UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    FORM 10-Q

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

               For the quarterly period ended: September 30, 1998

                                       OR

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

For the transition period from ____________________to_________________________

                         Commission file number 0-26972

                          SWISSRAY International, Inc.
             (Exact name of registrant as specified in its charter)

                New York                                 16-0950197
    (State or other jurisdiction of                    (I.R.S. Employer
     incorporation or organization)                 Identification Number)

200 East 32nd Street, Suite 34-B, New York, New York        10016
(Address of principal executive offices)                  (Zip Code)

   New York (212) 545 0095                 Switzerland  011 41 41 914 12 00
              (Registrant's telephone number, including area code)

                                       N/A
              (Former name, former address and former fiscal year,
                          if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities 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. [X] Yes [ ] No

                      APPLICABLE ONLY TO CORPORATE ISSUERS:



<PAGE>



The number of shares  outstanding of each of the issuer's class of common stock,
as of the latest practicable date.

The number of shares  outstanding of each of the registrant's  classes of common
stock, as of November 25, 1998 is 4,638,976 shares, all of one class of $.01 par
value common stock.


                                        1
<PAGE>   

TABLE OF CONTENTS                                                           Page


No.                                  PART I

Item 1.       Financial Statements                                         F1-F5

Item 2.       Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                      3-7

Item 3.       Quantitative and Qualitative Disclosures About Market Risk       8

                                     PART II

Item 1.       Legal Proceedings                                                8

Item 2.       Changes in Securities                                            9

Item 3.       Defaults Upon Senior Securities                                  9

Item 4.       Submission of Matters to a Vote of Security Holders           9-10

Item 5.       Other Information                                               10

Item 6.       Exhibits and Reports on Form 8-K                                10

Signatures                                                                    10



                                        2

<PAGE>
<TABLE>
<CAPTION>
                                         SWISSRAY INTERNATIONAL INC.
                                         CONSOLIDATED BALANCE SHEET
                                                          

                                                        ASSETS
                                                                                September 30,                
                                                                                   1998                      June 30,  
                                                                                (Unaudited)                    1998      
                                                                                ------------              ------------
<S>                                                                             <C>                      <C>                     
CURRENT ASSETS
Cash and cash equivalents                                                       $  2,259,277              $   1,281,552
Accounts receivable, net of allowance for doubtful
accounts of $ 35,229 and $ 32,356                                                  2,358,958                  2,584,651
Inventories                                                                        8,515,878                  7,701,145
Prepaid expenses and sundry receivables                                            1,278,332                  1,501,909
                                                                                -------------             -------------            
TOTAL CURRENT ASSETS                                                              14,412,445                 13,069,257
                                                                                -------------             -------------
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation
of $ 687,481 and $ 581,077                                                         6,105,397                  6,010,378
                                                                                -------------              ------------  
OTHER ASSETS
Loan receivable                                                                       18,225                     20,005
Licensing agreement, net of accumulated amortization of                            3,476,602                  3,600,766
$ 1,489,973 and $ 1,365,809
Patents and trademarks, net of accumulated amortization of                           222,895                    230,614
$ 90,434 and $ 82,716                                                             
Software development costs, net of accumulated amortization of                       430,382                    455,318
$ 146,828 and $ 121,892
Security deposits                                                                     40,211                     38,280
Note receivable - long-term, net of allowance of $ 30,733 and $ 30,733               513,643                    513,643
Goodwill, net of accumulated amortization of $ 180,439 and $ 136,939               1,752,836                  1,796,336
Debt issance costs on convertible debentures, net of accumulated
amortization of $ 51,833 and $ 60,000                                                259,167                    180,000
                                                                                -------------             -------------    
TOTAL OTHER ASSETS                                                                 6,713,961                  6,834,962
                                                                                -------------             -------------            
TOTAL ASSETS                                                                    $ 27,231,803             $   25,914,597
                                                                                =============             =============             
                                                                                

                                    LIABILITIES AND STOCKHOLDERS' EQUITY      
CURRENT LIABILITIES
Current maturities of long-term debt                                            $    229,857             $      233,746
Notes payable - banks                                                              5,437,017                  3,551,091
Loan payable                                                                         136,019                    125,029
Accounts payable                                                                   5,266,982                  5,030,449
Accrued expenses                                                                   2,148,026                  2,365,450
Restructuring                                                                        500,000                    500,000
Customer deposits                                                                     22,050                    176,583
Due to stockholders and officers                                                       2,437                      2,206
                                                                                -------------              ------------            
TOTAL CURRENT LIABILITIES                                                         13,742,388                 11,984,554
                                                                                -------------              ------------
CONVERTIBLE DEBENTURES                                                             9,289,818                  7,645,969
Conversion Benefit                                                                     -                       (315,327)
                                                                                -------------              ------------  
Net Convertible Debentures                                                         9,289,818                  7,330,642

LONG-TERM DEBT, less current maturities                                              418,275                    440,674
                                                                                ------------               ------------
STOCKHOLDERS' EQUITY 
Common stock                                                                          46,380                     41,426
Additional paid-in capital                                                        58,800,921                 58,074,793
Accumulated deficit                                                              (53,697,204)               (50,481,713)
Accumulated other comprehensive loss                                              (1,368,775)                (1,475,779)
                                                                                -------------              ------------- 
TOTAL STOCKHOLDERS' EQUITY                                                         3,781,322                  6,158,727
                                                                                -------------              -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                      $ 27,231,803             $   25,914,597
                                                                                =============             =============
                                                     F 1

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                        SWISSRAY INTERNATIONAL INC.
                    CONSOLIDATED STATEMENT OF OPERATIONS
                                                                                                                                    
                                                                                Three Months Ended
                                                                                  September 30,
                                                          ----------------------------------------------------------
                                                             1998                     1997                  1996
                                                                                    Restated              Restated
                                                           Unaudited                Unaudited             Unaudited
                                                          -----------              -----------            ----------  
<S>                                                     <C>                      <C>                   <C>                 

NET SALES                                                $  3,656,441             $  5,258,903          $ 2,467,175
COST OF SALES                                               2,836,914                3,313,091            1,189,257
                                                          -----------              ------------          -----------   
GROSS PROFIT                                                  819,527                1,945,812            1,277,918
                                                          -----------               -----------          -----------  
OPERATING EXPENSES
Officers and directors compensation                           155,187                   95,735              127,211
Salaries                                                    1,085,186                  621,677              502,164
Selling                                                       512,799                  488,031              194,379
Research and development                                      406,038                  473,839              499,522
General and administrative                                    450,640                  212,180              868,302
Other operating expenses                                      264,489                  135,877              331,902
Depreciation and amortization                                 293,749                  198,723              172,958
                                                           ----------                ---------           ---------- 
TOTAL OPERATING EXPENSES                                    3,168,088                2,226,062            2,696,438
                                                           ----------                ---------           ---------- 

LOSS BEFORE OTHER INCOME (EXPENSES)
  AND INCOME TAXES                                         (2,348,561)                (280,250)          (1,418,520)

Other income (expenses)                                      (183,367)                 138,499               19,898
Interest expense                                             (653,896)              (2,694,153)             (29,982)
                                                           -----------              -----------          -----------         
OTHER INCOME (EXPENSES)                                      (837,263)              (2,555,654)             (10,084)
                                                           -----------              -----------          -----------
LOSS FROM CONTINUING OPERATIONS                  
  BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS              (3,185,824)              (2,835,904)          (1,428,604)

Income tax provision                                             -                         876                -  

Extraordinary income (expenses)                               (29,667)                 150,708                -
                                                          ------------              -----------          -----------  
NET LOSS                                                 $ (3,215,491)             $(2,686,072)         $(1,428,604)
                                                          ============              ===========          ===========    
LOSS PER COMMON SHARE BASIC
Loss from continuing operations                          $      (0.70)             $     (1.41)         $     (1.01)
Extraordinary items                                             (0.01)                    0.07               -   
                                                          ------------              -----------          -----------    
NET LOSS                                                 $      (0.71)             $     (1.34)         $     (1.01)
                                                          ------------              -----------          -----------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING                                          4,510,201                  2,007,631          1,418,506

                                    F 2

</TABLE>


<PAGE>

<TABLE>
<CAPTION>
                                 SWISSRAY INTERNATIONAL INC.
                            CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                   Three Months Ended
                                                                                      September 30,
                                                                -------------------------------------------------------
                                                                  1998                   1997                    1996
                                                                                       Restated                Restated             
                                                                Unaudited              Unaudited               Unaudited       
                                                                ---------              ---------              ----------
<S>                                                        <C>                    <C>                     <C>   
                                                                                                                               
CASH FLOWS FROM OPERATING ACTIVITES

Net loss                                                     $ (3,215,491)          $ (2,686,072)           $ (1,428,604)           
Adjustment to reconcile net loss to net
         cash used by operating activities    
         Depreciation and amortization                            306,906                235,131                 172,958
         Provision for bad debts                                       -                 (36,910)                 (9,968)
         Financing costs incurred                                      -                  91,425                      -
         Operating expenses through 
            issuance of stock options                                  -                      -                  588,846     
         Issuance of common stock in lieu of      
            interest payments                                     587,197                 10,947                      -
         Interest expense on debt issuance cost and
           conversion benefit                                          -               2,508,382                      -   
          Early extinguishment of debt (gain)                      29,667               (150,708)                     -
                                                                                     

         (Increase) decrease in operating assets:
         Accounts receivable                                      222,819                166,561               1,303,848
         Accounts receivable - others                                  -                  77,411                      -
         Inventories                                             (814,733)              (767,265)               (843,472)
         Prepaid expenses and sundry receivables                  223,577               (115,254)               (457,291)
         Increase (decrease) in operating liabilities:
         Accounts payable                                         236,533               (115,064)             (1,499,529)
         Accounts payable-affiliates                                   -                      -                   (1,541)
         Accrued expenses                                         276,803               (601,348)                338,796
         Customers deposits                                      (154,533)                10,995                 (25,281)
                                                               -----------            -----------             -----------
NET CASH USED BY OPERATING ACTIVITIES                          (2,301,255)            (1,371,769)             (1,861,238)
                                                               -----------            -----------             -----------           
CASH FLOW FROM INVESTING ACTIVITIES
         Acquisition of property and equipment                   (201,422)              (179,888)                (82,334)
         Patents and trademarks                                        -                 (21,423)                 (1,626)
         Security deposits                                             -                   4,072                     (31)
         Loans receivable                                              -                  (3,521)                     -
         Repayments from (advances to) affiliates                      -                      -                 (149,222)
                                                               -----------            -----------             -----------
NET CASH USED BY INVESTING ACTIVITIES                            (201,422)              (200,760)               (233,213)
                                                               -----------            -----------             -----------           
CASH FLOWS FROM FINANCING ACTIVITIES
         Proceeds from short-term borrowings                   13,582,986                 36,382               3,151,023
         Proceeds from long-term borrowings                            -                 469,306                      -
         Principal payment of short-term borrowings           (11,204,161)              (958,923)             (2,069,828)
         Principal payment of long-term borrowings                (22,399)                    -                 (511,101)
         Issuance of common stock for cash                      1,500,000              3,873,000                      -
         Repayment from (payment to) stockholders and 
          officers                                                     -                 170,173                      -
                                                               -----------           -----------              -----------   
CASH PROVIDED BY FINANCING ACTIVITIES                           3,856,426              3,589,938                 570,094
                                                               -----------           -----------              -----------           
EFFECT OF EXCHANGE RATE ON CASH                                  (376,024)                72,643                     845
                                                               -----------           -----------              -----------
NET INCREASE (DECREASE) IN CASH                                   977,725              2,090,052              (1,523,512)
CASH AND CASH EQUIVALENT - beginning of period                  1,281,552              3,091,307               3,252,658
                                                               -----------           -----------              -----------
CASH AND CASH EQUIVALENTS - end of period                    $  2,259,277           $  5,181,359             $ 1,729,146
                                                               -----------           -----------              -----------
                                                  F 3


</TABLE>




<PAGE>
<TABLE>
<CAPTION>

SWISSRAY INTERNATIONAL, INC.
CONSOLITATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1998, 1997 and 1996



                                                            Additional                                     Accumulated
                                      Common Stock           Paid-in     Common Stock    Accumulated         Other
                                   -----------------         Capital    to be reissued      Deficit       Comprehensive     Total
                                    Shares     Amount       (Restated)     (Restated)     (Restated)          Loss       (Restated)
                                   -------- ----------      ----------    -----------    ------------     ------------   ----------
<S>                              <C>        <C>          <C>            <C>          <C>                <C>           <C>

BALANCE - July, 1, 1996           1,418,506  $   14,185   $  25,770,534  $        -    $ (14,293,416)     $  (836,047) $ 10,655,256

COMPREHENSIVE LOSS:
 Net loss                                -           -               -            -       (1,419,024)              -     (1,419,024)
 Foreign currency 
  transation 
  gain net of taxes $ -0-                -           -               -            -               -             5,869         5,869
                                                                                                                         -----------
 TOTAL COMPREHENSIVE LOSS                -           -               -            -               -                -     (1,413,155)
                                                                                                                         -----------
Stock options granted for 
  services                               -           -          588,846           -               -                -        588,846
                                  ----------  ----------   ------------   -----------    -------------    -------------  -----------
BALANCE - September 30, 1996       1,418,506      14,185     26,359,380           -      (15,712,440)        (830,178)    9,830,947


BALANCE - July, 1, 1997            1,969,443      19,694     35,957,659     1,122,973    (27,978,604)      (1,428,534)    7,693,188

COMPREHENSIVE LOSS:
 Net loss                                 -           -              -            -       (2,686,072)              -     (2,686,072)
 Foreign currency
  translation 
  losses net of taxes $ -0-               -           -              -            -               -           (65,518)      (65,518)
                                                                                                                         -----------
 TOTAL COMPREHENSIVE LOSS                 -           -              -            -               -                -     (2,751,590)
                                                                                                                         -----------
Issuance of common stock for cash     81,881          819      1,058,274          -               -                -      1,059,093
Stock options exercised for cash      10,000          100         72,900          -               -                -         73,000
Shares issued to officers for 
  services                            48,259          483      1,122,490    (1,122,973)           -                -             -
Issuance of common stock in lieu 
  of interest payment                    797            8         10,939          -               -                -         10,947 
Beneficial conversion feature of 
  convertible debentures                  -            -       1,250,000          -               -                -      1,250,000
Early extinguishment of debt              -            -          65,625          -               -                -         65,625
                                    ----------     --------   ----------   ------------  ------------      ------------   ----------
BALANCE - September 30, 1997        2,110,380       21,104    39,537,887          -      (30,664,676)      (1,494,052)    7,400,263


BALANCE - July, 1, 1998             4,142,622       41,426    58,074,793          -      (50,481,713)      (1,475,779)    6,158,727

COMPREHENSIVE LOSS:
 Net loss                                  -           -             -            -       (3,215,491)              -     (3,215,491)
 Foreign currency 
  translation
  gain net of taxes $ -0-                  -           -             -            -               -           107,004       107,004
                                                                                                                          ----------
     TOTAL COMPREHENSIVE LOSS              -           -             -            -               -                -     (3,108,487)

Issuance of common stock for cash     484,250        4,843     1,495,157          -               -                -      1,500,000 
Issuance of common stock in lieu 
  of interest payment                  11,110          111        34,153          -               -                -         34,264
Early extinguishment of Debt               -           -        (803,182)         -               -                -       (803,182)
                                    ---------     ---------   ----------   -----------   ------------      ------------  -----------
BALANCE - September 30, 1998        4,637,982     $ 46,380  $ 58,800,921  $       -    $ (53,697,204)     $(1,368,775)  $ 3,781,322
                                    ---------     ---------   ----------   -----------   ------------       -----------  -----------

                          F 4

</TABLE>
<PAGE>   
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998

         (1)The accompanying financial statements are unaudited. Certain 
information and footnote disclosures normally included in financial  statements 
prepared in accordance with generally accepted  accounting  principles have been
condensed or omitted, although the Registrant believes that the disclosures are
adequate to make the information presented not misleading.  It is suggested that
these condensed  consolidated financial  statements be read in conjunction with
the financial statements and notes thereto included in the Registrant's  annual
report on Form 10-K for the fiscal year ended June 30, 1998.

         (2)In  the   opinion  of   management,   the   accompanying   unaudited
consolidated financial statements contain all adjustments,  consisting of only a
normal and recurring nature,  necessary to present fairly the financial position
of the  Registrant as of September  30, 1998 and the results of  operations  and
cash flows for the interim  period  presented.  Operating  results for the three
months ended September 30, 1998 are not necessarily indicative of the results to
be expected for the full year ending June 30, 1999.

         (3)INVENTORIES

                  Inventories are summarized by major classification as follows:

<TABLE>
<CAPTION>
                                                     September 30,      June 30,
                                                     ---------------------------
                                                        1998             1998
                                                     ----------       ----------
<S>                                                  <C>              <C>
Raw materials, parts and supplies                    $8,089,897       $7,047,001
      Work in process                                   158,003          160.064
      Finished goods                                    267,978          494.080
                                                     ----------       ----------
                                                     $8,515,878       $7,701,145
                                                     ==========       ==========
</TABLE>

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


                                       F 5
<PAGE>  
Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS


            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.

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

         Statements in this  discussion  which are not  historical  facts may be
considered  forward looking  statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, including estimated cost savings to
be realized from restructuring activities and estimated proceeds from and timing
of facility sales. The words "believe," "expect," "anticipate," "estimate",  and
similar  expressions  identify forward looking  statements.  Any forward looking
statements  involve  risks and  uncertainties  that could cause actual events or
results to differ,  perhaps materially,  from the events or results described in
the  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.  Risks  associated  with the  Company's  forward  looking
statements include,  but are not limited to, risks associated with the Company's
history of losses and uncertain profitability, need for market acceptance of the
AddOn Multi System,  reliance on a single product,  reliance on large customers,
risks  associated  with  the  Company's   international   operations,   currency
fluctuations,  the risk of new and different legal and regulatory  requirements,
governmental  approvals,  tariffs  and trade  barriers,  risks  associated  with
competition and technological  innovation by competitors,  dependence on patents
and proprietary  technology,  general economic  conditions and conditions in the
healthcare industry,  reliance on key management,  limited manufacturing history
with respect to the  AddOn-Multi-System,  dependence  on sole source  suppliers,
future capital needs and uncertainty of additional financing,  potential recalls
and product liability,  dilution, effects of outstanding convertible debentures,
limited public market,  liquidity,  possible volatility of stock price, recently
adopted new listing standards for NASDAQ securities and environmental matters.

         The following  discussion  and analysis  should be read in  conjunction
with the Consolidated Financial Statements,  related notes and other information
included in this quarterly report on Form 10-Q.


                                        3
<PAGE>   
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1998 COMPARED TO
THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND THREE-MONTH PERIOD
ENDED SEPTEMBER 30, 1996

RESULTS OF OPERATIONS

         Net sales  amounted to  $3,656,441  for the  three-month  period  ended
September 30, 1998,  compared to  $5,258,903  for the  three-month  period ended
September 30, 1997 and $2,467,175 for the three-month period ended September 30,
1996. The 30.5% decrease in net sales was mainly due to the sale of the film and
processor  business of Swissray  Empower on June 30, 1998. The sales of film and
processors of Swissray  Empower was $1,709,541 for the three-month  period ended
September 30, 1997.

         Gross  profit  amounted  to  $819,527  or  22.4% of net  sales  for the
three-month  period ended  September 30, 1998,  compared to $1,945,812 or 37% of
net sales for the three-month  period ended September 30, 1997 and $1,277,918 or
51.8% of net sales for the  three-month  period ended  September  30, 1996.  The
decrease in gross profit as a percentage of net revenues is  attributable to the
fact that the  percentage  of OEM-sales  (which has a relatively  low margin) of
total sales increased to 49.9% of total sales for the  three-month  period ended
September  30, 1998 from 28.6% for the  three-month  period ended  September 30,
1997

         Operating expenses were $3,168,088,  or 86.6% of net revenues,  for the
three-month period ended September 30, 1998, compared to $2,226,062, or 42.3% of
net revenues for the three-month  period ended September 30, 1997 and $2,696,438
or 109.3% of net revenues for the  three-month  period ended September 30, 1996.
The principle  items were salaries (net of officers and directors  compensation)
of $1,085,186 or 29.7% of net sales for the  three-month  period ended September
30, 1998 compared to $621,677 or 11.8% of net sales for the  three-month  period
ended  September 30, 1997 and $502,164 or 20.4% of net sales for the three-month
period ended September 30, 1996 and selling expenses of $512,799 or 14.0% of net
sales for the  three-month  period ended September 30, 1998 compared to $488,031
or 9.3% of net sales for the  three-month  period ended  September  30, 1997 and
$194,379 or 7.9% of net sales for the  three-month  period ended  September  30,
1996. Research and development  expenses were $406,038 or 11.1% of net sales for
the three-month  period ended September 30, 1998 compared to $473,839 or 9.0% of
net sales for the  three-month  period ended  September 30, 1997 and $499,522 or
20.2% of net sales for the three-month period ended September 30, 1996.

The increase of $463,509 or 74.6% in salaries is attributable to the salaries of
Swissray Medical Systems and Swissray  Information  Solution. Salaries for these
two companies  amounted to $447,269 for the  three-month  period ended September
30, 1998. There were no salaries during the three  month-period  ended September
30, 1997 in these two companies.

Interest expenses  decreased to $653,896 for the three month ended September 30,
1998  compared to  $2,694,153  for the three month ended  September 30, 1997 and
$29,982 for the  three-month  period ended  September 30, 1996. This decrease is
primarily  due the decrease of interest  expense for  amortization  of Debenture
issuance cost and Conversion Benefit.

                                       4

<PAGE>




FINANCIAL CONDITION

September 30, 1998 compared to June 30, 1998

         Total  assets  of the  Company  on  September  30,  1998  increased  by
$1,317,206 to $27,231,803  from  $25,914,597 on June 30, 1998,  primarily due to
the  increase of Current  Assets. Current  Assets increased  $1,343,188 to 
$14,412,445  on September 30, 1998 from  $13,069,257 on June 30, 1998. The 
increase in current assets is primarily  attributable  to the increase of Cash 
and cash  equivalents of $977,725 and the increase of inventory of $814,733 
which was partially  offset by the decrease in prepaid  expenses and sundry
receivables  of $223,577  and the  decrease in  Accounts  receivable  of 
$225,693. Other Assets decreased $121,001 to $6,713,961 on September 30, 1998
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..

         On September 30, 1998, the Company had total liabilities of $23,450,481
compared to  $19,755,870  on June 30,  1998.  On  September  30,  1998,  current
liabilities were $13,742,388  compared to $11,984,554 on June 30, 1998.  Working
capital at September  30, 1998 was $670,057  compared to  $1,084,703 at June 30,
1998.


                                        5
<PAGE>   
CASH FLOW AND CAPITAL EXPENDITURES THREE MONTH PERIOD ENDED
SEPTEMBER 30, 1998
COMPARED TO THREE MONTH PERIOD ENDED SEPTEMBER 30, 1997 AND THREE
MONTH PERIOD ENDED SEPTEMBER 30, 1996.

         Cash used for operating activities for the three months ended September
30,,  1998 was  $2,301,255  compared to  $1,371,769  for the three  months ended
September 30, 1997 and $1,861,238 for the three months ended September 30, 1996.
Cash used for  investing  activities  was  $201,422  for the three  months ended
September 30, 1998 compared to $200,760 for the three months ended September 30,
1997 and $233,213 for the three months ended  September 30, 1996. Cash flow from
financing  activities  for  the  three  months  ended  September  30,  1998  was
$3,856,426  compared to $3,589,938 for three months ended September 30, 1997 and
$570,094 for the three months ended September 30, 1996.

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.

                                       6
<PAGE>



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

On August 31, 1998 the Company issued $3,832,849  aggregate  principal amount of
5% convertible debentures (the "Convertible Debentures") including a 25% premium
and accrued interest,  convertible into Common Stock of the Company. The Company
did  not  receive  any  cash  proceeds  from  the  offering  of the  Convertible
Debentures.  The full amount was paid by investors  to holders of the  Company's
Convertible  Debentures  issued on March 14,  1998  holding  $3,000,000  of such
Convertible  Debentures as repayment in full of the Company's  obligations under
such  Convertible  Debentures.   During  the  same  period  the  Company  issued
$2,311,000 aggregate principal amount of 5% Convertible Debentures,  convertible
into Common Stock of the Company.  After deducting fees,  commissions and escrow
fees in the  aggregate  amount of $311,000 the Company  received a net amount of
$2,000,000.  The face amount of both Convertible Debentures are convertible into
shares of Common Stock of the Company  commencing  March 1, 1999 at a conversion
price  equal to the lesser of 82% of the  average  closing bid price for the ten
trading  days  preceding  the date of the  conversion  or $1.00 per  share.  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.

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


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).
                                       7
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk

         Not Applicable

PART II  OTHER INFORMATION

Item 1.  Legal Proceedings

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

Dispute  with Gary J. Durday  ("Durday"),  Kenneth R.  Montler  ("Montler")  and
Michael  E.  Harle  ("Harle").  On July 17,  1998,  two legal  proceedings  were
commenced by Swissray,  and two of its subsidiaries against Durday,  Montler and
Harle. Harle and Montler are former Chief Executive Officers of Swissray Medical
Systems Inc.  and  Swissray  Healthcare  Inc.,  respectively,  and Durday is the
former  Chief  Financial  Officer of both of those  companies.  Each of them was
employed pursuant to an Employment Agreement dated October 17, 1997. In addition
these three  individuals were owners of a company by the name of Service Support
Group LLC  ("SSG"),  the assets of which were sold to Swissray  Medical  Systems
Inc.  pursuant to an Asset  Purchased  Agreement  dated as of October 17,  1997,
whereby Messrs.  Durday,  Montler and Harle received,  among other consideration
33,333  shares  of the  Company's  common  stock,  together  with  a put  option
entitling these  individuals to require  Swissray to purchase any or all of such
shares at a purchase  price  equal to $ 45 per share (on or after June 30,  1998
and until April 16, 1999, subject to certain  adjustments set forth in the Asset
Purchase Agreement).

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

                                       8
<PAGE>



a breach by them of their  obligations  under the Asset  Purchase  Agreement and
other relief.

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

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

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


Item 2. CHANGES IN SECURITIES

         Not applicable

Item 3. DEFAULTS UPON SENIOR SECURITIES

         The Comapny sold certain convertible debentures during the months of 
March, June, August and October 1998 to four (4) debenture holders. Such 
debentures and/or one or more related documents contain various Company 
warranties and representations which if not adhered to in full can create a 
default which must be cured within the grace period allotted therefore. A 
default occurred by virtue of the fact that the Company's securities ceased
trading on a recognized exchange as a result of NASDAQ delisting which occurred
on October 26, 1998. Such default if not cured in a timely manner or if not 
waived by the debenture holder can cause the entire balance of the principal
indebtedness due to become immediately due and payable. By written agreement 
dated December 1, 1998, each of the above referenced 4 debenture holders agreed
to and did waive any and all existing defaults (which would casue the aforesaid 
principal indebtedness to become immediately cdue and payable) for a period of 
one year. Such waiver of default is exclusive of and does not pertain to any 
monetary penalties as are due and payable or may become due and payable to 
such debenture holders by virtue of Company delays in obtaining effective date
from the SEC with respect to applicable Registration Statement(s) required to be
filed pursuant to Registration Rights Agreement(s) which accompanied above 
referenced convertible debentures.

Item 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

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

                                       9
<PAGE>



class of Preferred Stock).

At a Special  Meeting of the Board of Directors on September 21, 1998, a reverse
stock  split on the basis of 1 for 10 was  approved  with an  effective  date of
October 1, 1998.

Item 5. OTHER INFORMATION

         Not applicable

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits                        - NONE-

         (b)                                         Reports  on  Form  8-K  8-K
                                                     with   date  of  report  of
                                                     November   3,  1998   filed
                                                     November 6, 1998 indicating
                                                     change of auditor

SIGNATURES

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

                              SWISSRAY INTERNATIONAL, INC.

                              By: /s/  RUEDI G. LAUPPER
                                  ---------------------------------
                        Ruedi G. Laupper, Chairman of the
                        Board of Directors, President and
                                  Chief Executive Officer

Date:  November 30, 1998


                                        10