE>


                                     F(19)
<PAGE>   48
                          SWISSRAY INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 1997 AND 1996




NOTE 28 - COMMITMENTS (CONTINUED)

             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, 1997, future minimum
             payments under this contract, which is cancelable with four months
             notice, are as follows:
<TABLE>
<CAPTION>
                  Years Ending
                     June 30,
                  -------------
<S>                                                         <C>        
                        1998                                $ 4,337,130
                        1999                                  5,250,210
                        2000                                  1,902,250
                                                            -----------
                        Total minimum contract payments     $11,489,590
                                                            ===========
</TABLE>

             The Company's total purchases under this agreement was $1,534,646
             for the year ended June 30, 1997.

NOTE 29 - LITIGATION

             On or about July 7, 1995, the Company commenced litigation against
             a former officer and director of a corporate predecessor alleging
             certain improprieties on the part of such officer and seeking
             monetary compensation as a result thereof. Such defendant responded
             (in September 1995) by filing certain affirmative defenses and
             counterclaims against the Company and others and subsequently
             brought (together with certain of his family members) an action
             against the Company in the same court which action raised issues
             and claims substantially similar to those raised in the aforesaid
             counterclaims. The two actions were assigned to the same judge and
             the Company moved successfully to dismiss both the counterclaims
             and the second action. Leave to replead both claims were granted
             and amended counterclaims and an amended complaint were served and
             filed and the Company again successfully moved to dismiss both
             pleadings. Following the most recent dismissal, counsel for the
             Company and the aforesaid former officer entered into settlement
             discussions. Both the Company and defendant have dismissed all
             claims and counter claims against each other.

NOTE 30 - SUBSEQUENT EVENTS

             From July 1997 to February 1998, 169,000 non-statutory stock
             options were exercised for $123,370 ($.73 per share).

             On July 31, 1997, the Company issued $4,262,500 of 7% 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. (See Note 17 - Convertible Debentures.) 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.
             One-half of the debentures are convertible at the earlier of a
             registration effective date or September 14, 1997. The remainder
             are convertible 30 days thereafter. Any debenture not so converted
             is subject to mandatory conversion on July 31, 2000.

             On August 19, 1997, the Company issued $5,000,000 of convertible
             debentures due August 19, 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 November 3, 1997. The remainder are convertible
             30 days thereafter. Any debenture not so converted is subject to
             mandatory conversion in August 19, 2000. The Company received cash
             proceeds of $4,293,750, net of related costs of $706,250.



                                      F(20)
<PAGE>   49
                          SWISSRAY INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 1997 AND 1996


NOTE 30 - SUBSEQUENT EVENTS (CONTINUED)

             On or about October 15, 1997, the Company and Swissray Healthcare,
             Inc. were served with a complaint by a company engaged in the
             business of providing services related to imaging equipment
             alleging benefit from breach of fiduciary and contractual duties
             and misappropriation of trade secrets by certain former employees
             of such competitor. Such company also obtained a preliminary
             injunction and a temporary restraining order against the Company
             and Swissray Healthcare, Inc. On November 10, 1997, the preliminary
             injunction and the temporary restraining order were vacated. The
             Company denies the allegations, intends to vigorously defend the
             litigation, and believes the ultimate outcome thereof will not have
             a material adverse effect upon the Company's results of operations
             or financial position. The Company believes that the complaint is
             without merit.

             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. 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) 333,333 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 approximately $2,000,000. The
             contract requires the Company to repurchase the 333,333 common
             shares at $4.50 per share during the period June 30, 1998 to April
             17, 1999 at the option of the former owners of SSG.

             Between November 26, 1997 and December 11, 1997, the Company issued
             $5,848,285 of 8% convertible debentures, due twenty-four (24)
             months from the date of issuance. The Company received cash
             proceeds in the amount of $3,000,000 net of related costs of
             $690,000. The Company refinanced $1,850,000 of the August 19, 1997
             debentures (including accrued interest) with the remaining
             $2,158,285 in debentures. 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. The remainder are convertible in additional
             twenty-five percent (25%) portions every 30 days thereafter. Any
             debenture not so converted is subject to mandatory conversion
             twenty-four (24) months from the date of issuance.

             On December 18, 1997, the United States Food and Drug
             Administration approved the Add On-Multi-System for marketing in
             the United States.

             On December 18, 1997, the Company entered into employment
             agreements ranging in term from three to five years with various
             management employees of the Company.

             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, on December 23, 1997, adopted a 1997 non-statutory
             stock option plan and reserved 2,000,000 shares for issuance to
             eligible full and part-time employees, officers, directors and
             consultants. Options are non-transferrable and are exercisable
             during a term of not more than ten (10) years from the grant date.
             The options are issuable in such amounts and at such prices as
             determined by the Board of Directors, except that each option price
             of each grant will not be less than the fair market value of such
             shares on the date the options are granted.

             Effective February 4, 1998, the Company restructured its Swiss
             operations. A newly formed company, Teleray Research and
             Development AG, was founded as a spin-off of the development
             department of Teleray AG. SR Medical AG, a wholly-owned subsidiary
             of the Company which was renamed SR Medical Holding AG, sold all of
             the assets and liabilities of the sales and service department to
             Teleray AG, a wholly-owned subsidiary of the Company which was
             renamed SR Medical AG.

             On February 11, 1998, the Company signed a letter of intent with
             E.M. Parker, Inc. for the sale of Empower, Inc.'s film and x-ray
             accessories business. The terms of the transaction are currently
             being negotiated and the Company expects to complete the
             transaction during the current fiscal year.

                                      F(21)
<PAGE>   50
                          SWISSRAY INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 1997 AND 1996






NOTE 31 - RESTATEMENT

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

          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   $ 1,161,462     $ 16,327,360    $  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)   (1,672,587)     (12,174,701)     (2,311,112)    (6,374,468)    (8,685,580)
             Net loss                     (10,889,628)   (1,672,587)     (12,562,215)     (1,891,612)    (6,374,468)    (8,266,080)

             Net loss per common share   $       (.69)  $      (.10)    $       (.79)   $       (.15)   $      (.49)  $       (.64)
</TABLE>


             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)
                                                                     ------------      ------------

                                                                     $ 35,780,409      $(26,855,631)
                                                                     ============      ============
</TABLE>


                                     F(22)
<PAGE>   51
                          SWISSRAY INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 1997 AND 1996



NOTE 32 - UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

             The following unaudited proforma condensed combined statements of
             operations for the years ended June 30, 1997 and 1996 give
             retroactive effect of the acquisition of Empower, Inc. on April 1,
             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 STATEMENT OF OPERATIONS
                        FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
                                                      Swissray                                             Proforma
                                                 International, Inc.    Empower, Inc.   Adjustments       As Adjusted
                                                 -------------------   -------------   ------------      ------------
                                                                      
<S>                                              <C>                    <C>             <C>              <C>         
         Revenues                                  $ 11,133,745        $ 8,071,824      $   --           $ 19,205,569
                                                                      
         Loss before                                                  
           extraordinary                                              
           items                                   $(12,115,767)       $  (235,736)     $(36,000)(1)     $(12,387,503)
                                                                      
         Net loss                                  $(12,503,281)       $  (235,736)     $(36,000)(1)     $(12,775,017)
                                                                      
         Loss per share                                                                                  $       (.80)
                                                                      
         Weighted average number                                      
           of shares outstanding                                                                           15,877,571    
</TABLE>

                                                                    
                          SWISSRAY INTERNATIONAL, INC.
          UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
                        FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
                                                      Swissray                                            Proforma
                                                   International, Inc.  Empower, Inc.  Adjustments       As Adjusted
                                                   -------------------  -------------  -----------       -----------
<S>                                                <C>                  <C>            <C>              <C>         
         Revenues                                  $ 10,899,222         $8,813,949     $   --           $ 19,903,871
                                                                      
         Income (loss) before                                         
           extraordinary                                              
           items                                   $ (8,685,580)        $   30,536     $(36,000)(1)     $ (8,691,044)
                                                                      
         Net income (loss)                         $ (8,266,080)        $   30,536     $(36,000)(1)     $ (8,271,544)
                                                                      
         Loss per share                                                                                 $       (.63)
                                                                      
         Weighted average number                                      
           of shares outstanding                                                                          13,054,749       
</TABLE>
                                                                      
        (1)  Adjustment to record amortization of goodwill    



                                      F(23)
<PAGE>   52
ITEM 8.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
              FINANCIAL DISCLOSURE

         No disagreements with accountants on accounting and financial
disclosure matters existed during the Company's fiscal year ended June 30, 1997.

                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

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


<TABLE>
<CAPTION>
           NAME                 AGE                                   POSITION(S) HELD
<S>                             <C>     <C>
Ruedi G. Laupper                47      Chairman of the Board of Directors, President and Chief Executive
                                        Officer
Josef Laupper                   52      Secretary, Treasurer and  Director
Ueli Laupper                    27      Vice President International Sales and Director
Dr. Erwin Zimmerli              50      Director
Herbert Laubscher               31      Chief Financial Officer
</TABLE>

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

         Ruedi G. Laupper is the brother of Josef Laupper and the father of
Ueli Laupper and has been President and a director of the Registrant
since May, 1995 and Chairman of the Board of Directors since March 1997. In
addition, he is Chairman of the Board of Directors and President of the
Company's principal operating subsidiaries. Ruedi G. Laupper is the founder of
the predecessors of the Company and was Chief Executive Officer of SR-Medical AG
until May 1995. He has approximately 22 years of experience in the field of
radiology.

         Josef Laupper is the brother of Ruedi G. Laupper and the uncle of Ueli
Laupper and has been Secretary, Treasurer and a director of the Registrant since
May, 1995. He has held comparable positions with SR-Medical AG, Teleray AG and
their respective predecessors since 1990. He is principally in charge of the
Company's administration. Josef Laupper has approximately 18 years of experience
within the medical device business.

         Ueli Laupper, 27 years of age, is the son of the Company's President
and the nephew of Josef Laupper. Ueli Laupper has overall Company
responsibilities in the area of international marketing and sales with
approximately seven years of experience within the international X-ray market.
He has been Vice President of International Sales since March, 1997 and a
director of the Company since March, 1997. He was Chief Executive Officer of SR
Medical AG from July 1995 until June 30, 1997.

         Erwin Zimmerli has been a director of the Company since May, 1995.
Since receiving his Ph.D. degree in law and economics from the University of St.
Gall, Switzerland in 1979, Zimmerli has served as head of the White Collar Crime
Department of the Zurich State Police (1980-86), an expert of a Swiss
Parliamentary Commission for penal law and Lecturer at the Universities of St.
Gall and Zurich (1980-87), Vice President of an accounting firm (1987-1990) and
Executive Vice President of a multinational aviation company (1990-92). Since
1992 he has been actively engaged in various independent consulting capacities
primarily within the Swiss legal community.


                                      


                                      -28-
<PAGE>   53

<PAGE>   54
         Herbert Laubscher joined the Company as a manager responsible for
finance and controlling on August 2, 1996. He was appointed Chief Financial
Officer of the Registrant on September 15, 1997. Herbert Laubscher obtained his
graduate degree in business administration from the University of St. Gall,
Switzerland in October 1992. From October 1992 until June 1995 he was an
accountant with Price Waterhouse in Zurich. Prior to joining the Company he
served as group financial officer of AZ Zibatra Holding GmbH in Leipzig,
Germany.


             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

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




ITEM 10. EXECUTIVE COMPENSATION

         The following Summary Compensation Table sets forth certain information
for the years ended June 30, 1995, 1996 and 1997 concerning the cash and
non-cash compensation earned by or awarded to the Chief Executive Officer of the
Registrant, the three other most highly compensated executive officers of the
Registrant as of 1997 and the former Chairman of the Board of Directors:

                           Summary Compensation Table


<TABLE>
<CAPTION>
                                                               ANNUAL COMPENSATION                LONG-TERM COMPENSATION
                                                       ------------------------------------     --------------------------
                                             FISCAL                            OTHER ANNUAL      STOCK          ALL OTHER
    NAME AND PRINCIPAL POSITION               YEAR      SALARY        BONUS    COMPENSATION     OPTIONS       COMPENSATION
-----------------------------------------    ------    --------       -----    ------------     -------       ------------
<S>                                          <C>       <C>            <C>      <C>              <C>           <C>
Ruedi G. Laupper                              1997     $146,983         --        $15,000(2)    120,000(6)          --
   President and Chief Executive Officer      1996     $161,085         --        $15,000(2)         --             --
   Chairman of the Board of Directors         1995     $ 50,555(1)      --             --            --             --

Josef Laupper                                 1997     $ 96,861         --        $12,000(2)         --             --
   Secretary, Treasurer                       1996     $106,229         --        $12,000(2)         --             --
                                              1995     $ 50,555(1)      --             --            --             --

Ueli Laupper                                  1997           --         --             --            --             --
   Vice President International Sales (3)     1996           --         --             --            --             --
                                              1995           --         --             --            --             --

Herbert Laubscher                             1997           --         --             --            --             --
   Chief Financial Officer (3) (4)            1996           --         --             --            --             --
                                              1995           --         --             --            --             --
</TABLE>


                                      -29-
<PAGE>   55
<TABLE>
<S>                                          <C>       <C>            <C>      <C>              <C>           <C>
Ulrich Ernst (5)                             1997      $ 96,979         --     $10,000(2)          --             --
                                             1996      $ 98,197         --     $15,000(2)          --             --
                                             1995            --         --          --             --             --
</TABLE>

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

(1)  In 1995, the Registrant changed its fiscal year end from December 31 to
     June 30. As a result, the Registrant had a fiscal year beginning on January
     1, 1995 and ending on June 30, 1995. Accordingly, the salaries listed for
     fiscal year 1995 were for a six-month period. The salaries for each of
     Ruedi G. Laupper and Josef Laupper for the twelve-month period ending June
     30, 1995 were $101,110 and $101,110 respectively.

(2)  Fees for service on the Board of Directors of the Registrant.

(3)  Compensation did not exceed $100,000 in any fiscal year.

(4)  Herbert Laubscher joined the Registrant on August 2, 1996.

(5)  Ulrich Ernst was Chairman of the Board of Directors from May, 1995 until
     March 18, 1997.

(6)  The options, which were fully vested on date of grant (6/13/97), were 
     issued in exchange for services to the Registrant as Chairman of the Board
     of Directors.


                   STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

         The following tables set forth certain information concerning the grant
of options to purchase shares of the Common Stock to each of the executive
officers of the Registrant, as well as certain information concerning the
exercise and value of such stock options for each of such individuals. Options
generally become exercisable upon issuance and expire no later than ten years
from the date of grant.


         STOCK OPTIONS GRANTED IN FISCAL YEAR ENDED JUNE 30, 1997 (1)



<TABLE>
<CAPTION>
                                                    Percent
                                                    of Total
                                Number of           Options
                               Securities          Granted to                         Market
                               Underlying          Employees        Exercise or      Price on
                                 Options           in Fiscal         Base Price       Date of       Expiration
           Name                  Granted              Year           Per Share       Grant (4)         Date
--------------------           ----------          ----------       -----------      ---------      ----------
<S>                            <C>                 <C>              <C>              <C>            <C>  
Ruedi G. Laupper               120,000(2)             30.4%            $0.73(3)        $2.94          6/13/02
Josef Laupper(5)                    __                  __                __              __               __
Ueli Laupper(5)                     __                  __                __              __               __
Herbert Laubscher(5)                __                  __                __              __               __
Ulrich Ernst(5)(6)                  __                  __                __              __               __
</TABLE>

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

(1)  The options to purchase the Registrant's Common Stock were granted under
     the Swissray International, Inc. 1996 Non-Statutory Stock Option Plan.

(2)  These options were owned indirectly through SR Medical Equipment Ltd., a
     corporation wholly owned by Mr. Laupper. They were immediately exercisable
     on the date of grant.

(3)  The exercise price per share is contingent on purchase of the entire amount
     of Securities.

(4)  The market price on date of grant was based on the average of the high and
     low reported prices on the Nasdaq SmallCap Market on June 13, 1997.

(5)  These individuals own no stock options of the Registrant.

(6)  Mr. Ernst was Chairman of the Board of Directors from May, 1995 until March
     18th, 1997.


                                      -30-
<PAGE>   56
               AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                             FY-END OPTION VALUES(1)


<TABLE>
<CAPTION>
                                                                                               VALUE OF
                                                 NUMBER OF SECURITIES                        UNEXERCISED
                                                UNDERLYING UNEXERCISED                       IN-THE-MONEY
                                              OPTIONS AT FISCAL YEAR-END                      OPTIONS AT
                                                         (#)                             FISCAL YEAR-END ($)
                 Name                         EXERCISABLE/UNEXERCISABLE               EXERCISABLE/UNEXERCISABLE
--------------------------------------        --------------------------              -------------------------
<S>                                           <C>                                     <C>   
CEO Ruedi G. Laupper                                120,000/0 (2)                              $1.79/0
Josef Laupper(3)                                         0/0                                     0/0
Ueli Laupper(3)                                          0/0                                     0/0
Herbert Laubscher(3)                                     0/0                                     0/0
Ulrich Ernst(3)(4)                                       0/0                                     0/0
</TABLE>
---------------

(1)  No options were exercised by a Named Executive Officer during the fiscal
     year ended June 30, 1997.

(2)  Includes 120,000 options which are owned indirectly by Mr. Laupper through
     SR Medical Equipment Ltd., a corporation which is wholly owned by Mr.
     Laupper.

(3)  These individuals own no stock options of the Registrant.

(4)  Mr. Ernst was Chairman of the Board of Directors from May 1995 until March
     18, 1997.


                              DIRECTOR COMPENSATION

         Directors of the Registrant receive $10,000 annually for serving as
directors except for Josef Laupper, who receives $12,000 and Ruedi Laupper, the
Chairman of the Board of Directors, who receives $15,000. Ruedi Laupper also
received options to acquire 120,000 shares of the Registrant's common stock on
June 13, 1997 in exchange for services to the Registrant as Chairman of the
Board of Directors. The exercise price for such options is $.73 per share. The
options were fully vested on the date of grant.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of June 30, 1997 (except where otherwise noted)
with respect to (a) each person known by the Registrant to be the beneficial
owner of more than five percent of the outstanding shares of Common Stock, (b)
each director of the Registrant, (c) the Registrant's executive officers and (d)
all officers and directors of the Registrant as a group (except as indicated in
the footnotes to the table, all of such shares of Common Stock are owned with
sole voting and investment power):


<TABLE>
<CAPTION>
                                               Number            Percentage
                                             of Shares           of Shares
                                           Beneficially         Beneficially
   Name of Beneficial Owner (1)                Owned               Owned
---------------------------------          ------------         ------------
<S>                                        <C>                  <C>  
CEO Ruedi G. Laupper (2)                     4,102,590              18.2%
Josef Laupper (3)                              500,000               2.2%
Ulrich R. Ernst (4) (5)                        500,000               2.2%
Erwin Zimmerli (6)                              50,000                *
Ueli Laupper                                         0                --
Herbert Laubscher                                    0                --
Thomson Kernaghan & Co. Ltd. (7)             1,704,347               7.6%
                                             ---------              ----
All directors and officers as a group        5,152,590
<6 PERSONS>
</TABLE>


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

*   Represents less than 1%.

(1)  The address of each such person is c/o Swissray International, Inc., 200
     East 32nd Street, Suite 34-B, New York, NY 10016.

(2)  Includes (i) 300,000 shares owned indirectly by Mr. Laupper through SR
     Medical Equipment Ltd., a corporation which is wholly owned by Mr. Laupper;
     (ii) 3,682,590 shares owned indirectly by Mr. Laupper through Tomlinson
     Holding, Inc., a corporation which is wholly owned by Mr. Laupper and (iii)
     120,000 shares which may be acquired


                                      -31-
<PAGE>   57
     upon exercise of immediately exercisable options, which options are owned
     indirectly by Mr. Laupper through SR Medical Equipment Ltd., a corporation
     which is wholly owned by Mr. Laupper.

(3)  Includes 500,000 shares owned indirectly by Mr. Laupper through Lairy
     Investment Inc., a corporation of which Mr. Laupper is a majority
     shareholder.

(4)  Includes 500,000 shares owned indirectly by Mr. Ernst through a corporation
     of which Mr. Ernst is a majority shareholder.

(5)  Mr. Ernst was Chairman of the Board of Directors from May 1995 until March
     18, 1997.

(6)  Includes 50,000 shares which may be acquired upon exercise of immediately
     exercisable options.

(7)  Includes 1,704,347 shares which may be issued upon conversion of
     previously-issued convertible debentures (the "Convertible Debentures")
     assuming conversion based on the last reported sales price on October 17, 
     1997. Fifty percent of the Convertible Debentures are convertible into 
     shares of common stock of the Registrant at any time after November 3, 
     1997 and the remaining fifty percent of the Convertible Debentures are 
     convertible, into shares of common stock of the Registrant at any time 
     after December 3, 1997.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Registrant issued 482,590 shares of Common Stock to a company
controlled by Ruedi G. Laupper pursuant to an agreement between Mr. Laupper and
the Registrant, dated as of June 30, 1997, in consideration of Mr. Laupper's
agreement to the temporary cancellation of 1,608,633 shares of Common Stock held
by Mr. Laupper or companies controlled by him to enable 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 of the number of authorized shares of Common Stock from 15,000,000 to
30,000,000.

         The Company made unsecured advances to its former Chairman of the Board
of Directors (a principal stockholder) during the fiscal year ended June 30,
1997 requiring interest at 6% per annum. The balance at June 30, 1997 was
$69,587. Interest charged to the stockholder for the fiscal year ended June 30,
1997 was $3,460.

                                      -32-
<PAGE>   58
ITEM 13.      EXHIBITS, LIST AND REPORTS ON FORM 8-K

         (a)  LIST OF EXHIBITS

EXHIBIT NO.                         DESCRIPTION
-----------                         -----------

2.1            Acquisition Agreement, dated May 1995, by and between
               Registrant, a New York corporation (now SWISSRAY International,
               Inc.); Berkshire International Finance, Inc., SR-Medical AG (a
               Swiss corporation), Teleray AG (a Swiss corporation) and others
               (Incorporated by reference to Exhibit 1 of the Registrant's
               Registration Statement on Form 10SB, Registration No. 0-26972,
               effective February 14, 1996).

2.2            Exchange Agreement, dated as of November 22, 1996 by and between
               the Registrant and Doug Maxwell; Registration Rights
               Agreement, dated as of March 13, 1997, between the Registrant and
               Doug Maxwell; Assignment and Assumption Agreement, dated March
               13, 1997, between the Registrant and Doug Maxwell; Option
               Agreement, dated January 24, 1997, granting options for 125,000
               shares of the Registrant to Doug Maxwell.

3.1            Registrant's Certificate of Incorporation, dated December 20,
               1967 (Incorporated by reference to Exhibit 2(a) of the
               Registrant's Registration Statement on Form 10SB, Registration
               No. 0-26972, effective February 14, 1996).



3.2            Amendment to Registrant's Certificate of Incorporation, dated
               September 19, 1968 (Incorporated by reference to Exhibit 2(b) of
               the Registrant's Registration Statement on Form 10SB,
               Registration No. 0-26972, effective February 14, 1996)

3.3            Amendment to Registrant's Certificate of Incorporation, dated
               September 8, 1972 (Incorporated by reference to Exhibit 2(c) of
               the Registrant's Registration Statement on Form 10SB,
               Registration No. 0-26972, effective February 14, 1996)

3.4            Amendment to Registrant's Certificate of Incorporation, dated
               October 30, 1981 (Incorporated by reference to Exhibit 2(d) of
               the Registrant's Registration Statement on Form 10SB,
               Registration No. 0-26972, effective February 14, 1996)
        
3.5            Certificate of Merger of Direct Marketing Services, Inc. and CGS
               Units Incorporated into CGS Units Incorporated, dated June 16,
               1994 (Incorporated by reference to Exhibit 2(e) of the
               Registrant's Registration Statement on Form 10SB, Registration
               No. 0-26972, effective February 14, 1996)



                                      -33-
<PAGE>   59
3.6            Amendment to Registrant's Certificate of Incorporation, dated
               August 10, 1994.

3.7            Certificate of Correction of Certificate of Merger of Direct
               Marketing Services, Inc. and CGS Units Incorporated into CGS
               Units Incorporated, filed August 5, 1994 (Incorporated by
               reference to Exhibit 2(f) of the Registrant's Registration
               Statement on Form 10SB, Registration No. 0-26972 effective,
               February 14, 1996)

3.8            Amendment to Registrant's Certificate of Incorporation, dated
               May 24, 1995 (Incorporated by reference to Exhibit 2(g) of the
               Registrant's Registration Statement on Form 10SB, Registration
               No. 0-26972, effective February 14, 1996)

3.9            Amendment to Registrant's Certificate of Incorporation, dated
               August 29, 1996.

3.10           Amendment to Registrant's Certificate of Incorporation, dated
               December 13, 1996.

3.11           Amendment to Registrant's Certificate of Incorporation, filed
               March 12, 1997

3.12           Registrant's By-Laws (incorporated by reference to Exhibit 2(h)
               of the Registrant's Registration Statement on Form 10SB,
               Registration No. 0-26972, effective February 14, 1996)

10.1           License Agreement, dated June 24, 1995, by and between the
               Registrant and Hans-Jurgen Behrendt (incorporated by reference to
               Exhibit__ of Registrant's Registration Statement on Form 10SB,
               Registration No. 0-26972, effective February 14, 1996)

10.2           1996 SwissRay International, Inc. Non-Statutory Stock Option
               Plan (incorporated by reference to Exhibit 10.2 of the Company's
               Registration Statement on Form S-1 (Registration No.333-38229),
               filed October 20, 1997, effective December 19, 1997).*

10.3           Agreement dated June 11, 1996 between the Registrant and Philips
               Medical System.

10.4           License Agreement, dated as of July 18, 1997, by and between the
               Registrant and Agfa-Gevaer+ N.V., certain portions of which are
               filed under a request for confidential treatment pursuant to Rule
               24b-2 promulgated pursuant to the Securities Exchange Act of
               1934, as amended, and Rule 80(b)(4) of Organization; Conduct and
               Ethics; and Information and Requests adopted under the Freedom of
               Information Act, under Rule 406 of the Securities Act of 1933, as
               amended, and the Freedom of Information Act.**

10.5           Agreement, dated July 14, 1995, by and between Teleray AG and
               Optische Werke G. Roderstock, certain portions of which are filed
               under a request for confidential treatment pursuant to Rule 24b-2
               promulgated pursuant to the Securities Exchange Act of 1934, as
               amended, and Rule 80(b)(4) of Organization; Conduct and Ethics;
               and Information and Requests adopted under the Freedom of
               Information Act, under Rule 406 of the Securities Act of 1933, as
               amended, and the Freedom of Information Act.**


10.6           Agreement dated as of June 30, 1997 between the Registrant and
               Ruedi G. Laupper (Incorporated by reference to Exhibit 10.6 of
               the Company's Registration Statement on Form S-1, Registration
               No. 333-38229, filed October 20, 1997, effective December 19,
               1997).*
               
21             List of Subsidiaries

23             Consent of Bederson & Company LLP

23.1           Consent of Bederson & Company LLP***

27             FINANCIAL DATA SCHEDULE


All Exhibits filed with initial Form 10-KSB unless otherwise indicated
  *Exhibits 10.2 and 10.6 - See Form 10KSB/A
 **Exhibits 10.4 and 10.5 - See Form 10-KSB/A2
***Exhibit 23.1 - Filed with Form 10-KSB/A3
 

                                      -34-



<PAGE>   60
(b)      REPORTS ON FORM 8-K

         Form 8-K, dated July 31, 1997 (August 20, 1997) with respect to the
         issuance by the Registrant of $4,262,500 of convertible debentures in
         reliance upon Regulation S under the Securities Act of 1933.


                                      -35-
<PAGE>   61
                                   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   /Ruedi G. Laupper/
                                                -------------------------------
                                                Ruedi G. Laupper, Chairman of 
                                                the Board of Directors, 
                                                President & Chief Executive 
                                                Officer

Date:  March 16, 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.


<TABLE>
<S>                        <C>                                                  <C>  
/Ruedi G. Laupper/         Chairman of the Board                                Dated:  March 16, 1998
-----------------------    of Directors, President & Chief Executive Officer
   Ruedi G. Laupper           

/Josef Laupper/            Secretary-Treasurer                                  Dated:  March 18, 1998
-----------------------    and a Director
   Josef Laupper           

/Herbert Laubscher         Chief Financial Officer                              Dated:  March 18, 1998
-----------------------
   Herbert Laubscher

/Ueli Laupper/             Vice President and a Director                        Dated:  March 16, 1998
-----------------------
  Ueli Laupper

                           Director                                             Dated:  March   , 1998
-----------------------
Dr. Erwin Zimmerli
</TABLE>


                                      -36-
<PAGE>   62
                                  EXHIBIT INDEX


EXHIBIT NO.                      DESCRIPTION
-----------                      -----------


2.1            Acquisition Agreement, dated May __, 1995, by and between
               Registrant, a New York corporation (now SWISSRAY International,
               Inc.); Berkshire International Finance, Inc., SR-Medical AG (a
               Swiss corporation), Teleray AG (a Swiss corporation) and others.

2.2            Exchange Agreement, dated as of November 22, 1996 by and between
               the Registrant and Doug Maxwell; [; Registration Rights
               Agreement, dated as of March 13, 1997, between the Registrant and
               Doug Maxwell; Assignment and Assumption Agreement, dated March
               13, 1997, between the Registrant and Doug Maxwell; Option
               Agreement, dated January 24, 1997, granting options for 125,000
               shares of the Registrant to Doug Maxwell.]

3.1            Registrant's Certificate of Incorporation, filed January 2, 1968
               (Incorporated by reference to Exhibit 2(a) of the Registrant's
               Registration Statement (Incorporated by reference to Exhibit 1 of
               the Registrant's Registration Statement on Form 10SB,
               Registration No. 0-26972, effective February 14, 1996) on Form
               10SB, Registration No. 0-26972, effective February 14, 1996)

3.2            Amendment to Registrant's Certificate of Incorporation, filed
               October 1, 1968 (Incorporated by reference to Exhibit 2(b) of the
               Registrant's Registration Statement on Form 10SB, Registration
               No. 0-26972, effective February 14, 1996)

3.3            Amendment to Registrant's Certificate of Incorporation, filed
               September 19, 1972 (Incorporated by reference to Exhibit 2(c) of
               the Registrant's Registration Statement on Form 10SB,
               Registration No. 0-26972, effective February 14, 1996)

3.4            Amendment to Registrant's Certificate of Incorporation, filed
               January 5, 1982 (Incorporated by reference to Exhibit 2(d) of the
               Registrant's Registration Statement on Form 10SB, Registration
               No. 0-26972, effective February 14, 1996)



                                      -37-

<PAGE>   63
3.5            Certificate of Merger of Direct Marketing Services, Inc. and CGS
               Units Incorporated into CGS Units Incorporated, filed June 15,
               1994 (Incorporated by reference to Exhibit 2(e) of the
               Registrant's Registration Statement on Form 10SB, Registration
               No. 0-26972, effective February 14, 1996)

3.6            Amendment to Registrant's Certificate of Incorporation, filed
               August 19, 1994.

3.7            Certificate of Correction of Certificate of Merger of Direct
               Marketing Services, Inc. and CGS Units Incorporated into CGS
               Units Incorporated, filed August 5, 1994 (Incorporated by
               reference to Exhibit 2(f) of the Registrant's Registration
               Statement on Form 10SB, Registration No. 0- 26972 effective,
               February 14, 1996)

3.8            Amendment to Registrant's Certificate of Incorporation, filed
               June 5, 1995 (Incorporated by reference to Exhibit 2(g) of the
               Registrant's Registration Statement on Form 10SB, Registration
               No. 0-26972, effective February 14, 1996)

3.9            Amendment to Registrant's Certificate of Incorporation, filed
               August 30, 1996.

3.10           Amendment to Registrant's Certificate of Incorporation, filed
               December 26, 1996.

3.11           Amendment to Registrant's Certificate of Incorporation, filed
               March 12, 1997

3.12           Registrant's By-Laws (incorporated by reference to Exhibit 2(h)
               of the Registrant's Registration Statement on Form 10SB,
               Registration No. 0- 26972, effective February 14, 1996)

10.1           License Agreement, dated June 24, 1995, by and between the
               Registrant and Hans-Jurgen Behrendt

10.2           1996 SwissRay International, Inc. Non-Statutory Stock Option Plan
               (incorporated by reference to Exhibit 10.2 of the Company's
               Registration Statement on Form S-1 (Registration No. 333-38229,
               filed October 20, 1997, effective December 19, 1997).*

10.3           Agreement dated June 11, 1996 between the Registrant and Philips
               Medical System.

10.4           License Agreement, dated as of July 18, 1997, by and between the
               Registrant and Agfa-Gevaer N.V.**


                                      -38-

<PAGE>   64
10.5           Agreement, dated July 14, 1995, by and between Teleray AG and
               Optische Werke G. Roderstock, certain portions of which are filed
               under a request for confidential treatment pursuant to Rule 24b-2
               promulgated pursuant to the Securities Exchange Act of 1934, as
               amended, and Rule 80(b)(4) of Organization; Conduct and Ethics;
               and Information and Requests adopted under the Freedom of
               Information Act, under Rule 406 of the Securities Act of 1933, as
               amended, and the Freedom of Information Act.**


10.6           Agreement dated as of June 30, 1997 between the Registrant and
               Ruedi G. Luapper (Incorporated by reference to Exhibit 10.6 of
               the Company's Registration Statement on Form S-1, Registration
               No. 333-38229, filed October 20, 1997, effective December 19,
               1997).* 

21             List of Subsidiaries

23             Consent of Bederson & Company LLP

23.1           Consent of Bederson & Company LLP***

27             Financial Data Schedule

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


         The following financial statements for the fiscal years ended June 30,
1997 and June 30, 1996 have been prepared in accordance with the requirements of
Regulation S-B and supplementary financial information included herein, if any,
has been prepared in accordance with Item 302 of Regulation S-K, such
information appears on pages F-1 through F-23 inclusive of this Form 10-KSB.

                          SWISSRAY INTERNATIONAL, INC.
                             JUNE 30, 1997 AND 1996

                                    CONTENTS

                                                                     Page

         Index to Consolidated Financial Statements                  F-1
         Independent Auditor's Report                                F-2
         Consolidated Balance Sheets                                 F-3
         Consolidated Statements of Operations                       F-4
         Consolidated Statements of Stockholders' Equity             F-5
         Consolidated Statements of Cash Flows                       F-7
         Notes to Consolidated Financial Statements                  F-8 - F-23

All Exhibits filed with initial Form 10-KSB unless otherwise indicated
  *  Exhibits 10.2 and 10.6 - see Form 10-KSB/A
 **  Exhibit 10.4 and 10.5 - see Form 10-KSB/A2
***  Exhibit 23.1 - filed with Form 10-KSB/3


                                      -39-