STEINER OPTICS INTERNATIONAL INC, 10KSB, 1999-12-22

STEINER OPTICS INTERNATIONAL INC
10KSB, 1999-12-22
OPTICAL INSTRUMENTS & LENSES

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FORM 10-KSB

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the fiscal years ended December 31, 1997, 1996, 1995 and 1994

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from ___________ to ___________________

Commission File No. 2-92801NY

Steiner Optics International, Inc.
(Exact Name of Registrant as specified in its Charter)

Delaware 13-3239648
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

Dr. Hans Frisch Strasse 9, D-95448 Bayreuth, Germany
(Address of principal executive offices, zip code)

011 49 921 787960
(Registrant's telephone number, including area code)

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

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

Check whether the issuer:

(1) filed all reports to be filed by Section 13 or 15(d)
of the Securities Exchange Act over the preceding 12
months (or for such shorter period that the registrant
was required to file such reports:

Yes ( ) No (X)

(2) has been subject to such filing requirements for the
past 90 days:

Yes (X ) No ( )

Check if there is no disclosure of delinquent filers in response to
item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, if
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this From 10-KSB. ( )

State issuer's revenues for its most recent fiscal year: $11,793,252

State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock as of October 26, 1999, as
reported by the National Quotation Bureau Incorporated): $ 1,452,759.84

State the number of shares outstanding of each of the Issuer's classes of
common equity as of October 26, 1999:

Common Stock, par value $.00001 per share 150,000,000
(Class of Common Stock) (Number of Shares)

Transitional Small Business Disclosure Format: Yes ( ) No (X)

Documents Incorporated by Reference: none.

STEINER OPTICS INTERNATIONAL, INC., AND SUBSIDIARIES

PART I

Item 1. BUSINESS

General

Steiner Optics International, Inc., was incorporated in Delaware in
1984 (the "Parent Corporation"). The Parent Corporation does not conduct any
significant business operations on its own; it functions primarily as a holding
company for Steiner Optik GmbH, a German limited liability company and a wholly-
owned subsidiary of the Parent Corporation (the "Company"). The Parent
Corporation uses its strategic position in New York City to keep an eye on
the U.S. markets, to conduct market research for the Company and to advise the
Company of new developments in the U.S. markets. Steiner-Optik (SEA) Pte. Ltd.,
Singapore, the only subsidiary of the Company, has had no operations since
1991; it is being liquidated at the present time.

The Company designs, manufactures and markets high quality binoculars
(sold with warranties ranging from 10 to 30 years) and related products for
marine, hunting and leisure markets, as well as for military use. In addition,
the Company produces and sells optical components such as prisms and lenses
for use in industrial and consumer goods. The Company has targeted the hunting
market as a major area of future growth. In 1999 the Company introduced its
new product, the Wildlife Series, to the Great Outdoors market. See Products.

Products

Most of the Company's binoculars are designed to be lightweight,
rugged and corrosion-resistant; their bodies are made from reinforced fiberglass
and covered, for additional protection, with a ribbed soft rubber. In addition,
most of the Company's binoculars are designed to be waterproof, tested to
withstand pressure at five meters underwater, and filled with nitrogen to
prevent fogging in various weather conditions.

The Company's premier binocular product is the "Admiral Gold"
designed for the boating market and equipped with the newly-developed
proprietary 3D-Vision Coating to enhance the transmission of light and a large,
illuminated HD-stabilized compass that takes bearings accurate to a single
degree. The stray light reduction system further enhances the transmission of
light and offers a remarkably sharp view. The Admiral Gold works well in all
light and atmospheric conditions; it works exceptionally well at night.

The Company also manufactures other products designed for the marine
(or boating) market, e.g., the "Electronic Commander II" equipped with
electronic fluxgate sensor and a compass that is accurate to 0.5 degree and
can take 10 bearings per second; "Commander III," a professional binocular for
offshore use that is equipped with a specially-designed HD-stabilized compass
with the fastest setting time and instant bearings in rough or choppy
conditions and provides clear and brilliant pictures in the toughest light
conditions; "Sailing 7x50," a binocular designed to military specifications
for use in rough conditions offshore; and "Navigator II," an extremely
lightweight marine compass binocular with a very attractive price and yet
remarkable performance.

The Company manufactures several hunting binoculars. The "Hunting
7x50" is designed as a night binocular; the "Hunting 9x40" is a lightweight
binocular well-suited for observation of game from great distances. In 1993
the Company introduced the "Hunting 8x56," a lightweight and light-sensitive
binocular most popular in Central Europe. Distinguished by improved visibility
at dusk and dawn, this binocular can also be used at night. At the same time the
Company introduced the "Hunting 12x40," a binocular particularly suited for
observation of game at great distances. The Company also manufactures the
"Hunting 8x30," the best binocular for low light observation where light weight
is critical; "Commander II 15x80", the long distance leader with an integrated
HD-stabilized compass and a range-finding reticle; the "Commander III 7x50",
with AC-optics specifically designed for extreme low light conditions; and,
finally, "Senator 10x50," capable of high 10 power magnification for long-range
spotting and viewing of distant subjects.

For sale in the sports and leisure markets, the Company offers the
"Safari II 8x30," a lower-priced binocular, and the "Firebird T8x30," a
binocular with a red coating on the lenses, that protects users' eyes from
ultraviolet radiation. During 1994 the Company supplemented this line of
products with the "Firebird 12x40," another binocular designed for observation
at greater distances and capable of filtering out ultraviolet and infra-red
radiation. In the 1990s the Company improved its "Rallye" series, developed
several years earlier, such as the "Rallye 20x80," an economically priced
leisure binocular ideally suited for astronomical observation. The Company also
developed other "Rallye" models such as "Rallye 8x30," a compact and
lightweight binocular, "Rallye 7x50," equally adequate for use on water or
land and preferred by the merchant marine; and "Rallye 10x50," designed to
provide maximum brightness while supplying more than adequate power. All Rallye
models are equipped with fully-coated precision optics encased in the durable
Makrolon housing.

Late in 1993 the Company introduced, and continues to manufacture,
the "Miniscope 8x22", a monocle-type scope. The Miniscope can be folded for
convenient storage.

The Company offers several compact binoculars that fold for
convenient storage and carriage. The latest compact binoculars developed by the
Company are "Rocky S 8x42" and "Rocky S 10x42," specifically designed to aid in
detection of birds or wildlife, hidden by foliage, in difficult light conditions
and equipped with the exclusive Penetrator high-contrast optics. The Company
also offers such compact binoculars as "Rocky 10x28," a high power binocular
with big objective diameter, "Rocky 8x24," the smallest and lightest of the
"Rocky" models, and "Rocky 12x28" that offers 12 times magnification.

The "Wildlife" series is the Company's latest, revolutionary addition
to its spectrum of binoculars; it is also the Company's entry into the Great
Outdoors market. The products in this series -- "Wildlife 8x30," "Wildlife 8x56"
and "Wildlife 7x50" -- are extremely robust yet unexpectedly lightweight. All of
them utilize high contrast optics to deliver clear, brilliant pictures, at any
time of the day, anywhere one may wander, i.e., in the mountains, in the forest,
in the desert or at the coast. All products in the "Wildlife" series are filled
with nitrogen to prevent fogging. "Wildlife 8x56" is particularly good at night;
it provides clear and bright pictures in low light conditions. All binoculars of
this series are equipped with Steiner-auto-focus that obviates the need for
constant refocusing and offers a sharp view over distances from 20 meters to
infinity. The Company warrants the products in this series for 30 years.

Finally, the Company manufactures binoculars for military
applications, custom-made to meet rigid specifications and equipped with
enhancements not found on civilian products, as well as produces optical
components for a wide variety of civil and military applications, systems and
measuring devices.

Research and Development

The Company's research and development department, historically in
the forefront of the Company's activities, has introduced many innovations to
the market, e.g., use of plastic for the housing, red coating for filtering
ultraviolet and infra-red radiation, integrated compass, etc. In 1993-97 7-11
engineers and technicians of the Company were engaged in research and
development activities at any given time; they focused on the development of
new products, as well as on improving the Company's manufacturing and quality
control practices. In 1993 the Company spent roughly $228,000 on research and
development. By comparison, from 1994 to 1997 the Company spent annually roughly
$241,312, $276,682, $198,749 and $185,196, respectively, on research and
development of binoculars and optical components.

Marketing, Distribution and Customers

In Germany the Company's products are sold to specialty and
department stores by the Company's in-house sales force and by independent
sales representatives, as well as through catalogues and wholesalers. Foreign
sales are made mainly through local independent distributors; some of the
distributors hold exclusive rights to distribute the Company's products within
their respective territories. In the past few years the Company substantially
extended its international distribution network, concentrating in particular
on the eleven (11) members of the European Community that use Euro as their
currency.

Pioneer & Co., Inc., of Moorestown, N.J. ("Pioneer"), has been the
exclusive distributor of the Company's products in the U.S. since April 1982. In
1993 Pioneer accounted for approximately 20% of the Company's total sales
volume. By comparison, in 1994-1997, Pioneer accounted for 23%, 19%, 22% and
39% of the Company's total sales volume respectively. See "Legal Proceedings."
In 1998 Pioneer accounted for roughly 37% of total sales. The dramatic
increases in sales in 1997-1998 were due to a large order, placed by a foreign
manufacturer of other products, for "Hunting 8x30" binoculars. The Company
expects to maintain the present level of sales throughout 1999; Pioneer is
expected to account for roughly 30% of the company's total sales in 1999. The
existing contract with Pioneer is scheduled to expire on December 31, 2001.
The Company and Pioneer are working on a marketing plan for the next decade.
As the trend-setter, the U.S. market for consumer goods is particularly
important to the Company.

The Company markets its products worldwide. Total sales in each
geographic area differ significantly from year to year. For instance, in 1997
the Company sold most of its binoculars (40%) in North America, 34% in Germany,
14% throughout the rest of Europe, 5% in the Middle East and 4% in Asia. From
1994 through 1996 the Company sold most of its binoculars in Germany, i.e.,
36%, 32%, and 46%, respectively, of the total sales. During the same period of
time sales of binoculars in North America remained flat at 23%, 20% and 24%,
respectively. While sales in Germany were particularly strong, the sales in
the remainder of Europe accounted for respectable 28%, 40% and 17% of the
total sales volume in 1994, 1995 and 1996, respectively. In the rest of the
world, annual sales to the Middle East and Asia accounted, on the average, for
6% and 3%, respectively.

The Company sells most of its optical products in Germany; these
sales totaled roughly $806,000 in 1994, $650,000 in 1995, $1,439,000 in 1996 and
$1,036,000 in 1997. The sales of optical components constituted 8%, 5%, 13% and
9% of the Company's total annual sales from 1994 through 1997, respectively.

Military sales usually account for 8-12% of the Company's annual
sales, but large orders could -- and in 1995 did -- increase that percentage
dramatically. Despite widely-publicized reduction in the armed services, the
Company's revenues from military sales have not decreased primarily because the
military now tends to buy less equipment of better quality.

The Company's marketing department, among other things, monitors the
performance of, and renders assistance to, the Company's distributors and sales
representatives. The marketing department runs seminars, prepares manuals for
the sales force, creates and coordinates advertising and promotions, point-of-
sale displays, press releases, product reports and exhibitions at specialty
trade and consumer shows. It also places printed advertisements in trade
journals and special interest magazines. Advertising and marketing costs
totaled approximately $317,000 in 1997, $461,000 in 1996, $713,000 in 1995,
$568,000 in 1994 and $517,750 in 1993.

The Company sponsored "Basket Bayreuth e. V." (until 1997 "Steiner
Bayreuth e.V."), a basketball team playing in the German Basketball League, as
a marketing tool and to generate goodwill for the Company. To that end, the
Company paid approximately $33,000, $113,000, $160,000 and $141,000 in 1997,
1996, 1995 and 1994, respectively.

In 1994-6 the Company made several loans to the team. The outstanding
balances of these loans were approximately $63,000, $31,000, $55,000, $37,000
and $49,000 on June 30, 1997, and on December 31 in the years 1996, 1995, 1994
and 1993, respectively.

In June 1997 Carl Steiner resigned as the President of Steiner
Bayreuth e.V., and the team changed its name to Basket Bayreuth e.V. On July 1,
1997, the Company purchased five (5) years worth of future advertising rights
from the team for DM 700,000 ($393,258 at the current exchange rate) to continue
the advertising campaign. In exchange, the team agreed to place the Company's
logos on the team's banners wherever the team plays, to issue ten (10) tickets
to the Company for all games, to distribute posters displaying the Company's
products and logos, to advertise the Company's products in the club's magazine,
etc.

The team's original name of "Steiner Bayreuth" and the Steiner logo
on the team's uniforms have had the most profound effect on the Company's
domestic markets. These rights have no current value, however, because Basket
Bayreuth e.V. went bankrupt in May 1999.

In order to pay to the team the amount due, i.e., DM 700,000, the
Company waived the repayment of (a) the outstanding balance of loans made by the
Company to team in the approximate amount of $63,000 as of June 30, 1997,
supra, and (b) approximately $147,000 (approximately DM 261,000) lent to the
team by Carl Steiner, President of the Company. (Mr. Steiner subsequently
assigned such loan to the Company.) The Company also paid approximately
$55,000 to the team in cash and assumed two (2) loans in the amounts of
approximately $76,000 (approximately DM 135,000) and approximately $53,000
(approximately DM 94,000), respectively, made by a bank to the team. The
outstanding balances of the bank loans assumed by the Company were
approximately $47,000 (approximately DM 90,000) and approximately $42,000
(approximately DM 80,000) at June 30, 1999. The Company expects to pay out those
loans on December 31, 1999, and August 31, 2001, respectively.

Finally, in the early 1990s the Company guaranteed another obligation
of the team in the amount of DM 100,000 owed by the team to a bank. Following
the bankruptcy of the team, the Company may have to repay the team's debt
currently in the amount of $44,309 (DM 80,000) to the bank.

Manufacturing Operation

The Company tends to book the majority of its sale orders in January-
February of each year when most trade shows take place. Hence, the Company tends
to accumulate inventory in November - December of each year so as to meet the
orders expected to arrive early in the succeeding year. Accordingly, the
Company's inventory-to-sales ratio tends to go up by the year-end and to come
down in the Spring-Summer when the orders are filled.

Finished goods represented roughly 17%, 19%, 21%, 15% and 13.4% of
the Company's inventory in 1997, 1996, 1995, 1994 and 1993, respectively. Semi-
finished goods account for much of the remainder. Semi-finished glass is
manufactured by others to Steiner's specifications; hence, it is of limited
utility to someone other than Steiner. The lead time for delivery of semi-
finished glass is roughly 5-6 months. Hence, Steiner must always keep sufficient
quantity of such glass on hand to allow for flexibility in the manufacturing
process.

Most of the Company's products are manufactured at its facilities in
Bayreuth, Germany. The Company manufactures most of its products out of raw
materials such as glass, metals and plastic. In 1993 the Company has begun to
phase out the production of some components in order to reduce expenses and
lowered the production costs of several products (at the very low end of its
production line) by outsourcing the manufacturing of some components. This
process has continued to date. The original counterparty in Eastern Europe
turned out to be expensive and unreliable, and the Company has moved its
outsourcing operation to the Far East where its counterparties have proven to
be more reliable and more cost-effective.

The Company is not dependent upon any single source of raw materials
and has no long-term supply agreements with anyone. In the Company's view, there
is adequate choice of suppliers for its foreseeable needs.

The Company sells most of its products in the German currency, the
Deutsche Mark, while pays most of its suppliers in their local currencies.
Purchases of supplies are appropriately hedged.

Competition

Over the past few years, the binocular industry has been relatively
stable. The Company occupies a very small, high-end segment of the world market,
selling annually approximately $10 million worth of binoculars. The size of the
total market in binoculars remains relatively obscure. (The Company is not aware
of any reliable source of any statistical information on the subject.) Among
companies engaged in research, development and manufacturing of binocular
products, many have greater financial, production, marketing and
technological resources than the Company. Competition in this industry
centers on product quality, design and price, as well as customer acceptance
and support.

The Company believes that its reputation for innovation, the high
quality of its products, the durability of its binoculars and ease of focusing
them provide the Company with a competitive edge in the hunting and boating
markets.

The military market for binoculars requires special marketing and
manufacturing expertise necessary to comply with strict requirements of the
military. The Company is an approved supplier to several important military
services. It also supplies the police, customs and similar services in many
countries. The Company has been supplying the military market for many years
despite considerable competition.

Competition in the optical component industry is extremely
diversified. Competitors range from small engineering companies to large
automobile and airplane manufacturers. The Company believes that it competes in
this market through its recognized ability to find an engineering solution to a
difficult problem, rather than its capacity for delivering a quantity of
existing products.

Patent and Trademarks

The Company currently owns a number of patents worldwide. Several of
its patent applications pertaining to certain aspects of the technology used in
its binoculars are pending. The Company may not be able to enforce, for
financial or other reasons, the existing patents, however. Besides, the
existing patents may not be adequate to protect the Company from its
competitors. The fate of the pending patent applications is uncertain. The
Company places greater reliance on its customer relationships and the quality
of its products than on its ability to protect its intellectual property. None
of the patents are critical to the Company's ability to stay in business.

The "Steiner" trademark is registered in Germany and many other
European countries, the United States and certain Asian countries. Such
registration may not provide material protection to the Company because the
Company may not be able to protect, for financial or other reasons, its
trademark against infringement. Finally, the use of Company's trademark may
infringe upon trademarks or other rights of third parties. The Steiner
trademark is very important to the Company; it represents the goodwill of the
Company. The Company also holds a number of licenses to use trademarks
registered by others. These licenses are, likewise, very important to the
Company.

Backlog

The Company's backlog consists of confirmed but unfilled purchase
orders. The Company had a backlog of $3.8 million at December 31, 1993. By
comparison, the backlog was at $2.46 million, $2.5 million, $2.25 million and
$2.47 million at December 31 in the years 1994, 1995, 1996 and 1997,
respectively. Variations in backlog do not represent future business trends
fairly because unfilled orders fluctuate greatly with the timing of orders and
the product mix.

Employees

The Company trains many of its highly-skilled employees. The
management considers the relations between the Company and its employees to be
satisfactory. None of the Company's employees are represented by labor unions.
As of June 30, 1999, the Company employed 117 persons (83 in manufacturing and
34 in other departments). In 1998 the Company employed, on the average, 118
persons (84 in manufacturing and 34 in other departments). In 1997 the Company
employed, on the average, 102 persons (68 in manufacturing and 34 in other
departments). In 1996 the Company employed, on the average, 120 persons (87 in
manufacturing and 33 in other departments). In 1995 the Company employed, on the
average, 126 persons (86 in manufacturing and 40 in other departments). In 1994
the Company employed, on the average, 130 persons (94 in manufacturing and 36 in
other departments).

Item 2. PROPERTIES.

The Company owns its office and manufacturing facilities located in
Bayreuth, Germany. Two (2) buildings with 43,040 square feet are currently used
for manufacturing and warehousing; one (1) building with 12,912 square feet is
currently used for administration. All buildings are encumbered by seven (7)
mortgages: the first mortgage in the amount of DM 2,900,000 in favor of
Stadtsparkasse Bayreuth; the second and third mortgage in the amount of DM
500,000 and DM 2,500,000, respectively, in favor of IKB, Munich; the three
(3) fourth equal mortgages, each in the amount of DM 1,000,000, in favor of
Stadtsparkasse Bayreuth, Volksbank-Raiffeisenbank Bayreuth and
HypoVereinsbank Bayreuth; and the fifth mortgage in the amount of DM 700,000
in favor of HypoVereinsbank Bayreuth. These mortgages secure long-term debt of
the Company. See Management's Discussion. The Company believes that its
facilities are adequately insured, well maintained, in good operating
condition and sufficient for the present level of its operations.

Item 3. LEGAL PROCEEDINGS.

Except for a minor labor dispute with a former employee, the Company
is not involved in legal proceedings at the present time. A dispute with
Pioneer, its distributor, over the interpretation of the distribution
agreement between them, dated April 1, 1982, has laid dormant since 1993.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.

None.

PART II

Item 5. MARKET FOR COMMON EQUITY AND RELATED MATTERS.

The common stock of the Parent Corporation is quoted from time to
time on the OTC Bulletin Board of the National Association of Securities
Dealers, Inc., and on the "Pink Sheets" of the National Quotation Bureau, Inc.

The following tables set forth the high and low bid quotations for
shares of the common stock from January 1, 1993 through December 31, 1998, as
reported by the National Quotations Bureau, Inc. The high and low bid quotations
for the Common Stock reflect inter-dealer prices, without retail mark-ups, mark-
downs or commissions and may not necessarily represent actual transactions.

1998 High Low
---------------- ----- ----
Fourth Quarter $.01 $.01

Third Quarter $.01 $.01

Second Quarter $.01 $.01

First Quarter $.01 $.01

1997 High Low
---------------- ----- ----
Fourth Quarter $.01 $.01

Third Quarter $.01 $.01

Second Quarter $.01 $.01

First Quarter $.01 $.01

1996 High Low
----------------- ----- ----
Fourth Quarter $.01 $.01

Third Quarter $.01 $.01

Second Quarter $.01 $.01

First Quarter $.01 $.01

1995 High Low
----------------- ----- ----
Fourth Quarter - -

Third Quarter $.005 $.005

Second Quarter $.005 $.005

First Quarter - -

1994 High Low
------------------ ----- ----
Fourth Quarter $.006 $.005

Third Quarter $.008 $.005

Second Quarter $.008 $.0025

First Quarter $.01 $.0025

1993 High Low
------------------ ----- ----
Fourth Quarter $.005 $.005

Third Quarter $.005 $.0025

Second Quarter $.03 $.005

First Quarter $.03 $.005

There were approximately 2,000 record holders of the common stock of
the Parent Corporation at December 31 in the years 1997, 1996, 1995, 1994 and
1993. There were 1,921 record holders of the common stock of the Parent
Corporation at December 16, 1998.

The ability of the Parent Corporation to pay dividends is not subject
to any restrictions. Nonetheless, the Parent Corporation has never paid cash
dividends. The management has no intention of declaring dividends in the
foreseeable future; all working capital will be devoted to the Company's
business.

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

The Company designs, manufactures and markets multi-purpose
binoculars, optical components and related products for sale throughout the
world. The Company is located in Germany. Most of sales are made in German
currency, the Deutsche Mark. Most purchases of components are made in the
currency of the respective supplier, e.g., in U.S. Dollars, Japanese Yen, etc.

All assets and liabilities compiled in the Company's balance sheet
are translated into U.S. Dollars at the prevailing currency exchange rates on
December 31 in the fiscal year being reported. On December 31, 1997, 1996, 1995,
1994 and 1993 these rates were DM 1.78, DM 1.5548, DM 1.4335, DM 1.5488 and DM
1.7263 per U.S. Dollar, respectively. See Note 1, Translation of Foreign
Currencies, to the Consolidated Financial Statements. All financial data
compiled in the Company's income statement is translated into U.S. Dollars at
the average currency exchange rates during the fiscal year being reported. In
1997, 1996, 1995, 1994 and 1993 these rates were DM 1.7392, DM 1.51, DM 1.4367,
DM 1.6258 and DM 1.67015 per U.S. Dollar, respectively.

Consequently, foreign currency fluctuations have material effect on
the operating results set forth below. For instance, the operating statements of
the Company (presented in U.S. Dollars) create an impression that the sales in
1993 went down (as compared to the sales in 1992). In fact, the sales -- in
Deutsche Marks -- were virtually unchanged. Rather, the currency exchange rate
went up from DM 1.6140 on December 31, 1992, to DM 1.7263 on December 31, 1993,
and created an impression that the sales went down. Similarly, a comparison
between the total sales (in U.S. Dollars) for 1996 and 1997 suggests an apparent
decrease in the Company's profits to the tune of almost $1 million. In reality,
the Company's profits (in Deutsche Marks) were virtually unchanged.

Furthermore, changes in methods of accounting can and do materially
affect the Company's financial position. For instance, large operating loss in
1993 was caused, to a great extent, by a change in the method of accounting for
income taxes. See Form 10-K for 1993, Note 8.

The Company continues its strategic cost-reduction program and a
search for additional outsourcing opportunities. The Company's counterparties in
the Far East -- for outsourcing of components -- have proved to be more reliable
and more cost-effective.

The Comparison Between and Among Years Ended December 31, 1997, 1996, 1995,
1994 and 1993

On December 31, 1997, the Company's net sales stood at $12,023,378.
By comparison, on December 31 in the years 1996, 1995, 1994 & 1993 the Company's
net sales were $11,361,146, $14,333,438, $10,307,245, and $11,406,491,
respectively. From 1993 through 1997 the Company's net sales fluctuated
significantly. Net sales went down in 1994 (a decrease of $1,099,246 by
comparison with 1993, or roughly 9%). Net sales went up in 1995 (an increase of
$4,026,193 by comparison with 1994, or 39%). Net sales went down again in 1996
(a decrease of $2,972,292 by comparison with 1995, or 20%) Net sales went up
again in 1997 (an increase of $662,232 by comparison with 1996, or almost 6%).

These fluctuations are not aberrations, but rather the norm in the
Company's business. Special orders tend to affect annual sales, causing sales to
swell when special orders are forthcoming, and to drop when they are not.
Besides, an increase in gross sales does not necessary portend an increase in
net sales because special orders not infrequently entail special costs.

The Company's export sales into the U.S. and, hence, net sales for
the year ended December 31, 1993, were 25% lower (on a period-to-period
comparison with the year ended December 31, 1992), due to a dispute with the
Company's U.S. distributor in early 1993. Although the dispute ended quickly,
exports into the U.S. did not increase until 1997 due primarily to the
appreciation of the Deutsche Mark against the U.S. Dollar during 1994 through
1996, and the concomitant considerable increase in the cost of binoculars
exported into the U.S. from Germany.

In 1997 several factors -- an improved distribution by Pioneer, a
booming market in the U.S., introduction of new products by the Company, a
weakening (against the U.S. Dollar) Deutsch Mark and a large special order from
a foreign manufacturer -- combined to lift the Company's exports to the U.S.

Historically, however, impacts of adverse economic trends were rather
minimal because the Company does business with 50 countries around the world.
Since business seldom goes down world-wide, a decrease in sales in one area of
the world is likely to be offset by an increase in sales elsewhere. For example,
a decrease in sales in Germany in 1997 was offset by an almost twofold increase
in sales to the U.S. Likewise, a decrease in sales to the U.S. in 1993 was
offset by a large special order for optical components from Germany. See Form
10-K for 1993.

In 1993 the Company's sales of binoculars to the military constituted
approximately 10% of the Company's total sales. Sales to the military increased
dramatically (as a percent of net sales) in 1994-5. Such sales have since
stabilized at roughly 10-13% per annum. The proportion of sales to the military
fluctuates from year to year, since one big order can -- and in 1994-5 did --
change the picture significantly.

In 1993 sales of the Company's industrial components constituted 26%
of domestic sales. By comparison, in 1994-1997 the Company's sales of industrial
components constituted 22%, 14%, 27%, and 25% of domestic sales, respectively.
In 1993 such sales accounted for 11% of the total sales. By comparison, in 1994-
1997 such sales accounted for 8%, 5%, 13% and 9% of the total sales,
respectively. Since the Company has only 3-5 major customers in that market,
the advent of a new customer usually has a big impact on sales.

In 1994 the Company embarked on the across-the-board cost cutting
campaign. The Company reduced the total number of employees, laid off well
paid employees and hired less expensive part-time help. The Company has also
invested considerable time and effort into outsourcing of components for
several of its very low end products. See Marketing Operation.

Consequently, the Company's costs and expenses expressed in U.S.
Dollars, decreased 1.2% from 1993 to 1994, increased 24.2% from 1994 to 1995,
decreased 26.9% from 1995 to 1996 and increased 7.6% from 1996 to 1997.

The selling, general and administrative expenses decreased 1.52% from
1993 to 1994, increased 8.05% from 1994 to 1995, decreased 28.42% from 1995 to
1996 and decreased again 6.26% from 1996 to 1997, resulting in an average
decrease of 7.15% from 1993 to 1997.

The largest percentage decrease in costs and expenses occurred from
1995 to 1996. Both the selling, general and administrative, as well as research
and development costs decreased roughly 28% (from an aggregate $2,711,486 in
1995 to $1,941,588 in 1996).

In U.S. Dollars, the Company's operating income decreased $1,897,821
from 1993 to 1994, increased $2,400,694 from 1994 to 1995, increased $1,397,589
from 1995 to 1996 and decreased $1,179,520 from 1996 to 1997.

Gross profit of the Company is always affected by a multitude of
factors. These factors tend to impact gross profit differently in different
years. For example, the Company's profit margin on various products varies from
5% to 77%. Accordingly, gross profit varies with the product mix sold in a
specific year.

Sales of optical components always involve special orders and always
require -- for this reason -- considerable amount of engineering before the
order can be filled. Thus, costs of engineering are frequently incurred in the
year immediately preceding the year of sale, thereby distorting the Company's
year-to-year income comparisons.

Lastly, every other year the Company must spend roughly DM 200,000
on outfitting and maintaining an exhibition stand at Photokina, the largest
worldwide exhibition of photo and video equipment held bi-annually in Cologne,
Germany.

These factors, along with perennial currency fluctuations, supra, and
the impact of special orders on the core business of the Company, have
accounted for the fluctuations in net sales, costs and expenses and gross
profits of the Company over the years.

Expressed in U.S. Dollars, interest income (earned by the Company on
the loan made by it to Carl Steiner) decreased 17.99% from 1993 to 1994,
increased 37.19% from 1994 to 1995, decreased 2.92% from 1995 to 1996 and
decreased 31.77% from 1996 to 1997. These changes and fluctuations were due to
currency fluctuations.

Expressed in U.S. Dollars, interest expense decreased 3.7% from 1993
to 1994, increased 10.46% from 1994 to 1995, decreased 14.69% from 1995 to 1996
and decreased 12% from 1996 to 1997. These fluctuations were also due primarily
to currency fluctuations. By comparison, in Deutsche Marks interest expense
decreased 6.24% from 1993 to 1994, decreased 2.38% from 1994 to 1995, decreased
10.34% from 1995 to 1996 and increased 1.27% from 1996 to 1997. In other words,
in reality interest expense did not fluctuate at all but rather decreased
consistently.

In 1997 the Company has adopted, effective as of January 1, 1998,
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." This development is not expected to have any effect on the Company's
net income (loss) or the stockholder's equity.

In June 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131
establishes annual and interim reporting standards for various operating
segments of a company and related disclosures about its products, services,
geographic areas and major consumers. The Company adopted SFAS No. 131 in 1998.
This development is also not expected to have any effect on the Company's
consolidated financial statements.

The Company is in the process of assessing and, where necessary,
remediating its internal and external systems, and those of its material
counterparties, in light of the issues presented by the Year 2000. Based on the
Company's review of such issues, it has spent to date approximately DM 150,000
($83,079 at the current exchange rate) -- by way of corrective and precautionary
actions -- on the necessary upgrades and the Company's new production planning
system. (This amount represents roughly 75% of the total budget allocated by the
Company to the Year 2000 issues.) The treasurer of the Company heads the
assessment and remediation process.

The information technology utilized by the Company is new and free
of Year 2000 defects; the production technology is not. The Company has
determined to replace, rather than attempt to remediate, certain computers with
Year 2000 defects. Based on the assurances of the parties responsible for the
corrections, the Year 2000 problems are not expected to have any material effect
on the Company's own computer systems. The Company expects to spend up to
additional DM 50,000 ($27,693 at the current exchange rate) on the issues
presented by the Year 2000.

The Company has also adopted a program to anticipate and attempt to
avert the effect on the Company of Year 2000 problems suffered by other
organizations. The Company is examining its vulnerabilities to problems with its
key suppliers and customers resulting from their inability to remediate and
avert internal and external Year 2000 problems. The Company has identified the
organizations critical to the Company's operations. The Company is in the
process of obtaining assessments and assurances from those organizations
regarding their Year 2000 readiness. The Company cannot guarantee that the
systems of such organizations will be Year 2000 compliant. As part of its
contingency plans, the Company is developing a list of alternative suppliers
whom it might engage in the event a key supplier delivers a product or services
degraded by a Year 2000 defect or such supplier is unable, due to any Year
2000 problem, to fulfill its contractual obligations to the Company. The
Company believes that suitable substitutes for all critical organizations will
be available. At this time, the Company does not anticipate a material effect
from Year 2000 problems on the Company's operations.

Liquidity and Sources of Capital

The Company uses cash primarily for working capital, to support the
inventory and to pay debt service for capital expenditures. This need for cash
is currently met by internally generated funds and unsecured bank lines of
credit. The Company anticipates that these sources will be sufficient for the
planned ongoing research and development and for the Company's operations.

All of the Company's unsecured bank lines of credit are short-term
and call, by their terms, for the repayment of principal at the end of each
year. Consequently, the Company's obligations to repay such lines of credit
are treated as current liabilities on the Company's balance sheet and the
Company's working capital appears to be negative. Nonetheless, the Company is
reasonably sure, on the basis of decades of experience, that its bank lines
of credit will be timely renewed in due course even though the Company's banks
have no legal obligation to do so. This type of unsecured short term lending
is customary in Germany at the present time and, consequently, is not a source
of additional concern to the Company.

In July 1993 the Company entered into a one year agreement with a
factoring agent to sell trade receivables. In July 1994 this agreement was
terminated. In August 1994 the Company replaced the original factoring agent
with the current one, De Lage Landen Trade Finance GmbH ("De Lage Landen").
The new agreement also provides for the sale without recourse of receivables
from the Company's major customers in Germany, as well as other German and
international customers. During 1997 $6,537,388 of those receivables were sold
at a total cost of $85,536 including $59,650 in factoring fees and $25,886 in
interest expense. During 1996 $7,923,548 of those receivables were sold at a
total cost of $190,989 including $88,342 in factoring fees and $102,647 in
interest expense. During 1995 $6,943,378 of those receivables were sold at a
total cost of $175,068 including $64,241 in factoring fees and $110,827 in
interest expense. During 1995 $3,182,762 of those receivables were sold at a
total cost of $198,297 including $64,698 in factoring fees and $133,599 in
interest expense. All such fees and expenses were charged to selling, general
and administrative expenses and interest expense, respectively, on consolidated
income statements for the years 1997, 1996, 1995 and 1994. Amounts received
from such sales in each such year have been reported on the respective
statements of cash flows as operative activities. On January 1, 1999, De Lage
Landen was acquired by FMN Finance House (Fortis Group). This development is
not expected to affect the Company's relation with De Lage Landen.

At December 31, 1997, the Company had accrued and other current
liabilities of $670,649. These liabilities represent, in part, $163,444 in
payroll and other taxes, $114,045 in warranty and credit notes and $137,706 in
accrued vacation and overtime. At December 31, 1996, the Company had accrued and
other current liabilities of $1,152,106. These liabilities represent, in part,
$280,864 in payroll and other taxes, $136,995 in warranty and credit notes and
$124,968 in accrued vacation and overtime. At December 31, 1995, the Company had
accrued and other current liabilities of $1,459,208. These liabilities
represent, in part, $460,456 in payroll and other taxes, $187,653 in warranty
and credit notes and $188,559 in accrued vacation and overtime. At December
31, 1994, the Company had accrued and other current liabilities of $1,285,781.
These liabilities represent, in part, $210,631 in payroll and other taxes,
$172,392 in warranty and credit notes and $226,821 in accrued vacation and
overtime. At December 31, 1993, the Company had accrued and other current
liabilities of $1,364,348. These liabilities represent, in part, $211,118 in
payroll and other taxes, $158,142 in warranty expenses and $131,901 in accrued
vacation and overtime.

At December 31 in the years 1997, 1996, 1995, 1994 and 1993 the
Company had long-term debt in the aggregate amounts of $6,596,744, $7,124,299,
$5,768,915, $5,616,132 and $4,702,998, respectively.

Most of this debt is owed to two (2) banks. One of these banks holds
a note in the amount of DM 5,000,000 (approximately, $2,896,368 at the current
exchange rate). The note bears interest at a rate of 6.98% per annum and matures
in February of 2002. The Company maintains an insurance policy on the life of
Carl Steiner, President of the Company. The cash value of this policy stood at
DM 3,140,000 on April 30, 1999. The cash value of this policy as of February
2002 is expected to pay off the principal amount of the note.

The other bank holds three (3) notes in the aggregate amount of
roughly DM 2,500,000 ($1,737,821 at the current exchange rate) as of June 30,
1999; those notes bear interest at annual rates of 5.6%, 7.7% and 8%,
respectively, and mature on December 30, 2002, March 30, 2006, and March 30,
2003, respectively, if not renegotiated.

In 1993-4 Mr. Steiner paid DM 1,000,000 to the Parent Corporation (DM
250,000 in December 1993 and DM 750,000 in December 1994) to enable
the Parent Corporation to make a desperately needed contribution to the capital
of the Company. Mr. Steiner expected to receive, in exchange, preferred stock
from the Parent Corporation, but the Parent Corporation has been unable to
issue preferred stock because none has been authorized. The Parent Corporation
has been unable to authorize the issuance of preferred stock because up until
now the Parent Corporation did not have current audited financial statements.
The Parent Corporation owes Mr. Steiner either DM 1,000,000 or preferred stock
(to be issued six (6) years later than agreed, but with different, improved
terms), or another equivalent compensation for his investment. The Parent
Corporation will make a decision on the appropriate compensation for Mr.
Steiner once it is current with its filing obligations.

Item 7. FINANCIAL STATEMENTS.

The following documents are filed as part of this report

INDEPENDENT AUDITORS' REPORT F1.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Income (Loss) for the Years Ended
December 31, 1997, 1996, 1995 and 1994 F2.
Consolidated Balance Sheets at December 31, 1997,
1996, 1995 and 1994 F3.
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended December 31, 1997, 1996, 1995 and 1994 F4.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, 1995 and 1994 F5.

Notes to the Consolidated Financial Statements F6.

Item 8. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.

See Form 10-KSB for 1993.

PART III

Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

The directors and executive officers of the Parent Corporation
are as follows:

Name Age Position
- -------------------------------------------------------------------
Carl Steiner 45 President, Chief Executive
Officer and Director

Robert Eckert 40 Controller, Chief Financial
Officer and Director

The directors and executive officers of the Company are
as follows:

Name Age Position
- -------------------------------------------------------------------
Carl Steiner 45 President, Chief Executive
Officer and Director

Robert Eckert 40 Managing Director

Carl Steiner has been President, Chief Executive Officer
and Director of the Company since January 1979 and of the Parent
Corporation since January 1989.

On March 14, 1991, Carl Steiner, without admitting or
denying the allegations contained in a complaint filed by the Securities
and Exchange Commission ("SEC"), consented to be enjoined by the U.S
District Court for the District of Columbia from violating Section 10(b)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
Rule 10-5 thereunder.

The SEC complaint alleged that Peter Franzen, the promoter who
negotiated the acquisition of the Company by the Parent Corporation,
conspired with Mr. Steiner to disseminate misleading information regarding
that acquisition in order to achieve certain unwarranted tax advantages. The
allegedly misleading information was included in a filing with the SEC and
in a press release and certain promotional materials.

Robert Eckert was Controller of the Company from October 1987
through January 1990, then Chief Financial Officer of the Company from
January 1990 through October 1993, and, finally, Managing Director of the
Company since October 1993 to date. He has been Controller, Chief Financial
Officer and Director of the Parent Corporation since 1990.

The terms of office of all Directors and Executive Officers of
the Company are from the time of election until successors have been duly
elected and qualified. None of the Company's Directors or Executive Officers
have any family relationship with any other Director or Executive Officer.

Compliance With Section 16(a) of the Exchange Act

None of the directors, officers or 10% shareholders of the Company
failed to file on a timely basis reports required during 1994 through 1997 by
Section 16(a) of the Exchange Act.

Item 10. EXECUTIVE COMPENSATION.

The following table sets forth all compensation awarded to, earned
by, or paid by the Company to Messrs. Steiner & Eckert, the Company's only
executive officers, for services rendered in all capacities to the Company
during each of the fiscal years ended December 31, 1997, 1996, 1995, 1994 and
1993, respectively:

SUMMARY COMPENSATION TABLE

Annual Compensation

Name and Position Year Salary Bonus Other(a)
- -----------------------------------------------------------
Carl Steiner 1997(b) $140,244 $17,249 $16,439
(President & Chief
Executive Officer) 1996(c) $161,531 $19,868 $18,935

1995(d) $169,772 $20,881 $19,901

1994(e) $150,026 $18,452 $17,586

1993(f) $141,292 $17,278 $17,119

Robert Eckert 1997(b) $140,244 $23,713 $16,439
(Controller & Chief
Financial Officer) 1996(c) $161,531 $23,278 $18,935

1995(d) $169,842 $19,134 $19,901

1994(e) $139,015 $ 3,544 $17,586

1993(f) $ 86,891 $ 0 $ 1,427

(a) represents premiums paid by the Company to fund an annuity for
the benefit of Messrs. Steiner & Eckert. The Company purchased an
annuity to fund their pensions effective on their attaining the age
of 65 and equal to 50% of their then current compensation from the
Company (the "Pension Amount"). The Pension Amount will be payable
for the balance of their respective lives. Upon their death, their
widows will be entitled to receive, for the balance of their
respective lives, an amount equal to 60% of the Pension Amount, and
their children will be entitled to receive an amount equal, in the
aggregate, to 40% of the Pension Amount until they reach the age of
18 or, if they continue to be full-time students, until they reach
the age of 28.

(b) Based upon an average exchange rate of DM 1.7392 per U.S. Dollar
during 1997.

(d) Based upon an average exchange rate of DM 1.4367 per U.S. Dollar
during 1995.

(e) Based upon an average exchange rate of DM 1.6258 per U.S. Dollar
during 1994.

(f) Based upon an average exchange rate of DM 1.67015 per U.S. Dollar
during 1993.

Employment Agreements

The Company has employment agreements with Messrs. Steiner and
Eckert. These agreements are cancelable at any time by either party. Messrs.
Steiner and Eckert get to use a company car and a pension plan. See Note 12.

Options/SAR Grants/Incentive Plans/Director Compensation

Until 1998 the executive officers did not hold any stock options,
SAR or other equity-related incentives and did not participate in any
incentive compensation plan. The members of the Board of Directors still do
not receive any compensation for their services qua members of the Board.
Commencing January 1, 1998, however, each director of the Parent Corporation
received $2,500 per month, and the Secretary of the Parent Corporation received
$500 per month, by way of incentive compensation, for work done by them
under the agreement dated December 15, 1997, between the Company and the
Parent Corporation. Pursuant to that agreement, the Parent Corporation
undertook to advertize products manufactured by the Company in international
markets, to conduct market surveys, to maintain customer contacts, to procure
special orders and to draft contracts with the Company's customers.

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the number of shares of Common Stock
owned beneficially as of December 31, 1997, 1996, 1995, 1994, 1993 and August
10, 1999, by each person known to be the beneficial owner of more than five
percent of the Parent Corporation's voting securities, by each director and
by all directors and executive officers as a group. The Parent Corporation
has no outstanding securities other than the common stock. Unless otherwise
noted, each individual has sole voting and investment power for the shares
indicated below.

Shares of Common Percentage of Shares
Stock beneficially of Common Stock
Name owned beneficially owned
- ------------------------------------------------------------------
Carl Steiner 104,046,694(a) 69.4
c/o Steiner Optik GmbH
Dr. Hans Frische Strasse 9
D-95488 Bayreuth Germany

Robert Eckert 0 0
c/o Steiner Optik GmbH
Dr. Hans Frische Strasse 9
D-95488 Bayreuth
Germany

All directors and exec-
utives officers as
a group (2 persons) 104,046,694(a) 69.4

(a) Includes 500,000 shares held by Mr. Steiner's son.

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Mr. Carl Steiner, the Company's President, Chief Executive Officer
and the majority shareholder, until July 1997 was the President of Basket
Bayreuth e.V., a registered basketball club in Germany. In the years ended
December 31, 1997, 1996, 1995, 1994 and 1993, the Company paid approximately
$33,000, $113,000, $160,000, $141,000 and $120,000, respectively, to support
this club. The Company also made loans to the club; at June 30, 1997 and on
December 31 in the years 1996, 1995, 1994 and 1993, the outstanding balances of
these loans were approximately $63,000, $31,000, $55,000, $37,000 and
$49,000, respectively.

At December 31 in the years 1997, 1996, 1995 and 1994 Mr. Steiner
owed the Company $529,000, $722,000, $794,000 and $541,000, respectively. The
principal of this loan, bearing interest at 3.5%, is scheduled to be repaid in
10 equal annual payments, commencing 2002 and ending 2011.

The Parent Corporation still owes Mr. Steiner for and on account of
two (2) payments in the aggregate amount of 1,000,000 (DM 250,000 in December
1993 and DM 750,000 in December 1994) made by Mr. Steiner to the Parent
Corporation to make desperately needed contributions to the capital of the
Company.

Since 1973 Carl Steiner was obligated to pay DM 7,800 monthly to
his mother. See Form 10-K for 1993. In 1994 Carl Steiner was able to re-
negotiate his monthly payments to his mother down from DM 7,800 to DM 2,200
because the Company's distributions to Carl Steiner no longer supported his
monthly obligation to her.

Item 13. LIST OF EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.

3.1 Certificate of Incorporation of the Company, as amended (filed
as Exhibit 3.1 to the Company's Form 10-K for the fiscal year
ended December 31, 1991, File No. 2-92801NY).

3.2 By-Laws of the Company (filed as Exhibit 3.2 to the Company's
Form 10-K for the fiscal year ended December 31, 1991, File
No. 2-92801NY).

10.1 Translation of Agreement dated April 1, 1982, between Steiner
Optik GmbH and Pioneer & Co., Inc. (filed as Exhibit 10.1 to
the Company's Form 10-K for the fiscal year ended December 31,
1991, File No. 2-92801NY).

10.2 Translation of Employment Agreement dated January 8, 1979,
between Steiner Optik GmbH and Carl Steiner (filed as Exhibit
10.2 to the Company's Form 10-K for the fiscal year ended
December 31, 1991, File No. 2-92801NY).

10.3 Translation of Employment Agreement dated September 4, 1993,
between Steiner Optik GmbH and Robert Eckert.

16. Letter from Coopers & Lybrand (re change of accountants). To
be filed by amendment.

21. Subsidiaries of the Company (filed as Exhibit 22 to the
Company's Form 10-K for the fiscal year ended December 31,
1991, File No. 2-92801NY).

27. Financial Data Schedule

(b) Reports on Form 8-K:

none.

EXHIBIT 10.3
Translation of Employment Agreement dated September 4, 1993,
between Steiner Optik GmbH and Robert Eckert.

AGREEMENT

Between Steiner-Optik Gmbh, Dr. Hans-Frisch-Street 9, 8580 Bayreuth,
represented by its managing director Carl Steiner (hereinafter, the "Firm")
and Mr. Robert Eckert, Karl-Broger -Street 4, 8570 Pegnitz.

The parties hereto do hereby agree as follows:

1. The Firm hereby hires Mr. Eckert as a managing director of the Firm
effective October 1, 1993.

2. The Firm hereby agrees to sign a managing director contract with Mr.
Eckert not later than October 20, 1993, to commence on October 1, 1993 and
remain in full force and effect until December 31, 1996. During this period
of time, neither party can terminate this agreement. Thereafter, either
party may terminate this agreement upon a six-month notice given at the
end of any month. In the event the Firm terminates the agreement, the Firm
will pay Mr. Eckert a severence payment of DM 100,000 (after tax).

The Firm will pay Mr. Eckert the following compensation:

Base salary: 1993 51,000.00
1994 222,000.00
1995 240,000.00
1996 240,000.00

Furthermore, the Firm will continue to pay Mr. Eckert the bonus agreed upon
in 1991.

Until the current restructuring is completed, Mr. Eckert will have the use of
a VW Golf or similar vehicle for business and personal needs and thereafter
a BMW 525 or similar car.

Finally, Mr. Eckert will be covered by the Firm's pension plan on conditions
similar to those applicable to Mr. Steiner's.

3. Once economic conditions allow, but not later than in October 1998, the
Firm will offer Mr. Eckert an opportunity to acquire 10% of the Firm's shares.

Bayreuth, September 4, 1993
Steiner-Optik GmbH Robert Eckert
Carl Steiner

SIGNATURES

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

December 22, 1999

STEINER OPTICS INTERNATIONAL, INC.

/s/ Carl Steiner
By:__________________________________
Carl Steiner
President, Chief Executive
Officer

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

/s/ Carl Steiner
__________________________ December 22, 1999
Carl Steiner, President,
Chief Executive Officer and
Director (Principal Executive
Officer)

/s/ Robert Eckert
__________________________ December 22, 1999
Robert Eckert, Chief Financial
Officer and Director
(Principal Financial Officer)

STEINER OPTICS INTERNATIONAL, INC.
AND SUBSIDIARY

Consolidated Financial Statements
For The Years Ended
December 31, 1997, 1996, 1995 and 1994
And Independent Auditors' Report

STEINER OPTICS INTERNATIONAL, INC.
AND SUBSIDIARY

Table of Contents

Page

INDEPENDENT AUDITORS' REPORT F1.

CONSOLIDATED FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements F6.

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
of Steiner Optics International, Inc.

We have audited the accompanying consolidated balance sheets of Steiner
Optics International, Inc. and Subsidiary as of December 31, 1997, 1996, 1995
and 1994, and the related consolidated statements of income (loss), changes
in stockholders' equity, and cash flows for each of the years in the four-year
period ended December 31, 1997. 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 conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Steiner
Optics International, Inc. and Subsidiary as of December 31, 1997, 1996, 1995
and 1994, and the results of their operations and their cash flows for each of
the years in the four-year period ended December 31, 1997, in conformity with
U.S. generally accepted accounting principles.

Nuremberg, January 21, 1999
Dr. Rodl & Partner GmbH
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft

Dr. Rodl Schreyer
Wirtschaftspruefer Wirtschaftspruefer

Steiner Optics International, Inc. and Subsidiary

Consolidated Statements of Income (Loss)

<TABLE>

for the years ended December 31, 1997 1996 1995 1994
- -------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Notes
Sales revenue 1,16,18 $12,023,378 $11,361,146 $14,333,438 $10,307,245
Cost of sales (9,028,489) (7,426,360) (11,026,343) (9,617,693)
---------- ---------- ---------- ----------
Gross profit 2,994,889 3,934,786 3,307,095 689,552
---------- ---------- ---------- ----------
Operating expenses:
Selling, general and administrative (1,633,779) (1,742,839) (2,434,804) (2,253,325)
Research and development 1 (185,196) (198,749) (276,682) (241,312)
Impairment loss 5 (362,236)
---------- --------- --------- ---------
Total operating expenses (2,181,211) (1,941,588) (2,711,486) (2,494,637)
---------- --------- --------- ---------
Income (loss) from operations 813,678 1,993,198 595,609 (1,805,085)
Other income (expense)
Interest expense 6,8,14 (1,001,034) (1,138,454) (1,334,579) (1,208,201)
Interest income 25,538 37,429 38,555 28,104
Other income 10 271,546 330,443 487,132 309,676
Other expense (46,330)
Foreign currency transaction
gains (losses) 1 377,648 181,858 (171,327) (187,432)
---------- --------- --------- ---------
Total other expense (326,302) (588,724) (980,219) (1,104,183)
Income (loss) from operations ---------- --------- --------- ---------
before income taxes 16 487,376 1,404,474 (384,610) (2,909,268)

(Provision) benefit for
income taxes 1,11 (120,939) (872,114) (105,126) 1,280,261
---------- --------- --------- ---------
Net income (loss) $366,437 $532,360 $(489,736) $(1,629,007)
========== ========= ========= =========

Earnings (loss) per share 13 0.00245 0.00356 (0.00328) (0.01091)

</TABLE>
See accompanying notes to the consolidated financial statements.

Steiner Optics International, Inc. and Subsidiary

Consolidated Balance Sheets

<TABLE>

at December 31, 1997 1996 1995 1994
- ------------------------------------------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Assets Notes
Current assets:
Cash $ 264,087 $ 658,840 $ 16,650 $ 21,207
Accounts receivable
Trade 1,17,18 2,316,177 1,481,572 1,039,778 1,225,151
less allowance for doubtful
accounts 1 (77,506) (88,732) (39,414) (33,381)
Trade, net 2,238,671 1,392,840 1,000,364 1,191,770
Other 2 107,630 51,556 177,136 56,479
Inventories 1,3 4,935,771 5,754,736 6,598,177 5,940,044
Due from related parties 15 12,921 752,896 810,413 548,552
Prepaid expenses 10,338 20,593 10,629 19,261
Deferred tax assets 1,11 357,599 508,996 1,121,996 1,192,613
--------- --------- --------- ---------
Total current assets 7,927,017 9,140,457 9,735,365 8,969,926
--------- --------- --------- ---------
Noncurrent assets:
Property, plant and equipment,
net 1,4 4,068,639 4,934,546 5,733,127 5,651,125
Intangible assets, net 1,5 60,444 111,412 169,964 190,421
Assets related to pension plan
obligation 12 403,057 406,520 385,198 308,269
Cash value of life insurance 4 1,285,513 1,366,338 1,289,735 1,032,660
Due from related parties 15 528,976 30,557 55,228 37,448
--------- --------- --------- ---------
Total noncurrent assets 6,346,629 6,849,373 7,633,252 7,219,923
---------- ---------- ---------- ----------
Total assets $14,273,646 $15,989,830 $17,368,617 $16,189,849

Liabilities and Stockholders' Equity
Current liabilities:
Bank loans 6 $4,276,729 $5,642,676 $7,817,736 $7,148,711
Current portion of long-term debt 8,9 543,001 84,255 129,662 180,711
Current portion of capital lease
obligations 9,14 104,045 159,422 196,393 118,060
Accounts payable 1,169,847 1,068,348 1,744,617 1,378,472
Due to related parties 15 686,337 629,064 629,064 629,064
Income taxes payable 11 271,301 132,703 16,539 -
Accrued expenses 7,15 670,649 1,152,106 1,459,208 1,285,781
--------- --------- ---------- ----------
Total current liabilities 7,721,909 8,868,574 11,993,219 10,740,799
--------- --------- ---------- ----------
Noncurrent liabilities:
Long-term debt, less current
portion 8,9 6,596,744 7,124,299 5,768,915 5,616,132
Long-term capital lease
obligations 9,14 64,958 106,879 288,540 217,401
Accrued pension liability 1,12 534,356 523,007 507,556 415,529
Deferred tax liabilities 1,11 426,647 626,235 510,612 476,103
--------- --------- --------- ---------
Total noncurrent liabilities 7,622,705 8,380,420 7,075,623 6,725,165
---------- ---------- ---------- ----------
Total liabilities 15,344,614 17,248,994 19,068,842 17,465,964
---------- ---------- ---------- ----------
Commitments and contingencies 14
Stockholders' equity:
Common stock $0.00001 par value;
authorized and issued 150,000,000
shares; outstanding 149,333,500
shares 1,500 1,500 1,500 1,500
Additional paid-in capital 3,481,842 3,481,842 3,481,842 3,481,842
Accumulated deficit (4,755,401) (5,121,838) (5,654,198) (5,164,462)
Cumulative translation
adjustments 1 204,424 382,665 473,964 408,338
Common stock in treasury,
at cost; 666,500 shares 1 (3,333) (3,333) (3,333) (3,333)
--------- --------- --------- ---------
Total stockholders' equity (1,070,968) (1,259,164) (1,700,225) (1,276,115)
--------- --------- --------- ---------
Total liabilities and stockholders' equity $14,273,646 $15,989,830 $17,368,617 $16,189,849
========== ========== ========== ==========
</TABLE>

See accompanying notes to the consolidated financial statements.

Steiner Optics International, Inc. and Subsidiary

Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1997, 1996, 1995, 1994

<TABLE>

Additional Cumulative
Paid-In Accumulated Transaction Treasury
Common Stock Capital Deficit Adjustments Stock Total
------------ ---------- ----------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>

Balances at December 31, 1993 $ 1,500 $3,481,842 $(3,535,455) $ 259,136 $ - $ 207,023

Purchase of treasury stock (3,333) (3,333)

Net loss (1,629,007) (1,629,007)

Translation adjustment 149,202 149,202
----- --------- --------- ------- ------- ---------

Balances at December 31, 1994 1,500 3,481,842 (5,164,462) 408,338 (3,333) (1,276,115)

Net loss (489,736) (489,736)

Translation adjustment 65,626 65,626
----- --------- --------- ------- ------- ---------
Balances at December 31, 1995 1,500 3,481,842 (5,654,198) 473,964 (3,333) (1,700,225)

Net income 532,360 532,360

Translation adjustment (91,299) (91,299)
----- --------- --------- ------- ------- ---------

Balances at December 31, 1996 1,500 3,481,842 (5,121,838) 382,665 (3,333) (1,259,164)

Net income 366,437 366,437

Translation adjustment (178,241) (178,241)
----- --------- ---------- ------- ------ ----------
Balances at December 31, 1997 $ 1,500 $3,481,842 $(4,755,401) $204,424 $(3,333) $(1,070,968)
===== ========= ========== ======= ====== ==========

</TABLE>

See accompanying notes to the consolidated financial statements.

Steiner Optics International, Inc. and Subsidiary

Consolidated Statements of Cash Flows

<TABLE>

for the years ended December 31, 1997 1996 1995 1994
- ------------------------------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $366,437 $532,360 $(489,736) $(1,629,007)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating
activities:
Depreciation and amortization 436,600 531,879 635,029 578,675
Impairment loss 362,236
Deferred income taxes (48,191) 728,623 105,126 (1,280,261)
Losses (gains) on the disposal of equipment (1,600) (874) (2,583) 15
Changes in operating assets and liabilities:
Trade receivables, net (1,046,025) (484,481) 286,623 1,033,878
Notes receivable 223,277
Due from related parties (63,947) 15,088 (231,990) (98,099)
Other accounts receivable (64,065) 115,076 (115,855) (8,276)
Inventories 93,027 338,426 (179,959) 886,454
Prepaid expenses 7,829 (11,113) 10,158 (726)
Other assets and liabilities, net (4,305)
Assets related to pension plan obligation (49,094) (52,898) (52,018) (44,225)
Cash value of life insurance (94,199) (182,481) (173,628) (149,267)
Accounts payable 242,215 (556,186) 254,702 (292,983)
Due to related parties 57,273
Income taxes payable 159,032 120,939 16,502
Accrued and other current liabilities (343,571) (198,994) 69,852 (223,797)
Accrued pension liability 79,337 56,681 58,475 166,212
--------- -------- -------- ---------
Total adjustments (273,143) 419,685 680,434 786,572
--------- -------- -------- ---------
Net cash provided (used) by operating activities 93,294 952,045 190,698 (842,435)

Cash flows from investing activities:
Additions to intangible assets (54,542) (16,441) (12,732)
Additions to property, plant and equipment (31,256) (133,295) (219,058) (117,118)
Proceeds from sales of equipment 1,600 13,044 175,794
--------- -------- -------- ---------
Net cash used in investing activities (84,198) (120,251) (59,705) (129,850)
--------- -------- -------- ---------
Cash flows from financing activities:
Principal repayments of capital lease obligations (142,520) (186,163) (279,613) (134,481)
Proceeds from (repayments of) bank loans, net (796,340) (1,611,584) 93,827 (30,109)
Proceeds from issuance of long-term debt 1,061,563 1,953,644 21,437 518,328
Principal repayments on long-term debt (198,588) (130,962) (152,269) (52,790)
Proceeds from a subsidiary equity increase
financed by a shareholder 445,492
Payment for purchase of treasury stock (3,333)
--------- --------- -------- ---------
Net cash provided (used) by financing activities (75,885) 24,935 (316,618) 743,107
--------- --------- -------- ---------
Effect of exchange rates on cash (327,964) (214,539) 181,068 205,412
Net (decrease) increase in cash (394,753) 642,190 (4,557) (23,766)
Cash, beginning of year 658,840 16,650 21,207 44,973
--------- --------- -------- ---------
Cash, end of year $264,087 $658,840 $16,650 $21,207
========= ========= ======== =========

Supplemental schedule of noncash investing and financing activities and of cash flows:

1997 1996 1995 1994
------- ------- -------- --------
Capital lease obligations incurred $77,421 $402,158 $67,847
Value of advertising rights acquired 393,258
Less: cash paid (54,542)
-------- ------- -------- --------
Liabilities assumed $416,137 $402,158 $67,847
-------- ------- -------- --------
Cash paid during the year:
Interest $1,017,000 $1,123,000 $1,354,000 $1,201,000
Income taxes $131,000 $77,000

</TABLE>

See accompanying notes to the consolidated financial statements.

Steiner Optics International, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, YEARS ENDED DECEMBER 31,
1997, 1996, 1995 AND 1994

(1) Description of business and summary of significant accounting policies

Description of business

The Company's primary business is the design, manufacture and marketing of
multi-purpose binoculars for sale throughout the world. The Company also
manufactures and sells customized high-quality and precision optical products
designed to meet individual customer needs.

The Company's manufacturing facility and related operations are located in
Bayreuth, Germany.

Accounting principles

The financial statements have been prepared on a basis consistent with U.S.
generally accepted accounting principles.

Principles of consolidation

The consolidated financial statements include the accounts of Steiner Optics
lnternational, Inc. and its wholly-owned subsidiary in Germany (Steiner-Optik
GmbH). All significant intercompany accounts and transactions have been
eliminated in consolidation.

Translation of foreign currencies

Assets and liabilities of the foreign subsidiary are translated into U.S.
dollars at the exchange rate in effect at the end of the year. Revenue and
expense accounts are translated at the weighted average exchange rate
prevailing during the year. Local currencies are considered to be the
functional currencies of the Company's foreign subsidiary. Translation
adjustments that arise from translating the foreign subsidiary's financial
statements are accumulated in a separate component of stockholders' equity.
Transaction gains and losses that arise from exchange rate changes on
transactions denominated in a currency other than local currencies are
included in earnings as incurred.

Use of estimates in preparation of financial statements

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

Revenue recognition

Revenues are generally recognized when products are shipped to customers.

Remediation liabilities

The Company's policy is to accrue site remediation costs in the year in which
a loss is deemed to be probable and the amount is reasonably determinable.

Allowance for doubtful accounts

The allowance for doubtful accounts is maintained to absorb losses inherent
in trade receivables based on management's judgment. Factors considered in
determining the level of the allowance include: trends in receivable volume,
quality and composition; historical loss experience; specific known risks;
and current, as well as anticipated specific and general economic factors
that may affect certain customers.

Inventories

Raw materials are stated at purchase cost; work in process is stated at the
lower of cost or market; finished goods are stated at the lower of cost
(which approximates first-in, first-out) or market.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the assets.

Method Estimated Useful Life
--------- ---------------------
Buildings Straight line 10 - 50 years
Machinery and equipment Straight line 3 - 12 years
Furniture and fixtures Straight line 2 - 10 years

Repair and maintenance costs are expensed, while additions and improvements
are capitalized. The cost and related accumulated depreciation of assets sold
or retired are eliminated from the accounts and any gains or losses are
reflected in earnings.

Intangible assets

Purchased software and patent are stated at cost less accumulated
amortization, the advertising rights are stated at fair value, and the
excess of cost over fair value of net assets of a purchased business less
accumulated amortization is recorded as goodwill.

Method Estimated Useful Life
--------- ---------------------
Purchased software Straight line 6 - 7 years
Goodwill Straight line 10 years
Patent Straight line 18 years

Advertising and marketing costs

Advertising and marketing costs are expensed as incurred and totaled
approximately $317,000 in 1997, $461,000 in 1996, $713,000 in 1995 and $568,000
in 1994.

Income taxes

Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Under this method, net deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled,
thereby giving current recognition to changes in tax rates and laws.

Sale of receivables

In August 1994, the Company entered into an agreement with a factoring agent
to sell trade receivables without recourse. The receivables sold, factoring
fees and interest charges are as follows:

Receivables Factoring Interest
Year Sold Fees Charges
-----------------------------------------------
1997 $ 6,537,388 $ 59,650 $ 25,886
1996 $ 7,923,548 $ 88,342 $ 102,647
1995 $ 6,943,378 $ 64,241 $ 110,827
1994 $ 3,182,762 $ 64,698 $ 133,599

The fees and expenses were charged to selling, general and administrative
expenses and interest expense, respectively, in the consolidated income
statements. Amounts received from such sales have been included in the
statement of cash flows as operating activities under the heading "Changes
in operating assets and liabilities: Trade receivables, net".

Research and development

Research and development costs are charged to expense as incurred.

Pension plan

The compensation cost of an employee's pension benefit is recognized on the
net periodic pension cost method over the employee's approximate service
period. The aggregate cost method is utilized for funding purposes.

Accounting pronouncements

The Company will be required to adopt Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", as of January 1, 1998.
Accounting principles generally require that recognized revenue, expenses,
gains and losses be included in net income. Although certain changes in
assets and liabilities, such as cumulative translation adjustments, are
reported as a separate component of the equity section of the balance sheet,
such items, along with net income (loss), are components of comprehensive
income. The adoption of this Statement will have no effect on the Company's
net income (loss) or stockholders' equity.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which is required to be
adopted for the Company's December 31, 1998 financial statements. SFAS No.
131 establishes annual and interim reporting standards for a company's
operating segments and related disclosures about its products, services,
geographic areas and major customers. The adoption of SFAS No. 131 will have
no effect on the Company's consolidated financial statements.

(2) Other accounts receivable

Other accounts receivable consisted of the following at December 31, 1997,
1996, 1995 and 1994:

1997 1996 1995 1994
-------------------------------------
Value added tax refund claim $100,650 $17,943 $ 947
Trade fair fee refund claim 4,990 9,872
Trade payables with debit balances 219 14,269 16,236 $ 7,700
German employment bureau subsidy claim 86,439
German trade tax refund claim 5,359 48,070 44,491
Factoring fees refund claim 21,768
Miscellaneous 1,771 4,113 3,676 4,288
--------------------------------------
Total $107,630 $51,556 $177,136 $56,479
======================================
(3) Inventories

Inventories consisted of the following at December 31, 1997, 1996, 1995 and
1994:

1997 1996 1995 1994
-------------------------------------------
Raw materials $1,601,963 $1,809,884 $1,773,394 $1,717,947
Work in process 2,478,866 2,842,574 3,414,555 3,307,831
Finished goods 854,942 1,102,278 1,410,228 914,266
-------------------------------------------
Total inventories $4,935,771 $5,754,736 $6,598,177 $5,940,044
============================================

(4) Property, plant and equipment

Property, plant and equipment and depreciation consisted of the following at
December 31, 1997, 1996, 1995 and 1994:

1997 1996 1995 1994
------------------------------------------------
Land and buildings $ 5,937,196 $ 6,782,318 $ 7,356,225 $ 6,811,298
Machinery and equipment 2,857,876 3,271,816 3,548,671 3,414,099
Furniture and fixtures 2,582,759 2,857,196 2,667,221 2,674,282
-------------------------------------------------
Total historical cost 11,377,831 12,911,330 13,572,117 12,899,679
Less: accumulated (7,309,192) (7,976,784) (7,838,990) (7,248,554)
depreciation ------------------------------------------------
Total property, plant and
equipment, net $ 4,068,639 $ 4,934,546 $ 5,733,127 $ 5,651,125
================================================

Depreciation expense $ 355,949 $ 482,851 $ 586,504 $ 534,785

The Company's land and buildings are partially financed by a loan
collateralized by a life insurance policy on the President of the Company. See
Note (8).

(5) Intangible assets

Intangible assets and amortization consisted of the following at December 31,
1997, 1996, 1995 and 1994:

1997 1996 1995 1994
------------------------------------------------
Purchased software and
patent $ 238,838 $ 273,432 $ 296,569 $ 265,697
Advertising rights 39,326
Goodwill 113,203 113,203 113,203 113,203
-------------------------------------------
Total historical cost 391,367 386,635 409,772 378,900
Less: accumulated
depreciation (330,923) (275,223) (239,808) (188,479)
-------------------------------------------
Totl intangible assets, net $ 60,444 $ 111,412 $ 169,964 $ 190,421
===========================================
Amortization expense $ 80,651 $ 49,028 $ 48,525 $ 43,890

Impairment of long-lived intangible assets

The Company purchased for $393,258 in 1997 advertising rights from a
professional sports team supported by the Company's President. The
advertising rights were subsequently determined to be of no value and
the unamortized balance was charged to earnings as an impairment loss.

(6) Bank loans

The disclosures for short-term borrowings are as follows:

1997 1996 1995 1994
------------------------------------------------
Short-term lines of credit $3,080,490 $3,900,617 $5,439,120 $6,329,337
Lines of credit utilized $2,023,976 $3,728,144 $4,283,829 $5,035,679
Bank notes $2,252,753 $1,914,532 $3,533,907 $2,113,032
Short-term borrowings
Average balance outstanding $3,735,976 $6,123,525 $8,571,744 $7,352,254
Maximum amount borrowed at
any month-end $4,276,729 $6,816,989 $9,894,414 $8,073,584
Maximum interest rate charged 10.25% 11.78% 11.78% 11.78%
Minimum interest rate charged 2.50% 2.50% 3.00% 4.50%
Weighted average interest rate 6.80% 7.48% 8.34% 9.18%

The lines of credit have no stated expiration dates but are due on demand.
The lines of credit are collateralized by the Company's inventory and land
and buildings. The bank notes generally mature in 1998.

(7) Accrued expenses

Accrued expenses consisted of the following at December 31, 1997, 1996, 1995
and 1994:

1997 1996 1995 1994
------------------------------------------------
Payroll and other taxes $ 163,444 $ 280,864 $ 460,456 $ 210,631
Vacation pay and overtime 137,706 124,968 188,559 226,821
Warranty and credit notes 114,045 136,995 187,653 172,392
Trade receivables with credit
balances 110,889 212,246 103,754 139,982
Due to employees 50,737 152,895 36,210 59,103
Accounting expenses 16,854 16,079 41,856 36,803
Estimated loss from guarantees
for the indebtedness of
others 162,884 384,213 355,610
Miscellaneous 76,974 65,175 56,507 84,439
---------------------------------------------
$ 670,649 $1,152,106 $1,459,208 $1,285,781
=============================================

See Note (15) concerning related party transactions.

(8) Long-term debt

Long-term debt consisted of the following at December 31, 1997, 1996, 1995
and 1994:

1997 1996 1995 1994
------------------------------------------------
Loan payable (a) $3,230,338 $3,698,225 $3,487,967 $3,228,306
Loan payable (b) 1,505,324 1,798,027 2,024,762 1,936,983
Loan payable (c) 646,067
Loan payable (d) 589,888 771,803
Loan payable (e) 528,090 643,170
Loan payable (f) 262,172
Loan payable (g) 248,876 284,924 309,034 286,028
Loan payable (h) 128,990
Equipment purchase loans 12,405 64,806 327,180
Other 12,008 18,346
------------------------------------------------
Total 7,139,745 7,208,554 5,898,577 5,796,843
Less: current maturity (543,001) (84,255) (129,662) (180,711)
------------------------------------------------
Long-term debt $6,596,744 $7,124,299 $5,768,915 $5,616,132
==============================================

(a) Loan payable to a savings and loan institution, collateralized by land
and buildings with a book value of $4,291,278 at December 31, 1997, and a
life insurance policy, interest is payable monthly at an annual rate of
6.98 %, principal is due February, 2002.

(b) Three loans payable to a bank, collateralized by land and buildings,
subordinate to the loan payable (a) to a savings and loan institution,
composed of three loans of between $500,211 and $502,735 each, bearing
interest at the annual rate of 7.7 %, 7.9 % and 8 %. Through 1994, only
interest is due, afterwards, quarterly installments of approximately $16,000,
including interest are due. Although each note's maturity can be extended
until the year 2010, the interest rates are only fixed until varying dates
(March 31, 1998, 2003 and 2006), and the unpaid principal at maturity is
payable in full if the loan is not extended. Unless extended, the loans
mature in March, 1998, 2003, and 2006, respectively.

(c) Loan payable to a bank, bearing interest at an annual rate of 7 %.
Through 1998, only interest is due. The loan principal was repaid in 1998.

(d) Loan payable to a bank, bearing interest at an annual rate of 5.6 %.
The principal repayments are due semiannually in the amount of $86,247 each
and interest payments are due quarterly. The loan matures in August, 2001.

(e) Loan payable to a bank, bearing interest at an annual rate of 6.3 %,
interest is due monthly. Through September 1998 only interest is due,
thereafter the loan principal is repaid in monthly installments of
approximately $35,000. The loan matures in December, 1999. The loan
is collateralized by the Company's land and buildings.

(f) Uncollateralized loan payable to a bank, bearing interest at an
annual rate of 5.3 %. Interest is due quarterly. The principal of the
loan is repaid in two annual installments of $134,161. The loan matures
in December, 1999.

(g) Two loans payable to an insurance company, bearing interest at annual
rates of 8 %. Interest is due semiannually. The principal of the loans is
due when two life insurance policies held by the Company mature in the year
2019.

(h) Two loans payable to a bank bearing interest of 4.8 % and 5.6 %. One
loan's principal of approximately $53,000 is due in full in 2001 with
interest due monthly. Principal on the other loan is due in monthly
installments of approximately $2,000, including interest, until maturity
in 2001.

Future minimum payments under these obligations are as follows:

Year ended December 31,
1998 $ 543,001
1999 1,668,378
2000 422,103
2001 324,096
2002 106,460
and thereafter 4,075,707
---------
Total minimum payments $7,139,745
=========

(9) Fair value of financial instruments

The fair value of financial instruments is determined by reference to the
prevailing market interest rates. The estimated fair value and carrying
value of long-term debt and capital lease obligations is as follows:

1997 1996 1995 1994
------------------------------------------------
Fair value $7,546,886 $7,658,638 $6,332,179 $6,338,281
Carrying value $7,308,748 $7,474,855 $6,383,510 $6,132,304

(10) Other income

Other income consists of the following:

1997 1996 1995 1994
------------------------------------------------
Increase in the cash value of
life insurance policy $ 94,198 $ 182,483 $ 173,628 $ 149,267
Rental income 60,991 48,872 49,722 51,459
Increase in the cash value of
pension plan assets 49,094 52,897 52,019 44,225
Bad debt recoveries 13,134 34,177 185,316 57,742
Miscellaneous income 54,129 12,014 26,447 6,983
----------------------------------------------
Total $ 271,546 $ 330,443 $ 487,132 $ 309,676
==============================================

(11) Income taxes

The income tax (provision) benefit consists of the following:

1997 1996 1995 1994
-------------------------------------------------
Current German income taxes $ (169,130) $ (143,491)
Deferred German income taxes 48,191 (728,623) (105,126) 1,280,261
----------------------------------------------
(Provision) benefit for
income taxes $ (120,939) $ (872,114) $ (105,126) $1,280,261
==============================================

Deferred tax assets and liabilities are calculated at the German statutory
rate of between 54.63 % and 57.93 % with the exception of the net operating
loss carryforwards for U.S. income taxes only, which are calculated using a
35 % tax rate.

A reconciliation of income taxes computed at the German statutory rate of
between 54.63 % and 57.93 % to the reported income tax is as follows:

1997 1996 1995 1994
-----------------------------------------------
(Provision) benefit for income
taxes at the German statutory
rates $(282,316) $(813,550) $ 222,787 $1,589,188
Operating income (losses) not
utilized 216,624 43,261 (279,424) (256,527)
US-GAAP adjustments (362,145) (397,222)
Utilization of German net
operating loss carryforward 153,974 211,466
Deductibility of German trade
tax on income 78,018 83,118
Changes in the valuation
allowance on the German net
operating loss 124,730 58,824 (70,965) (56,084)
Differences in tax base for
German trade income tax (51,127) (44,263)
Nondeductible expenses (2,405) (2,180) (1,619) (25,954)
Changes in tax rates 22,761
Other 3,708 (11,568) 24,095 6,877
----------------------------------------------
(Provision) benefit for income
taxes $(120,939) $(872,114) $(105,126) $1,280,261
==============================================

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997, 1996, 1995 and 1994 are presented below.

1997 1996 1995 1994
-----------------------------------------------
Current deferred tax assets
(due to differences in
valuation):
Inventories $ 321,304 $ 372,560 $ 579,034 $ 533,018
Estimated loss from guarantees
for the indebtedness of
others 94,352 222,558 205,989
Accounts receivable 36,295 42,084 320,404 453,606
-------------------------------------------
Current deferred tax asset $ 357,599 $ 508,996 $1,121,996 $1,192,613
-------------------------------------------
Non-current deferred tax
liabilities:
Net operating loss carry-
forwards (U.S. income
taxes only $ 849,077 $1,019,074 $1,004,663 $ 888,049
Net operating loss carry-
forwards (German income
taxes only) 253,055 601,743 568,956
Pension, due to differences
in valuation 150,386 143,643 142,640 119,465
Advertising rights, due to
differences in valuation 202,422
Plant and equipment, due to
differences in depreciation (779,455) (942,114) (1,076,297) (1,064,959)
--------------------------------------------
Total non-current deferred 422,430 473,658 672,749 511,511
tax assets
Less valuation allowance -
U.S. net operating loss (849,077) (1,019,074) (1,004,663) (888,049)
carryforwards
Less valuation allowance -
German net operating
loss carryforwards (80,819) (178,698) (99,565)
--------------------------------------------
Net non-current deferred
tax liability (426,647) (626,235) (510,612) (476,103)
--------------------------------------------
Net deferred tax (liabilty)
asset $ (69,048) $ (117,239) $ 611,384 $ 716,510
============================================
Net decrease (increase) in
the total valuation
allowance $ 250,816 $ 83,468 $ (195,747) (212,552)
--------------------------------------------

At December 31, 1997, the Company had net operating loss carryforwards for
U.S. federal income tax purposes of $2,425,933 which are available to offset
future U.S. federal taxable income, if any, and expire between 2003 and 2012.
Such losses may only be offset against income earned in the United States.
The net operating loss carryforward decreased in 1997 because it was offset
by income earned in the United States.

At December 31, 1997, the Company's net operating loss carryforwards for
German income tax purposes had been deducted in full from the Company's
German taxable income.

(12) Pension benefits

The Company's wholly-owned German subsidiary has a defined benefit pension
obligation to the President and to the Chief Financial Officer of the Company,
beginning at the age of 65. The benefits are based on 50 % of their last
annual salary prior to retirement.

In Germany there are no legal requirements to fund the pension obligation by
transferring cash to an outside funding agency. However, the Company has
assets related to pension plan obligations to provide for the funding of the
plan and the related obligation.

In accordance with German law, unfunded vested rights are covered by mandatory
insurance to provide protection to the employees in case of the employer's
insolvency. For purposes of the mandatory insurance, vesting occurs after ten
years of membership in the plan or twelve years of service and three years of
membership (regardless of the contractual vesting). The vested obligation
under these terms is included in the accrued pension liability.

The following table sets forth the amounts presented in the Company's balance
sheets at December 31, 1997, 1996, 1995 and 1994 for the accrued pension
liability, the components of pension cost and the assumptions used in
accounting for the pension plan:

1997 1996 1995 1994
-------------------------------------------------
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 166,885 $ 217,690 $ 216,021 $ 182,627
Accumunlated benefit
obligation 299,702 296,863 289,995 240,957
Projected benefit obligation 649,776 661,500 665,675 569,195
Plan assets at fair value
Projected benefit obligation
in excess of plan assets 649,776 661,500 665,675 569,195
Unrecognized net obligation
at transition, amortized (115,420) (138,493) (158,119) (153,666)
over 26 years
----------------------------------------------
Accrued pension liability $ 534,356 $ 523,007 $ 507,556 $ 415,529

Service cost - benefits earned
during the year $ 33,825 $ 22,447 $ 23,828 $ 78,566
Interest cost on projected
benefit obligation 38,143 25,312 26,870 88,596
Amortization of initial
benefit obligation 5,551 7,290 7,907 7,318
---------------------------------------------
Total pension cost $ 77,519 $ 55,049 $ 58,605 $ 174,480
=============================================
Weighted average discount rate 7% 7% 7% 7%
Rate of increase in comparison
levels 5% 5% 5% 5%
Weighted average expected long-
term return on plan assets 3% 3% 3% 3%

The pension obligations have been calculated by an actuary.

(13) Earnings (loss) per share

Earnings (loss) per share is determined by dividing net income (loss) by the
weighted number of common shares issued and outstanding (149,333,500 shares
in 1997, 1996, 1995 and 1994). The Company has a simple capital structure with
no dilutive securities.

(14) Commitments and contingencies

Environmental remediation liabilities

The Company's German subsidiary was requested by the City of Bayreuth in 1992
to have a qualified environmental consultant investigate the groundwater under
the Company's land for possible contamination with certain chloromethanes.
The initial samples revealed contamination of the groundwater and soil with
substantial levels of chloromethanes as well as mineral oil and lead.

The Company's policy is to accrue site remediation costs in the year in which
a loss is deemed to be probable and the amount is reasonably determinable.
Because of the uncertainties associated with both the probability and the
amount associated with remediation activities, only the estimated costs of
the next environmental impact study have been accrued.

The environmental remediation issue was fully resolved in 1998 at a cost of
approximately $143,000.

Financial guarantees

The Company has a contingent liability of approximately $64,000 at December
31, 1997, relating to a bank loan of a related party.

Operating leases

The Company has operating lease commitments for machinery and office equipment
and motor vehicles extending for varying periods until the year 2002. The
leases can either be renegotiated or they renew automatically if notice is
not given. There are no escalation clauses. Minimum annual rentals payable
under these leases with a remaining noncancelable term of more than one year
are as follows:

Year ended December 31,
1998 $ 236,357
1999 91,057
2000 45,728
2001 4,487
2002 4,487
---------
Total minimum annual
rentals payable $ 382,116
=========

Total rental expense charged to operations was approximately $195,000 in 1997,
$237,000 in 1996, $260,000 in 1995 and $243,000 in 1994.

Capital leases

The following is an analysis of property held under capital leases, included
with owned property on the balance sheets at December 31:

1997 1996 1995 1994
----------------------------------------------
Machinery and equipment $ 797,146 $ 826,003 $ 895,897 $ 442,237
Less: accumulated depreciation (529,778) (511,248) (451,414) (200,970)
---------------------------------------------
Total machinery and
equipment, net $ 267,368 $ 314,755 $ 444,483 $ 241,267
=============================================

The depreciation of assets recorded under capital leases is included in the
depreciation of property, plant and equipment.

The capital leases consist of uncancelable equipment leases expiring through
February 2002, payable in monthly installments aggregating between $1,664 and
$10,413 including imputed interest at various rates ranging from 3.9 % to
5.65 %.

The following is a schedule by years of future minimum lease payments under
capital leases:
Year ended December 31,
1998 $ 110,699
1999 25,294
2000 19,969
2001 19,969
2002 9,230
----------
Total minimum lease payments 185,161
Less: amount representing
executionary costs and
interest (16,158)
---------
Present value of minimum
lease payments $ 169,003
=========

(15) Related party transactionsThe Company made payments towards repayment
of the principal of a bank loan granted to a professional sports team supported
by the Company's President and guaranteed by the Company of approximately
$33,000, $113,000, $160,000 and $141,000 in 1997, 1996, 1995, and 1994,
respectively.

In 1997, the Company purchased advertising rights from the team as disclosed
in Note 5. As part of this transaction, the Company assumed this debt
obligation and an additional debt obligation of the team totaling $128,990 at
December 31, 1997. See Note (8 (h)).

Due from related parties in the accompanying consolidated balance sheets at
December 31, 1996, 1995, 1994, represent loans granted to the professional
sports team by the Company. As a part of the payment for the purchase of
advertising rights from the team, the Company waived repayment of these loans.

Due to related parties in the accompanying consolidated balance sheet at
December 31, 1997 includes $57,273 due to the professional sports team. This
amount is the balance due to the team as a result of the Company's purchase
of advertising rights and the associated assumption of debt obligations and
waivers of repayment. The balance accrues 3.5 % interest and is payable on
demand.

The Company's President owed the Company approximately $529,000, $722,000,
$794,000 and $541,000 at December 31, 1997, 1996, 1995 and 1994, respectively.
The principal of the loan is scheduled to be repaid in 10 equal annual payments
beginning in 2002 with interest at 3.5 %.

The estimated loss from guarantees for the indebtedness of others of $162,884,
$384,213 and $355,610 in 1996, 1995 and 1994, respectively, concern the
Company's guarantees for the indebtedness of a related third party of the
President.

Due to related parties in the accompanying consolidated balance sheets
includes $629,064 for all years presented due to the Company's President for
the subscription of 6,000 shares of preferred stock. The subscription amount
is excluded from stockholders' equity because preferred stock has not been
authorized pending regulatory approval.

(16) Segment and geographic information

Worldwide sales consist primarily of multi-purpose binoculars, but includes
also sales of optical products. The Company considers its optical product
sales to be essentially in the same business segment as its binocular
business. Sales of optical products are concentrated in Germany and totaled
approximately $1,036,000 in 1997, $1,439,000 in 1996, $650,000 in 1995 and
$806,000 in 1994.

Operating profit as well as identifiable assets are essentially the same for
each segment.

Net sales by geographic region were as follows:

(in thousands of dollars) 1997 1996 1995 1994
-----------------------------------------------
North America $ 4,840 $ 2,811 $ 2,866 $ 2,401
Germany 4,146 5,233 4,699 3,707
Remainder of Europe 1,690 1,942 5,853 2,939
Middle East 647 870 514 717
Asia 549 353 258 480
Other 151 152 143 63
-----------------------------------------------
$12,023 $11,361 $14,333 $10,307
===============================================

The Company's income (loss) before income taxes from foreign and domestic
operations is as follows:

1997 1996 1995 1994
------------------------------------------------
Income (loss) from foreign
operations $ 98,468 $1,461,408 $ (27,523) $(2,438,714)
Income (loss) from domestic
operations 388,908 (56,934) (357,087) (470,554)
-----------------------------------------------
Total income (loss) before
income taxes $487,376 $1,404,474 $ (384,610) $(2,909,268)
===============================================

(17) Concentrations of credit risk

Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of entities comprising the Company's customer
base and due to the Company's factoring of receivables.

(18) Significant customers

There are two customers with whom the Company has derived over 10 % of annual
revenues. The revenues derived from one of the customers - the Company's
United States distributor - are of a recurring nature and amounted to
approximately $4,840,000 in 1997, $2,811,000 in 1996, $2,866,000 in 1995 and
$2,401,000 in 1994. The revenues derived from the other customer are of a
non-recurring nature and amounted to approximately $3,850,000 in 1995.

THESE NOTES ARE AN INTEGRAL PART OF THE ACCOMPANYING CONSOLIDATED FINANCIAL
STATEMENTS.

<ARTICLE> 5

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