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


                                  FORM 10-K/A-4

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

                     For the fiscal year ended June 30, 1999

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

       For the transition period from _______________ to _________________

                         Commission file number 0-26972

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

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

           320 West 77th Street, Suite 1A, New York, New York 10024
              (Address of Principal Executive Office) (Zip Code)

         United States - 917-441-7841 Switzerland - 011 41 41 914 12 00
                (Issuer's Telephone Number, Including Area Code)

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

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

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

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

                               Yes  xx               No
                                   ----                  ----
<PAGE>

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

The number of shares  outstanding of each of the Registrant's  classes of Common
Stock,  as  of  August  24, 1999  is  14,541,537 shares (1), all of one class of
common stock,  $.01 par value. Of this number a total of 6,436,767 shares having
an  aggregate  market  value of  $16,690,536, based on the closing  price of the
Registrant's  common  stock  of  $2.593  on  August 24, 1999  as  quoted  on the
Electronic Over-the-Counter Bulletin Board ("OTC"), were held by non-affiliates*
of the Registrant.

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

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

                               APPLICABLE ONLY TO
                 REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
                           DURING THE PRECEDING FIVE YEARS

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

                          Yes  _____         No   _____


Not Applicable

                    (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date:  14,541,537 shares as of August
24, 1999.


                       DOCUMENTS INCORPORATED BY REFERENCE

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

                                      None
<PAGE>
         TABLE OF CONTENTS

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

Item 2.           Properties                                                               20

Item 3.           Legal Proceedings                                                        20

Item 4.           Submission of Matters to a Vote of Security Holders                      21

PART II

Item 5.           Market For Registrant's Common Equity and Related
                  Stockholder Matters                                                      21

Item 6.           Selected Financial Data                                                  24

Item 7.           Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                                      26

Item 8.           Financial Statements and Supplementary Data                         48 & F(1)-F(25)

Item 9.           Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure                                      49

PART III

Item 10.          Directors and Executive Officers of the Registrant                       49

Item 11.          Executive Compensation                                                   52

Item 12.          Security Ownership of Certain Beneficial Owners and
                  Management                                                               58

Item 13.          Certain Relationships and Related Transactions                           60

PART IV

Item 14.          Exhibits, Financial Statement Schedules, and
                  Reports on Form 8-K                                                      60

SIGNATURES                                                                                 61

SUPPLEMENTAL INFORMATION                                                                   62
</TABLE>


<PAGE>








                                     PART I

ITEM 1.   BUSINESS

                                  THE COMPANY

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

         Swissray Medical AG (formerly SR Medical Holding AG and SR  Medical  AG
until  renamed  in  June  1999  and  February  1998)  acquired  all  assets  and
liabilities, effective July 1998, of its wholly owned subsidiaries,SR Medical AG
(known as Teleray  AG until  renamed  in  February  1998),  a Swiss  corporation
and Telray Research and Development AG, a Swiss corporation. Swissray Medical AG
also absorbed all assets and liabilities of the  Company's  other  wholly  owned
subsidiary SR Management AG (formerly SR Finance AG), a Swiss corporation.

         Effective  as  of  July  1, 1999  Swissray  Medical  Systems,  Inc.,  a
Delaware corporation (formerly Swissray America Corporation)  and  Empower  Inc.
a New  York  corporation, have  been  merged  into  Swissray  America   Inc.,  a
Delaware  corporation.   Unless otherwise specifically indicated, all references
hereinafter to the "Company" refer to the Registrant and its subsidiaries.

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

                                     - 4 -
<PAGE>

Overview

         The Company is active in the markets for diagnostic imaging devices for
the health care industry.  Diagnostic  imaging devices include X-ray  equipment,
computer  tomography  ("CT")  systems and  magnetic  resonance  imaging  ("MRI")
systems for three  dimensional  projections,  nuclear  medicine  ("NM")  imaging
devices and ultrasound devices.

         The Company is primarily  engaged in the business of manufacturing  and
selling diagnostic X-ray equipment for all radiological  applications other than
mammography  and  dentistry.  In  addition,  the  Company is in the  business of
selling  imaging  systems and components  and  accessories  for X-ray  equipment
manufactured  by third  parties and  providing  services  related to  diagnostic
imaging.

         X-rays  were  discovered  in 1895 by Wilhelm  Konrad  Rontgen.  Shortly
thereafter, X-ray imaging found numerous applications for medical diagnostic and
non-medical purposes. Today, medical X-ray imaging is a fundamental tool in bone
and soft tissue  diagnosis.  X-ray  diagnosis is primarily used in  orthopedics,
traumatology,  gastro-enterology,  angiography,  urology, pulmology, mammography
and dentistry. The principal elements of a diagnostic X-ray system are the X-ray
generator,  the X-ray tube and the bucky device.  The generator  generates  high
tension, which is converted into X-rays in the X-ray tube. The X-rays so created
then penetrate a patient's body and subsequently  expose a film contained in the
bucky device.  Following exposure, the film is chemically processed and dried in
a dark room. A typical  room used for general  X-ray  examinations  (bucky room)
contains  an  X-ray  system  which  includes  a table  with a bucky  device  for
examinations of recumbent  patients (bucky table) and a wall stand with a second
bucky  device for  examinations  of sitting and  standing  patients  (bucky wall
stand).

        The film  used in  conventional  X-ray  systems  has  certain  inherent
disadvantages,  including the significant  amount of time and operating expenses
associated  with the  handling,  processing  and storage  thereof,  the need for
chemicals  to  develop  films and the  environmental  concerns  related to their
disposal.  Additional  expenses and inconveniences  arise in connection with the
storage,  duplication and  transportation  of conventional  films. The following
X-ray  systems have been  developed to overcome  these  disadvantages:  scanning
devices,  phosphor plate or Computed  Radiography(TM)  ("CR") systems and direct
digital  radiography  ("ddR")  systems.  Scanning  devices  are used to  convert
existing  X-ray images into a digital  form.  While the use of scanning  devices
permits the electronic storage, retrieval and transmission of X-ray images, they
do not eliminate the other inconveniences of conventional films and add time and
expenses  associated with the scanning process. In a CR system the film cassette
is replaced with a phosophor plate which is electrically  charged by X-rays. The
electrical  charges  on this  phosphor  plate are then  converted  into  digital
information by a laser scanner.  Although this system has the advantage that the
phosphor plates are reusable and the  inconveniences  related to the development
of  X-ray  films  are  eliminated,  it does not  achieve  instant  images  and a
significant  amount of time and  operating  expenses are required in  connection
with the handling and scanning of the phosphor plates. Additional expenses arise
due to the fact that phosphor plates have a limited lifespan.

         ddR  technology  is  designed  to  eliminate  the   disadvantages   and
significant  operating costs associated with  conventional  X-ray systems and CR

                                     - 5 -
<PAGE>

systems.  With ddR  technology  digital  information  can be made  available for
diagnostic  purposes  within a few seconds after an X-ray image is taken without
any additional  steps,  thereby reducing  processing time and related  operating
expenses.  Direct digital X-ray  technology  uses either charge coupled  devices
("CCD") arrays,  amorphous  silicon/selenium panels or selenium drums to convert
X-rays into  digital  information.  To the  Company's  knowledge,  no silicon or
selenium-based  technology is currently  available for purposes of general X-ray
diagnosis.  To the  Company's  knowledge,  the only  CCD  based  direct  digital
technology  available for general  diagnostic  purposes is the  Company's  AddOn
Bucky(R). While other CCD based direct digital X-ray systems are used for dental
X- ray imaging and chest  examinations,  the Company  believes that neither such
technologies  nor the  silicium  based  technology  used in a chest  examination
system  offered by one of the  Company's  competitors  can easily be adapted for
general diagnostic  purposes because none is capable of providing the resolution
necessary to obtain digital  information  with sufficient  diagnostic value on a
standard 14" by 17" X-ray image.

Products

         The Company's  marketing  strategy is to offer its customers a complete
package of products and services in the field of radiology, including equipment,
accessories and related  services such as consulting and  after-sales  services.
The Company's  products include a full range of conventional X-ray equipment for
all diagnostic purposes other than mammography and dentistry, the direct digital
ddRMulti-System   and  the   SwissVision(TM)   line  of  DICOM  3.0   compatible
postprocessing work stations operating on a Windows NT platform. Currently, most
of the Company's X-ray  equipment is manufactured  and developed in Switzerland.
On March  8,  1999  Swissray  Medical  AG,  the  Company's  Swiss  research  and
development,  production and marketing  subsidiary  became ISO 9001 and EN 46001
certified.  Appendix II for CE -  Certification  was  completed in December 1999
thus  allowing the Company to use the  CE-Label,  including  the medical  device
numbers for all products  manufactured and/or sold through the Company. See also
"Products - Distribution of Agfa Products" and "Government Regulation".

         Digital ddRMulti-System/SwissVision

         The ddRMulti-System,  which  includes a SwissVision(TM) workstation for
the  postprocessing  of digital image data and the transfer of such data through
central  networks  or  via  telecommunications  systems,  is a  complete  multi-
functional  direct  digital  X-ray  system  which  combines  the  functions of a
conventional bucky table and a bucky wall stand. The Company's own estimates and
research into this area indicate  that the  ddRMulti-System  is the first direct
digital  radiography  system available which allows for  substantially all plane
X-ray  examinations on the recumbent,  upright and sitting patient  necessary in
orthopedics,  emergency rooms and chest examination  rooms. The  ddRMulti-System
uses the Company's AddOn Bucky(R) as the digital detector. The AddOn Bucky(R) is
able to make  available  an X-ray image in a direct  digital way for  diagnostic
study  within  16 to 20  seconds.  As a  consequence,  the  efficiency  and  the
throughput  of the bucky room can be  increased.  The  Company  believes  that a
significant  advantage  of the  Company's  ddRMulti-System  is the  fact  that a
variety  of X-ray  examinations  can be made  with  the use of only one  digital
detector,  the most  expensive  part of an X-ray  system  using  direct  digital
technology.

                                     - 6 -
<PAGE>

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

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

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

         The  Company  manufactures  and  sells  conventional  diagnostic  X-ray
equipment  for  all  radiological   applications   other  than  mammography  and
dentistry. The conventional X-ray equipment manufactured by the Company includes
X- ray  generators,  basic X-ray  equipment,  bucky table systems,  mobile X-ray
systems, mobile C-arm systems,  fluoroscopy systems,  urology systems and remote
controlled  examination  systems. In addition,  the Company sells components and
accessories  for X-ray systems.  In general,  the components and accessories for
X-ray  equipment  sold by the  Company are  manufactured  by third  parties.  In
Switzerland,  the  Company was the  exclusive  distributor  of CT  systems,  MRI
systems and NM systems  manufactured  by Elscint.  No sales were made under such
distributorship  arrangement  for the fiscal  year ended June 30, 1998 while for
the fiscal year ended June 30, 1997 revenues under such  agreement  approximated
12%  of  total  sales.   The  Company  does  not  currently  have  any  business
arrangements  with  Elscint in that such firm sold all or part of its company to
Picker International Inc. and GE Medical Systems in the later part of 1998.

         Original Equipment Manufacturing (OEM)

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

                                     - 7 -
<PAGE>

 Services

         The  services  offered by the  Company  include  the  installation  and
after-sales  servicing  of imaging  equipment  sold by the  Company,  consulting
services and application  training of radiographers.  In the United States,  the
Company offers consulting  services to hospital imaging  departments and imaging
centers,  including maintenance management, and after-sales services of products
manufactured by the Company and third parties.  Maintenance  management services
for imaging  equipment  include the  management  of  after-sales  services  with
respect to different  kinds and brands of imaging  equipment  (multi-vendor  and
multi-modality services).

         Distribution of Agfa Products

         In April of 1998 the Company entered into a OEM Agreement with Agfa for
the  distribution  of the  latter's  laser  imagers,  dry  printers and computed
radiography  systems.  By  virtue  of  having  entered  into  such  distribution
agreement,  the Company is able to offer a complete solution for a total digital
radiology  department.  Both Company  products  and Agfa  products are DICOM 3.0
compatible and can be used on a network or for ponit-to-point connections. Agfa,
a leading worldwide manufacturer of imaging products and systems, is part of the
Agfa-Gevaert  Group, with Agfa-Gevaert  being a wholly owned subsidiary of Bayer
AG.

Markets

         Product Markets

         The Company  estimates  that the global market for X-ray  equipment and
accessories 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 73%, 23% and 4% of
the Company's sales during the fiscal year ended June 30, 1999 respectively. The
Company  believes that because of the need to bring medical  services to Western
standards,  Eastern Europe  continues to offer  interesting  opportunities  as a
market for the  Company's  conventional  X-ray  equipment and  accessories.  The
Company  has also been able to gain  access to markets in Asia,  the Middle East
and Africa. See "-- Sales and Marketing."

         The Company believes that the principal  markets for its direct digital
X-ray equipment are located in North America and Western Europe, where the first
sales of the  ddRMulti-System  have been made.  The Company  submitted  both its
AddOn Bucky(R) and the  ddRMulti-System to the FDA for Section 510(k) clearance.
On November 21, 1997, the Company's AddOn Bucky(R),  the direct digital detector
of the  ddRMulti-System,  received  FDA  approval  and on December  18, 1997 the
Company's  ddRMulti-System  received FDA  approval;  the Company thus  receiving
authorization  to  market  the  ddRMulti-System  in the  United  States.  Having
obtained the  required  approval  from the FDA, the Company  intends to sell the
ddRMulti-System  in  the  United  States  through  its  subsidiaries  and  other
channels.   See  "Risk  Factors  --  Government  Regulation"  and  "Business  --
Regulatory Matters."

         The  percentage  of  revenues  for  fiscal  year  ended  June 30,  1999
attributed  to  product  markets  amounted  to 81.84%.


                                     - 8 -
<PAGE>

         Service Markets

         The Company estimates that the worldwide market for services related to
X-ray equipment,  including maintenance management is approximately $44 billion,
of which  approximately  $40.5 billion (or 92%) relate to after-sales  services.
The markets for  maintenance  management  and  capital  planning  amount to $3.4
billion or 8% of the total market for services related to X-ray  equipment.  The
principal markets for after-sales  services are the United States (45%), Western
Europe (26%) and Japan (19%).  The Company expects that as the installed base of
X-ray equipment  grows,  the market for  after-sales  services will also expand.
Additional  growth may  result  from a general  increase  in the demand for such
services.  To date, a significant market for maintenance  management and capital
planning has only  developed  in the United  States as a result of the impact of
managed care plans and health maintenance  organizations  ("HMOs") on the health
care  industry.  The Company  expects that in the future there will be a similar
trend in Europe, which may lead to the development of a market for such services
in Europe. See "-- Products" and "-- Sales and Marketing."

         The Company currently  intends to continue to concentrate its marketing
efforts within  Switzerland and U.S.  wherein  approximately  90% of all Company
sales were concluded  during fiscal year ended June 30, 1999,  with  Switzerland
accounting  for 73% of all sales and the U.S.  accounting  for 23% of such sales
(and with the balance of 4% of sales being conducted in Germany).  See also Note
19 to audited financial statements.

         The  percentage  of  revenues  for  fiscal  year  ended  June 30,  1999
attributed to services  amounted to 18.16%.

Sales and Marketing

         The Company's customers are universities,  hospitals,  clinics, imaging
centers and physicians.  The Company markets its products and services primarily
through  its own sales  force in the United  States,  Switzerland,  Germany  and
Eastern  Europe  and  through  resellers  in these and other  markets in Europe,
Middle East, Africa,  Asia, and Latin America.  The Company also offers products
and services  related to  networking,  electronic  archiving  and  distribution,
including PACS, through the Swissray Information Solution division.

         Two of the Company's products, the MRS system and the Bucky Diagnost TS
system, are distributed worldwide through Philips Medical Systems.

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

         In August of 1999 the  Company  signed  a  one  year  exclusive  sales,
marketing and service agreement with Hitachi Medical Systems America, Inc.(HMSA)
, a subsidiary of Hitachi Medical Corporation.  Under the terms of the agreement
HMSA  will  provide  sales,  marketing  and  service  for  the  distribution  of
Swissray's  ddRMulti-System  to end users  within  certain  defined  territories
within the United States. In addition HMSA will utilize and promote the Swissray
Information  Solutions  Services and products  consisting of consulting  imaging
informatics.

                                      -9-

<PAGE>

         The  defined  territories  referred  to  consist  of  the  entire  U.S.
excepting  for (a) the states of  Alabama,  Arizona,  Connecticut,  Mississippi,
Maine,  Massachusetts,  New York, Rhode Island, Vermont and New Hampshire, (b) a
portion of New Jersey that includes the Atlantic City Expressway and north,  (c)
certain designated  counties within the state of Pennsylvania,  (d) the counties
Orange and San Diego within the state of  California,  and (e) the  Panhandle of
Florida - Tallahassee west.

         Additionally,  the Agreement  contains  provisions  whereby  additional
exclusions exist with respect to various  identified  customers  reserved to the
Company principally due to the Company's prior contact with and/or dealings with
such clientele.

         In addition  HMA will  utilize and  promote  the  Swissray  Information
Solutions  services and products  consisting of consulting and product solutions
for medical imaging informatics.

         Percentage of ddRMulti-Systems Sold Directly  by Company as Compared To
Its Distributors

         With  respect  to a total of 57  ddRMulti-Systems  contracted  for sale
since  commencement  of the  Company's  current  fiscal year on July 1, 1999, 41
(72%) of same were made directly  through the efforts of the Company's  internal
staff and sales team while the balance of 16 (28%) were made through the efforts
of Company  distributors.  Hitachi Medical Systems America, Inc. was responsible
for nine of such 16  contracted  for  distributor  sales  with no other  Company
distributor being responsible for more than two of such contracts.

         Additional Sales Information

         In the past,  the  Company  has made a  significant  amount of sales of
its X-ray equipment to a few large customers. For the fiscal year ended June 30,
1999 sales to the Company's single largest customer accounted for  approximately
54% of all revenues.

         The Company considers the relationship with its largest customers to be
satisfactory.  Historically, the identity of the Company's largest customers and
the volumes  purchased  by them has varied.  The loss of the  Company's  current
single largest  customer or a reduction of the volume purchased by it would have
an  adverse  effect  upon the  Company's  sales  until such  time,  if ever,  as
significant  sales to other  customers can be made. The Company  expects that as
sales  of its  ddRMulti-System  increase,  the  Company's  revenue  will be less
dependent  on a few large  customers.  See "Risk  Factors --  Reliance  on Large
Customers" and Notes to the Company's Consolidated Financial Statements.

         In  August  1998 the  Company  entered  into a  global  distributorship
agreement for its ddRMulti-System with Elscint Ltd. of Haifa to sell and service
such product in 14 countries in Europe,  Canada,  South America and Africa. Soon
thereafter  almost  all of the  assets  of  Elscint  Ltd.  were  sold to  Picker
International and GE Medical Systems respectively.  Neither Picker International
nor GE Medical Systems have executed or honored the distributorship agreement as
of the date hereof and therefore  the Company is unable to sell the  anticipated
75   ddrMulti-Systems   (partially   anticipated  to  be  sold  through  Elscint
Ltd.)within the fiscal year 98/99 as originally planned.

                                      -10-

<PAGE>

Research and Development

         During  the  fiscal  year ended June 30,  1999,  the  Company  incurred
expenses regarding to research and development of $1,808,107(accounting  for 12%
of the Company's operating expenses) compared to $3,542,149  (accounting for 19%
of the  Company's  operating  expenses)  for fiscal year ended June 30, 1998 and
compared to $5,786,158  (accounting for 33% of the Company's operating expenses)
for fiscal year ended June 30, 1997. The decrease of the Company's  research and
development  expenses  by 68% from the fiscal  year  ended June 30,  1997 to the
fiscal year ended June 30, 1999 resulted  primarily from the fact that principal
costs  associated with  development of the direct digital  detector,  the unique
Add-On  Bucky  have been  completed.  See Item 7  "Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations."

         The Company will continue to have significant  research and development
expenses associated with the development of new products  (including  diagnostic
hardware and software  products and new digital X-ray products) and improvements
to existing products  manufactured by the Company.

         New  products  currently being developed by or on behalf of the Company
include a new  digital  chest  examination  system  (ddRChest-System),  a direct
digital universal radiography system (ddR Combi)and a multi-functional  floating
table. Both the  ddRChest-System  and ddRCombi were unveiled (a) domestically in
the U.S. at the scientific assembly of the Radiological Society of North America
(RSNA)  held  in  Chicago   from   November  28  -  December  2,  1999  and  (b)
internationally at the European Congress of Radiology (ECR 2000) held in Vienna,
Austria in early  March 2000.  The  ddRChest-System  is a  dedicated  chest unit
capable of taking all chest  examinations in a direct digital format,  while the
ddRCombi is a multi-functional system in combination with a ceiling suspend unit
able to perform examinations on the seated, upright and recumbent patient.

         As of June 30, 1999,  the Company  employed  11  people in research and
development.  The number of people  employed in  research  and  development  has
increased  by 10% since  June 30,  1998.  The  Company  is  outsourcing  certain
research and  development  activities and intends to continue this policy in the
future.

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

Raw Materials and Suppliers

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

         There  is  virtually  no  stock  of  finished  X-ray  equipment  on the
Company's  premises  for any  extended  period of time since X-ray  equipment is
generally  manufactured  at a  customer's  request.  At June 30,  1999  finished
products accounted for approximately 10% of inventory while raw material,  parts
and supplies  accounted for  approximately  76% of inventory and work in process
for approximately 14%.

         The percentage of Company revenues derived from products which included
components then only currently available from a single source supplier  amounted
to 13.6% as of June 30, 1999.  The  agreement with the single source supplier of
certain cameras, electronics will be terminated on December 31, 1999.The Company
currently  has  160  CCD cameras in stock which can be used for the next 40 ddR-
Systems.  The  Company  is  currently  in  negotiations  with  three   different
comparable   source   suppliers  and   does  not expect  any  material  business
interruptions  to occur regarding CCD camera availability in a timely manner nor
does  it  anticipate  that change of supplier will  have any effect upon quality
of its  ddR-Systems.   The  agreement  with the single source supplier of optics
expires  in  July  2002 and is subject to renegotiations.

                                      -11-

<PAGE>

Backlog

         Management  estimates  that as of the end of the fiscal year ended June
30, 1999,  the Company had an order backlog of  $12,000,000  which  consisted of
$8,000,000   forconventional  x-ray  equipment  and  $4,000,000  digital  (i.e.,
ddRMulti-Systems  and information  solutions) as compared to an order backlog of
$13,000,000  which consisted of $11,500,000 in conventional  x-ray equipment and
$1,500,000 in  ddRMulti-Systems  as of the fiscal year ended June  30,1998.  The
Company had previously reported an order backlog for its digital x-ray equipment
as of June 30, 1997 of  $30,000,000;  $29,000,000 of which related to a contract
with a purchaser  located in South Korea,  management  currently does not expect
that such  order  will be filled  (to any  significant  degree)  in the  current
calendar  year (if at all) absent a dramatic  positive  change in such  economic
conditions which currently is not expected to occur. Accordingly, the Company no
longer, for practicable purposes, considers such South Korea contract to be part
of its backlog.  The Company believes that substantially the entire orders under
the Philips OEM  Agreement)will  be filled during the current fiscal year. While
the Company expects to continue to have a certain order backlog for conventional
X-ray equipment (exclusive of that indicated above) in the future because of the
Philips OEM Agreement,  the order backlog for digital X-ray  equipment is likely
to be substantially  reduced in the future as the Company  estimates that orders
for such equipment will typically be filled within three months.

Competition

         X-Ray Equipment Market

         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 general,  it is the
Company's strategy to compete primarily based on the quality of its products. In
the market for conventional X-ray equipment,  the Company's strategy is to focus
on niche products and niche markets.

         To the Company's  knowledge  the only direct  digital X-ray systems for
medical diagnostic purposes other than the  ddRMulti-System  currently available
are chest examination systems offered by Philips,  IMIX and Odelft. In addition,
there are several  direct digital X-ray systems  available for dental  purposes.
None of these systems is able to perform bone  examinations on  extremities.  To
the best of  management's  knowledge the Company's  ddRMulti-System  is the only
multi-functional  direct digital X-ray system  currently  available which allows
all plane X-ray  examinations  on the  recumbent,  upright  and sitting  patient
without the use of cassettes,  films,  chemicals or phosphor plates. A number of
companies,  including  certain of the Company's  competitors  in the markets for
conventional  X-ray  equipment,  are currently  developing  direct digital X-ray
detectors or direct digital X-ray systems for specific  applications  (including
mammography). See "-- Products," "-- Markets," "Risk Factors -- Competition."

         Service Market

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

Intellectual Property

         The Company has obtained  patent  protection for certain aspects of its
conventional  X-ray  technology.  The  Company  has  filed  patent  applications
covering  certain  aspects of its direct  digital  technology  in key markets in
Europe, North America and Asia, including the United States, Canada, Switzerland
and Germany. The Company has obtained  for  one  of its two patents the European

                                     - 12 -
<PAGE>

patent  as  well  as  the  U.S.  patent.  Although the Company believes that its
products do not infringe  patents or violate  proprietary  rights of others,  it
is possible that infringement of proprietary  rights  of  others has occurred or
may  occur.   In  the  event  the   Company's  products  infringe   patents   or
proprietary  rights of others,  the Company  may  be  required   to  modify  the
design of its  products or obtain a license.  There can be no assurance that the
Company will be able to do so in a timely  manner,  upon  acceptable  terms and
conditions  or at all. The failure to do any  of  the  foregoing  could  have  a
material adverse effect  upon  the  Company.  In  addition,   there  can  be  no
assurance  that  the  Company  will  have  the  financial  or  other   resources
necessary  to  enforce  or  defend a  patent infringement action and the Company
could, under certain  circumstances,  become  liable  for   damages,  which also
could  have a material  adverse  effect on the Company.

         The Company also relies on  proprietary  know-how  and employs  various
methods to protect its concepts, ideas and technology. However, such methods may
not afford  complete  protection  and there can be no assurance that others will
not  independently  develop such  technology  or obtain  access to the Company's
proprietary know-how or ideas.  Furthermore,  although the Company has generally
entered into  confidentiality  agreements  with its employees,  consultants  and
other parties,  there can be no assurance that such arrangements will adequately
protect the Company. The Company has obtained licenses to use certain technology
which is essential  for certain of the  Company's  products,  including  certain
software  used  for its  line of  SwissVision(TM)  postprocessing  systems.  The
software  license  is  a  worldwide,  non-exclusive,  non-transferable   license
recently extended to July 31, 2000  to use and distribute  the Agfa software  in
combination with the Add-On Bucky.

         The Company considers the Swissray name as material to its business and
has  obtained,  or is in the process of obtaining,  trademark  protection in key
markets.  The  Company  is not  aware of any  claims  or  infringement  or other
challenges to the Company's  rights to use this or any other  trademarks used by
the  Company.  See "Risk  Factors  --  Dependence  on  Patents  and  Proprietary
Technology."

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

         In May of 1999 the European  Patent  Office  issued patent No. EP 0 804
853 and in July of 1999 the U.S.  Patent Office  issued  patent No.  5,920,604 -
both for the Company's  Radiography  (ddR) detector,  the Add-on-Bucky (R) which
patent  relates to the optical  arrangement  and process  for  transmitting  and
converting  primary x-ray images,  which is the first of two  inventions for the
Add-on-Bucky(R).  The second  patent  application  for optical  arrangement  and
method for electronically detecting an x-ray image was granted in September 1999
as hereinafter  indicated.  The  Add-on-Bucky(R)  is  incorporated in Swissray's
unique multifunctional ddRMulti-System.

         On September 30, 1999 the Company announced that the U.S. Patent Office
issued  patent  No. US  005920604A  for its  direct  digital  Radiography  (ddR)
detector,  the Add-on Bucky(R). The U.S. patent was awarded to Swissray pursuant
to application submitted by inventors R. G. Laupper, Chairman and President, CEO
of Swissray International, Inc. and Peter Waegli (Bremgarten,  Switzerland), for
the optical  arrangement  and process for  transmitting  and converting  primary
x-ray images generated on a two dimensional primary image array. The Company had
previously  been  awarded,  in May 1999 the European  patent for the  technology
indicated  herein. A separate patent  application for the mirror optics has been
submitted and is pending approval in both Europe and the U.S.

Regulatory Matters

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

         The  FDA  review  process  typically   requires  extended   proceedings
pertaining to the safety and efficacy of new products.  A 510(k)  application is
required in order to market a new or modified  medical  device.  If specifically
required  by the FDA,  a  pre-market  approval  ("PMA")may  be  necessary.  Such
proceedings,  which must be completed  prior to marketing a new medical  device,
are  potentially  expensive  and  time  consuming.  They may  delay or  hinder a
product's timely entry into the marketplace. Moreover, there can be no assurance
that the review or approval  process for these  products by the FDA or any other
applicable  governmental  authorities will occur in a timely fashion, if at all,
or that  additional  regulations  will not be  adopted  or  current  regulations
amended in such a manner as will adversely  affect the Company.  Moreover,  such

                                     - 13 -
<PAGE>

pre-marketing  clearance,  if  obtained,  may be  subject to  conditions  on the
marketing  or  manufacturing  of the  ddRMulti-System  which  could  impede  the
Company's  ability  to  manufacture  and/or  market  the  product.  The  Company
submitted both its  AddOn-Bucky(R)  and the  ddRMulti-System  for Section 510(k)
clearance with the FDA. On November 21, 1997, the Company's AddOn Bucky(R),  the
direct  digital  detector of the  ddRMulti-System,  received FDA approval and on
December  18, 1997 the  Company's  ddRMulti-System  received FDA  approval;  the
Company thus receiving  authorization to market the  ddRMulti-System in the U.S.
The FDA also  regulates  the  content of  advertising  and  marketing  materials
relating  to  medical  devices.  There can be no  assurance  that the  Company's
advertising  and marketing  materials  regarding its products are and will be in
compliance with such regulations.

         The Company is also subject to other federal,  state, local and foreign
laws,  regulations  and  recommendations  relating to safe  working  conditions,
laboratory  and  manufacturing  practices.  The  electrical  components  of  the
Company's   products  are  subject  to  electrical   safety  standards  in  many
jurisdictions,  including  Switzerland,  EU, Germany and the United States.  The
Company  believes  that  it is in  compliance  in  all  material  respects  with
applicable   regulations.   Failure  to  comply   with   applicable   regulatory
requirements can result in, among other things, fines, suspensions of approvals,
seizures  or  recalls  of   products,   operating   restrictions   and  criminal
prosecutions.  The  effect  of  government  regulation  may  be to  delay  for a
considerable   period   of  time  or  to   prevent   the   marketing   and  full
commercialization  of future  products or services  that the Company may develop
and/or  to  impose  costly  requirements  on the  Company.  There can also be no
assurance that additional regulations will not be adopted or current regulations
amended in such a manner as will materially  adversely  affect the Company.  See
"Risk Factors -- Risks Associated With International Operations," "-- Government
Regulations," "Business -- Markets" and "-- Regulatory Matters." Company product
certifications may be briefly  summarized as follows:  On March 8, 1999 Swissray
Medical  AG, the  Company's  Swiss  research  and  development,  production  and
marketing subsidiary became ISO 9001 and EN 46001 certified.  Appendix II for CE
- Certification  was completed in December 1999 thus allowing the Company to use
the CE-Label, including the medical device numbers for all products manufactured
and/or sold through the Company. See also "Government Regulation".

Environmental Matters

         The Company is subject to various environmental laws and regulations in
the  jurisdictions  in  which  it  operates,  including  those  relating  to air
emissions,  wastewater  discharges,  the  handling  and  disposal  of solid  and
hazardous  wastes and the remediation of  contamination  associated with the use
and disposal of hazardous substances.  The Company owns or leases properties and
manufacturing  facilities in  Switzerland,  the United  States and Germany.  The
Company, like its competitors, has incurred, and will continue to incur, capital
and  operating  expenditures  and other  costs in  complying  with such laws and
regulations  in both the United States and abroad as may  specifically  apply to
it.  The Company does not believe that it has been  involved  in  utilization of
any types of substances and/or wastes which it considers to be hazardous and the
operation of its business (or former business),  accordingly  is not believed to
have  created any potential liability involving environmental matters.  Although
the  Company  believes that  it  is  in  substantial  compliance with applicable
environmental  requirements and the Company  to date has not  incurred  material
expenditures  in  connection  with environmental   matters,  it is possible that

                                     - 14 -
<PAGE>

the Company could become subject to additional or changing environmental laws or
liabilities  in the future  that  could  result in  an  adverse  effect  on  the
Company's financial condition or results of  operations.  See  "Risk  Factors --
Environmental Matters."

Employees

         After  giving  effect  to  the  Empower,  Inc.  transaction  heretofore
initially referred to on page 5 of this Registration Statement,  the Company had
99  employees worldwide, of which 25 were employed by subsidiaries in the United
States, 68 in Switzerland,  and 6 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 Substabtially All of the Assets of Service Support Group LLC

         On October 17,  1997,  the Company  acquired  substantially  all of the
assets of Service Support Group LLC ("SSG")  located in Gig Harbor,   Washington
(in an arms-length transaction)  principally  in  exchange  for  the  payment of
approximately  $622,000  in  cash  and  issuance of 33,333  shares of its Common
Stock  in  equal  thirds  to  each  of  SSG's  then  owners  based  upon certain
warranties   and   representations   made  by  them.  Counsel  representing  the
Company  with  respect  to this transaction determined that such transaction was
not material, did not require  stockholder approval and advised management which
acted upon reliance of such legal advice.  Pursuant  to the  terms  of the Asset
Purchase  Agreement  and  related  Registration  Rights  Agreement   both  dated
October 17, 1997  (Exhibits  10.9 and 10.10 hereto), the holders of such Company
shares  were  then  given  the right, commencing  June  30, 1998 and terminating
April 16, 1999, to require the Company to purchase any  or all of such shares at
$45.00 per share.Since its formation  on October 16, 1996, SSG  has  been in the
business  of  selling  diagnostic  imaging  equipment  and  providing   services
related  thereto  in   the  markets  on  the  West  Coast of the United  States.
Issues  involving  the  aforesaid  Company  shares and a number of other related
matters became the subject of dispute and  litigation.  See "Legal  Proceeding".
The three former SSG owners relationship  with the Company  (and certain Company
subsidiaries with whom such persons held positions as officers, to wit: Swissray
Medical  Systems, Inc. and Swissray Healthcare, Inc.) was terminated on July 20,
1998.  As  a  result of such  termination  Ueli Laupper has been appointed Chief
Executive  Officer  of  both  Swissray  Medical  Systems,  Inc.   and   Swissray
Healthcare,  Inc. (with Michael J. Baker being appointed Deputy Chief  Executive
Officer  of  both  subsidiaries).

Sale of Substantially All of the Assets of Empower


         On April 1,  1997,  the  Company  acquired  Empower,  Inc.,  a New York
corporation  ("Empower") which since  incorporation in 1985, had been engaged in
distributing and servicing diagnostic X-ray equipment and accessories in the New
York/New   Jersey/Connecticut   area.  Certain  details  with  respect  to  such
acquisition  were  reported in a Form 8-K and Form 8-K/A1 with date of report of
April 1, 1997. In February 1998 the Company entered into a letter of intent with
E.M.  Parker Co., Inc., a Massachusetts  corporation  ("Parker") with respect to
the sale of  Empower's  film and x-ray  accessories  business.  Thereafter,  the
Company and its wholly owned subsidiary,  Empower, Inc.  ("Empower")entered into

                                     - 15 -
<PAGE>

an Asset  Purchase  Agreement  with  Parker  pursuant  to which the  Company and
Empower  sold and Parker  purchased  substantially  all of the assets of Empower
(excluding certain excluded assets as defined in the Agreement) in consideration
of: (i) the  assumption by Parker of certain  liabilities  of Empower;  (ii) the
cash  purchase  price of  $250,000.00;  and  (iii)  the  payment  by  Parker  of
approximately  $376,000  to a banking  institution  in  satisfaction  of certain
outstanding  indebtedness  of  Empower.  Empower  has  been merged into Swissray
America, Inc.  effective  July 1, 1999.  The  Company  is  currently  engaged in
litigation  with  the  former  CEO  of  Empower.  For information regarding such
litigation reference is made to "Item 3 - Legal Proceedings".

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

Recent Developments

         In May 1998 Swissray Medical  Systems,  Inc., a wholly owned subsidiary
of the Company,  was awarded a contract from the Department of Veterans  Affairs
("VA") estimated at $400,000 for the base year for its Diagnostic X-ray systems,
the ddRMulti-System,  with the VA reserving its option to extend the term of the
contract  up to March 31,  2001;  the  ddRMulti-System  being the first ever FDA
approved  multifunctional  direct digital radiography (ddR) system to be offered
worldwide.  With the  official  contract  award in hand,  management  intends to
actively  pursue sales to various VA hospitals,  medical centers and outpatient,
community and outreach  clinics  throughout the United States.  Since receipt of
such  award  the  Company  has  contracted  for the  sale of 4  ddRMulti-Systems
(through August 24, 1999) to different VA institutions.

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

         In October 1998 the Company entered into a distribution  agreement with
X-ray  Inc.   ("XRI"),   Warwick,   RI.  XRI  will   distribute   the  Company's
ddRMulti-System in the territories of Connecticut,  Rhode Island,  Vermont,  New
Hampshire,  Massachusetts  and Maine until termination of this one year contract
in October of 1999.  The Company  currently is conducting  its own  distribution
within these areas.

         In November  1998 the Company  reached an  agreement  with Data General
Corporation  of  Westborough,  MA,  effective  January  20,  1999  which  grants
authority  to Data  General to act as a  reseller  for the  Company's  family of
products.  Data General will sell the Company's  ddRMulti-System and Information
Solutions as a package with their PACS system.  This agreement remains in effect
but may be  terminated  by either  party  (with or  without  cause)  upon 30 day
notice.  Management  has no current  intentions to terminate  such agreement nor
does it  anticipate  that Data General will  exercise  such right as the parties
continue to maintain a good working relationship with each other.

                                     - 16 -
<PAGE>

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

         In  February  1999  the  Company   announced  entry  into  distribution
agreements  with three  medical  equipment  suppliers for  distribution  in both
domestic and international  markets. These firms - Medika International Inc., of
San Juan,  Puerto  Rico,  Radiographic  Equipment  Services  (RES) of San Diego,
California,  and H & H X-Ray Corporation of Lancaster,  New York, have agreed to
distribute  Swissray's direct digital radiography  system, the  ddrMulti-System.
H&H X-Ray,  which was to oversee  sales in New York,  Pennsylvania  and Ohio has
ceased  business  operations  and the Company is  currently  conducting  its own
distribution  in such areas.  Similarly,  the  Company's  contract  with RES has
terminated  and the Company is  conducting  its own  distribution  within  these
territories.

         Medika, one of the largest medical equipment  suppliers in the Southern
Hemisphere,  will cover  ddRMulti-Systems  sales in Puerto Rico,  the Caribbean,
Mexico and selected South American markets.

         On  March  29,  1999 the  Company  entered  into a one year  Consulting
Agreement  (with  option to extend  for an  additional  period of one year) with
Liviakis Financial Communications, Inc.("LFC ") In accordance with the terms and
conditions of the Consulting Agreement, the Consultant agreed to provide certain
specified  consulting  services in a diligent and thorough  manner in return for
which and as full and complete compensation thereunder,  the Company is required
to  compensate  the  Consultant  through its  issuance and delivery of 3,000,000
fully vested,  and  non-forfeitable  shares of the Company's  restrictive common
stock.  As regards  such  shares of common  stock,  Consultant  has agreed  that
throughout the period of time that it retains beneficial ownership of all or any
portion of such  shares  that it shall (a) vote such shares in favor of Ruedi G.
Laupper continuing to maintain his current  position(s) with the Company and (b)
give Ruedi G. Laupper and/or his designee the right to vote Consultant's  shares
at all Company shareholder  meetings. In the event that the Company, in its sole
discretion,  exercises  its option to extend  the  Agreement  for an  additional
period of one year,  remuneration  for such second year has been set at $630,000
to be paid in  restrictive  shares of Company  common  stock (with the number of
shares to be determined based upon the ten day average closing bid price for the
ten consecutive  trading days preceding March 29, 2000).  The foregoing does not
purport  to set  forth  each  of  the  terms  and  conditions  of the  aforesaid
Consulting  Agreement  but  rather is  designed  to  summarize  what  management
considers to be pertinent portions thereof.

         In accordance with the terms of the aforementioned consulting agreement
,LFC has agreed that it will generally provide the following consulting services
:  (a)  advise and assist the Company in developing and implementing appropriate
plans  and  materials for presenting the Company in the financial community, and
creating  the  foundation for subsequent financial public relations efforts, (b)
advise and assist the Company in communicating appropriate information regarding
its plans,  strategy  and  personnel  to the financial community; (c) assist and
advise the Company with respect to  its  (i) stockholder and investor relations,
(ii)   relations  with   brokers,   dealers,  analysts   and   other  investment

                                     - 17 -
<PAGE>

professionals, and (iii) financial public  relations  generally, (d) perform the
functions  generally  assigned  to  investor/stockholder  relations  and  public
relations  departments  in  major corporations, (e) upon the Company's approval,
(i)  disseminate  information  regarding  the  Company to shareholders, brokers,
dealers, other investment community  professionals  and  the  general  investing
public  and  (ii)  conduct  meetings  with  brokers, dealers, analysts and other
investment professionals to advise  them  of  the  Company's  plans,  goals  and
activities and (f) otherwise perform as the Company's  financial  relations  and
public relations consultant.

         The agreement  further  provides that in the event LFC introduces  SRMI
(a)  to  a  lender  or  equity  purchaser,  not  already  having  a  preexisting
relationship  with  SRMI,  with  whom SRMI  ultimately  finances  or causes  the
completion of such financing, SRMI shall compensate LFC for such services with a
"finder's  fee" in the amount of 2.5% of total  gross  funding  provided by such
lender or equity purchaser or (b) to an acquisition  candidate,  either directly
or indirectly  through  another  intermediary,  not already having a preexisting
relationship  with  SRMI,  with  whom SRMI  ultimately  acquires  or causes  the
completion of such acquisition, SRMI shall compensate LFC for such services with
a "finder's  fee" in the amount of 2% of total gross  consideration  provided by
such acquisition.  The compensation to LFC is to be payable in cash and is to be
paid  in full  at the  time  the  financing  or  acquisition  is  closed.  It is
specifically  understood  that  LFC is not nor does it hold  itself  out to be a
Broker/Dealer,  but is rather  merely a "Finder"  in  reference  to the  Company
procuring financing sources and acquisition candidates.

         LFC, founded in 1985 by John Liviakis, its President, is a full service
investor relations firm, providing services principally to micro through mid-cap
public  companies  listed  on the  Nasdaq,  American,  New York  Stock and OTCBB
Exchanges.  Such  services  include  financial  community  and media  relations,
editorial  services and interactive  communications,  as well as administrative,
consulting and advisory  services.  The overall purpose of LFC is to enhance its
corporate clients' recognition in the financial  community,  the media and among
shareholders.  In  furtherance of its agreement with the Company and in addition
to and/or in conjunction with those consulting services referred to above and in
the consulting  agreement  between the parties,  LFC has performed the following
services  on behalf of the  Company  in its  efforts  to assist  and  advise the
Company with respect to its  stockholder  and investor  relations as well as its
relations with brokers,  dealers,  analysts and other investment  professionals.
Specifically LFC has performed the following services:

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

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

         Additionally,  on March 29,  1999 the Company  entered  into a eighteen
month  Consulting  Agreement  with Rolcan Finance Ltd.  ("Rolcan"),  pursuant to
which Rolcan agreed to provide certain business and consulting  services outside
the United States and in return for which the Company became  obligated to issue
as  full  and  complete  compensation  thereunder,  800,000  fully  vested,  and
non-forfeitable restrictive shares of its common stock.

         In accordance with terms of aforementioned consulting agreement, Rolcan
has agreed to facilitate the  endeavors  of  the  Company's medium and long term
business  plans  through  services,  including  but  not limited to, introducing
Company management (i) to potential  financial  partners, financial brokers, and
assist in  developing  market  awareness  within the financial community with an
emphasis  upon  introductions  to  offshore investors in Europe, the Middle East
and the Far East and to the  extent  practicable assisting the Company in having
its stock listed  on  various  European exchanges and (ii) continuing to discuss
Company financial requirements and types of financing which may be available and
/or appropriateunder then existing circumstances.

         Rolcan has  advised  that it is  currently  continuing  to conduct  due
diligence activities with respect to locating  international banking enterprises
on behalf of the Company  with a view  towards  obtaining  financial  backing in
areas of lines of credit, equipment leasing,  receivable and inventory financing
and areas of a similar  nature.  Such  efforts if  successful,  are  intended to
alleviate cash flow  difficulties  that may arise as a result of substantial and
significant increase in the Company's business activities (and most specifically
in  its  recent  major  increase  in  contracting  for  the  sale  of 32 of  its
ddRMulti-Systems  to  Romania.  Rolcan,  established  in  1993  by its  Managing
Director and control

                                      -18-

<PAGE>

stockholder, Roland Kaufmann, is a business consulting firm primarily engaged in
the types of activities  enumerated  above with its principal  activities  being
conducted outside the U.S.

         The  issuance  of the above  referenced  restrictive  shares to LFC and
Rolcan  was based  upon the then bid price of $0.375  per share as quoted on the
date (March 22, 1999) that the parties  each agreed to the terms and  conditions
of their respective  Consulting  Agreements,  notwithstanding the fact that when
such binding oral  agreements  were reduced to writing and executed on March 29,
1999 the closing bid price had risen to $0.906 per share. The factors considered
by the  Company's  Board in  determining  the 33% discount from the bid price of
$.375 per share when  issuing the above  reference  shares to LFC and Rolcan was
based upon the Board's determination that there is a substantial and significant
difference  between the  valuation of free  trading  securities  and  restricted
shares.  The  principal  differences  considered  relate to the  facts  that (a)
restricted shares may not be sold in the open market and (b) restrictive  legend
appearing on such restricted  shares may not be removed for a period of at least
one year absent registration and then only in accordance with Rule 144 (assuming
the Company continues to meet necessary  reporting  requirements for utilization
of Rule  144).  The  Board  further  considered  the fact that even if the above
referenced  Rule 144  requirements  were met the  holder  of  restricted  shares
remained  subject to specific  volume  limitations  (usually  1% of  outstanding
common stock) with respect to sales made within a 3 month period subsequent to 1
year holding period.  In addition to all of the above, the Board also considered
the fact  that the  Company's  shares  have had a  history  of  substantial  and
significant volatility.

         The  foregoing   summarizes  certain  pertinent  terms  and  conditions
contained in the Agreements  entered into by the Company with LFC and Rolcan but
does not  purport to be a complete  summary of such  Agreements.  Copies of such
Agreements  are  filed  with  the SEC in the  Company's  Form  S-1  Registration
Statement under SEC file number 333-59829.  Accordingly, further information may
be obtained  through the  Commission's  World Wide Web site utilized for Issuers
(such as the Company) that file electronically with the Commission.  The address
of such site is http:\\www.sec.gov.

         In April of 1999 the Company entered into distribution agreements with
(a) Linear Medical  Systems,  Inc.  for the territory of Arizona and (b) Capital
X-RAy, Inc. for the territories of Alabama and Mississippi.

         In May 1999 the European  Patent  Office issued patent No. EP 0 804 853
and in July of 1999 the U.S. Patent Office issued patent No.  5,920,604-both for
the  Company's  Radiography  (ddR)  detector,  the Add-On Bucky (R) which patent
relates to the optical  arrangement and process for  transmitting and converting
primary x-ray images,  which is the first of two inventions for the Add-On Bucky
(R).  The second  patent  application  for  optical  arrangement  and method for
electronically  detecting  an x-ray  image  was  granted  in  September  1999 as
hereinafter indicated.  The Add-on-Bucky(R) is incorporated in Swissray's unique
multifunctional ddRMulti-System.

         In July of 1999 the Company signed an investment banking agreement with
Raymond  James  &  Associates,  Inc.  (NYSE:RJE-news).  Under  the  terms of the
agreement,   Raymond   James   will  assist  Swissray  in  evaluating  strategic
alternatives including, but not limited to, identifying and evaluating proposals
from   potential   suitors  or  strategic  partners,  as  well as supporting the
Company's financing requirements.

         In  August  of  1999  the  Company   signed a one year exclusive sales,
marketing and service agreement  with  Hitachi  Medical  Systems  America,  Inc.
(HMSA), a  subsidiary  of  Hitachi  Medical Corporation.  Under the terms of the
agreement HMSA will provide sales,  marketing,  and service for the distribution
of Swissray's  ddRMulti-System  to end users within certain defined  territories
within the United States. In addition HMSA will utilize and promote the Swissray
Information Solutions services and products consisting of consulting and product
solutions for medical imaging informatics.

ITEM 2.   PROPERTIES

         On April 12, 1997,  the  production  facility  rented by the Company in
Hochdorf, Switzerland was affected by a fire in an adjacent facility. On May 15,
1997,  the  Company   purchased  a  new  office  and   production   facility  of
approximately  43,000  square  feet and  moved  its  entire  production  to this
facility and has since moved the offices and other  facilities  formerly located
in its Hitzkirch  facility to the new Hochdorf  facility.  The Company  believes
that its new Hochdorf facility provides it with sufficient production and office
space to meet its demand in Switzerland in the foreseeable future.

         The  Company  also  leases  office  space  in  New  York  City,   Brno,
Czech Republic, Gig Harbor, Washington and Wiesbaden, Germany.


                                     - 19 -
<PAGE>


ITEM 3.   LEGAL PROCEEDINGS

A.       On or about October 3, 1997,  the Registrant  and Swissray  Healthcare,
Inc.  were  served  with  a  complaint  by a company  engaged in the business of
providing  services  related  to  imaging  equipment  alleging  that   defendant
received  benefits  from breach of fiduciary duties and contract obligations and
misappropriation of trade secrets by certain former employees of such competitor
Such company also obtained a temporary restraining order against the  Registrant
and  Swissray  Healthcare,  Inc. in  the  aforesaid action  entitled  Serviscope
Corporation  v. Swissray  International,  Inc., and  Swissray  Healthcare,  Inc.
commenced  in  the  Supreme  Court  of  the  State of New  York under  Index No.
605091/97. On November 10, 1997, the  Court  denied  a  Motion for a preliminary
injunction and the temporary restraining order was vacated. On  December 1, 1997
and January 30, 1998 the Registrant answered the Complaint and Amended Complaint
respectively  by  denying  the   allegations contained therein.  The   Plaintiff
in such  action (on  December  2, 1997) filed a  Motion  to  reargue  and  renew
its  prior  denied  Motion for  a  Preliminary Injunction  and  such  Motion was
by Order and  Decision  dated  June  17,  1998)  denied.  The Company denied the
allegations, vigorously   defended  the  litigation  and thereafter settled such
litigation  and  all  outstanding  matters with respect thereto in July 1998 for
$60,000.

B.       Dispute with Gary J. Durday ("Durday"), Kenneth R. Montler  ("Montler")
and Michael E. Harle ("Harle").  On July 17, 1998,  two legal  proceedings  were
commenced by Swissray,  and two of its subsidiaries against Durday,  Montler and
Harle. Harle and Montler are former Chief Executive Officers of Swissray Medical
Systems Inc.  and  Swissray  Healthcare  Inc.,  respectively,  and Durday is the
former  Chief  Financial  Officer of both of those  companies.  Each of them was
employed  pursuant  to an  Employment  Agreement  dated  October  17,  1997.  In
addition,  these  three  individuals  were  owners of a  company  by the name of
Service  Support  Group LLC  ("SSG"),  the assets of which were sold to Swissray
Medical Systems Inc. pursuant to an Asset Purchase Agreement dated as of October
17,  1997.  whereby  Messrs.  Durday,  Montler and Harle  received,  among other
consideration,  33,333  shares of Swissray's  common stock,  together with a put
option entitling these individuals to require Swissray to purchase any or all of
such shares at a purchase  price equal to $45.00 per share (on or after June 30,
1998 and until April 16, 1999).

         On July 17,  1998,  Swissray  and its  subsidiaries,  Swissray  Medical
Systems Inc. and Swissray  Healthcare Inc.  commenced an arbitration  proceeding
before the American Arbitration Association in Seattle,  Washington (Case No. 75
489 00196 98)  alleging  that  Messrs.  Durday,  Montler and Harle  fraudulently
induced  Swissray and its  subsidiaries to enter into the above referenced Asset
Purchase Agreement and otherwise  breached that Agreement.  The relief sought in
the arbitration  proceeding was the recovery of damages  suffered as a result of
this alleged wrongful conduct and a rescission of the put option provided for in
the Asset Purchase Agreement. Messrs. Durday, Montler and Harle responded to the
allegations  made  in the  arbitration  proceeding  and  asserted  counterclaims
against  Swissray  and its  subsidiaries  claiming  a  breach  by them of  their
obligations under the Asset Purchase Agreement and other relief. The arbitration
took place in Seattle on January 8-10, 1999; the proceeding concluded on January
27, 1999 after the submission of post-hearing  briefs. On February 23, 1999, the
Arbitrator  issued  his  ruling,  awarding  Messrs.  Durday,  Montler  and Harle
$1,500,000  and  ordering  them to  surrender  all  rights to  33,333  shares of
Swissray  common  stock.  On February  26, 1999,  Swissray and Swissray  Medical
Systems  Inc.  filed a petition in Supreme  Court,  New York  County  (Index No.
99/104017)  to  vacate  the  above referenced arbitration award.  By order dated
July 8, 1999  such  motion  was  denied  and  the  court confirmed the aforesaid
arbitration award.

         In addition to the above referenced  arbitration  proceeding,  Swissray
and its  subsidiaries  commenced an action against Messrs.  Durday,  Montler and
Harle Supreme Court of the State of New York, County of New York,  alleging that
these  individuals  breached  the  obligations  undertaken  by  them  in   their
respective  Employment  Agreements.  Further, Messrs. Durday,  Montler and Harle
commenced an action in Superior Court  in  Pierce County, Washington, (September
1998 under Cause No. 98-2-10701-0),  and   asked  that Court to  adjudicate  the
issues  raised  in  the  above referenced New York State Court action.  Swissray
filed applications in both the Washington and New York litigations  urging that,
because the action was first filed in New York, the New York court,  rather than
the Washington court, should decide where the litigation should proceed. Messrs.
Durday,  Montler  and  Harle initially  opposed  that  position  and  urged  the
Washington State court to adjudicate all issues, but subsequently withdrew their
opposition  to  Swissray's  application  and  consented to a stay of all further
proceedings in the Washington State court action  until after the New York court
had reached a decision as to  whether it or the  Washington  court is the proper
forum for  litigation  of  the  parties'  dispute.  By  order dated June 1, 1999
filed in Supreme Court of the State of New York, County of New York  (Index  No.
603512/98)  Messrs. Durday,  Montler and  Harle's motion for an order dismissing
Swissray's complaint (on the ground of forum non conveniens)  was  granted.  The
aforesaid action commenced by Messrs. Durday, Montler and Harle in Pierce County
Washington remained pending.


                                     - 20 -
<PAGE>

        Parties to each  of  the  aforesaid  procedings  thereafter entered into
settlement  negotiations resulting in Swissray agreeing to pay $1,500,000 as and
for full settlement of all outstanding claims; such settlement  agreement having
been executed August 31, 1999. In accordance with such settlement  agreement the
Company was  required  and has since paid the sum of  $1,000,000  and is further
obligated to pay (in accordance  with the terms of an August 31, 1999 promissory
note and over a period of 24  consecutive  months) an aggregate of $500,000 with
interest at the rate of 9% per annum.  Payments with respect to such  promissory
note have been and remain current.

C.       Dispute with J. Douglas Maxwell.   On  or  about July 1, 1999 an action
was commenced in the Supreme Court, State of New York, County of New York (Index
No. 113099/99)  entitled  J.  Douglas  Maxwell  ("Maxwell")   against   Swissray
International, Inc. ("Swissray") whereby Maxwell is seeking judgement in the sum
of  $380,000  based  upon  his  interpretation  of  various terms and conditions
contained  in  an  Exchange  Agreement  between the parties dated June 1, 1998.
Swissray  has  denied  the  material  allegations of Maxwell's complaint and has
asserted  three  affirmative  defenses  and  two  separate counterclaims seeking
(amongst other matters) dismissal of the complaint and rescission of th  settle-
ment agreement.  It is Swissray's management's intention to contest this  matter
vigorously.

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

          No matters were submitted to a vote of Company security holders during
the fourth quarter of its fiscal year ended June 30, 1999.

          The  Company  held  its Annual Meeting of Stockholders for fiscal year
ended  June 30, 1998  on  July 23, 1999,  at which time stockholders (i) elected
each  of  those  five  persons  nominated  to  serve  on  the Company's Board of
Directors, (ii)  approved  the appointment of Feldman Sherb Horowitz & Co., P.C.
as  the  Company's  independent accountants for fiscal year ended June 30, 1999,
(iii)voted in favor of adopting an amendment to its Certificate of Incorporation
so as to authorize the creation of a class of Preferred Stock; and (iv) approved
the proposal to adopt the Company's 1999 Stock Option Plan.

     The proposal to re-incorporate the Company in Delaware was not approved not
withstanding the fact that approximately 74% of all votes cast voted in favor of
such proposal.  Such votes only represented approximately 62% of all outstanding
shares  while  approval of the proposal required an affirmative vote of at least
two-thirds of all outstanding shares.

     The  number  of  shares  of  Common  Stock  voted  at  the  Annual  Meeting
approximated 84% of all issued and outstanding securities as of the record date.

     The  Company  has  not  as  yet  established  a date for holding its Annual
Meeting  of  Stockholders  for  fiscal year ended June 30, 1999.  While specific
plans as to the agenda, proposed site and date of  meeting  have  not  yet  been
finalized, it is management's intention to hold such Annual  Meeting  as soon as
practicable and prior to the end of the calendar year 1999.

                                    PART II

ITEM 5.   MARKET PRICES AND DIVIDEND POLICY

         (A)   The  Registrant's  common  stock,  $.01  par  value  (the "Common
Stock") was listed on the Nasdaq  SmallCap  Market and  traded  under the symbol

                                     - 21 -
<PAGE>

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

Fiscal Year Ended June 30, 1997               Quarterly Common Stock Price
       By Quarter                                     Ranges (1)(2)
Quarter             Date                          High              Low

1st              September 30, 1996             $5.0625              $3.6875
2nd              December 31, 1996              $4.000               $2.375
3rd              March 31, 1997                 $3.5625              $1.6875
4th              June 30, 1997                  $3.250               $1.4063

Fiscal Year Ended June 30, 1998               Quarterly Common Stock Price
       By Quarter                                      Ranges (1)(2)
Quarter              Date                          High              Low

1st              September 30, 1997              $1.6375              $1.5625
2nd              December 31, 1997               $1.250               $1.125
3rd              March 31, 1998                  $1.6875              $.750
4th              June 30, 1998                   $1.000               $.500

Fiscal Year Ended June 30, 1999               Quarterly Common Stock Price
        By Quarter                                      Ranges (1)(2)
Quarter              Date                           High              Low

1st              September 30, 1998 (3)          $.5625                $0.188
2nd              December 31, 1998               $.1375                $0.875
3rd              March 31, 1999                  $1.25                 $0.375
4th              June 30, 1999                   $2.812                $2.437

(1)      The  Registrant's  Common  Stock  began trading on the Nasdaq SmallCap
         market  on  March   20,  1996  with  an  opening  bid  of  $47.50.  The
         following statement specifically  refers to the Common Stock  activity,
         if  any,   prior to March 20, 1996 and  subsequent  to October 26, 1998
         NASDAQ   delisting.  The  existence  of limited or sporadic  quotations
         should   not   of  itself  be  deemed  to  constitute  an  "established
         public  trading   market."  To  the  extent that limited trading in the
         Registrants's   Common  Stock took place,  such  transactions have been
         limited to the over-the-counter  market. Until March 20, 1996 and since
         October  26,  1998,  all  prices  indicated  are  as  reported  to  the
         Registrant by broker-dealer(s) making a market in its  common  stock in
         the  National  Quotation  Data  Service  ("pink  sheets")  and  in  the
         Electronic  Over-the-Counter  Bulletin  Board.  During  such  dates the
         Registrant's  Common  Stock  was  not traded or quoted on any automated
         quotation  system  other than as indicated herein. The over-the-counter

                                     - 22 -
<PAGE>

         market and other quotes indicated reflect  inter-dealer  prices without
         retail  mark-up,  mark-down  or  commission  and  do  not   necessarily
         represent actual transactions.

(2)      All  prices  indicated   hereinabove for  quarters  up to and excluding
         quarter ending  December 31, 1998  reflect price ranges as they existed
         during the quarters indicated but do not retroactively  reflect a 1 for
         10 reverse  stock  split  effective October 1, 1998.

(3)      On  the  date of NASDAQ's delisting (October 26, 1998) the common stock
         price  was  $.97  per  share  while  on  the  date immediately prior to
         effectiveness  of  the  reverse stock split (October 1, 1998) the stock
         price was $.118 per share.

         (b)   Holders. As of the close of business  on  August 24,  1999  there
were  674  stockholders of the Registrant's  Common Stock and 14,541,537  shares
issued and outstanding.

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

         (d)   Recent NASDAQ Delisting.   The   Nasdaq   Stock  Market  recently
adopted certain changes to the standards for issuers with  securities  listed on
Nasdaq.  One of the changes  included  increasing the  quantitative  maintenance
requirements for continued listing in the Nasdaq SmallCap  Market,  on which the
Company's Common Stock was  then  listed  and traded under the symbol SRMI until
October 26, 1998  delisting.  In  order to maintain  continued listing on Nasdaq
the Company's Common Stock was required to maintain a closing bid price at least
equal to $1.00 per  share.  On  October  26, 1998  NASDAQ  determined  to delist
Company's securities from The NASDAQ  Stock  Market  effective with the close of
business  October  26, 1998. The  advise  (accompanying  the  delisting  letter)
indicated in pertinent part that (a)  the bid price of  Company's  common  stock
had fallen below  $1.00 per share on October 26, 1998 despite the Company having
demonstrated ".. a  closing  bid  price  in  excess of $1.00 for a period  of 17
consecutive  trading  days" and (b) the Company's 15 day extension  within which
to timely file its Form 10-K for fiscal  year  ended  June 30, 1998  had expired
October 15, 1998 and, accordingly, "the Registrant  is  now  deficient in filing
its 10-K for the fiscal year ended June 30, 1998".

         The NASDAQ Listing and Hearing and Review Council("Council") may,on its
own  motion,  determine  to  review  any  NASDAQ  Listing  Qualifications  Panel
("Panel") decision within 45 calendar days after issuance of a written decision.
The Council, by letter dated December 9, 1998, and on its own initiative, called
for review of the above  referenced  Panel's  decision.  The Council may affirm,
modify,  reverse,  dismiss, or remand the decision to the Panel. The  Registrant
may also request the Council to review its decision  and  such  request  must be
made  within  15 days of the date of this decision. The institution of a review,
whether  by  way  of  any request, or on the initiative of the Council, does not
operate as a stay of NASDAQ's October 26, 1998 delisting decision.

                                     - 23 -
<PAGE>

         The  Company  formally  requested  a review of  NASDAQ's  decision in a
timely  manner and such  request was  confirmed  by NASDAQ on November  16, 1998
wherein  NASDAQ  indicated  that the Company had until  January 15, 1999 for its
submission of any  additional  information it may deem pertinent for purposes of
Review Council's consideration. The Company understands that the Review Panel is
prepared to and will consider any and all additional  information supplied to it
by the Company that did not exist at the time of delisting and, accordingly, the
Company  provided  certain new and significant  information (in a timely manner)
for  NASDAQ's  consideration;  such information primarily consisting of the fact
that  current  bid  price  for  common  stock  met NASDAQ standards and that the
Company was current with respect to its Exchange Act reporting requirements  and
was  accompanied  by  various  literature  describing the Company's products and
business prospects.

         On   April  1,  1999  the   Council   issued   a  Decision  whereby  it
reversed  and  remanded  the  decision  of the NASDAQ  Panel with  instructions,
having  found  that  the  Company  was  not  provided with  adequate  notice and
opportunity  to  respond  to  all  of  the basis upon which the Panel apparently
determined to delist the Company's securities.

         The Council's  instructions directs NASDAQ staff and Panel to determine
whether the Company  complies with all continued  listing  requirements  for the
Nasdaq SmallCap Market and demonstrates the ability to maintain  compliance with
these  requirements in the long term. Such Council's  decision directs the staff
to conclude its review and provide its findings to the Panel within 45 days from
April 1, 1999. The decision  further states that "If, at the time of the staff's
review,  the staff  finds that the  Company  meets all of the  requirements  for
continued  listing on The Nasdaq SmallCap  Market,  demonstrates  the ability to
maintain  compliance with these  requirements in the long term, and there are no
new adverse  developments,  the Panel should  relist the Company on the SmallCap
Market.  If, however,  the staff finds that the Company does not meet all of the
continued  listing  requirements or does not demonstrate the ability to maintain
compliance with these  requirements for the long term, the Panel must notify the
Company of which  requirement(s)  it fails to satisfy."  (providing  the Company
with 15 days to respond).

         As  of  August 24, 1999  no final determination has been made regarding
the issues referred to above.

ITEM 6.   SELECTED FINANCIAL DATA

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

         The selected consolidated financial data presented below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and related
notes  thereto  included  elsewhere  in  this  10-K.  The selected  consolidated
financial  data  as  of and for the fiscal years ended, June 30, 1995 (six-month
period),  June 30, 1996,  June 30, 1997,  June 30, 1998  and  June 30, 1999  are
derived from the audited consolidated financial statements of the Company.

                                     - 24 -
<PAGE>
<TABLE>
<CAPTION>
                                                                Year Ended
                                   ---------------------------------------------------------------

                                     6/30/99       6/30/98      6/30/97*    6/30/96   6/30/95(1)
                                    ---------      --------     --------    --------  --------
                                                   (In Thousands, Except Per Share Data)
<S>                                 <C>        <C>           <C>          <C>           <C>
STATEMENT OF OPERATIONS DATA:
Net sales                             17,296       22,893       13,151      10,899         3,806
Cost of sales                         13,529       18,082        8,445       5,793         2,484
                                      ------      -------       ------      -------       -------
Gross profit                           3,767        4,811        4,706       5,106         1,322
Gross profit margin (%)                   22%          21%          36%         47%           35%
Selling, general and
   administrative expenses            19,346       18,748       17,450      14,966         2,307
                                      ------      -------       ------      -------       -------
Operating loss                       (15,579)     (13,937)     (12,744)     (9,860)         (985)
Other expenses (income), net             (40)         281         (319)     (1,004)        3,054
Interest expense                       5,639        8,590          762         194           122
                                       -----        -----        -----      ------        ------
Loss from continuing operations,
   before income taxes               (21,178)     (22,808)     (13,187)     (9,050)       (4,161)
Income tax provision (benefit)            --           --          110        (365)         (339)
                                       -----      -------       ------      -------       -------
Loss from continuing operations      (21,178)     (22,808)     (13,297)     (8,685)       (3,822)
                                      =======      =======     ========     =======       =======
Loss per share from continuing
   operations - basic                  (3.24)       (8.48)       (8.41)      (6.69)        (4.80)
                                     ========     ========     ========   =========      ========
   BALANCE SHEET DATA:
Total assets                          23,511       25,915       24,788      18,793        13,027
Long-term liabilities                 15,501        7,771        5,635          --           705
Common stock subject to put            1,820        1,820          320          --            --
</TABLE>

(1)      In 1995, the Registrant changed its fiscal year end from December 31 to
         June 30.  As a result,  the  Company  had a fiscal  year  beginning  on
         January 1, 1995 and ending on June 30, 1995.  Accordingly,  the Summary
         Financial  Data for the period  ended June 30,  1995 is for a six-month
         period.

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

*        Restated

                                     - 25 -

<PAGE>



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


GENERAL

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

         The focus of the  Company  for the fiscal  year ended June 30, 1999 was
mainly on the  industrialization  and  commercialization  of the newly developed
products   AddOn-Multi-System  and  Bucky  Diagnost  TS  and  the  building  and
strengthening of its  organization  and  distribution  channels in the principal
markets USA and Europe.

         In  October 1997,  the Company acquired substantially all of the assets
of Service  Support Group LLC "SSG", a company active in the business of selling
diagnostic  imaging  equipment  and  providing  services  related thereto in the
markets on the West Coast of the United States.  The Company  also  started  its
activities,  in the  U.S. and  later   in  Europe,   the business of information
solutions  by  providing  a  comprehensive  package of  consulting, services and
products  to enable  the  Healthcare  providers  to  perform the transition into
filmless  Radiology.  Significant amounts of money were invested  in the opening
of the market of the Company's direct digital ddR-Multi- Systems, both in the US
and in Europe.

         During the start-up of the production of the Company's  newly developed
products,  the  ddRMulti-System  and the Bucky  Diagnost TS, gross  margins were
affected  negatively  because of the need of extra time for  training  the newly
hired  production  staff and  implementation  of the  production  run as well as
efforts made to improve and maintain the highest  product  quality.  The Company
expects to lower  costs and time  needed for  production  of these  systems in a
later  stage of the  learning  curve due to  positive  impact  of the  optimized
production  run.  The  sales  of  ddRMulti-System  was  slowed  down by  certain
governmental requirements for the sale of Healthcare products, which differ from
one country to the other.  On July 26, 1998 SR Medical AG, the  Company's  Swiss
marketing  subsidiary,  was ISO 9002 and  EN46002  certified.  On March 8,  1999
Swissray  Medical AG, the Company's Swiss research and  development,  production
and marketing  subsidiary  became ISO 9001 and EN 46001  certified.  The Company
filed for CE  approval  of the  ddRMulti-System  in July 1998.  Appendix  II for
CE-Certification was received November 1999, which allows the Company to use the
CE-Label,  including the medical  device  numbers for all products  manufactured
and/or sold through the Company.

         The Company  started a  restructuring  process in the fourth quarter of
its fiscal year ended June 30, 1998. With the sale of Empower's Film,  Processor
and  Chemistry  Business  to E.M.  Parker,  the Company  continued  its focus on
digital Radiography. The process of restructuring is ongoing and includes mainly
internal reorganization to achieve lean structures and cost savings.

                                     - 26 -




<PAGE>

         The  process  of  restructuring  also included the fact that during the
last quarter of fiscal year 1998,  the Company  decided to  reorganize  its U.S.
operations and other branch offices and also decided to close down its office in
Lusanne,  Switzerland.  The  restructuring  reserve  for  dissolving  the office
consisted  of  remaining   lease   payments   through  the  year  2001  totaling
approximately  $90,000.  Further, the Company decided to merge two of its branch
offices in Europe. A restructuring  reserve of $10,000 was necessary for picking
up various commitments.

         Additionally,  the  Company's  U.S. operations consisted of three legal
entities doing business in the State of Washington.  The plan for reorganization
consisted of the following:  (i) merge existing  entities into one legal entity,
(ii)  reorganize  the  selling  force and  management  teams,  (iii)analyze  all
customers and lines of business for  profitability  and long term strategies and
(iv) relocate the operations, including personnel, to the East Coast which would
require the Company to vacate its existing  facility in Washington.  The Company
planned  on  relocating  in the 3rd  quarter  of Fiscal  1999 at which  time the
present value of the remaining lease payments amounted to approximately $400,000
(which sum was  accrued).  The only  change to the Plan so far is a delay in the
final negotiations with respect to certain lease terms for certain proposed East
Coast  facilities  which  the  Company  may  or may  not  lease  dependent  upon
successful  completion  of negotiated  terms.  All other facets of the Plan have
been completed.

YEAR 2000 POLICY STATEMENT

         The Company  has  conducted an extensive program to check the status of
its  equipment  (information  and  non-infornation  technology) related  to  the
millennium.

         For  relevant  material  (information  and  non-information technology)
delivered by third parties the Company received written  assurances  that  their
year 2000 compliance's is under control.  The Company is actually 100% compliant
and is ready for Y2K.

         In  fact,  100%  of the Company's installed base equipment (information
and non-information technology) fulfills Year 2000 compliance.

         The  Year  2000  Statement  of  the  Company  has been published on its
website, http://www.swissray.com, and all our customers have been informed.

         Contingency plans have been worked out by the Company.


YEAR 2000 COMPLIANT LISTS

        All products of the Company (information and non-infornation technology)
fulfill the compliance for Year 2000 and belong to class A Systems. The products
listed  have  been  tested  on  a  stand  alone  basis; therefore an operational
environment's test results may differ. This information does not affect existing
warranties,  warranty  exclusions, exclusive warranty remedies or limitations of
liability.

Class A Systems: Year 2000 Compliant

GEN-X-Generators:          Mobile Systems:
TURNOMAT 500
GEN-X 500                   Eurabil 5      Eurabil C-Arm Standard
GEN-X 650                   Eurabil 15     Eurabil C-Arm Plus
GEN-X 800                   Eurabil 30     Eurabil C-Arm Top

                            Bucky Table Sustems:
GEN-X 1000                  -    Euramove 1
GEN-X 2000                  -    Euramove 2
GEN-X 3000                  -    Euramove 3
GEN-X 4000                  -    Euramove 4
MRS-GENERATOR               -    Eurastat 2
                            -    Eurastat 4
Atlas Systems:              -    Bucky-Diagnost TS
Atlas-U - US 2000
Atlas-U - US 3000       Special Systems
Atlas-U - US 4000           -    Euralem 1400
Atlas-BV-Tomo               -    Euralem 1500
MRS-Stativ                  -    Euralem 1800
                            -    Euralem Tomo

                                     - 27 -
<PAGE>

Urology Systems:
KU-100                     Digital Bucky Systems:
KU-100 H                    -    ddRMulti-System
KU-100 H Tomo

Fluoroscopy Systems:
Euroscop 3A
Euroscop 6, 6+, 6++

IT-Systems internally used

         In its  year  2000  project  the  Company  has  tested  and  asked  for
statements  about  the  year  2000  compliance.  In  fact  100%  of   IT-Systems
(Information  Technology)  within  the  Company  are  compliant  and expected to
encounter no problems on January 1, 2000.

         The  operating  system  of  the  Company's   IT-Systems  are  built  on
Microsoft.  (Windows 95 and/or  Windows NT).  SWISSRAY  also uses the  Microsoft
Office packages for its  administration  and therefore  relies on  the operating
system as well as the Microsoft  Office  package for the year 2000 compliance of
Microsoft for the above mentioned products.

IT-Systems Third Parties

         The Company also asked all important  partners (e.g. banks,  suppliers,
sales channels) for statements about the year 2000 compliance.  The  Company has
not received any negative responses.  All these important partners  fulfill  the
Year 2000 compliance.

YEAR 2000 PROJECT COSTS

         The Company has separated its cost in the following parts:
<TABLE>
<CAPTION>
                                                                  June 30, 1999
                                                                  --------------
<S>                                                               <C>
Test & Survey own Products                                         $ 50,000
Test & Survey Third Parties Products                               $ 20,000
Modification own Products                                          $ 20,000
Administration (Communication  with Third Parties)                 $  5,000
Consultant                                                         $  5,000
                                                                  --------------
TOTAL YEAR 2000 Project costs                                      $100,000
</TABLE>


                                     - 28 -
<PAGE>

YEAR ENDED JUNE 30, 1999 COMPARED TO YEAR ENDED JUNE 30, 1998

Results of operations

         Net  sales  amounted  to  $17,295,882  for the year ended June 30, 1999
compared to $22,892,978,  a decrease of $5,597,096, or 24.4% from the year ended
June 30, 1998.  Sales for year ended June 30, 1998 include sales of the film and
processor  business of Empower which was sold on June 30, 1998,  of  $7,134,938.
Net sales without the film and processor  business of Empower  increased for the
year ended June 30,  1999 by  $1,537,842  or 9.8%.  This  increase is due to the
additional sales of ddRMulti-Systems.

         Gross profit decreased  by  $1,044,611 or 21.7% to  $3,766,581  for the
year ended June 30,  1999,  from  $4,811,192  for the year ended June 30,  1998.
Gross  profit as a percentage  of net  revenues  increased to 21.8% for the year
ended June 30, 199 from 21% for the year ended June 30,  1998.  The  increase in
gross profit percentage is due to production efficiencies.

         Operating  expenses  increased  by $598,210 or 3.2% to  $19,345,939  or
111.9% of net revenues,  for the year ended June 30, 1999, from $18,747,729,  or
81.9% of net revenues for the year ended June 30, 1998. The principal items were
salaries (net of officers and directors  compensation) of $3,784,305 or 21.9% of
net sales for the year ended June 30, 1999  compared to  $4,168,540  or 18.2% of
net sales for year  ended June 30,  1998 and  officers  compensation  increasing
approximately  $4,444,477,  primarily  from the  issuance of common stock to its
President in exchange for  extinguishment  of certain bonus rights  contained in
his employment  agreement,  selling expenses of $3,207,646 or 18.5% of net sales
for the year ended June 30, 1999  compared to  $3,740,391  or 16.3% of net sales
for the year ended June 30, 1998. The decrease of depreciation  and amortization
of $471,582  primarily  due to the fact that the  depreciable  fixed assets were
less for 1999 since many of these  assets  were  fully  depreciated  at June 30,
1998.  The  decrease in selling  expenses was a result of the closing of Empower
which totaled  approximately  $476,000.  Research and development  expenses were
$1,808,107  or 10.5% of net sales for the year ended June 30,  1999  compared to
$3,542,149 or 15.5% of net sales for the year ended June 30, 1998. This decrease
is  primarily  due to the  decrease  in  research  and  development  related  to
AddOn-Bucky.  Other operating expenses decreased by approximately  $670,000 from
the  comparable  period in 1998  primarily  from the decrease due to the Empower
closing of  $100,000  and the  decrease  in  occupancy  and  insurance  costs of
approximately  $200,000.  Principal  costs  associated  with  development of the
ddRMulti-System  have now been  accomplished and research and development  costs
are expected to continue  regarding  upgrades and new product  development  with
respect to associated and related products relating to the ddRMulti-System.

         Interest expense decreased to $5,638,928 for the  year  ended  June 30,
1999 compared to $8,590,268 for the year ended June 30, 1998.  This decrease is
primarily  due to the  increase  of  interest  expense  for  accrual  of penalty
interest on debenture registration and the decrease in amortization of Debenture
issuance cost and Conversion Benefit.

         Loss on extinguishment of debt was $832,849 for the year ended June 30,
1999  compared  to  a  gain  of  $304,923 for the year ended June 30, 1998.  The
extinguishment gain or loss resulted from refinancing of Convertible debentures.

Financial Condition

June 30, 1999 compared to June 30, 1998

         Total assets of the Company on June 30, 1999 decreased by $2,403,408 to
$23,511,149 from $25,914,597 on June 30, 1998,  primarily due to the decrease in
current assets.  Current assets decreased  $1,139,876 to $11,929,381 on June 30,
1999 from  $13,069,257  on June 30,  1998.  The  decrease  in current  assets is
primarily  attributable  to the  decrease in  inventories  of  $368,744  and the
decrease in prepaid expenses and sundry  receivables of $635,105  primarily from
the  collection  of  VAT  receivable.   Other  assets  decreased  $1,536,194  to
$5,298,768 on June 30, 1999 from  $6,834,962  on June 30, 1998.  The decrease is
primarily attributable to the amortization of the licensing agreement, patents &
trademark, software development cost and the goodwill.

                                     - 29 -
<PAGE>


         On  June 30, 1999,  the  Company  had total  liabilities of $30,445,812
compared   to   $19,575,870.  On   June  30,  1998.  On  June 30, 1999,  current
liabilities were $14,944,865  compared to $11,984,554 on June 30, 1998.  Working
capital at June 30, 1999 was ($3,015,484)  compared  to ($1,084,703) at June 30,
1998.

CASH  FLOW  AND  CAPITAL  EXPENDITURES YEAR ENDED JUNE 30, 1999 COMPARED TO YEAR
ENDED JUNE 30, 1998.

         Cash used for operating activities for the year ended June 30, 1999 was
$9,788,606 compared to $11,759,371 for the year ended June 30, 1998 primarily as
a  result  of  losses   sustained   from   operations,   exclusive  of  non-cash
compensation. Cash used for investing activities was $879,303 for the year ended
June 30, 1999 compared to $4,517,140  for the year ended June 30, 1998 primarily
from the  acquisitions  of  property  and  equipment.  Cash flow from  financing
activities  for the  year  ended  June  30,  1999 was  $11,068,406  compared  to
$14,799,200 for year ended June 30, 1998 as a result of the sale of common stock
and proceeds from the sale of debentures.

         The  Company  does  not  have  any  material  commitments  for  capital
expenditures as of June 30, 1999.

Liquidity

         The Company  anticipates  that its use of cash will be substantial  for
the  foreseeable  future.  In  particular,  management  of the  Company  expects
substantial  expenditures  in  connection  with the  production  of the  planned
increase of sales,  the continuation of the  strengthening  and expansion of the
Company's marketing  organization and, to a lesser degree,  ongoing research and
development  projects.  The Company expects that funding for these  expenditures
will be  available  out of the  Company's,  future cash flow and/or  issuance of
equity and/or debt securities during the next 12 months and thereafter.

         However,  the availability of a sufficient future cash flow will depend
to a significant  extent on the marketability of the Company's  ddRMulti-System.
Accordingly,  the  Company  may be  required  to  issue  additional  convertible
debentures or equity securities to finance such capital expenditures and working
capital  requirements.  There can be no assurance  whether or not such financing
will be available on terms satisfactory to management.

         On March 16, 1998, the Company issued  $5,500,000  aggregate  principal
amount of 6% convertible debentures (the "Convertible Debentures"),  convertible
into  Common  Stock of the Company to the  following  financing  participants  -
Atlantis Capital Fund, Ltd.,  Canadian Advantage Limited  Partnership,  Dominion
Capital Fund,  Ltd. and  Sovereign  Partners LP. After  deducting  legal fees of
$35,000,  and placement  agent fees of $550,000  directly  attributable  to such
offering,  the  Company  received a net amount of  $4,915,000.  All  Convertible
Debentures  were  issued to  accredited  investors  as defined in Rule 501(a) of
Regulation  D  promulgated  under the Act  ("Regulation  D") and the Company has
received written  representations from each investor to that effect. One Hundred
percent of the face amount of the Convertible  Debentures are  convertible  into
shares of Common  Stock of the  Company at the  earlier  of May 15,  1998 or the
effective date of this Registration Statement at a conversion price equal to 80%
of the average  closing bid price for the ten trading days preceding the date of
conversion. Any Convertible Debentures not so converted are subject to mandatory
conversion  by the  Company  on the  24th  monthly  anniversary  of the  date of
issuance  of the  Convertible  Debentures.  All of these  debentures  have  been
converted.
                                     - 30 -

<PAGE>

         In June of 1998,  the Company  issued  $2,000,000  aggregate  principal
amount of 6% convertible debentures (the "Convertible Debentures"),  convertible
into  Common  Stock of the Company to the  following  financing  participants  -
Canadian  Advantage  Limited  Partnership,   Dominion  Capital  Fund,  Ltd.  and
Sovereign  Partners LP.  After  deducting  fees  directly  attributable  to such
offering  the  Company  received a net  amount of  $1,760,000.  All  Convertible
Debentures  were  issued to  accredited  investors  as defined in Rule 501(a) of
Regulation  D  promulgated  under the Act  ("Regulation  D") and the Company has
received written  representation  from each investor to that effect. One Hundred
percent of the face amount of the Convertible  Debentures are  convertible  into
shares of Common  Stock of the  Company at the earlier of August 14, 1998 or the
effective date of this Registration Statement at a conversion price equal to 80%
of the average  closing bid price for the ten trading days preceding the date of
conversion. Any Convertible Debentures not so converted are subject to mandatory
conversion  by the  Company  on the  24th  monthly  anniversary  of the  date of
issuance  of the  Convertible  Debentures.  None of these  debentures  have been
converted as of August 24, 1999.

         On August 31, 1998 the Company issued  $3,832,849  aggregate  principal
amount of 5% convertible  debentures (the "Convertible  Debentures") including a
25% premium and accrued  interest,  convertible into Common Stock of the Company
to the following financing  participants - Atlantis Capital Fund, Ltd., Canadian
Advantage  Limited  Partnership,  Dominion  Capital  Fund,  Ltd.  and  Sovereign
Partners LP. The Company did not receive any cash  proceeds from the offering of
the Convertible Debentures.  The full amount was paid by investors to holders of
the Company's Convertible Debentures issued on March 16, 1998 holding $3,000,000
of such Convertible Debentures as repayment in full of the Company's obligations
under such  Convertible  Debentures.  During the same period the Company  issued
$2,311,000 aggregate principal amount of 5% Convertible Debentures,  convertible
into Common Stock of the Company.  After deducting fees,  commissions and escrow
fees in the  aggregate  amount of $311,000 the Company  received a net amount of
$2,000,000.  The face amount of both Convertible Debentures are convertible into
shares of Common Stock of the Company  commencing  March 1, 1999 at a conversion
price  equal to 82% of the average  closing  bid price for the ten trading  days
preceding the date of the conversion or $1.00 whichever is less. Any convertible
Debentures  not so converted are subject to mandatory  conversion by the Company
on the 24th  monthly  anniversary  of the date of  issuance  of the  Convertible
Debentures.  As of August 24, 1999 an unconverted  balance of $5,629,421 remains
outstanding.

         On October 6, 1998 the Company issued  $2,940,000  aggregate  principal
amount of 5% convertible debentures (the "Convertible Debentures") including, as
part of the terms of this financing,  $540,000  repurchase of stock (717,850 and
747,150  shares from  Dominion  Capital  Fund,  Ltd. and  Sovereign  Partners LP
respectively),  convertible  into Common  Stock of the Company to the  following
financing  participants - Dominion Capital Fund, Ltd. and Sovereign Partners LP.
After  deducting fees,  commissions  and escrow fees in the aggregate  amount of
$300,000 the Company received a net amount of $2,100,000. The face amount of the
Convertible Debentures is convertible into shares of Common Stock of the Company
any time  after  the  closing  date at a  conversion  price  equal to 82% of the
average  closing bid price for the ten trading  days  preceding  the date of the
conversion  or  $1.00  whichever  is less.  Any  Convertible  Debentures  not so
converted are subject to mandatory conversion by the Company on the 24th monthly
anniversary of the date of issuance of the Convertible Debentures. None of these
debentures have been converted as of August 24, 1999.

         The  Registrant  received gross proceeds of $1,080,000 in December 1998
pursuant to promissory  notes  bearing  interest at the rate of 8% per annum for
the first 90 calendar days (through  March 13, 1999) with the Company having the

                                     - 31 -
<PAGE>

option to extend the notes for an additional 60 days with interest increasing 2%
per annum during the 60 day period.  The Company exercised its extension option.
As further  consideration  for the loan, the Company issued Lenders  Warrants to
purchase up to 50,000 shares of the Company's common stock exercisable, in whole
or in part,  for a period of up to 5 years at $.375  (the bid price for  Company
shares on the date of  closing).  The promissory notes (held by Dominion Capital
Fund, Ltd. and Sovereign Partners) were not paid by their due date and the terms
of  a  Contingent  Subscription  Agreement,  Debenture  and  Registration Rights
Agreement automatically went into effect with debentures bearing interest at the
rate of  5% per  annum  (payable  in  stock  or cash  at the  Company's  option)
and  being  convertible,  at  any  time at the  lesser  of (a) 82% of the 10 day
average  bid  price  for the 10 consecutive  trading days immediately  preceding
the  conversion  date or (b) $1.00 per share.  The  documents  also  provide for
certain Company redemption rights at percentages  ranging  from 115% of the face
amount of the  Debenture  to 125% of the face amount of the debenture  dependent
upon  redemption  date,  if  any  as  more  specifically  set  forth in the last
paragraph to this subsection.

         On January 29, 1999 the Company issued a principal  aggregate amount of
$1,170,000 of convertible debentures ("Convertible Debenture"), convertible into
Common Stock of the Company to the following  financing  participants - Dominion
Capital Fund, Ltd.,  Dominion Investment Fund LLC and Sovereign Partners LP at a
conversion  price of 82% of the  average  closing  bid price for the ten trading
days preceding the date of conversion  together with accrued  interest of 3% for
the first 90 days, 3.5% for 91-120 days and 4% for 120 days and  thereafter.  As
further  consideration  for the loan,  the Company  issued  Lenders  Warrants to
purchase up to 58,500 shares of the Company's common stock exercisable, in whole
or in part,  for a period of up to 5 years at $1.00 per  share.  After  deducing
fees directly  attributable to such offering the offering the Company received a
net amount of $1,020,000.  All Convertible  Debentures were issued to accredited
investors as defined in Rule 501(a) of  regulation D  promulgated  under the Act
("Regulation  D") and the Company  received  written  representations  from each
investor to that effect. Any Convertible  Debenture not so converted are subject
to mandatory  conversion by the Company on the 24th anniversary date of issuance
of the Convertible  Debentures.  None of these Convertible  Debentures have been
converted as of August 24, 1999.

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

         On  March 26, 1999  the  Company  entered  into a third promissory note
(contingent convertible debenture financing) with terms and conditions identical
to  those  set  forth in the March 2, 1999 promissory note financing referred to
directly  above  excepting (a) the lender is different, to wit: Aberdeen Avenue,
LLC, (b) gross proceeds amounted to $550,000, (c) the initial  due  date of such

                                     - 32 -
<PAGE>

note was  June  25,  1999, (d)  the  potential  60  day  extension  date on such
promissory notes was August 24, 1999 but such extendion right was never utilized
(e) Warrants were issued (similarly exercisable over 5 years) to  purchase up to
27,500 shares  of  common  stock  at 125% of the average 5 day closing bid price
of the  Company's  common stock immediately preceding the date of closing but in
no  event  at  less  than  $1.00 per share.  In all other respects the terms and
conditions of each  of  the documents  executed with respect to this transaction
are identical to those described in  the  above March 2, 1999  transaction.  The
promissory notes were not paid on their due date and the terms of the Contingent
Subscription  Agreement and  Registration  Rights  Agreement automatically  went
into effect.

         From May 14, 1999 to June 9, 1999 (in a single  financing)  the Company
issued a  principal  aggregate  amount of  $850,000  of  convertible  debentures
("Convertible Debentures"),  convertible into Common Stock of the Company to the
following financing  participants - Endeavour Capital Fund SA, Excaliber Limited
Partnership  and Carbon Mesa  Partners LLC at a  conversion  price of 80% of the
average  closing  bid  price  for the ten  trading  days  preceding  the date of
conversion  together with accrued  interest of 5%. After  deducing fees directly
attributable to such offering the offering the Company  received a net amount of
$772,727.  All  Convertible  Debentures  were issued to accredited  investors as
defined in Rule 501(a) of  regulation D promulgated  under the Act  ("Regulation
D") and the Company received written  representations from each investor to that
effect.  Any  Convertible  Debenture  not so converted  are subject to mandatory
conversion  by the  Company  on the 24th  anniversary  date of  issuance  of the
Convertible Debentures. None of these Convertible Debentures have been converted
as of August 24, 1999.

         On July 9,  1999 the  Company  entered  into a fourth  promissory  note
(contingent convertible debenture financing) with terms and conditions identical
to those set forth in the March 2, 1999  promissory  note financing  referred to
directly  above  excepting  (a) the  lender  is  different,  to wit:  Southshore
Capital,  Ltd.  now  assigned to  Parkdale  LLC (b) gross  proceeds  amounted to
$1,100,000,  (c) the due date of such note is August  23,  1999 with no right to
extend and (d) the debenture  holder did not receive any warrants.  In all other
respects the terms and conditions of each of the documents executed with respect
to this  transaction  are identical to those  described in the above  referenced
March 2, 1999 transaction.  The promissory notes were not paid by their due date
and the terms of a Contingent Subscription Agreement,  Convertible Debenture and
Registration Rights Agreement automatically went into effect.

         On  August 11, 1999  the  Company  entered into a fifth promissory note
(contingent  convertible  debenture  financing)  with   terms   and   conditions
substantially identical to those set  forth in the March 2, 1999 promissory note
financing referred to directly above excepting (a) the  lender  is different, to
wit: Aberdeen Avenue, LLC, (b)  gross  proceeds  amounted to $1,400,000, (c) the
due  date  of such note is November 11, 1999 with no right to extend and (d) the
debenture  holder did not receive any warrants.  In all other respects the terms
and  conditions  of  each  of  the  documents  executed  with  respect  to  this
transaction  are  identical to those described  in the above referenced March 2,
1999 transaction.The terms of the Contingent Subscription Agreement, Convertible

                                     - 33 -
<PAGE>

Debenture  and  Registration  Rights  Agreement have not gone into effect as the
promissory  note  is  not  in  default and, accordingly, no shares are currently
being registered for this transaction.

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 US dollars at the
applicable  foreign  exchange rate for  inclusion in the Company's  consolidated
financial   statements.   Accordingly,   the  results  of   operations  of  such
subsidiaries  as reported in US dollars  can vary  significantly  as a result of
changes in currency  exchange rates (in particular the exchange rate between the
Swiss Franc and the US dollar).

YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997

         Net sales for the  fiscal  year ended  June 30,  1998 were  $22,892,978
compared to $13,151,701 for the fiscal year ended June 30, 1997.

         The 74% increase in net sales was partially due to the  acquisition  of
Empower on April 1, 1997 (Sales of Empower were  $7,134,938  for the fiscal year
ended June 30, 1998  compared to  $2,000,603  for the fiscal year ended June 30,
1997),  the Asset  purchase  of Service  Support  Group LLC on October  17, 1997
(Sales of Swissray  Medical Inc. which started its selling  activities after the
asset purchase of Service Support Group was $1,577,298 for the fiscal year ended
June 30, 1998  compared  to $0 for the fiscal year ended June 30,  1997) and the
increase in sales made under the Philips OEM Agreement of $6,500,529. Also sales
to third parties in Switzerland almost doubled in the fiscal year ended June 30,
1998 compared with the previous fiscal year. These increases have been partially
offset by the decrease of $1,519,159  in sales of Elscint products and decreased
sales  of  $1,952,016  for  Eastern  Europe.  The  Company  sold  four  of   the
ddRMulti-System  during the fiscal year ended June 30, 1998.

         Gross profits amounted to $4,811,192 or 21% of net sales for the fiscal
year ended June 30, 1998,  compared to  $4,706,287 or 35.8% of net sales for the
fiscal year ended June 30, 1997.  The decrease in gross  profits as a percentage
of net revenues is primarily attributable to the fact that sales of lower-margin
products  increased  substantially  compared to the fiscal  years ended June 30,
1997. This is mainly  attributable to increased sales of accessories,  which are
generally  low-margin  products,  as a result of the acquisition of Empower (net
sales of Empower contributed  approximately 31% to the Company's net sales). The
Company also sold a  significant  number of units of newly  developed  products,
where the Company is at the  beginning of the learning  curve in the  production
process,  which results in higher  production costs than in a later stage of the
learning curve.  These products are the Bucky Diagnost TS produced under the OEM
Agreement with Philips (which contributed approximately 22% to the Company's net
sales)  and  the  ddRMulti-System  (which  contributed  approximately  6% to the
Company's  net  sales).  The Company  expects  sales of  accessories  to be of a
smaller  percentage  of total  sales for the fiscal  year  ending  June 30, 1999
because of the sale of Empower's accessory business to E.M. Parker.


                                     - 34 -
<PAGE>

         Operating  expenses  for the  fiscal  year  ended  June 30,  1998  were
$18,747,729 or 81.9% of net sales compared to $17,450,333 or 132.7% of net sales
for the fiscal  year ended  June 30,  1997.  The  principal  items were  selling
expenses of $3,740,391 or 16.3% of net sales  compared to $1,873,389 or 14.2% of
net sales for the fiscal year ended June 30, 1997 and salaries (net of directors
and  officers  compensation)  of  $4,168,540  or 18.2% of net sales  compared to
$2,059,396  or 15.6% of net sales  for the  fiscal  year  ended  June 30,  1997.
Research  and  Development  was  $3,542,149  or 15.5% of net sales  compared  to
$5,786,158 or 44% of net sales for the fiscal year ended June 30, 1997.

         General and  administrative  expenses  for the year ended June 30, 1997
include the value of stock options granted in the amount of $1,161,462,  whereas
no stock  options were granted  during the fiscal year ended June 30, 1998.  The
Company  made  an  accrual  of  $500,000  for  planned   restructuring   of  its
organization. No such costs were accrued in the fiscal year ended June 30, 1997.

         The increase of 102% in Salaries was mainly due to the  acquisition  of
Empower  Inc.  on April 1, 1997  (with  salaries  included  in the  consolidated
statement  of  operation  only for one quarter of the fiscal year ended June 30,
1997) and the  takeover  of all of the  employees  of Service  Support  Group on
October 17, 1997. Both acquisitions were within the Company's marketing strategy
to build a  strong  market  position  with  its own  organization  in one of its
principle  markets.  The number of employees in Switzerland  was increased by 21
mainly to handle the significant rise in production volume.

         The  increase of 100% in selling  expenses is the result of  additional
significant efforts on the part of the Company to build a strong market position
in the United States and in Germany,  the biggest European market as well as the
costs  incurred for  successful  market  introduction  of the  Company's  direct
digital ddRMulti-System. The Company also made efforts to lay the groundwork for
the market introduction of Swissray Information Solutions  comprehensive package
of consulting, services and products.

         Research  and  development   expenses  decreased  by  39%.   Management
considered  the relative size of the research and  development  expenses for the
fiscal  year  ended  June 30,  1997 as high.  The main  focus of the R&D was the
industrialization   phase  of  the   ddRMulti-System   and  the  development  of
communication  interfaces  (DICOM 3.0, HL 7, Dicom  Worklist etc.) to extend the
connectivity of the ddRMulti-System to communication  networks such as HIS, RIS,
and PACS.  Another  important task was to finalize the Tahoma TMSSM software and
go into beta-tests. The Tahoma TMSSM, technology management systems are based on
the  premise  that  technology  is a  resource  that can be  managed  to achieve
organizational  objectives,   like  reducing  operating  expense  and  improving
clinical  performance.  Additional  research and development  expenses have also
been  incurred  to  maintain  the  technological  advantages  of  the  Company's
conventional X-ray equipment. Significant research and development expenses will
continue to be incurred  for the  development  of new  technologically  advanced
products and the continuing improvement of existing products.

         The Company's  operating loss  increased to $13,936,537  for the fiscal
year ended June 30,  1998 from  $12,744,046  for the fiscal  year ended June 30,
1997.  The increase in the Company's  operating  loss is due to the  significant
expenses  associated with the building of the Company's  organization and market
position primarily in one of its principle  markets,  the USA. After taking into

                                     - 35 -
<PAGE>

account interest  expense,  other income,  income tax benefits and extraordinary
items of income (loss) the resulting net loss of the Company for the fiscal year
ended June 30, 1998 increased to  $22,503,109  from  $13,685,188  for the fiscal
year  ended  June  30,  1997.  The  increase  of net loss is  mainly  due to the
significant  amount of interest expenses which resulted from the amortization of
issuance  cost and  beneficial  Conversion  features of  Convertible  debentures
issued for financing purposes,  which amounted to $8,590,268 for the fiscal year
ended June 30,  1998  compared  to  $759,853  for the fiscal year ended June 30,
1997.  Extraordinary  income includes the gain on early  extinguishment  of Debt
which resulted from refinancing of Convertible debentures.

CASH FLOW AND CAPITAL EXPENDITURES

         Cash used by  operating  activities  for the fiscal year ended June 30,
1998 increased to $11,759,371  from  $10,684,988  for the fiscal year ended June
30,1997 and cash used by investing  activities  increased to $4,517,140  for the
fiscal year ended June 30, 1998 from  $3,668,196  for the fiscal year ended June
30, 1997. Cash flow from financing activities for the fiscal year ended June 30,
1998 was $14,799,200  compared to $14,752,928 for the fiscal year ended June 30,
1997.

         The Company's capital  expenditures  totaled  $2,849,205 for the fiscal
year ended June 30, 1998 compared to  $3,431,375  for the fiscal year ended June
30, 1997.  Capital  expenditures  were  primarily  for the  improvements  of the
Hochdorf facility and the purchase of equipment.  The increased  financing needs
resulted  primarily  from  the  building  and  strengthening  of  the  Company's
organization and distribution channels in the US and Europe and the improvements
of the Hochdorf facility.

INFLATION

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

SEASONALITY

         The Company's business has historically  experienced a slight amount of
seasonal  variation with 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

                                     - 36 -
<PAGE>

30, 1999,  the Company had an order backlog of  $12,000,000  which  consisted of
$8,000,000 in  conventional  x-ray  equipment and  $4,000,000 in digital  (i.e.,
ddRMulti-Systems  and information  solutions )as compared to an order backlog of
$13,000,000  which consisted of $11,500,000 in conventional  x-ray equipment and
$1,500,000 in ddRMulti-Systems as of the fiscal year ended June 30, 1998.

NEW ACCOUNTING PRONOUNCEMENTS

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

CAUTIONARY STATEMENTS 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, 1999  on  Form 10-K  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  Conmpany's  other  filings  with the Securities and Exchange
Commission.

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

RISK FACTORS

History of Increasing Losses; Profitability Uncertain

         As of  June  30,  1995  the  Registrant  had  accumulated  losses  on a

                                     - 37 -
<PAGE>

consolidated  basis of  approximately  $6,000,000.  A  substantial  part of such
losses resulted from activities  unrelated to the Company's present  operations.
Since June 30, 1995 and for the four fiscal  years  commencing  July 1, 1995 and
concluding June 30, 1999, the Company incurred additional net losses aggregating
$66,465,122  ($22,010,750 of which was  attributable to year ended June 30, 1999
as compared to $22,503,109  which was  attributable  to year end June 30, 1998).
Such  additional  losses  primarily  resulted  from  the  significant   expenses
associated with the development of the Company's products,  primarily its direct
digital  X-ray  system,  the  ddRMulti-System,  the  building  of the  Company's
organization  and  market  position  as well as the  costs  of  amortization  of
debenture  issuance  costs and  beneficial  conversion  feature  (as well as the
absence of a  significant  increase in sales - during fiscal year ended June 30,
1998 - as a result of the delay in the  market  introduction  of  certain of the
Company's  products,  which  delays  were for the  purpose of  assuring  product
quality prior to introduction to the industry). The likelihood of the success of
the Company must be considered in light of the problems, expenses, difficulties,
complications and past delays  encountered in connection with the development of
any new products and the competitive  environment in which the Company operates.
Although the Company is deriving operating revenue from its current  operations,
such  revenue  has  not  been  sufficient  to  make  the  Company's   operations
profitable.  There can be no assurance  that the Company will be able to develop
significant  additional  sources of revenue or that it will  become  profitable.
Results of operations may fluctuate  significantly  and will depend upon further
successful introduction of the ddRMulti-System, further market acceptance of new
product   introductions  in  the  future  and  competition.   See  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
"Business -- Products," "-- Research and Development" and "-- Competition."

Need for Continued Market Acceptance of the ddRMulti-System

         The Company's future  performance  will depend to a substantial  degree
upon the continued market  introduction  and acceptance of the  ddRMulti-System.
The Company's  marketing efforts to date have generated  considerable  awareness
about the ddRMulti-System among radiologists. From October 1997 through June 30,
1999, the Company sold twelve  ddRMulti-Systems in the United States and Europe.
During the first two months of its  current  fiscal year the Company has already
contracted sales of 10 ddRMulti-Systems which represents a 25% increase in sales
of such Systems over the entire  preceding  fiscal year (when eight Systems were
sold). The extent of, and rate at which, the market introduction, acceptance and
penetration  can be  achieved  by the  ddRMulti-System  are  functions  of  many
variables,  including,  but not limited to, obtaining the necessary governmental
approvals  (see  "Government  Regulation"  hereinafter),  price,  effectiveness,
acceptance  by potential  customers  and  manufacturing,  training  capacity and
marketing and sales efforts.  There can be no assurance that the ddRMulti-System
will achieve or maintain acceptance in its target markets although management is
pleased with the degree of industry acceptance to date (especially reception and
feedback received at RSNA convention in Chicago in December 1998, ECR convention
in Vienna in March 1999 and the  Computer  convention  (SCAR)  held in  Houston,
Texas in May 1999.  Similar risks may confront other  products  developed by the
Company in the future. See "Business --Products" and "-- Regulatory Matters."

                                     - 38 -
<PAGE>

Reliance on a Single Product

         The Company has concentrated  its efforts  primarily on the development
of the  ddRMulti-System  and will be  dependent  to a  significant  extent  upon
acceptance  of that  product to generate  additional  revenues.  There can be no
assurance  that  the   ddRMulti-System   will  be  successfully   commercialized
notwithstanding  its recent successful  introduction both within and without the
United States (as heretofore and  hereinafter  indicated) and the fact that more
Systems (10) have been sold during the first two months of the Company's current
fiscal year than were sold for the entire preceding fiscal year. There can be no
assurance  that the  Company's  competitors  will not succeed in  developing  or
marketing  technologies and products that are more commercially  attractive than
the ddRMulti-System. See "Business -- Products" and "-- Competition."

         During  fiscal year ended June 30, 1999 11  ddRMulti-Systems  were sold
in the U.S. while 1 ddRMulti-System was sold outside the U.S.

Future Capital Needs and Uncertainty of Additional Financing

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

         There can be no assurance  that any  additional  source of financing at
reasonable  terms or  otherwise  (be it debt and/or  equity  financing)  will be
available  to  the  Company  in the future (notwithstanding availability of such
financings as recently as August 1999) or that absent such financing the Company
will  have   sufficient   cash  flow  to  maintain   operations  in  the  manner
contemplated.  See also risk factor directly below regarding shares issued since
May of 1995 as a result of debt or equity financing.

Significant Number of Shares Issued as a Result of Equity and Debt Financings
Pursuant to Regulation S and Regulation D

         From May 1995 through  August 24,  1999 the  Company  has  engaged in a
significant  number of equity  (Regulation S) financings and debt (Regulation D)
financings.  Appearing directly below is a chart indicating the number of shares
issued as a result of such finanicngs.

                                     - 39 -
<PAGE>
<TABLE>
<CAPTION>
Type of                Date of           Closing      Discount    Number Of       Proceeds      Outstanding
Financing              Financing         Bid Price  From Market Shares Issued(3) Received       Balance
<S>                    <C>              <C>         <C>         <C>              <C>            <C>
Reg S- Off-Shore       May 20, 1995      (4)                     2,000,000        $4,000,000    $ -0-
Reg S- Off-Shore       Dec. 10, 1995     (4)                     1,000,000        $4,500,000    $ -0-
Reg S- Convertible     Sept. 11, 1996    $4.125                  1,872,707        $3,800,000    $ -0-
Reg S- Convertible     Jan. 10, 1997     $3.00                   2,395,709        $3,500,000    $ -0-
Reg S- Off-Shore       Mar. 5, 1997      $2.6875                 1,000,000        $2,000,000    $ -0-
Reg S- Prom. Note      Apr. 28, 1997     $1.96875                  800,000        $2,000,000    $ -0-
Reg S- Convertible     May 15, 1997      $2.40625                       --        $2,000,000    $ -0-
Reg S- Convertible     June 15, 1997     $3.0625                        --        $2,000,000    $ -0-
Reg S- Convertible     July 31, 1997     $2.750                  4,077,878        $4,262,500    $ -0-(includes May and June 1997)(5)
Reg D- Convertible     Aug. 19, 1997     $2.6875     20%         3,643,053        $5,000,000    $1,850,000 rolled over
Reg D- Convertible     Nov. 26, 1997     $1.84375    25%         4,397,081        $2,158,285    $ -0-
Reg D- Convertible     Dec. 11, 1997     $1.375      25%         7,735,099        $3,690,000    $ -0-
Reg D- Convertible     Mar. 16, 1998     $1.00       20%         7,075,138        $5,500,000    $ -0-
Reg D- Convertible     June 15, 1998     $.578       20%                (1)       $2,000,000    $2,000,000
Reg D- Convertible     Aug. 31, 1998     $.281       18%                (1)       $6,143,849    $5,629,421
Reg D- Convertible     Oct. 6, 1998      $.188       18%                (1)       $2,940,000    $2,940,000
Reg D- Convertible     May 13, 1999      $.500       18%             (1)(2)       $1,080,000    $1,119,600
Reg D- Convertible     Jan. 29, 1999     $.375       18%                (1)       $1,170,000    $1,170,000
Reg D- Convertible     May 31, 1999      $.437       18%             (1)(2)       $1,110,000    $1,132,200
Reg D- Convertible     May 14, 1999      $2.875      20%                (1)       $  500,000    $  500,000
Reg D- Convertible     May 21, 1999      $3.00       20%                (1)       $  200,000    $  200,000
Reg D- Convertible     June 9, 1999      $2.625      20%                (1)       $  150,000    $  150,000
Reg D- Convertible     June 24, 1999     $.59375     18%             (1)(2)       $  550,000    $  561,000
Reg D- Convertible     Aug. 23, 1999     $3.750      20%             (1)(2)       $1,100,000    $1,148,400
</TABLE>

(1)  Utilizing  the August 24, 1999 bid price  for the  Company's  common  stock
($2.593)  and  assuming  indicated  discount  from market,  if all   convertible
debentures were converted the number of shares required to be issued  (inclusive
of such shares as may be issued for interest  earned)  would amount to 8,638,126
shares.  However,  since (as  indicated in preceding  risk factor) the debenture
agreements  do not contain any "floor"  provisions,  the number of shares as may
actually  be issued  in the  future  may  significantly  increase  if there is a
further significant decline in the bid price of the Company's common stock.

(2) Such  shares  as  may be issued result  from  conversion of promissory notes
into debentures when notes were not paid at or before their respective due dates
Outstanding  balance  amounts  indicated  include  interest earned on promissory
notes as of due date, which due date then became date of  convertible  debenture
issuance. See also "Description of Capital Stock - Convertible Promissory  Notes
Subsequently Converted Into Debentures - December 1998, March 2, 1999, March 26,
1999 and July 9, 1999".

                                     - 40 -
<PAGE>

(3) In  accordance  with the terms of the  debentures  and  related  agreements,
2,437,740  of these  shares have been issued  with  restrictive  legends and are
included  in  the  number  of shares being registered  pursuant to the Company's
Registration Statement.

(4) Date  precedes  initial  NASDAQ  listing  when  securities  traded  in "pink
sheets". While prices are not currently available some were determined in  arms-
length negotiations at the time of such financings.

(5) The  July  31,  1997  transaction  represents  a  renegotiated  replacement,
inclusive of interest, of those prior two transactions which occurred on May 15,
1997 and June 15, 1997 ($2,000,000 each).

(6) In  each  instance  where  a  Regulation  D  financing  was  concluded   the
Registrant was required to file a Form D with the SEC indicating to what extent,
if any, net proceeds were utilized as and for payments to  "officers,  directors
and affiliates" of the Registrant as opposed to "payment to others". Each of the
Forms D indicate that net proceeds received were entirely allocated as "payments
to others" and with a substantial majority of  such  funds  being  allocated  to
working capital.

         These  persons  and/or  firms  owning convertible debentures may profit
from  "shorting"  (selling  without  ownership   of   underlying   shares)   the
Registrant's  common  stock  by  covering  such  short positions with registered
shares of Company common stock received upon debenture conversion.

Dilution; Effect of Outstanding Convertible Debentures on Certain Shares

         The Registrant has  outstanding  convertible  debentures and options to
purchase Common Stock at prices that are below the per share price to purchasers
of the  Registrant's  Common  Stock in the market.  The  discount  from  market,
dependent upon the specific convertible debenture, ranges from 18% to 20% except
for one instance where the discount from market was 25% on a $145,969  debenture
(since entirely  converted into shares of Company common stock). The exercise of
such  convertible  debentures  or options  would  have a dilutive  effect on the
investment of a holder of the Registrant's Common Stock.As of August 24, 1999 if
all of the  principal  balance and interest  earned on  outstanding  unconverted
convertible  debentures  and  warrants  were  converted  (based  on  calculation
contained  in  the  Company's  Registration  Statement)  the Registrant would be
required to issue 8,788,126 shares of its common stock thereby  increasing total
outstanding from 14,541,537 to 23,329,663 and reducing percentage of all current
stockholders from 100% to 62%.  Historically the Company has met (and intends to
continue to meet) its  convertible  debenture  obligations  through  issuance of
stock as opposed to cash  payments  (i.e.,  interest  earned  from  issuance  of
debenture to date of conversion has been paid in stock).

         As  and  when  conversion  occurs  regarding  outstanding   convertible
debentures  referred  to  herein (and in prior risk factor entitled "Significant
Number  of  Shares  Issued..")  a  number  of new significant holders of Company
common stock will necessarily exist.

         The market price of the Registrant's Common Stock may also be adversely
affected by sales of  substantial  amounts of Common Stock in the public market,
including  sales of Common Stock under Rule 144 or after the  expiration  of any
other applicable  holding period (by contract and/or statute).  The sale of such
stock could also  adversely  affect the ability of the Registrant to sell Common
Stock  for its  own  account.  See  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of Operations,"  "Management -- Compensation of

                                     - 41 -
<PAGE>

Directors and Executive  Officers,"  "Selling  Holders and Plan of Distribution"
and "Description of Capital Stock."

Issuance of Significant Percentage of Securities Pursuant to  Consulting  Agree-
ment With Corresponding Dilution to Current Stockholders

         In March 1999 the Registrant issued an aggregate of 3,800,000 shares of
restrictive common stock pursuant to two separate  consulting  agreements and in
lieu of cash  payment.  At the time of such  issuance  these shares  represented
approximately   32%  of  all   outstanding   shares  and   currently   represent
approximately 26% of all outstanding securities.  Accordingly,  upon issuance of
such  3,800,000  shares,  current  stockholders  percentage of ownership  (100%)
decreased  (by  32%) to 68% of all  then  issued  and  outstanding  shares.  The
Registrant  has  no  current  plans  to  continue  this  practice.  For  further
information   regarding  terms  and  conditions   relating  to  such  consulting
agreements, reference is herewith made to "Business - Recent Developments".

Significant Portion of Company Assets Are Intangible Assets

         As of June  30,  1999,  and for the  year  then  ended,  the  Company's
licensing agreement, patents and goodwill (aggregating approximately $4,900,000)
are all  intangibles  and account for  approximately  21% of all Company assets.
Amortization  of  such  intangibles   amounts  to   approximately   $821,000  or
approximately  5.3%  of  total  operating  expenses.  The  Company evaluates the
recoverability  of  unamortized  intangible  assets  based  upon expectations of
nondiscounted  cash  flows  and  operating income. Impairments, if any, would be
recognized  in  operating  results  if  a  permanent diminution in value were to
occur.

Reliance on Large Customers

         In the past,  the Company has made a  significant  amount of sales to a
few  large  customers.  Historically,  the  identity  of the  Company's  largest
customers and the volumes  purchased by them has varied.  The loss of one of the
Company's  current two largest  customers who accounted for 54% of Company sales
during  fiscal  year  ended June 30,  1999 (as  compared  to the second  largest
customer who only  accounted  for 1% of Company  sales during  fiscal year ended
June 30, 1999) or a reduction of the volume  purchased  by such  customer  would
have an adverse  effect upon the  Company's  sales until such time,  if ever, as
significant  sales to other  customers  can be made.  The Company  considers the
relationship with its largest customers to be satisfactory.  The Company expects
that as  sales of its  ddRMulti-System  continues  to  increase,  the  Company's
revenue will be less dependent on one or a few large  customers.  See Note 19 to
the  Consolidated  Financial  Statements  of June  30,  1999,  1998 and 1997 and
"Business -- Sales and Marketing."

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.  On occasion,  the Company enters

                                     - 42 -
<PAGE>

into currency forward contracts as a hedge against  anticipated foreign currency
exposures and not for speculation purposes.  Such contracts,  which are types of
financial  derivatives  limit  the  Company's  exposure  to both  favorable  and
unfavorable  currency  fluctuations.  In the past the Company  has used  forward
contracts  exclusively in connection with the purchase of material in currencies
other than Swiss Francs or U.S.  dollars.  For a discussion of these risks,  see
"Management's  Discussion  and Analysis of Financial  Conditions  and Results of
Operations - Effect of Currency on Results of Operations."

Risks Associated With International Operations

         The Company does business in numerous  countries,  including the United
States,  Switzerland and Germany. Revenues from international operations outside
the United States amounted to approximately  76.7% of total sales for the fiscal
year ended June 30, 1999. 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.   See  "--  Risk  of  Currency
Fluctuations," "-- Government Regulation," "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Taxes,"  "-- Effect of Currency
on Results of Operations" and "Business -- Regulatory Matters."

Highly Competitive Market, Rapid and Significant Technological Change

         The  highly  competitive  markets  in which the  Company  operates  are
characterized by rapid and significant  technological change,  evolving industry
standards  and new product  introductions.  The Company  competes  with numerous
competitors,  many of which are well-established in the Company's markets.  Most
competitors are divisions of larger companies with potentially greater financial
and other resources than the Company.

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

                                     - 43 -
<PAGE>

Dependence on Patents and Proprietary Technology

         The Company has patented certain aspects of its proprietary  technology
in certain  markets and has filed  patent  applications  for its direct  digital
technology in key markets, including  the  United States. The European patent as
well as  the  U.S.  patent  for  the Add-On  Bucky have been  granted and expire
January  2015.  The duration of other patents range from 2000 to 2016.  However,
there can be no assurance  that other applications will be granted. There can be
no  assurance  that  the Company's issued patents or other patents issued in the
future  will  afford protection from material  infringement or that such patents
will  not  be  challenged.  The  Company  also  relies  on  trade  secrets   and
proprietary  and  licensed  know-how,  which  it protects,   in  part,   through
confidentiality   agreements  with  employees,  consultants  and  other parties.
There can be no assurance that these  agreements will not be breached,  that the
Company would have adequate remedies for any breach or that the Company's  trade
secrets  will  not  otherwise  become  known  to, or independently developed by,
competitors.

         There also can be no assurance that the Company's  technology  will not
infringe  upon the  patents of others.  In the event that any such  infringement
claim is successful, there can be no assurance that the Company would be able to
negotiate with the patent holder for a license,  in which case the Company could
be prevented  from  practicing  the subject  matter  claimed by such patent.  In
addition,  there can be no assurance  that the Company would be able to redesign
its products to avoid infringement. The inability of the Company to practice the
subject matter of patents claimed by others or to redesign its products to avoid
infringement could have a material adverse effect on the Company.

         The Company obtained a non-exclusive license for a term  of  two  years
ending July 24, 1999(recently extended to July 31, 2000) to use certain software
for  its  line  of  SwissVision(TM)   postprocessing   systems.  There can be no
assurance that this license will not be granted to a competitor  of the Company.
See "Business -- Intellectual Property."

Government Regulation

General

         The  Company's  services,  products and  manufacturing  activities  are
subject  to  extensive  and  rigorous  government   regulation,   including  the
provisions of the Federal Food, Drug and Cosmetic Act.  Commercial  distribution
in certain  foreign  countries is also subject to  government  regulations.  The
process of obtaining required regulatory approvals can be lengthy, expensive and
uncertain.  Moreover,  regulatory approvals, if granted, may include significant
limitations  on  the  indicated  uses  for  which  a  product  may  be marketed.

         The  Food  and  Drug   Administration  (the  "FDA")  actively  enforces
regulations  prohibiting  marketing  without  compliance  with  the   pre-market
approval provisions of medical devices. A Section 510(k) application is required
in order to market a new or modified  medical device.  If specifically  required
by  the  FDA,  a  pre-market  approval may be necessary.  The FDA review process
typically requires extended  proceedings  pertaining  to the safety and efficacy
of  new  products,  which  may delay or hinder a product's timely entry into the
marketplace.

                                     - 44 -
<PAGE>

         On November 21, 1997, the AddOn Bucky(R),   the direct digital detector
of the  ddRMulti-System received FDA approval.  The Company also  submitted  the
ddRMulti-System  for Section 510(k)  approval with the FDA and such approval was
obtained  on  December 18, 1997  so that the  ddRMulti-System may be marketed in
the United States.

         The FDA  also  regulates  the  content  of  advertising  and  marketing
materials  relating  to  medical  devices.  There can be no  assurance  that the
Company's  advertising  and marketing  materials  regarding its products are and
will be in  compliance  with such  regulations.  The Company is also  subject to
other federal,  state, local and foreign laws,  regulations and  recommendations
relating to safe working  conditions,  laboratory and  manufacturing  practices.
Failure to comply with applicable  regulatory  requirements can result in, among
other things, fines, suspensions of approvals,  seizures or recalls of products,
operating  restrictions  and  criminal  prosecutions.  Furthermore,  changes  in
existing  regulations or adoption of new regulations could affect the timing of,
or prevent the Company from obtaining,  future regulatory approvals.  The effect
of government regulation may be to delay for a considerable period of time or to
prevent the marketing and full  commercialization of future products or services
that the  Company  may  develop  and/or to  impose  costly  requirements  on the
Company.  There can also be no assurance that additional regulations will not be
adopted  or  current  regulations  amended  in such a manner as will  materially
adversely  affect  the  Company.  See "-- Risks  Associated  With  International
Operations," "Business -- Markets" and "-- Regulatory Matters."

         The Company is in compliance with the following regulations:

          Section 510(K)  notification,  21CFR  892.1680,  Reg.  K973710
          Quality Assurance  QSR 21 CFR Part 820 and Part  820.72  (inspection)
          General Labeling  Provisions  and 21 CFR Part 801.4,  801.5 and 801.6

          ISO 9001/EN 46001 and Appendix II
          BAG CH (Ministry of Health CH)
          EWG 93/42
          ENTELA (USA), UL/CSA (USA), CSA/UL (Canada)

Sales to Health Care Industry

         The  Company's  products  are  used  exclusively  in  the  health  care
industry, which is highly regulated. The health care industry in certain markets
for the  Company's  products,  including  the  United  States,  has  experienced
significant  pressure to reduce costs,  which has led in some  jurisdictions  to
substantial  reorganizations  and  consolidations  of  health  care providers or
payors.  Cost reduction efforts by the Company's  customers may adversely affect
the  potential  markets for the  Company's  products  and  services.  It is also
possible that legislation could be adopted in any of these  jurisdictions  which
could increase such pressures or which could otherwise  result in a modification
of the private or public health care system or both or impose limitations on the
ability of the Company to market its products in any such jurisdiction. Any such
event or  condition  could have an  adverse  impact on the  Company's  business,
financial condition or results of operations. See "Business -- Markets."

                                     - 45 -
<PAGE>

Reliance on Key Management

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

Limited Manufacturing History with Respect to ddRMulti-System

         The Company has limited experience with the manufacture and assembly of
the  ddRMulti-System  in the volumes that will be  necessary  for the Company to
generate significant revenues from the sale of the ddRMulti-System.  The Company
may  encounter  difficulties  in  scaling  up its  production  or in hiring  and
training  additional  personnel  to  manufacture  the  ddRMulti-System.   Future
interruptions  in supply or other  production  problems  could  have a  material
adverse  effect on the Company's  business,  financial  condition and results of
operations. See "Business - Products".

Dependence on Sole Source Suppliers

         The Company has only single sources for certain essential components of
the  ddRMulti-System.  Interruptions  in the  supply  of such  components  might
result in production delays,  each of which could have a material adverse effect
on the Company's business,  financial  condition and results of operations.  See
"-- Reliance  on  A  Single  Product".  To  date  no material interruptions have
occured.

         The percentage of Company revenues derived from products which included
components  then  only currently available from a single source supplier amounts
to 13.6% as of June 30, 1999.  The  agreement  with  the single source  supplier
of  certain camera electronics will be terminated December 31, 1999. The Company
has 160 CCD cameras in stock which can be  used  for  the  next  40 ddR-Systems.
The  Company  is currently  in  negotiations  with  three  different  comparable
source  suppliers and does not expect any  material  business  interruptions  to
occur  regarding  CCD camera  availability  in  a  timely  manner  nor  does  it
anticipate  that  change  of  supplier  will have any affect upon quality of its
ddR-Systems.  The agreement  with  the single source supplier of optics  expires
in  July  2002  and  subject   to renegotiations.  This  agreement  may  not  be
terminated by either party without cause.

                                     - 46 -
<PAGE>

Inability  to  Currently  Determine  Number  of  Shares Which May be Issued Upon
Debenture Conversion; Potential For New Significant Stockholders  and  Potential
Significant Percentage Dilution to Existing Stockholders Which Would Result From
Significant Increase in Outstanding Shares

         Any   additional   convertible  debenture  financings  will  result  in
additional dilution to present Company shareholders by reducing their percentage
of interest in the Company.  In the past the Company has issued  (and  currently
intends  to  issue when, as and if necessary) debt convertible into common stock
without any limits on the amount that can be converted over any specific  period
of time.  Since  such  conversion  occurs  at  a negotiated discount from market
price,  such  conversion  can  have  a negative impact upon trading price of the
Company's  common  stock.  Further,  since  there  is  no  "floor"  in  the debt
convertibles  (i.e., no  bid  price below which debentures may not be converted)
there  is  no  specific  limit  on  the number of shares that may be issued upon
conversion since such number of shares is dependent upon common share  price  at
of conversion.  Additionally, debenture conversion may result in a larger number
of new significant stockholders to the Company.

Potential Recalls and Product Liability

         Any of the Company's  products may be subject to recall for  unforeseen
reasons.  The medical  device  industry has been  characterized  by  significant
malpractice  litigation.  As a result,  the Company  faces a risk of exposure to
product  liability,  errors and  omissions or other claims in the event that the
use of its X-ray equipment, components, accessories or related services or other
future  potential  products is alleged to have resulted in a false diagnosis and
there can be no  assurance  that the Company will avoid  significant  liability.
There  also can be no  assurance  that the  Company  will be able to retain  its
current  insurance  coverage or that such coverage will continue to be available
at an  acceptable  cost,  if at all.  Consequently,  such  claims  could  have a
material  adverse effect on the business or financial  condition of the Company.
As of the date hereof, the Company continues to maintain what it considers to be
adequate  product  liability  insurance so as to enable it to be compensated for
certain  losses  incurred as a result of product  recalls and product  liability
claims (but remains "at risk" if and to the extent that awarded  damages  exceed
coverage).

Limited Public Market; Liquidity; Possible Volatility of Stock Price

         The Common Stock was quoted on the Nasdaq  SmallCap Market System under
the symbol  "SRMI"  until its  delisting  on October 26,  1998 and is  currently
quoted on the Electronic  Over-the-Counter Bulletin Board under the same symbol.
There can be no assurance that an established public market for the Common Stock
can be established and/or sustained.  The market price of the Common Stock 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.

Delisting  Due  To  Non-Compliance  With Certain NASDAQ Standards - See Part II,
Item 5(d).

                                     - 47 -
<PAGE>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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



                          INDEX TO FINANCIAL STATEMENTS

                                                                        Page

Audited Financial Statements for Fiscal Years Ended
         June 30, 1999, 1998 and 1997:

Independent Auditors' Report                                            F-1-3

Consolidated Balance Sheets at June 30, 1999 and 1998                   F-4-5

Consolidated Statements of Operations for the years ended
         June 30, 1999, 1998 and 1997                                   F-6

Consolidated Statements of Cash flows for the years ended
         June 30, 1999, 1998 and 1997                                   F-7-8

Consolidated Statements of Stockholders Equity for the years            F-9-10
         ended June 30, 1999, 1998 and 1997

Notes to Consolidated Financial Statements                              F-11-26





                                     - 48 -
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


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

We  have  audited  the  accompanying  consolidated  balance  sheets of  Swissray
International,  Inc.  and  subsidiaries  as  of  June  30, 1999 and 1998 and the
related consolidated statements of operations,  changes in stockholders'  equity
and  cash  flows  for  the  year  then ended. These financial statements are the
responsibility of the Company's  management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Swissray  International,  Inc.
and subsidiaries as of June 30, 1999 and 1998, and the results of its operations
changes  in  stockholders'  equity  and  cash  flows  for the year then ended in
conformity with generally accepted accounting principles.

The  financial  statements  for the year ended June 30, 1999 have been  restated
(see Note 25).



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

New York, New York
August 6, 1999
Except for Notes 25,
as of July 21, 2000
                                       F-1
<PAGE>

                    [LETTERHEAD OF BEDERSON & COMPANY LLP]

                         INDEPENDENT AUDITORS' REPORT


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


We have  audited  the  accompanying  consolidated  balance  sheets  of  Swissray
International,  Inc.,  and  its  subsidiaries,  as  of  June 30, 1997,  and  the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for the year 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 the results of their operations and their
cash  flows for the year then  ended,  in  conformity  with  generally  accepted
accounting principles.


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


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

Member  of  TAG  International   with  offices  in  principal  cities  worldwide
Affiliated with the American Institute of CPAs Division for Firms
                                      F-2
<PAGE>
                           INDEPENDENT AUDITORS' REPORT


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

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

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

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


                                                  /s/ Theo Lepper
                                                  Theo Lepper
                                                  Certified Public Accountant

Wiesbaden, Germany
August 8, 1997


                                      F-3
<PAGE>



                           SWISSRAY INTERNATIONAL INC.
                           CONSOLIDATED BALANCE SHEET
                             JUNE 30, 1999 and 1998
                                     ASSETS

<TABLE>
<CAPTION>
                                                                         ------------------------------
                                                                              1999              1998
                                                                           (Restated)
                                                                         ------------------------------

<S>                                                                       <C>                 <C>
CURRENT ASSETS
Cash and cash equivalents                                                 $ 1,281,297       $ 1,281,552
Accounts receivable, net of allowance for doubtful
accounts of $219,993 and $32,356                                            2,448,879         2,584,651
Inventories                                                                 7,332,401         7,701,145
Prepaid expenses and sundry receivables                                       866,804         1,501,909
                                                                         ------------------------------
TOTAL CURRENT ASSETS                                                       11,929,381        13,069,257
                                                                         ------------------------------

PROPERTY AND EQUIPMENT                                                      6,283,040         6,010,378
                                                                         ------------------------------

OTHER ASSETS
Loan receivable                                                                15,948            20,005
Licensing agreement                                                         3,104,109         3,600,766
Patents and trademarks                                                        199,906           230,614
Software development costs                                                    347,763           455,318
Security deposits                                                              28,035            38,280
Note receivable - net of allowance of $544,376 and $30,733                        ---           513,643
Goodwill                                                                    1,603,007         1,796,336
Debt issuance costs on convertible debentures                                     ---           180,000
                                                                         ------------------------------
TOTAL OTHER ASSETS                                                          5,298,768         6,834,962
                                                                         ------------------------------
TOTAL ASSETS                                                              $23,511,189       $25,914,597
                                                                         ==============================
</TABLE>

                                       F-4
    The accompanying notes are an integral part of these financial statements
<PAGE>
                            SWISSRAY INTERNATIONAL
                    CONSOLIDATED BALANCE SHEET (Continued)
                            JUNE 30, 1999 and 1998

                      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
                                                                         ------------------------------
                                                                              1999              1998
                                                                           (Restated)
                                                                         ------------------------------


<S>                                                                       <C>                 <C>
CURRENT LIABILITIES
Current maturities of long-term debt                                      $   247,028       $   233,746
Notes payable - banks                                                       3,667,159         3,551,091
Notes payable - short-term                                                  1,700,000               ---
Loan payable                                                                  126,006           125,029
Accounts payable                                                            5,422,321         5,030,449
Accrued expenses                                                            3,003,844         2,365,450
Restructuring                                                                 500,000           500,000
Customer deposits                                                             278,507           176,583
Due to stockholders and officers                                                 ---              2,206
                                                                         ------------------------------
TOTAL CURRENT LIABILITIES                                                  14,944,865        11,984,554
                                                                         ------------------------------

CONVERTIBLE DEBENTURES, net of conversion benefit                          15,305,852         7,330,642
                                                                         ------------------------------

LONG-TERM DEBT, less current maturities                                       195,095           440,674

COMMON STOCK SUBJECT TO PUT                                                 1,819,985         1,819,985

STOCKHOLDERS' EQUITY (DEFICIT)
Common stock                                                                  140,062            41,426
Additional paid-in capital                                                 69,028,013        58,074,793
Treasury stock                                                               (540,000)             ---
Deferred compensation                                                      (1,282,500)             ---
Accumulated deficit                                                       (72,492,463)      (50,481,713)
Accumulated other comprehensive loss                                       (1,787,735)       (1,475,779)
Common stock subject to put                                                (1,819,985)       (1,819,985)
                                                                         ------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                                       (8,754,608)        4,338,742
                                                                         ------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                     $ 23,511,189      $ 25,914,597
                                                                         ==============================
</TABLE>

                                       F-5
    The accompanying notes are an integral part of these financial statements
<PAGE>
                           SWISSRAY INTERNATIONAL INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                    YEARS ENDED JUNE 30, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                          ----------------------------------------------------
                                               1999                1998                1997
                                             (Restated)                             (Restated)
                                          ----------------------------------------------------
<S>                                       <C>                 <C>                 <C>
NET SALES                                 $ 17,295,882        $ 22,892,978        $ 13,151,701
COST OF SALES                               13,529,301          18,081,786           8,445,414
                                          ----------------------------------------------------
GROSS PROFIT                                 3,766,301          4,811,192           4,706,287
                                          ----------------------------------------------------

OPERATING EXPENSES
Officers and directors compensation          5,014,293             569,816           1,816,879
Salaries                                     3,784,305           4,168,540           2,059,396
Selling                                      3,207,646           3,740,391           1,873,389
Research and development                     1,808,107           3,542,149           5,786,158
General and administrative                   2,484,756           2,612,262           2,879,257
Restructuring cost                                 ---             500,000                 ---
Other operating expenses                     1,066,039           1,735,877           1,645,800
Bad debts                                      706,877             133,196             619,160
Depreciation and amortization                1,273,916           1,745,498             770,294
                                          ----------------------------------------------------
TOTAL OPERATING EXPENSES                    19,345,939          18,747,729          17,450,333
                                          ----------------------------------------------------

LOSS BEFORE OTHER INCOME (EXPENSES)
  AND INCOME TAXES                         (15,579,358)        (13,936,537)        (12,744,046)

Other income (expenses)                         40,385            (281,227)            318,763
Interest expense                            (5,638,928)         (8,590,268)           (762,168)
                                          ----------------------------------------------------
OTHER EXPENSES                              (5,598,543)         (8,871,495)           (443,405)
                                          ----------------------------------------------------
LOSS FROM CONTINUING OPERATIONS
  BEFORE INCOME TAXES AND
  EXTRAORDINARY ITEMS                      (21,177,901)        (22,808,032)        (13,187,451)

INCOME TAX PROVISION                               ---                 ---             110,223
                                          ----------------------------------------------------
LOSS FROM CONTINUING OPERATIONS
  BEFORE EXTRAORDINARY ITEMS               (21,177,901)        (22,808,032)        (13,297,674)

Extraordinary income (expenses)               (832,849)            304,923            (384,514)
                                          ----------------------------------------------------
NET LOSS                                  $(22,010,750)       $(22,503,109)       $(13,685,188)
                                          ====================================================

LOSS PER COMMON SHARE BASIC
Loss from continuing operations                  (3.24)              (8.48)              (8.41)
Extraordinary items                              (0.13)               0.11               (0.24)
                                          ----------------------------------------------------
NET LOSS                                         (3.37)              (8.37)              (8.65)
                                          ====================================================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING                           6,525,423           2,690,695           1,581,757
                                          ============           =========           =========
</TABLE>


                                       F-6
    The accompanying notes are an integral part of these financial statements
<PAGE>

                           SWISSRAY INTERNATIONAL INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   YEARS ENDED JUNE 30, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                    ----------------------------------------------------
                                                                        1999                1998                1997
                                                                    ----------------------------------------------------
                                                                     (Restated)                              (Restated)
<S>                                                                 <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITES
Net loss                                                            $(22,010,750)       $(22,503,109)       $(13,685,188)
Adjustment to reconcile net loss to net
        cash used by operating activities
        Depreciation and amortization                                  1,327,395           1,874,206             770,294
        Provision for bad debts                                          931,146             (38,803)            552,725
        Write-off of affiliate receivable                                    ---                 ---             166,384
        Common stock and stock options issued for services             4,755,925                 ---           2,309,435
        Issuance of common stock in lieu of interest payments            128,107             449,376             132,950
        Interest expense on debt issuance cost and
          conversion benefit                                           3,070,784           7,905,225             511,125
        Interest expense on option value per Black Scholes                91,763                 ---                 ---
        Early extinguishment of debt (gain)                              832,849            (304,923)                ---

        (Increase) decrease in operating assets:
        Accounts receivable                                              (51,866)          2,887,427          (1,857,662)
        Accounts receivable - others                                         ---                ---               31,533
        Accounts receivable - long-term                                      ---             163,680             283,603
        Inventories                                                      368,744          (3,790,038)           (998,271)
        Prepaid expenses and sundry receivables                          635,106             434 229            (860,457)
        Increase (decrease) in operating liabilities:
        Accounts payable                                                 391,873            (306,300)          1,601,074
        Accounts payable-affiliates                                          ---                 ---              (1,541)
        Accrued expenses                                                (361,606)          1,463,512             266,245
        Customers deposits                                               101,924               6,147              92,763
                                                                    ----------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES                                 (9,788,606)        (11,759,371)        (10,684,988)
                                                                    ----------------------------------------------------

CASH FLOW FROM INVESTING ACTIVITIES
        Acquisition of property and equipment                           (692,954)         (2,849,205)         (3,431,375)
        Capitalized computer software                                     (1,518)           (225,174)           (352,036)
        Patents and trademarks                                               ---             (52,386)            (12,925)
        Goodwill                                                             ---            (802,107)           (299,837)
        Asset purchase net of cash received                                  ---            (591,108)                ---
        Increase in notes receivable                                    (199,132)                ---                 ---
        Collection of note receivable                                        ---                 ---             448,857
        Security deposits                                                 10,245               5,448             (23,776)
        Increase(repayment)of loan receivable                              4,056              (2,608)              2,896
                                                                    ----------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES                                   (879,303)         (4,517,140)         (3,668,196)

CASH FLOWS FROM FINANCING ACTIVITIES
        Proceeds from short-term borrowings                           20,191,413          10,342,060           9,198,821
        Proceeds from long-term borrowings                                   ---                 ---             248,987
        Proceeds related to debentures not funded                       (227,273)                ---                 ---
        Principal payment of short-term borrowings                   (11,268,343)         (3,852,075)         (2,093,074)
        Principal payment of long-term borrowings                       (245,580)            (21,748)           (442,681)
        Principal payment of long-term borrowings with stock                 ---             (62,267)                ---
        Issuance of common stock for cash                              3,160,396           8,461,262           7,753,222
        Purchase of treasury stock                                      (540,000)                ---                 ---
        Repayment from (payment to) stockholders and officers             (2,207)            (68,032)             87,653
                                                                    ----------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES                                 11,068,406          14,779,200          14,752,928
                                                                    ----------------------------------------------------
EFFECT OF EXCHANGE RATE ON CASH                                         (400,752)           (332,444)           (561,122)
                                                                    ----------------------------------------------------
NET INCREASE (DECREASE) IN CASH                                             (255)         (1,809,755)           (161,378)
CASH AND CASH EQUIVALENT - beginning of year                           1,281,552           3,091,307           3,252,685
                                                                    ----------------------------------------------------
CASH AND CASH EQUIVALENTS - end of year                             $  1,281,297        $  1,281,552        $  3,091,307
                                                                    ====================================================
</TABLE>

                                      F-7
    The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>

                       SUPPLEMENTAL CASH FLOW INFORMATION

                                                                   ----------------------------------------------------
                                                                        1999                1998                1997
                                                                   ----------------------------------------------------
<S>                                                                 <C>                 <C>                 <C>
Cash paid for interest                                              $    462,997        $    161,093        $   122,427
Cash paid for taxes                                                          ---                 ---             56,562

DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES

Stock options, warrants and common stock issued for services                 ---                 ---          2,287,935
Shares issued in lieu of interest paymnets                               126,107             449,376            132,950
Stock issued for acquisition                                                 ---           1,499,997            120,000
Beneficial conversion feature recorded as additional paid-in
   capital                                                             1,633,164           5,738,149          1,000,000

</TABLE>






















                                       F-8
<PAGE>


SWISSRAY INTERNATIONAL, INC.
CONSOLITATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                                                             Common
                                                                                        Additional            Stock
                                                                                          Paid-in             to be
                                                                  Common Stock            Capital             issued     Treasury
                                                              Shares         Amount      (Restated)         (Restated) )   Stock
                                                             --------------------------------------------------------------------
<S>                                                          <C>             <C>         <C>            <C>             <C>
BALANCE - July  1, 1996                                      1,418,506       $  14,185   $ 25,770,534   $         --    $      --

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

     TOTAL COMPREHENSIVE LOSS                                       --              --             --             --           --

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

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

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

     TOTAL COMPREHENSIVE LOSS                                       --              --             --             --           --

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


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

     TOTAL COMPREHENSIVE LOSS                                       --              --             --             --           --

Issuance of common stock for cash                            3,861,287          38,613      3,121,784             --           --
Stock options exercised for services                             1,000              10          7,290             --           --
Shares issued for services                                   3,801,500          38,015      1,673,110             --           --
Issuance of common stock in lieu of interest payment           199,830           1,998        126,109             --           --
Beneficial conversion feature of convertible debentures             --              --      1,633,164             --           --
Shares issued to officers for services                       2,000,000          20,000      4,300,000             --           --
Treasury stock - at cost                                            --              --             --             --     (540,000)
Interest expense on option value per Black Scholes                  --              --         91,763             --           --
                                                            ----------------------------------------------------------------------
BALANCE - JUNE 30, 1999                                     14,006,239    $    140,062   $ 69,028,013   $         --    $(540,000)
                                                            ======================================================================
                                      F-9
</TABLE>
<PAGE>


<TABLE>
<CAPTION>
                                                             Accumulated                  Other
                                                               Deficit    Deferred    Comprehensive  Common Stock      Total
                                                              (Restated) Compensation      Loss      Subject to Put  (Restated)
                                                            --------------------------------------------------------------------
<S>                                                          <C>           <C>           <C>            <C>            <C>

BALANCE - July  1, 1996                                      $(14,293,416) $      --     $   (836,047)  $        --     $10,655,256

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

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

COMPREHENSIVE LOSS:
     Net loss of the year                                     (22,503,109)        --             --            --     (22,503,109)
     Foreign currency transaction losses net of taxes $ -0-                                 (47,245)           --         (47,245)
                                                                                                                    --------------
     TOTAL COMPREHENSIVE LOSS                                          --         --             --            --     (22,550,354)

Issuance of common stock for cash                                      --         --             --            --      13,601,876
Stock options exercised for cash                                       --         --             --            --         123,370
Shares issued to officers for services                                 --         --             --            --              --
Issuance of common stock in lieu of interest payment                   --         --             --            --         449,376
Beneficial conversion feature of convertible debentures                --         --             --            --       5,738,149
Early extinguishment of debt                                           --         --             --            --        (396,875)
Issuance of common stock for asset purchase                            --         --             --            --       1,499,997
Common Stock subject to put                                            --         --             --    (1,499,983)     (1,819,985)
                                                            ----------------------------------------------------------------------

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

COMPREHENSIVE LOSS:
     Net loss of the year                                     (22,010,750)        --             --            --     (22,010,750)
     Foreign currency translation losses net of taxes $ -0-         --            --       (311,956)           --        (311,956)
                                                                                                                    --------------
     TOTAL COMPREHENSIVE LOSS                                       --            --             --            --     (22,322,706)

Issuance of common stock for cash                                   --            --             --            --       3,160,397
Stock options exercised for services                                --            --             --            --           7,300
Shares issued for services                                          --       (1,282,500)          --            --        426,625
Issuance of common stock in lieu of interest payment                --            --             --            --         128,107
Beneficial conversion feature of convertible debentures             --            --             --            --       1,633,164
Shares issued to officers for services                              --            --             --            --       4,320,000
Treasury stock - at cost                                            --            --             --            --        (540,000)
Interest expense on option value per Black Scholes                  --            --             --            --          91,763
                                                            ---------------------------------------------------------------------
BALANCE - JUNE 30, 1999                                      $(72,492,463)  $(1,282,500) $(1,787,735)  $(1,819,985)   $(8,754,608)
                                                            ======================================================================
</TABLE>

                                       F-10
    The accompanying notes are an integral part of these financial statements
<PAGE>
                          SWISSRAY INTERNATIONAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    YEARS ENDED JUNE 30, 1999, 1998 AND 1997


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The Company was incorporated  under the laws of the State of New York on January
2, 1968  under the name CGS Units  Incorporated.  On June 6, 1994,  the  Company
merged  with  Direct  Marketing  Services,  Inc.  and  changed  its  name to DMS
Industries,  Inc. In May of 1995 the Company  discontinued the operations of DMS
Industries,  Inc. and acquired all of the outstanding  stock of SR Medical AG, a
Swiss  corporation  engaged in the business of  manufacturing  and selling X-ray
equipment,  components and accessories.  On June 5, 1995 the Company changed its
name to Swissray  International,  Inc. The  Company's  operations  are conducted
principally through its wholly owned subsidiaries.

PRINCIPLES OF CONSOLIDATION

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

BUSINESS ACQUISITION

On April 1, 1997, the Company exchanged 8,000 shares of common stock at the then
quoted market price of $120,000 ($15 per share) for all the  outstanding  shares
of Empower,  Inc.The  consolidated  financial  statements  presented include the
accounts of Empower,  Inc.(whose assets were  substantially  sold in June 1998),
from April 1, 1997 (date of  acquisition)  to June 30, 1998. The acquisition has
been accounted under the purchase  accounting  method. The contract requires the
Company to  repurchase  the 8,000  shares of common stock at $40 per share for a
period of one year  commencing  two years from the date of the  contract  at the
option of the former owner of Empower, Inc.

On October 17, 1997, the Company  acquired  substantially  all of the assets and
assumed certain  liabilities of Service Support Group,  LLC (SSG) located in Gig
Harbor,  Washington pursuant to an asset purchase agreement. The acquisition has
been  accounted  for under the  purchase  method  of  accounting.  SSG is in the
business of selling diagnostic imaging equipment and related services in markets
on the West Coast of the United States. The purchase price consisted of (1) cash
in the amount of $621,892,  (2) 33,333 shares of the Company's common stock, (3)
an amount equal to fifty percent of certain  accounts  receivable net of certain
accounts  payable and (4) the  assumptions  of certain other  liabilities.  As a
result of this  transaction,  the Company recorded  goodwill of $1,933,275.  The
contract  requires the Company to repurchase the 33,333 common shares at $45 per
share  during  the  period  June 30, 1998 to April 17, 1999 at the option of the
former owners of SSG.

In connection with the abovementioned acquisitions, the Company has recorded put
options totaling  $1,819,985.  Such amount is excluded from permanent equity. As
of June 30, 1999, both options were  exercised  and  subject  to  dispute.  (See
Litigation footnote)

REVENUE AND INCOME RECOGNITION POLICIES

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

USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS

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

                                      F-11
<PAGE>

WARRANTY

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

CASH EQUIVALENTS

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

INVENTORIES

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

PROPERTY AND EQUIPMENT

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

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

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

INTANGIBLE ASSETS

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

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

                                      F-12
<PAGE>


Company amortizes  capitalized  software  development  costs over  straight-line
method over the  estimated  remaining  economic  life of the software  products,
generally five to eight years.

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

ADVERTISING AND PROMOTION

Advertising and promotion cost are expensed as incurred and included in "Selling
Expenses".  Advertising and promotion expense for the years ended June 30, 1999,
1998 and 1997 were $ 1,452,309, $ 1,737,935, and $ 781,189, respectively.

RESEARCH AND DEVELOPMENT

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

CONVERTIBLE DEBT

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

INCOME TAXES

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

EXPENSES RELATED TO SALES AND ISSUANCE OF SECURITIES

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

NET LOSS PER COMMON SHARE

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

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

ACCOUNTING FOR STOCK OPTIONS

The Company adopted Statement of Financial  Accounting  Standards No. 123 ("SFAS
123"), "Accounting for Stock Based Compensation". SFAS 123 encourages the use of
a  fair-value-based  method of accounting for stock-based awards under which the
fair value of stock options is determined on the date of grant and expensed over
the vesting period. Under SFAS 123, companies may, however, measure compensation
costs for those plans using the method prescribed by Accounting Principles Board
Opinion No. 25,  ("APB  No.25"),  "Accounting  for Stock  Issued to  Employees."
Companies that apply APB No. 25 are required to include pro forma disclosures of
net  earnings  and  earnings  per  share as if the  fair-value-based  method  of
accounting had been applied. The Company elected to account for such plans under
the provisions of APB No. 25.

RECLASSIFICATIONS

Certain reclassifications have been made to prior year's financial statements to
conform to the June 30, 1999 presentation.


                                      F-13
<PAGE>

FOREIGN CURRENCY TRANSLATION

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

NEW ACCOUNTING PRONOUNCEMENTS

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

STOCK SPLIT

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

NOTE 2 - NOTE RECEIVABLE

On June 20, 1996 the Company sold marketable securities for a 5% promissory note
in the amount of $962,500  originally  due on October 20, 1996 of which $100,000
was paid on December 10, 1996. On January 15, 1997, the Company renegotiated the
terms  of  the  unpaid  balance.  A new  note  in the  amount  of  $862,500  was
renegotiated,  with interest at 6% cumulative  and payable when the note matures
on January 1, 2000.  At June 30,  1997,  principal  payments  of  $348,857  were
received leaving a balance due of $513,643.  The $513,643 was written off during
the year ended June 30, 1999..

NOTE 3 - INVENTORIES

Inventories are summarized by major classification as follows:
<TABLE>
<CAPTION>

                                                                          June 30,
                                                        ---------------------------------------------
                                                               1999                      1998
                                                        -------------------      --------------------
<S>                                                   <C>                      <C>
Raw materials, parts and supplies                     $           5,558,330    $            7,047,001
Work in process                                                   1,048,197                   160,064
Finished goods                                                      725,874                   494,080
                                                        -------------------      --------------------
                                                      $           7,332,401    $            7,701,145
                                                        ===================      ====================

</TABLE>

NOTE 4  - PREPAID EXPENSES AND SUNDRY RECEIVABLES

Prepaid expenses and sundry receivables consist of the following:
<TABLE>
<CAPTION>
                                                                                  June 30,
                                                                    ------------------------------------
                                                                         1999                 1998
                                                                    --------------       ---------------
<S>                                                            <C>                  <C>
Prepaid expenses, deposits and advance payments                $           229,236  $            616,183
Insurance claim for fire damage                                            389,220               165,655
Prepaid and refundable taxes                                               240,368               708,246
Employee loans                                                               7,980                11,825
                                                                    --------------       ---------------
                                                               $           866,804  $          1,501,909
                                                                    ==============       ===============
</TABLE>
                                      F-14
<PAGE>

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following:
<TABLE>
<CAPTION>
                                                                                 June 30,
                                                                 ----------------------------------------
                                                                       1999                    1998
                                                                 -----------------       ----------------
<S>                                                       <C>                       <C>
Land and building                                         $              5,501,853  $           4,956,328
Equipment                                                                1,448,961              1,305,092
Office furniture and equipment                                             333,596                330,035
                                                                 -----------------       ----------------
                                                                         7,284,410              6,591,455
Less: Accumulated depreciation and amortization                          1,001,370                581,077
                                                                 -----------------       ----------------
                                                          $              6,283,040  $           6,010,378
                                                                 =================       ================
</TABLE>
Depreciation and amortization expense, for property and equipment, for the years
ended June 30,  1999,  1998 and 1997 were $  547,693,  $1,077,074  and  $233,040
respectively.

NOTE 6 - INTANGIBLE ASSETS

Intangible Assets at June 30, 1999 and 1998 consisted of the following

<TABLE>
<CAPTION>
                                                                              June 30,
                                                            ---------------------------------------------
                                                                   1999                       1998
                                                            -------------------         -----------------
<S>                                                 <C>                          <C>
Excess of cost over fair value of net
assets  acquired                                    $                 1,933,275  $              1,933,275
Licensing                                                             4,966,575                 4,966,575
Software development cost                                               578,729                   577,210
Patents and Trademarks                                                  313,330                   313,330
Other                                                               --                              8,385
                                                            -------------------         -----------------
                                                                      7,791,909                 7,798,775
Less: Accumulated amortization                                        2,537,125                 1,715,741
                                                            -------------------         -----------------
                                                    $                 5,254,784 $               6,083,034
                                                            ===================         =================
</TABLE>

Amortization  expense, for Intangible Assets, for the years ended June 30, 1999,
1998 and 1997 were $ 830,194, $ 1,227,719 and $ 537,254, respectively.

NOTE 7 - LICENSING AGREEMENT

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

The Licensing  Agreement is amortized  using the  straight-line  method over the
estimated  remaining  economic life,  generally ten years. At each balance sheet
date, the Company evaluates the  recoverability  of the unamortized  License Fee
based upon expectations of nondiscounted  cash flows and operating income of its
US-Operation. Impairments, if any, would be recognized in operating results if a
permanent diminution in value were to occur.


                                      F-15
<PAGE>


NOTE 8 - NOTES PAYABLE - BANKS

The Company has negotiated a revolving line-of-credit agreement with Migros Bank
of Switzerland, dated March 23, 1998, for up to $1,314,924. The company has also
negotiated an agreement for up to $1,314,924  for the issuance of guarantees and
letters of credit,  both with a  commission  of 15% per $  1,000,000,  quarterly
while outstanding. There were $ 1,052,906 in outstanding guarantees and $ -0- in
letter of credits as of June 30, 1999. The Company also  negotiated a fixed line
of credit for up to $2,630,000 with an agreed  repayment of $65,750 per 180 days
first time  applicable as of June 30, 1999. All lines of credit are based on the
Exchange rate in effect on June 30, 1999.

Notes payable are summarized as follows:
<TABLE>
<CAPTION>


                                                                                               June 30,
                                                                                ----------------------------------------
                                                                                   1999                     1998
                                                                                -------------        -------------------
<S>                                                                              <C>                  <C>
Migros Bank revolving line of credit,  due on demand,with  interest at 4.75% per
annum,  collateralized  by certain  accounts  receivable,  and a cash deposit at
Migros Bank as of June 30, 1999 of $485,367                                      $    798,730         $     408,786

Migros Bank, on demand with six week notice, with interest as of June 30, 1999
and 1998 at 3.7/8% and 4% per annum, collateralized by land and building            2,529,930             2,630,000

Union  Bank of  Switzerland,  due on  demand,  with  interest  at 8% per  annum,
collateralized  by the cash on deposit at Union Bank of Switzerland and accounts
receivable.  Cash balances on deposit at Union Bank of  Switzerland  at June 30,
1999 and 1998 were $332,812 and $627,625, respectively                                338,499               512,305
                                                                                -------------        -------------------
                                                                                 $  3,667,159         $   3,551,091
                                                                                =============        ===================
</TABLE>

NOTE 9 - LOAN PAYABLE

The Company has negotiated a 5% demand loan from a private  foundation fund. The
loan  balance  payable  at June 30,  1999 and 1998  was  $126,006  and  $125,029
respectively.

NOTE 10 - SHARES ISSUED FOR COMPENSATION

Pursuant to  agreements  between the  President  of the Company and the Company,
dated as of  December  1996 and  June  1997,  the  Company  incurred  additional
compensation  to the  officer  payable  as 48,259  shares  with a fair  value of
$1,122,973. The compensation was in consideration of the officer's agreement for

                                      F-16
<PAGE>

the  cancellation  of  1,608,633  shares of common  stock held by the officer or
companies  controlled  by him which allowed the Company to maintain a sufficient
number of shares of common stock to meet certain  obligations  of the Company to
issue common stock and to permit certain financings prior to the increase in the
number of  authorized  shares of common  stock  from  15,000,000  to  30,000,000
shares. The shares were issued by the Company on July 22, 1997. In June 1999 the
Company  incurred  additional  compensation  to the  President of the Company of
2,000,000  fully  vested,  nonforfeitable  shares  with a fair  market  value of
$4,320,000  (based on the bid  price of $2.40 per share on the date of  issuance
less a 10%  discount  for  restrictions  on the  resale  of  such  shares).  The
compensation was in consideration of the President's agreement to extinguish his
rights  contained in his employment  agreement which entitled him to a 25% bonus
of the Company's earnings (as defined).

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

NOTE 11 - CONVERTIBLE DEBENTURES

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


                                                                                                 June 30,
                                                                                   ------------------------------------

                                                                                        1999                  1998
                                                                                  -----------------      ---------------
<S>                                                                              <C>                   <C>
Convertible  debenture  dated  December  11, 1997.  The debenture was converted
into 327,101 shares in Fiscal 1999.                                              $        -            $         145,969

Convertible debenture dated March 14, 1998.  A total of $2,500,000 was converted
into 2,482,656 shares in Fiscal 1999.  The remaining balance of $3,000,000 was
refinanced.  (See August 31, 1998 debenture)                                              -                    5,500,000

Convertible debenture dated June 15, 1998 and due June 15, 2000 with interest at
6% per annum.  The debentures are convertible  into common  shares  at  a  price
equal to eighty (80%) of the average closing bid price for the  ten (10) trading
days  preceding the date of  conversion.  All of the debentures are  convertible
at  the  earlier  of  a  registration  effective  date  or  August 15, 1998. Any
debenture not so converted is subject to mandatory  conversion on June 15, 2000.
Debt issuance cost was $240,000, beneficial conversion feature was $420,436.              2,000,000            2,000,000

Convertible  debenture of $6,143,849 dated  August  31,  1988  and  due  August
31, 2000 with interest of 5% per annum.  The  debentures  are  convertible  into
common shares at a price equal to the lesser of eighty-two  (82%) of the average
closing bid price for the ten trading days  preceding the date of the conversion.
All  debentures  are  convertible  at the  earlier of a  registration  effective
date or March 1, 1998.  Any  debenture not so converted is subject to  mandatory
conversion on August 31, 2000.  The company at its sole direction can redeem the
debenture at 115% of the face amount up to the fourth month,  at 120% within the
fifth  and  sixth  month and at 125% after the sixth month following the closing
date. $514.428 of the balance was converted into 1,051,529 shares in Fiscal 1999
 .  Debt issuance cost was $311,000, beneficial conversion  feature was $-0-.              5,629,421                 -

                                      F-17
<PAGE>

Convertible debenture including $ 540,000 repurchase of stock  dated  October 6,
1988 and due  October 6, 2000 with  interest  of 5% per annum.The debentures are
convertible  into  common  shares  at  a price equal to the lesser of eighty-two
(82%) of the average closing bid price for the ten trading  days  preceding  the
date  of the  conversion.  All  debentures  are  convertible  at  the earlier of
a  registration  effective  date  or  October  6,  1998.   Any  debenture not so
converted  is  subject  to mandatory  conversion on October 6, 2000. The Company
at its sole direction can redeem the debenture at 115% of the  face amount up to
the fourth month, at 120% within the fifth and sixth month and at 125% after the
sixth  month  following  the  closing  date.  Debt  issuance  cost was $300,000,
beneficial conversion feature was $53,112.                                                2,940,000                 -

Convertible  debenture  dated  January  29, 1999  and  due January 29, 2001 with
interest of 3% per each 30 days for the first ninety days, 3.5% per each 30 days
for the ninety-first to the one  hundred-twentieth day and  4%  per each 30 days
from the hundred-twenty-first day until the earlier  of conversion or redemption
The debentures are  convertible into common shares at a price equal to the lesser
of eighty-two  (82%) of the average  closing bid price  for the ten trading days
preceding  the date of the  conversion.  All debentures are  convertible at  the
earlier  of  a registration  effective date or January  29, 1999.  Any debenture
not so  converted  is subject to  mandatory conversion on January 29, 2001.  The
Company  at  its  sole  direction  can redeem the  debentures  at any time. Debt
issuance cost was $150,000, beneficial conversion feature was $-0-.                       1,170,000                 -

Convertible debenture dated May 13, 1999 and due May 13, 2001  with  interest of
5% per annum.  The debentures are convertible  into common  shares  at  a  price
equal to the lesser of eighty (80%) of the average closing bid price for the ten
trading  days  preceding  the  date  of  the  conversion.  All  debentures   are
convertible at the earlier of a registration  effective date  or  May 13,  1999.
Any  debenture  not so  converted  is  subject  to  mandatory conversion  on May
13, 2001.  The company at its sole  direction  can redeem the  debenture at 115%
of the face amount up to the fourth month,  at 120% within the  fifth  and sixth
month  and  at  125%  after  the  sixth month  following  the closing date. Debt
issuance cost was $80,000, interest rollover  was $39,600, beneficial conversion
feature was $735,025.                                                                     1,119,600                  -

Convertible  debenture  dated May 31, 1999 and due May 31, 2001 with interest of
5% per annum. The debentures are convertible into common shares at a price equal
to the  lesser  of eighty  (80%) of the  average  closing  bid price for the ten
trading  days  preceding  the  date  of  the  conversion.   All  debentures  are
convertible at the earlier of a registration effective date or May 31, 1999. Any
debenture  not so converted is subject to mandatory  conversion on May 31, 2001.
The company at its sole  direction  can redeem the debenture at 115% of the face
amount up to the fourth  month,  at 120% within the fifth and sixth month and at
125% after the sixth month  following  the closing  date.Debt  issuance cost was
$110,000,  interest  rollover was  $22,200,  beneficial  conversion  feature was
$140,049.                                                                               1,132,200               -

Convertible debenture dated June 26, 1999 and due June 26, 2001 with interest of
5% per annum.  The debentures are convertible  into common  shares  at  a  price
equal to the lesser of eighty (80%) of the average closing bid price for the ten
trading   days  preceding  the  date  of  the  conversion.  All  debentures  are
convertible at the earlier of a registration  effective date  or June 26,  1999.
Any  debenture  not so  converted  is subject  to  mandatory conversion  on June
26, 2001.  The company at its sole  direction can redeem the  debenture  at 115%
of the face amount up to the fourth month,  at 120% within the  fifth  and sixth
month and at 125% after the sixth month following the closing date.Debt issuance
cost was $50,000, interest rollover was $11,000,  beneficial  conversion feature
was $281,005.                                                                             561,000               -

                                      F-18
<PAGE>



Convertible debenture dated May 5, May 24 and June 10, 1999  and  due May 5, May
24 and June 10, 2001, respectively with interest of 5% per annum. The debentures
are  convertible  into  common  shares  at  a price equal to eighty (80%) of the
average closing bid price for the ten trading days preceding  the  date  of  the
conversion.  The  investor  shall not be allowed to convert any  portion  of the
Debentures  for 120 days from the Closing  date, unless the bid price is greater
than $5.50.  Every 30-day  period after the Closing  date,  the  investor  shall
be allowed  to  convert  and sell based upon if the bid price is over $1.50 then
15% of the  original  face amount can be  converted,  if the bid  price  is over
$7.50 then 20% of the original  face amount  can  be  converted.  No  conversion
can be  made  for 300  days if the bid  price  is  below  $1.50  All  debentures
are  convertible  at the earlier of a registration  effective date or May 5, May
24 and June 10, 1999, respectively. Any debenture  not  so  converted is subject
to  mandatory   conversion  on  May  5,  May 24 and June 10, 2001, respectively.
The company at its sole direction can redeem the debenture at 120%  of the  face
amount  including  interest.  Debt  issuance  cost   was   $100,000,  beneficial
conversion feature was $423,973.                                                            850,000             -
                                                                                  -----------------      ---------------
                                                                                         15,402,221            7,645,969
Less: discount due to beneficial conversion features, net of
accumulated amortization of $327,604 and $310,559
respectively                                                                                (96,369)            (315,327)
                                                                                  -----------------      ---------------
                                                                                  $      15,305,852    $       7,330,642
                                                                                  =================      ===============
</TABLE>

The Company is currently in  violation of certain  covenants in their  debenture
agreements. Such covenants have been waived by the holders through July 1, 2001.

NOTE 12 - NOTES PAYABLE - SHORT-TERM

Notes payable - short-term consists of the following
<TABLE>
<CAPTION>

                                                                                          June 30,
                                                                       -------------------------------------------------
                                                                               1999                        1998
                                                                       --------------------        ---------------------
<S>                                                                   <C>                            <C>
Promissory note, dated June 11, 1999 $654,000,
due September 9, 1999, collateralized by inventory                    $         600,000              $         --

Promissory note, dated April 1999, currently in default,
personally guaranteed by the Company's president and
collateralized by 428,259 shares owned by the Company's
president.  Subsequent to June 30, 1999, the collateral
was transferred to the lenders.  The Company agreed to
issue the president 535,324 shares to replace the
collateral shares.                                                           1,100,000                         --
                                                                      --------------------        ---------------------
                                                                      $      1,700,000               $         --
                                                                      ====================        =====================
</TABLE>



















                                      F-19
<PAGE>

NOTE 13 - LONG-TERM DEBT

Long-term debt consists of the following:
<TABLE>
<CAPTION>


                                                                                           June 30,
                                                                       -------------------------------------------------
                                                                               1999                        1998
                                                                       --------------------        ---------------------
<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                 $         122,175             $    153,603

Note  payable  - Union  Bank  of  Switzerland,  related
to the  acquisition  of equipment sold to a customer,
in monthly installments of $12,589 with imputed interest at
6.0% per annum, maturing on September 30, 2000                                  188,907                  335,062

Capitalized leases related to the acquisition of
various computer and office equipment in payable
monthly installments over periods through 2001,
with interest imputed at rates ranging from 9.1% to 28.3%                       131,041                  185,755
                                                                       --------------------        ---------------------
                                                                                442,123                  674,420
Less: Current portion                                                          (247,028)                (233,746)
                                                                       --------------------        ---------------------
                                                                      $         195,095             $    440,674
                                                                       ====================        =====================
</TABLE>

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


             Year Ending June 30,
                     2000                       $                    247,028
                     2001                                            144,578
                     2002                                             40,006
                     2003                                             10,511

NOTE 14 - SHAREHOLDERS' EQUITY

Authorized Shares

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

Preferred Stock

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

Stock Option

The Stock Option Plans provide for the grant of options to officers,  directors,
employees  and  consultants.  Options may be either  incentive  stock options or
non-qualified stock options, except that only employees may be granted incentive
stock options.The maximum number of shares of Common Stock with respect to which
options may be granted under the Stock Option Plans  is  500,000 shares. Options
vest at the discretion of the Board of  Directors. All  options  granted in 1999
and 1997 vested  immediately.  The  maximum  term of an option is ten years. The
1996 Stock Option Plan will terminate in January, 2006,  though  options granted
prior to termination may expire after that date. The 1997 Stock Option Plan will
terminate at the discretion of the Board of Directors.In Fiscal 1998, there were
no grants or vesting of stock options.  In Fiscal 1997,  had  compensation  cost
for the Stock Option Plans been determined  based on the fair value at the grant
dates for awards  under the Stock Option Plans, except for grants to consultants
for which compensation expense has been recognized consistent  with  the  method
of SFAS No. 123, as discussed in Note 1, the Company's net loss and net loss per
share would have  increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
                                                                  Fiscal 1997
                                                    ----------------------------------------
                                                            As                   Pro
                                                         Reported               Forma
                                                    -------------------  -------------------
<S>                                                           <C>                  <C>
Nel loss (in thousands)                                       ($13,685)            ($13,959)
Basic and diluted net loss per share                            ($8.65)              ($8.82)
</TABLE>

The fair value of each option  grant is estimated on the date of grant using the
Black  Scholes   option-pricing  method  with  the  following  weighted  average
assumptions  used for grants in 1997;  dividend  yield 0%,  expected  volatility
61.6%, risk-free interest rate 6.25%, expected lives in years 1%.

The weighted  average fair value of stock options  granted during the year ended
June 30, 1997 was $22.80.  No employee stock options were granted in fiscal 1999
and 1998.

                                      F-20
<PAGE>



A summary of the status of the Stock  Option  Plans at June 30,  1999,  1998 and
1997 and the changes during the years then ended is presented below:
<TABLE>
<CAPTION>
                                   1999                               1998                               1997
                      ------------------------------     ------------------------------      ----------------------------
                         Weighted                           Weighted                            Weighted
                          Shares         Average             Shares         Average              Shares        Average
                        Underlying      Exercise           Underlying       Exercise           Underlying      Exercise
                         Options          Price             Options          Price              Options         Price
                      -------------- ---------------     --------------  --------------      --------------  ------------
<S>                          <C>              <C>               <C>              <C>                <C>            <C>
Outstanding
at  beginning                180,000          $23.40            196,900          $23.40             133,500        $25.20
of year
Granted                       15,500            $.44                  -           $0.00              79,500        $17.80

Exercised                    (1,000)           $7.30           (16,900)           $7.30             (16,100)        $0.00
                      -------------- ---------------     --------------  --------------      --------------  ------------
Outstanding
at end of year               194,500          $24.30            180,000          $24.30             196,900        $23.40
                      ============== =============== ==  ==============  ============== ==== ==============  ============
Exercisable at
end of year                  194,500          $24.30            180,000          $24.30             196,900        $23.40
                      ============== =============== ==  ==============  ============== ==== ==============  ============

</TABLE>

The following table summarizes  information  about stock options under the Stock
Option Plans at June 30, 1999:
<TABLE>
<CAPTION>
                                                            Options Outstanding and Exercisable
                                  ----------------------------------------------------------------------------------
                                                                  Weighted Average
                                            Number              Remaining Contractual           Weighted Average
Range of Exercise Pr                      Outstanding                   Life                     Exercise Price
--------------------------------       -----------------     ---------------------------     -----------------------
<S>    <C>                                        <C>                                <C>                       <C>
$.01 - $.44                                       15,500                             9.5                       $0.44
$7.30 - $10.00                                    18,000                             8.4                       $8.00
$20.00 - $40.00                                  127,500                             7.8                      $22.10
$47.50 - $65.00                                   33,500                             7.5                      $58.70
                                       -----------------
                                                 194,500
                                       =================

</TABLE>

Stock Warrants

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



                                                            Warrants Outstanding and Exercisable
                              -- ------------------------------------------------------------------------------------------
Range of Exercise Price             Number Outstanding          Remaining Contractual Life         Average Exercise Price
-----------------------------    ------------------------    --------------------------------    --------------------------
<S>     <C>     <C>                      <C>                               <C>                              <C>
        $.375 - $9.38                    462,500                           4.5                              $.96

</TABLE>

NOTE 15 - DEFINED CONTRIBUTION PLANS

The Swiss and German  Subsidiaries,  mandated  by  government  regulations,  are
required to  contribute  approximately  five (5%)  percent of all  eligible,  as
defined,  employees'  salaries into a government  pension plan. The subsidiaries
also contribute  approximately  five (5%) percent of eligible  employee salaries
into a private pension plan. Total  contributions  charged to operations for the
years ended June 30, 1999, 1998 and 1997, were $ 509,959, $347,854 and $274,009,
respectively.

                                      F-21

<PAGE>



NOTE 16 - OTHER INCOME (EXPENSES)
<TABLE>
<CAPTION>


                                                                        Year Ended June 30,
                                                      --------------------------------------------------------
                                                             1999                 1998              1997
                                                      -------------------  ------------------  ---------------
<S>                                                            <C>             <C>                  <C>
Interest income                                                $60             $58,902              $68,950
Interest income-stockholder and officer                        -                   -                  4,351
Foreign currency income                                     (9,097)            (87,148)             484,846
Miscellaneous income                                        49,422              60,648                6,833
Loss from investments                                          -                   -               (246,217)
Loss on sale of certain asset and liabilities                  -              (313,629)                -
                                                      -------------------  ------------------  ---------------
Total other income (expenses)                              $40,385           ($281,227)            $318,763
                                                      ===================  ==================  ===============
</TABLE>


NOTE 17 - INCOME TAXES

Deferred income tax assets as of June 30, 1999 of $12,500,000 as a result of net
operating losses, have been fully offset by valuation allowances.  The valuation
allowances have been  established  equal to the full amounts of the deferred tax
assets, as the Company is not assured that it is more likely than not that these
benefits will be realized.

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


                                                        Year Ended June 30,
                                                               1999                   1998                    1997
                                                        ------------------      -----------------       -----------------
<S>                                                <C>                     <C>                       <C>
Statutory federal income tax (benefit)             $           (5,940,000) $          (7,754,000)    $        (4,101,913)
Foreign income tax (benefit) in excess
of domestic rate                                                   377,000                543,000                 509,203
Benefit not recognized on operating                              4,033,000              5,111,000               2,816,057
loss
Permanent and other differences                                  1,530,000              2,100,000                 886,886
                                                        ------------------      -----------------       -----------------
                                                   $            -          $            -            $            110,233
                                                        ==================      =================       =================
</TABLE>

Net operating loss carryforwards at June 30, 1999 were approximately as follows:



United States (expiring through June 30, 2014)          $             21,000,000
Switzerland (expiring through June 30, 2009)                          21,000,000
                                                             -------------------
                                                        $             42,000,000
                                                             ===================


                                      F-22

<PAGE>


NOTE 18 - EXTRAORDINARY ITEMS

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

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

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

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

NOTE 19  SIGNIFICANT CUSTOMER AND CONCENTRATION OF CREDIT RISK

The Company sells its products to various customers  primarily in Europe and the
USA. The company  performs  ongoing  credit  evaluations  on its  customers  and
generally  does not require  collateral.  Export  sales are  usually  made under
letter of credit  agreements.  The company  establishes  reserves  for  expected
credit losses and such losses, in the aggregate,  have not exceeded management's
expectations.

The Company  maintains  its cash  balances  with major Swiss,  United States and
German financial  institutions.  Funds on deposit with financial institutions in
the United  States are insured by the  Federal  Deposits  Insurance  Corporation
("FDIC) up to $ 100,000.

During the years ended June 30, 1999 1998 and 1997 there were sales to customers
that exceeded 10% of net consolidated sales. Sales to these customers were: 1999
customer A, $9,253,480  (54%),  1998 customer A $ 7,647,354 (33%), 1997 customer
A, $1,899,084 (14%) customer B $2,389,613 (18%).The company operates in a single
industry segment, providing x-ray medical equipment.

The Company  derives all of its revenues  from its  subsidiaries  located in the
United States,  Switzerland and Germany. Sales by geographic areas for the years
ended June 30, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>


                                                         1999                      1998                      1997
                                                 --------------------        -----------------         ----------------
<S>                                            <C>                        <C>                       <C>
United States                                  $            4,026,931     $          9,127,569      $         2,000,608
Switzerland                                                12,625,381               12,851,115                2,184,161
Germany                                                       643,570                  914,294                1,393,072
Other export sales                                        -                          -                        7,573,860
                                                 ====================        =================         ================
                                            $              17,295,882     $         22,892,978      $        13,151,701
                                                 ====================        =================         ================
</TABLE>

The following summarizes identifiable assets by geographic area:
<TABLE>
<CAPTION>


                                                                            1999                         1998
                                                                    ---------------------          -----------------
<S>                                                               <C>                           <C>
United States                                                     $             7,270,543       $          8,075,151
Switzerland                                                                    16,009,209                 17,454,379
Germany                                                                           231,437                    385,067
                                                                    ---------------------          -----------------
                                                                  $            23,511,189       $         25,914,597
                                                                    =====================          =================
</TABLE>
                                      F-23
<PAGE>

The following summarizes operating losses before provision for income tax:
<TABLE>
<CAPTION>


                                                         1999                     1998                     1997
                                                  ------------------       -------------------      -------------------
<S>                                            <C>                       <C>                      <C>
United States                                  $        (15,542,148)     $        (13,962,842)    $           (175,254)
Switzerland                                              (5,392,436)               (8,803,006)             (12,678,800)
Germany                                                    (243,317)                  (42,184)                (333,397)
                                                  ------------------       -------------------      -------------------
                                               $        (21,177,901)     $        (22,808,032)    $        (13,187,451)
                                                  ==================       ===================      ===================
</TABLE>

NOTE 20 - COMMITMENTS

The Company  leases  various  facilities  and  vehicles  under  operating  lease
agreements expiring through September 2003. The company has excluded all vehicle
leases  in its  presentation  because  they are  deemed  to be  immaterial.  The
facilities  lease  agreements  provide for a base monthly payment of $22,285 per
month.  Rent  expense  for  the  years  ended  June 30, 1999, 1998 and 1997 was
325,000, $  324,726  and  $  297,926  respectively.  Future minimum annual lease
payments,  based on the  exchange  rate in  effect on June 30,  1999,  under the
facilities lease agreements are as follows: 2000 $173,549,  2001 $162,526,  2002
$166,995, 2003 $137,994, Thereafter $0.

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

         Year Ended
         June 30, 2000             $              382,321
         June 30, 2001                            299,326
         June 30, 2002                            202,498
         June 30, 2003                            109,037
                                     --------------------
                                   $             $993,182
                                     ====================

NOTE 21 - LITIGATION

An arbitrator awarded judgement in favor of SSG in February of 1999, which order
was  confirmed  by the  Supreme  Court of the State of NY on July 8,  1999.  The
judgement of $1,500,000  has been recorded in the  financial  statements  and is
included in common stock subject to put.

On  or  about July 1, 1999 an action was commenced in the Supreme Cout, State of
New York, County of New York entitled J. Douglas Maxwell ("Maxwell") against the
Company,  whereby Maxwell is seeking judgement in the sum of $380,000 based upon
his  interpretation  of  various  terms  and conditions contained in an Exchange
Agreement  between  the  parties  dated  July  22, 1996 and  a subsequent Mutual
Release  and  Settlement  Agreement  between  the  parties  dated  June 1, 1998.
Swissray  has  denied  the  material  allegations of Maxwell's complaint and has
asserted three  affirmative  defenses  and  two  separate  counteclaims  seeking
(amongst other matters) dismissal of  the  complaint and  and  recision  of  the
settlement  agreement.  It  is Swissray's management's intention to contest this
matter vigorously.  The  $380,000  has been recorded in the financial statements
and is included in common stock subject to put.

NOTE 22 - RESTRUCTURING

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

                                      F-24
<PAGE>

NOTE 23 - UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS

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

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


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


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

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

NOTE 24-VALUATION AND QUALIFYING ACCOUNTS

                                   Balance at  Additions             Balance at
                                   Beginning  Charged to               End of
                                    of Year    Expenses   Deductions     Year
Allowance for doubtful acounts:
     Year ended June 30, 1999      $ 32,356   $706,877   $519,240     $219,993
     Year ended June 30, 1998      $148,390   $133,196   $249,230     $ 32,356
     Year ended June 30, 1997      $109,843   $619,160   $580,613     $148,390

NOTE 25 - RESTATEMENT

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

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

                               As                               As
                            Reported        Adjustments      Restated
                           -----------     ------------     ----------
Balance Sheet Adjustments
 Assets                    $23,761,189      $ (250,000)     $23,511,189
 Liabilities                29,695,812         750,000       30,445,812

Statement of Operations
 Adjustments
  Operating expenses       $15,581,217      $3,764,722      $19,345,939
  Loss from continuing
   operations              (16,413,179)      4,764,722      (21,177,901)
  Net loss                 (17,246,028)      4,764,722      (22,010,750)
  Net loss per common
   share basic             $     (2.65)     $    (0.73)     $     (3.24)











                                      F-25

<PAGE>

ITEM 9.   CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
          DISCLOSURE

         Bederson & Company  LLP  ("Bederson")  audited  the books,  records and
accounts of the Registrant for the fiscal year ended June 30, 1997. Bederson was
dismissed on November 7, 1997.

         On  November  7, 1997 the Board of  Directors  selected  STG-Coopers  &
Lybrand AG ("STG") as the Registrant's  auditors for the fiscal year ending June
30, 1998 and this action was ratified by the  stockholders at the Annual Meeting
held on December 23, 1997.

         On  November  2, 1998 (after  having  failed to complete  the audit for
fiscal year ended June 30, 1998 in a timely manner or otherwise) STG advised the
Company that it had determined to cease to represent the Company. On November 6,
1998 the Company  engaged  Feldman Sherb Ehrlich & Co., P.C.  ("FSE") as its new
independent  accountants and such firm commenced and concluded its audit so that
the Company was able to file its Form 10-K on December 3, 1998. STG acknowledged
in its required letter to the SEC that there were no  disagreements,  as defined
by Rule 304 of Regulation S-K during the period that STG served as the Company's
auditors through the date of STG's resignation.

         For further information with respect to change of auditors as indicated
in the preceding paragraph, reference is herewith made to the Company's Form 8-K
and 8-K/A with date of report of November  3, 1998 as filed with the  Commission
on November 6, 1998 and November 27, 1998 respectively.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

         Name           Age           Position(s) Held

Ruedi G. Laupper         49           Chairman of the Board of Directors,
                                      President and Chief Executive Officer,
Josef Laupper            54           Secretary, Treasurer and Director
Ueli Laupper             29           Vice President and Director
Dr. Erwin Zimmerli       52           Director and Member of the Independent
                                      Audit Committee
Erich A. Kalbermatter    43           Chief Operating Officer *
Dr. Sc. Dov Maor         52           Director and Member of the Independent
                                      Audit Committee
Michael Laupper          26           Chief Financial Officer

*          Until his resignation in February 1999.

                                     - 49 -
<PAGE>

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

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

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

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

          Dr.Erwin Zimmerli has been a director of the Registrant since May 1995
and, since March 1998, a member of the Registrant's Independent Audit Committee.
Since receiving his Ph.D. degree in law and economics from the University of St.
Gall,  Switzerland in 1979, Dr.  Zimmerli has served as head of the White Collar
Crime Department of the Zurich State Police  (1980-86),  as an expert of a Swiss
Parliamentary  Commission for penal law and Lecturer at the  Universities of St.
Gall and Zurich (1980-87),  Vice President of an accounting firm (1987-1990) and
Executive Vice President of a multinational  aviation company  (1990-92).  Since
1992 he has been actively engaged in various independent  consulting  capacities
primarily within the Swiss legal community.

         Erich A. Kalbermatter, commenced serving the Company in the position of
Chief  Operating  Officer in April 1998 and held such  position  until  February
1999. Mr.  Kalbermatter  whose  background is principally as an  internationally
experienced   manager   with   expertise  in  the  areas  of   electronics   and
telecommunications,  has also served as managing  director of Private & Business
Communications  of ASCOM Ltd.,  Berne,  Switzerland  being  responsible  for the
turn-over  of  more  than 1  billion  Swiss  Francs,  with  approximately  4,800
employees worldwide.  In addition,  he was a member of ASCOM's Group Management,
an international communications corporation.

                                     - 50 -
<PAGE>

         Dr. Sc. Dov Maor, was appointed as a member of the Registrant's Board
of Directors and a member of its Independent Audit Committee effective March 26,
1998.  Dr. Sc. Dov  Maor  currently  holds  the  position  of Vice President for
Technology  with  ELBIT  Medical  Imaging,  Haifa.   Dr.  Sc.  Dov  Maor is well
experienced  in  the  field of Nuclear Medicine and medical imaging and has been
employed  for  over  10  years  in a leading position in Research & Development.
Additionally,  he  was  working in conjunction with the Max Planck Institute for
Nuclear Physics in Heidelberg within his field of experience. In addition to his
technical knowledge, Dr. Sc. Dov Maor is experienced in the commercial sector of
the industry.

         Michael Laupper assumed the position of Interim Chief Financial Officer
of the Company effective January 1, 1999, having previously served as Controller
working in conjunction with the Company's former CFO and currently serves as the
Company's CFO.Michael Laupper completed his commercial education in the chemical
industry  in  1991  in  Switzerland  and has additionally  completed  studies in
finance and accounting (in the United States  during 1996-97). He has served the
Company in various management positions at SR  Management  AG and SR Medical AG,
Company  subsidiaries,  prior to assuming his current position.

The Board of Directors

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

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

Section 16(a) Beneficial Ownership Reporting Compliance

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

         According to the Company's records, the following filings appear not to
have  been  timely made: one initial statement of beneficial ownership on Form 3
and three statements of changes in beneficial ownership on Form 5 covering  four
transactions (such Form 5 representing a  delinquent  Form  4)  were  not  filed
timely by Reudi G. Laupper; one initial statement  of  beneficial  ownership was

                                     - 51 -
<PAGE>

not filed timelyby Uweli Laupper; one initial statement of beneficial  ownership
on  Form  3  and  two  statements  of  changes in beneficial ownership on Form 5
covering two transactions (such Form 5 representing a delinquent  Form  4)  were
not filed timely by Tomlinson Holding, Inc.; one initial statement of beneficial
ownership on Form 3 was not filed timely by Josef Laupper; one initial statement
of beneficial ownership was not filed timely by Ulrich Ernst; one initial state-
ment  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 11.  EXECUTIVE COMPENSATION

Employment Agreements

         Ruedi G. Laupper has entered into a five-year employment agreement with
Swissray Management AG, a wholly owned subsidiary of the Registrant, on December
18, 1997, which agreement will be  automatically  renewed for another five years
unless  terminated  by  either  party no later  than  December  31,  2001.  Such
agreement  provides  for (i) an  annual  salary  of  299,000  Swiss  francs  (or
$194,121),  (ii) an annual bonus of 12,000 Swiss francs (or $8,377), and (iii) a
performance based bonus, based on the audited consolidated  financial statements
of the Company as of the end of the fiscal year.  The bonus shall be 25% of EBIT
(earnings before interest and taxes) payable in stock of Swissray International,
Inc.  valued at the average of the closing  prices during the five business days
following  the filing of the 10-K.  In  addition,  the  agreement  entitles  Mr.
Laupper to a car allowance,  five weeks of vacation, $698 per month for expenses
and a "Bel Etage" insurance which provides certain pension benefits not mandated
by Swiss law. If such employment  agreement is terminated for reasons beyond the
employee's  control,  Ruedi  Laupper  will  receive 2 million  Swiss  francs (or
$1,396,258)  including any bonus.  The  Registrant  guarantees the obligation of
Swissray Management AG in the event of a default.

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

         Ueli Laupper and Josef Laupper have entered into three-year  employment
agreements with Swissray  Management AG on December 18, 1997,  which  agreements
will be automatically renewed for another three years unless notice is given six
months prior to the expiration  date.  Such  agreements  provide for salaries of
$94,924 and 119,700 Swiss francs (or $83,566)  respectively  with annual bonuses
of $7,077 and 9975 Swiss francs (or $6,964) respectively,  $1,500 and 1000 Swiss
francs (or $698) per month for expenses  respectively and 20 days and 25 days of
vacation  respectively.  The  employment  agreements of each of Ueli Laupper and
Josef Laupper also provide for a car  allowance.  If either of such employees is
terminated  for reasons  beyond the  employees  control he will receive  500,000
Swiss francs (or $349,065).

         Mr.  Kalbermatter  in  accordance  with  his  Agreement  with  Swissray
Management  AG assumed the  position of Chief  Operating  Officer of the Company
effective  April 14,  1998 at an  annual  salary  equivalent  to  $153,333.  Mr.

                                     - 52 -
<PAGE>

Kalbermatter shall also receive (a) an expense allowance  equivalent to $12,000,
(b) an automobile  allowance  equivalent to $11,333, (c) 25 days of vacation and
(d) a "Bel Etage" inusrance which provides certain pension benefits. U.S. dollar
equivalents indicated above are based upon a Swiss Francs (CHF) exchange rate of
$1.50.  This  Agreement  was to  expire  in May 31,  1999  but Mr.  Kalbermatter
resigned in February 1999.


         All of these employment agreements are covered by Swiss law.

         Summary Compensation Table

         (A)  The  following  Summary  Compensation  Table  sets  forth  certain
information for the years ended June 30, 1997, 1998 and 1999 concerning the cash
and non-cash  compensation earned by or awarded to the Chief Executive Oficer of
the Registrant,  the three other most highly  compensated  executive officers of
the  Registrant  as of June 30,  1999 and the  former  Chairman  of the Board of
Directors (the "Named Executive Officers").

<TABLE>
<CAPTION>
                                                        Annual Compensation                       Long-Term Compensation
                                            Fiscal                             Other Annual       Stock         All Other
Name and Principal Position                  Year        Salary    Bonus       Compensation      Options     Compensation
------------------------------------        -----    -----------   -----       ------------      -------     ------------
<S>                                         <C>      <C>            <C>      <C>                    <C>             <C>
Ruedi G. Laupper                            1999     $194,121       $8,377   $4,335,000(1)(8)         --              ---
  President and Chief Executive             1998     $173,587       $16,057  $15,000 (1)            --              ---
  Officer, Chairman of the                  1998         ---         ---     $1,122,973 (1)         --              ---
  Board of Directors                        1997     $146,983        ---     $15,000 (1)           12,000(5)        ---

Josef Laupper                               1999     $ 83,566       $6,494   $12,000 (1)           ---              ---
  Secretary, Treasurer                      1998     $ 94,669        ---     $12,000 (1)           ---              ---
                                            1997     $ 96,861        ---     $12,000 (1)           ---              ---

Ueli Laupper                                1999     $ 94,924       $7,077   $10,000 (1)           ---              ---
  Vice President International              1998     $ 95,685        ---     $10,000 (1)           ---              ---
  Sales (2)                                 1997     $    ---        ---     $    ---              ---              ---

Herbert Laubscher
  Chief Financial Officer (2)(3)            1998     $ 79,244        ---     $    ---              ---              ---
                                            1997     $    ---        ---     $    ---              ---              ---

Ulrich R. Ernst (4)
                                            1997     $ 96,979        ---     $10,000 (1)           ---              ---

Erich A. Kalbermatter                       1999     $153,439        ---     $     ---             ---              ---
  Chief Operating Officer (6)               1998     $ 33,652        ---     $     ---             ---              ---
--------------------
</TABLE>

(1)      Fees for service on the Board of Directors of the Company.
(2)      Compensation did not exceed $100,000 in any fiscal year.
(3)      Herbert Laubscher joined the Company in August of 1996 and served as
         Treasurer from January 1998 until his  resignation  effective  December
         31, 1998.
(4)      Ulrich R. Ernst was Chairman of the Board of Directors from May 1995
         until March 18, 1997.
(5)      The options,  which were fully vested on date of grant (6/13/97),  were
         issued in exchange for services to the Company as Chairman of the Board
         of Directors.
(6)      Erich A. Kalbermatter joined the Company on April 14, 1998 and resigned
         in February 1999.
(7)      Compensation  paid in equivalent of 48,259 post reverse split shares of
         Common Stock for cancellation of Common Stock held by officer, as
         follows:

                  Ruedi G. Laupper,  the Company's  President,  surrendered  for
         cancellation an aggregate of 1,608,635  shares of common stock owned by
         him in order for the Company to meet its  obligations  with  respect to
         various   warrantees   and   representations   made  by  it   regarding
         availability  of a sufficient  number of authorized but unissued shares
         to timely meet  convertible  debenture  conversions  and avoid  Company
         default (regarding financings which occurred in or about September 1996
         and January 1997).  By  surrendering  such shares Ruedi G. Laupper lost
         his  holding  period  under  Rule 144 which at that  point  would  have
         entitled  him to  utilize  Rule 144  every  three  months  to sell such
         restrictive  shares  (as free  trading)  subject  to volume  limitation
         imposed by Rule 144. In exchange  for losing  such  valuable  right and
         once  stockholders  had increased  the number of  authorized  shares of
         Company common stock at a Special Meeting called for such purposes, Mr.
         Laupper,  as previously agreed to, received a number of shares equal to
         30% (48,259  post  reverse  split  shares)  more than those  previously
         canceled  (creating a brand new holding  period for him for purposes of
         Rule  144  transactions).At  the  time  that  the  Company's  President
         surrendered his aforesaid  1,608,635  shares for  cancellation (to wit:
         March 7, 1997) the bid price of the Company's  common stock was $2.6875
         while at the time that such  individual  received the 48,259 post split
         shares  referred  to above  (on June 30,  1997)  the bid  price for the
         Company's common stock was $2.421875.
(8)      Dollar value  assigned to the  2,000,000  shares of Common Stock issued
         for  relinquishment  of EBIT bonus based upon Board  members  agreement
         that  such  price  would  be based  upon  90% of bid  price at the time
         proposal was initially  made,  i.e.,  90% of the $2.40 average price on
         June 30, 1999 - the date of the Board of Directors meeting.


                                     - 53 -
<PAGE>

                  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                                                      Potential
                                          Options                                               Realization Value at
                                          Granted                                               Assumed Annual Rates
                            Number of       to       Exercise                                   of Stock Appreciation
                           Securities    Employees      or       Market                            For Option Term
                           Underlying       in         Base     Price on
                             Options      Fiscal       Price     Date of    Expiration
Name                         Granted       Year      Per Share    Grant        Date         0%           5%       10%
---------------------------------------------------------------------------------------------------------------------
<S>                      <C>               <C>       <C>         <C>          <C>         <C>         <C>        <C>
Ruedi G. Laupper          120,000(2)       30.4%     $0.73(3)    $2.94(4)     6/13/02     265,200     282,840    300,480
Josef Laupper(5)                 --         --          --             --          --         --          --         --
Ueli Laupper(5)                  --         --          --             --          --         --          --         --
Herbert Laubscher(5)             --         --          --             --          --         --          --         --
Ulrich Ernst(5)(6)               --         --          --             --          --         --          --         --
</TABLE>

(1)      The options to purchase the Registrant's Common Stock were granted
         under the Swissray International, Inc. 1996 Non-Statutory Stock Option
         Plan.
(2)      These options were owned indirectly through SR Medical Equipment Ltd.,
         a corporation wholly owned by Mr. Laupper. They were immediately
         exercisable on the date of grant but do not give effect to subsequent
         October 1998 1 for 10 reverse stock split.
(3)      The exercise price per share is contingent on purchase of the entire
         amount of securities.
(4)      The market  price on date of grant was based on the average of the high
         and low reported prices on the Nasdaq SmallCap Market on June 13, 1997.
         On October 26, 1998 the Company's securities were delisted by NASDAQ.
(5)      These individuals own no stock options of the Registrant.
(6)      Mr. Ernst was Chairman of the Board of Directors from May 1995 until
         March 18, 1997.

                                     - 54 -
<PAGE>


             STOCK OPTION GRANTS IN FISCAL YEAR ENDED JUNE 30, 1998

         With respect to the Named Executive  Officers there were no granting of
stock options  under either the  Company's  1996 or 1997 Stock Option Plans (the
"Plans") during the fiscal year ended June 30, 1998.

             STOCK OPTION GRANTS IN FISCAL YEAR ENDED JUNE 30, 1999

         With respect to the Named Executive  Officers there were no granting of
stock options under either the Company's  1996,  1997 or 1999 Stock Option Plans
(the "Plans") during the fiscal year ended June 30, 1999.

 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES(1)

<TABLE>
<CAPTION>
                                                    Number of
                                                   Securities                                       Value of
                                                   Underlying                                      Unexercised
                                                   Unexercised                                    In-The-Money
                                                     Options                                         Options
         Name                                 At Fiscal Year-End(#)                           At Fiscal Year-End($)
         (A)                                Exercisable/Unexercisable                       Exercisable/Unexercisable
<S>                                               <C>                                              <C>
Ruedi G. Laupper                                   12,000/0(3)                                       $1.79/0
Josef Laupper(4)                                       0/0                                             0/0
Ueli Laupper(4)                                        0/0                                             0/0
Herbert Laubscher(4)                                   0/0                                             0/0
Ulrich R. Ernst(4)(5)                                  0/0                                             0/0
</TABLE>
(1)      No options  were  exercised  by a Named  Executive  Officer  during the
         fiscal year ended June 30, 1997 and 1998.
(2)      Options are in-the-money if the fair market value of the underlying
         securities exceeds the exercise price of the option.
(3)      Includes 12,000 options which are owned indirectly by Mr. Laupper
         through SR Medical Equipment Ltd., a corporation which is wholly owned
         by Mr. Laupper.
(4)      These individuals own no stock options of the Registrant.
(5)      Mr. Ernst was Chairman of the Board of Directors from May 1995 until
         March 18, 1997.

Stock Option Plans

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

         The purpose of the Stock Option Plans is to provide directors, officers
and  employees  of, and  consultants  to the Company and its  subsidiaries  with

                                     - 55 -
<PAGE>

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

         The maximum number of options that may be granted under this Plan shall
be options to purchase 200,000  shares of Common  Stock.  As of August 24, 1999,
none of such options have been granted.

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

         The Stock Option Plans may be amended, altered, suspended, discontinued
or terminated by the Board of Directors  without further  stockholder  approval,
unless such  approval is required by law or regulation or under the rules of the
stock exchange or automated  quotation  system on which the Common Stock is then
listed or quoted.  Thus,  stockholder  approval will not necessarily be required
for  amendments  which  might  increase  the cost of the Stock  Option  Plans or
broaden  eligibility.  The Stock  Option  Plans  will  remain  in  effect  until
terminated by the Board of Directors.  No ISO may be granted more than ten years
after such date.

                                     - 56 -
<PAGE>

         Pursuant  to  February  1999 Board of Directors approval and subsequent
July  23,  1999  stockholder  approval,  the  Registrant  adopted  its  1999 Non
Statutory  Stock  Option  Plan, whereby it reserved for issuance up to 3,000,000
shares  of  its  common stock.  Thereafter in August 1999 the Registrant filed a
Registration  Statement  on  Form S-8 (File No. 0-26972) so as to register those
shares of common stock underlying the aforesaid options.  As of August 24,  1999
none of such options had been granted.

         The Registrant currently has outstanding non-statutory stock options to
purchase an aggregate of 161,000  shares of Common  Stock.  See  "Management  --
Compensation   of  Directors   and   Executive   Officers"   and  Notes  to  the
Consolidated Financial Statements June 30, 1999, 1998 and 1997.

Retirement and Long-Term Incentive Plans

         The Swiss and German Subsidiaries,  mandated by government regulations,
are required to  contribute  approximately  five (5%)  percent of  eligible,  as
defined,  employees'  salaries into a government  pension plan. The subsidiaries
also contribute  approximately  five (5%) percent of eligible  employee salaries
into a private pension plan. Total  contributions  charged to operations for the
years ended June 30, 1999, 1998 and 1997, were $509,959,  $347,854 and $274,009,
respectively.

Director Compensation

         Directors of the  Registrant  receive  $10,000  annually for serving as
directors except for Josef Laupper,  who receives $12,000 and Ruedi Laupper, the
Chairman of the Board of  Directors,  who receives  $15,000.  Ruedi Laupper also
received  options to acquire 12,000 shares of the  Registrant's  Common Stock on
June 13, 1997 in accordance  with  applicable  provisions of the Company's  1996
Non-Statutory  Stock Option Plan.  The exercise  price for such options is $7.30
per share. The options were fully vested on the date of grant.

Compensation Committee Interlocks and Insider Participation

         The Registrant had no Compensation  Committee during the last completed
fiscal year.  The  Registrant's  executive  compensation  was  supervised by all
members of the Registrant's Board of Directors and the following  directors were
concurrently  officers of the Registrant in the following  capacities:  Ruedi G.
Laupper  (Chairman  of the Board of  Directors,  President  and Chief  Executive
Officer); Josef Laupper (Secretary and Treasurer),  Ueli Laupper (Vice President
International  Sales) and Ulrich R. Ernst  (Chairman  of the Board of  Directors
from May 1995 until March 18,  1997).  No  executive  officer of the  Registrant
served as a member of the board of  directors or  compensation  committee of any
entity which has one or more  executive  officers who serve on the  Registrant's
Board of Directors.

         While the Company  did not issue any shares of its Common  Stock to any
of its  officers  during  fiscal  year ended June 30,  1998 it did issue  48,259
shares of Common Stock to a company  controlled by Ruedi G. Laupper  pursuant to
an agreement  between Ruedi G. Laupper and the Company in  consideration  of Mr.
Laupper's agreement to cancellation of 160,863 post split shares of Common Stock
held by Ruedi G. Laupper or companies  controlled by him. See also footnote 7 to
Summary  Compensation Table for additional material  information  regarding this
transaction.

                                     - 57 -
<PAGE>

         The Company did not issue any shares of its Common  Stock to any of its
officers  during  fiscal year ended June 30, 1999  excepting for the issuance of
2,000,000  restrictive  shares  to  Ruedi  G.  Laupper  in  exchange  for and in
consideration  of  cancellation  of  certain  bonus   provisions   contained  in
employment contract.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding beneficial
ownership  of the Common  Stock as of August 24, 1999  (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):

                                               No. Of Shares    Percentage of
                                               Beneficially    Shs. Benficially
Name and Address of Beneficial Owner (1)       Owned (2)          Owned (2)
----------------------------------------     --------------     -------------

Ruedi G. Laupper (3)                          2,509,824           17.25%
Josef Laupper (4)                                50,000             *
Erwin Zimmerli (5)                                5,000             *
Ueli Laupper                                    ---                 *
Dov Maor                                        ---                 *
Michael Laupper                                 ---                 *
Thomson Kernaghan & Co. Ltd.                                           %
Atlantis Capital Fund, Ltd.                                            %
Dominion Capital Fund, Ltd.                   3,221,131(6)        18.65%
Sovereign Partners LP                         3,983,182(7)        22.35%
Canadian Advantage Limited Partnership          752,543(8)         5.11%
Liviakis Financial Communications, Inc.       3,000,000(9)        20.63%
Rolcan Finance Ltd.                             800,000(10)       5.50%

All directors and officers as
 a group (six persons)                         2,564,824(11)      17.62%
---------------

o        Represents less than 1% of the  14,541,537  shares  outstanding  as  of
         August 24, 1999.

(1)      Unless otherwise indicated, the address for each named individual is in
         care of SWISSRAY International,  Inc., 320 West 77th Street, Suite  1A,
         New York, New York 10024.

(2)      Unless otherwise indicated, the Company believes that all persons named
         in  the table have sole voting and investment power with respect to all
         shares  of  the  Common  Stock  beneficially owned by them. A person is
         deemed to be the beneficial owner of securities  which may be  acquired

                                     - 58 -
<PAGE>

         by such person within 60 days from the date  indicated  above  upon the
         exercise of options, warrants or convertible securities.Each beneficial
         owner's  percentage  ownership is determined by assuming that  options,
         warrants  or  convertible  securities that are held by such person (but
         not those held by any other person) and which are exercisable within 60
         days of the date indicated above, have been exercised.

(3)      Includes (i) 37,500 shares owned indirectly by Ruedi G. Laupper through
         SR Medical Equipment Ltd., a corporation which is wholly owned  by him;
         (ii) 460,324  shares  owned  indirectly  by  Ruedi  G. Laupper  through
         Tomlinson Holding Inc., a corporation  which is wholly owned by him and
         (iii) 12,000  shares which may be acquired upon exercise of immediately
         exercisable  options,  which  options are owned  indirectly by Ruedi G.
         Laupper  through  SR  Medical  Equipment  Ltd., a corporation  which is
         wholly owned by him.

(4)      Includes 50,000 shares owned  indirectly by Josef Laupper through Lairy
         Investment Inc., a corporation in which he is a majority shareholder.

(5)      Includes  5,000  shares  which  may  be  acquired  upon   exercise   of
         immediately exercisable options.

         As of the August 24, 1999, an aggregate  principal outstanding  balance
         (exclusive  of  interest)  for those  Convertible  Debentures  referred
         to   below  amounts  to   $13,132,631.  None   of   these   convertible
         debentures  are  owned by officers and/or directors of the Company.

(6)      Includes  the  491,308 shares currently owned as wellas up to 2,729,823
         shares which normally could be  issued at  any  time,  upon  conversion
         of   previously    issued   convertible  debentures  (the  "Convertible
         Debentures") assuming  conversion  based  on  80%-82%  (dependent  upon
         debenture) of  the  last  reported sales price on August 24, 1999.  The
         number  of  shares,  if  issued, would require disclosure of beneficial
         ownership of in excess of 5%. However, pursuant to terms of Convertible
         Debentures, the  holders  thereof  may   not beneficially own more than
         4.99% of outstanding Company shares(other than as a result of mandatory
         conversion provisions).  The  4.99%  limitation  is only contractual in
         nature.

(7)      Includes  the 703,018 shares currently owned as well as up to 3,280,164
         shares which normally could be  issued at  any  time,  upon  conversion
         of   previously    issued   convertible  debentures  (the  "Convertible
         Debentures") assuming  conversion  based  on  80%-82%  (dependent  upon
         debenture) of the last  reported  sales  price on August 24, 1999.  The
         number of shares, if issued, would  require  disclosure  of  beneficial
         ownership  of   in   excess  of  5%.  However,  pursuant  to  terms  of
         Convertible Debentures, the  holders thereof  may  not beneficially own
         more than 4.99% of outstanding Company  shares  (other than as a result
         of mandatory conversion  provisions).  The  4.99%  limitation  is  only
         contractural in nature.

(8)      Includes  the  562,620  shares  currently owned as wellas up to 189,923
         shares which normally could be issued  at  any  time,  upon  conversion
         of   previously   issued   convertible  debentures   (the  "Convertible
         Debentures")   assuming   conversion  based  on 80%-82% (dependent upon
         debenture)  of  the  last  reported  sales  price  on  August 24, 1999.
         The number of shares, if issued, would require disclosure of beneficial
         ownership of in excess of 5%. However, pursuant to terms of Convertible
         Debentures,the holders thereof may not beneficially own more than 4.99%
         of outstanding Company shares (other than  as  a  result  of  mandatory
         conversion provisions).  The 4.99% limitation  is  only contractural in
         nature.

(9)      Pursuant  to  a  Voting Trust Agreement, the Registrant's President has
         sole voting rights with respect to these shares.

                                     - 59 -
<PAGE>

(10)     Roland Kaufmann, a control  person of this firm has voting control over
         these shares.

(11)     Includes 17,000 shares issuable upon option exercise.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

         The Company made unsecured advances to its former Chairman of the Board
of  Directors (a  principal  stockholder)  during the fiscal year ended June 30,
1997  requiring  interest  at 6% per annum.  The  balance  at June 30,  1997 was
$69,587.  Interest charged to the stockholder for the fiscal year ended June 30,
1997 was $3,460.  Such indebtedness was repaid in full in July 1997.  See  Notes
to the Consolidated Financial Statements June 30, 1999, 1998 and 1997.


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

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

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

         (c)   During  the  last quarter of the Company's fiscal year ended June
               30, 1999, the following Forms 8-K were filed.

               i) None

                                   - 60 -

<PAGE>


                                   SIGNATURES

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


                                             SWISSRAY INTERNATIONAL, INC.


Dated: August 26, 2000                         By:/s/Ruedi G. Laupper
                                             Name: Ruedi G. Laupper
                                             Title: Chairman of the Board of
                                                    Directors, President &
                                                    Principal Executive Officer


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

           Signature     Title                            Date

/s/ Reudi G. Laupper     Chairman of the Board of         Dated: Aug. 26, 2000
--------------------
Reudi G. Laupper         Directors, President &
                         Principal Executive Officer

/s/ Josef Laupper        Secretary, Treasurer and a       Dated: Aug. 26, 2000
--------------------
Josef Laupper            Director

/s/ Michael Laupper
--------------------     Principal Financial Officer      Dated: Aug. 26, 2000
Michael Laupper          & Controller


/s/ Ueli Laupper          Vice President and a Director   Dated: Aug. 26, 2000
---------------------
Ueli Laupper

/s/Dr. Erwin Zimmerli
--------------------      Director                        Dated: Aug. 26, 2000
Dr. Erwin Zimmerli


--------------------      Director                        Dated: Aug. , 2000
Dr. Sc. Dov Maor


                                     - 61 -
<PAGE>

Supplemental Information

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

Not Applicable


























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