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 year ended December 31, 1993
-----------------
OR
( ) 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 Form 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 has no
business operations of any significance; it functions 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 only wholly-owned
subsidiary of the Company, Steiner-Optik (SEA) Pte. Ltd., has had no
operations since 1991 and will be liquidated in 1999.
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.
During 1993 six (6) engineers and technicians were engaged in research and
development activities; they focused on the development of new products, as
well as on improving the Company's manufacturing and quality control
practices. In 1991, 1992 and 1993 the Company spent roughly $164,000,
$217,000 and $228,000, 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. 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. In 1993 the Company's
sales of binoculars in Germany, the rest of Europe, the USA and Asia
constituted 32%, 23%, 20% and 8% of all sales, respectively. The Company's
sales of optical components in 1993 -- 11% of all sales -- were concentrated
in Germany. 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 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 $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 approximately (b) $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 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.
In 1993 finished goods represented roughly 13.4% of all Steiner's
inventory. Semi-finished goods represented 60% thereof, and raw materials
accounted for 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.
Variations in backlog do not represent future business trends fairly because
unfilled orders fluctuate greatly with the timing of orders and the product
mix. The Company had a backlog of $5.13 million at March 15, 1994 (as
compared to a backlog of $2.8 million at March 15, 1993). The increase in
the backlog is due to an increase in military orders and additional business
from the United States. Despite this large backlog, the Company shipped all
of the unfilled orders placed by March 1994 before the end of 1994.
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). As of December 31, 1993, the
Company employed 146 persons (104 in manufacturing and 42 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,
Munchen; 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.
In March 1993 the Company learned that the groundwater and soil
underlying the Company's properties is contaminated with chloromethanes,
mineral oil and lead. In 1998, at the cost of approximately $143,000, the
Company disposed of its share of the environmental liability for the clean-up
in all material respects.
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. In 1993
the Company settled several labor disputes with former employees laid off
in connection with the closing of certain in-house production departments.
See Item 6, p. 14. 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 presently
quoted 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 table sets forth the high and low bid quotations for
shares of the common stock from January 1, 1992 through December 31, 1993,
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.
1993 High Low
------ ----- -----
Fourth Quarter $.005 $.005
Third Quarter $.005 $.0025
Second Quarter $.03 $.005
First Quarter $.03 $.005
1992 High Low
------ ----- -----
Fourth Quarter $.03 $.01
Third Quarter $.03 $.005
Second Quarter $.03 $.005
First Quarter $.045 $.01
There were approximately 2,000 record holders of the common stock
of the Parent Corporation at December 31, 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 rate on
December 31, 1993, i.e., DM 1.7263 per US Dollar. 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 rate in 1993, i.e., DM 1.67015 per
US Dollar.
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 1.614 on December 31, 1992, to DM 1.7263 on
December 31, 1993, and created an impression that the sales went down.
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 Note 8.
The Company continues its strategic cost-reduction program and a
search for additional outsourcing opportunities. In 1993 the Company entered
into a cooperation agreement with an Eastern European manufacturer whose
assembly operations were expanded with the assistance of technical personnel
of the Company. This cooperation ended in 1996, but the outsourcing continues.
The Company has simply found better opportunities in the Far East where
outsourcing of components and assemblies requires fewer resources to monitor
output and maintain quality control.
YEAR ENDED DEDEMBER 31, 1993, COMPARED TO YEAR ENDED DECEMBER 31, 1992
Net sales of $11,406,491 in the year ended December 31,1993
represented a decrease of $817,604, or 6.7%, from the sales for the year
ended December 31, 1992. Most of this apparent decrease in net sales was due,
however, to the appreciation of the U.S. Dollar against the Deutsche Mark,
not to a decrease in net sales. Net sales in 1993 in Deutsche Marks were
practically unchanged.
Stagnant sales reflected, among other factors, the impact on
the Company's financial results of an adverse economic trend, primarily in
Germany and in most of Europe and, albeit to a lesser extent, in the United
States.
Furthermore, export sales into the United States and, hence, net
sales for the year ended December 31, 1993, were lower, on a period-to-period
comparison (25%), due to a dispute with the Company's U.S. distributor in
early 1993. See "Legal Proceedings." Sales to the U.S. did not increase until
1997 because of the appreciation of the Deutsche Mark against the U.S. Dollar
in 1994-6 that increased considerably the costs of exporting binoculars into
the U.S. from Germany.
Still, the impact of the adverse economic trend was 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 -- and was in 1993 -- offset by an increase in sales
elsewhere.
Declines in net sales of the Company's binoculars for the year
ended December 31, 1993, were partially offset by increases in net sales of
miscellaneous components and other non-binocular products (including
replacement parts, bags and floatation straps). In the year ended December 31,
1993, declines in net sales of binoculars in the consumer markets were
partially offset by increases in net sales to the military and governments,
the industry and in the miscellaneous product market. Net sales in 1993 were
impacted (by comparison with 1992) by the introduction of five (5) products
in 1993, i.e., Safari 8x30 and Navigator 7x50 in the second quarter, Hunting
8x56 in the third quarter, and "Hunting 12x40" and "Miniscope 8x22" in the
fourth quarter. The nature of such offset changes from year to year and
is likely to continue.
In 1992 and 1993 the Company's sales of binoculars to the military
constituted approximately 9% and 10%, respectively, of the Company's total
sales. Sales to the military further increased (as a percent of net sales) in
1994-5. The percent of sales to the military fluctuates from year to year,
since one big order can -- and in 1994-5 did - change the picture
significantly. Most of binoculars sold in 1992 and 1993 were for use
in recreation such as sailing, hunting and hiking.
In 1993 sales of the Company's industrial components increased to
26% of domestic sales (compared to 14% in 1992) and to 11% of total sales
(compared to 6.6% in 1992) due to an increase in orders from existing
customers. The Company has only 3-5 major customers in that market and,
hence, the advent of a new customer usually has big impact on sales.
Expressed in U.S. Dollars, costs and expenses decreased 3% (from
$11,669,454 in 1992 to $11,313,755 in 1993). Expressed in Deutsche Marks,
costs and expenses were practically unchanged.
The largest percentage decrease in costs and expenses on a period-
to-period comparison was in selling, general and administrative expenses.
These expenses decreased 32% (from $3,368,118 in 1992 to $2,288,039 in 1993).
Reduced sales commissions on reduced sales, labor costs and administrative
and market costs accounted for 50% of the decrease. The remainder was
due to the outsourcing of standard components and assemblies, the closing
of certain in-house production departments and concomitant reduction in
personnel. Most of these reductions were made in 1993. Hence, the severance
payments for the year ended December 31, 1993, were $179,626 as compared to
$12,780 for the year ended December 31, 1992. This decrease was entirely
offset by higher cost of revenues and slight increase in research and
development expenses from $216,904 in 1992 to $228,663 in 1993.
Operating income decreased 83% (from $554,641 in 1992 to $92,736
in 1993), primarily due to the decrease in net sales (from $12,224,095 in
1992 to $11,406,491 in 1993) and the recognition in 1993 of the then accrued
liability for the indebtedness of others in the amount of $319,046 and the
corresponding deferred income tax asset in the amount of $169,705.
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 5% (from $36,224 in 1992
to $34,270 in 1993) due to lower interest rates in Germany where the
Bundesbank reduced the German prime rate several times during 1993, as well
as the change in Deutsche Mark/U.S. Dollar ratio from 1.61400 at December 31,
1992, to 1.72630 at December 31, 1993.
Expressed in U.S. Dollars, interest expense increased 5% (from
$1,199,148 in 1992 to $1,254,510 in 1993) due to an increase in long-term
debt to satisfy the Company's capital requirements. By comparison, interest
expense increased 12% in Deutsche Marks (from DM 1,876,667 in 1992 to DM
2,095,220 in 1993).
In 1993 the Company sold certain production equipment no longer
needed in the manufacturing process and sublet to other companies the space
that became available after the Company closed off some of its production
departments. When netted against the expense of laying off the employees
previously employed thereby, the other income resulted in the other expense
of $39,723 in 1993 (as compared to a one-time other income item of $40,344
in 1992).
For the year ended December 31, 1993, the Company implemented
Statement of Financial Accounting Standards 109 and, as a result, recognized
$560,807 in deferred income taxes (as compared to a provision for income
taxes of $43,013 in 1992). See Note 8 of the Consolidated Financial Statements
for additional information. The cumulative effect of the change in accounting
for income taxes in prior years was $826,165, which led to a net loss of
$1,499,854 for the year ended December 31, 1993 (as compared to a net loss
of $618,475 for the year ended December 31, 1992).
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 would be sufficient for
the planned ongoing research and development and for 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. The agreement provided for the
sale without recourse of up to $4,600,000 per year of receivables from seven
customers. During 1993 $1,949,441 of receivables were sold at a total cost of
$52,214 including $25,443 in factoring fees and $26,771 in interest
expense. These fees and expenses were charged to selling, general and
administrative expenses and interest expense, respectively, on the
1993 consolidated income statement. Amounts received from such sales
in 1993 have been reported on the 1993 statement of cash flows as
operating activities. 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. 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, 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, 1993, the Company had long-term debt in the
aggregate amount of $4,702,998. 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 December
30, 2010 respectively.
In 1993-94 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 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
FINANCIAL STATEMENTS
Consolidated Statements of Loss for the Years Ended
December 31, 1993 and 1992 F1.
Consolidated Balance Sheets at December 31, 1993 and 1992 F2.
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1993 and 1992 F3.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993 and 1992 F4.
Notes to the Consolidated Financial Statements F5.
Item 8. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
The Parent Corporation dismissed Coopers & Lybrand as its Certified
Public Accountants on December 9, 1993. The reports of Coopers & Lybrand on
the Company's financial statements for the years ended December 31, 1991 and
1992, did not contain an adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principles. Additionally, the Company has not had any disagreements with
Coopers & Lybrand on any matter of accounting principles or practices,
financial statements disclosure, or auditing scope or procedure in 1991 or
1992 or in any of the subsequent periods prior to its dismissal. The Company
ultimately replaced Coopers & Lybrand with Dr. Rodl & Partner, the Company's
current Certified Public Accountants, on April 8, 1998.
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 or 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 ompany's Directors or Executive
Officers has 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 1993 by Section 16(a) of the Exchange Act, except as
follows: both of the Company's officers were late in filing their
initial Form 3.
Item 10. EXECUTIVE COMPENSATION.
The following table sets forth all compensation awarded
to, earned by, or paid by the Company to the following persons
for services rendered in all capacities to the Company during
each of the fiscal years ended December 31, 1993, 1992 and 1991:
(1) the Company's Chief Executive Officer, and (2) each of the
other executive officers whose total salary and bonus for the
fiscal year ended December 31, 1993, exceeded $100,000.
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation
Name and Position Year Salary Bonus Other(a)
- ------------------------------------------------------------------
Carl Steiner 1993(b) $141,292 $ 17,278 $17,119
(President & Chief
Executive Officer) 1992(c) $153,846 $ 19,231 $18,328
1991(d) $144,631 $ 18,079 $17,230
Robert Eckert 1993(b) $ 86,891 $ 17,808 $ 1,427
(Controller & Chief
Financial Officer) 1992(c) $ 96,153 $ 0 $ 0
1991(d) $ 81,355 $ 0 $ 0
(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 1.67015 per
U.S. Dollar during 1993.
(c) Based upon an average exchange rate of DM 1.56 per
Dollar during 1992.
(d) Based upon an average exchange rate of DM 1.6594 per
Dollar during 1991.
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 9.
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 advertise 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, 1993 and
August 10, 1999, by each person known to be the beneficial owner
of more than five (5%) 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 c
lub in Germany. In the years ended December 31, 1993 And December 31,
1992, the Company paid $120,000 and 128,000, respectively, to support
this club. The Company also made loans to the club; at December 31,
1993, the outstanding balance of these loans was approximately $49,000; at
June 30, 1997, the outstanding balance of these loans was approximately
$63,000.
During 1993 the Company made various payments in the aggregate
amount of $253,991 on behalf of Mr. Steiner. As of December 31, 1993,
Mr. Steiner owed the Company $357,705 on account of those and earlier
payments.
The Parent Corporation still owes Mr. Steiner for and on account of
two (2) payments in the aggregate amount of DM 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.
In 1973 Carl Steiner became the sole shareholder of the Company
in exchange for his obligation to pay DM 7,800 monthly to each of his parents
for the duration of their respective lives. His father died in 1980; his
mother is still alive. Carl Steiner does not make any payments to his mother;
the Company makes the payments and treats them as loans to Carl Steiner. At
December 31, 1993, the present value of Mr. Steiner's obligation to make
such payments was $477,624 (based upon the exchange rate of DM 1.7263). In
1994 Carl Steiner was able to renegotiate 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.
10.4 Translation of Loan Agreements with Volkebank Raiffeiconbank
Bayreuth, eG (filed as Exhibit 10.3 to the Company's Form 10-K
for the fiscal year ended December 31, 1991, File No. 2-92801NY).
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.
By: /s/ Carl Steiner
--------------------------
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, 1993 and 1992
And Independent Auditors' Report
STEINER OPTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Table of Contents
Page
INDEPENDENT AUDITORS' REPORT F1.
FINANCIAL STATEMENTS
Consolidated Statements of Loss for the Years Ended
December 31, 1993 and 1992 F2.
Consolidated Balance Sheets at December 31, 1993 and 1992 F3.
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1993 and 1992 F4.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993 and 1992 F5.
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, 1993, and the related consolidated statements of loss,
changes in stockholders' equity, and cash flows for the year then
ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements
based on our audit. The consolidated financial statements of
Steiner Optics International, Inc. and Subsidiary as of December
31, 1992, were audited by other auditors whose report dated March
31, 1993, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with U.S. generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audit provides 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, 1993, and the results of their operations and
their cash flows for the year then ended, in conformity with U.S.
generally accepted accounting principles.
As discussed in Notes (1) and (8) to the consolidated financial
statements, the Company changed its method of accounting for
income taxes in 1993 to adopt the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes".
Nuremberg, July 10, 1998
Dr. Rodl & Partner GmbH
Wirtschaftsprofungsgesellschaft
Steuerberatungsgesellschaft
Dr. Rodl Schreyer
Wirtschaftspruefer Wirtschaftspruefer
Steiner Optics International, Inc. and Subsidiary
Consolidated Statements of Loss
for the years ended December 31, Notes 1993 1992
- -----------------------------------------------------------------
Sales revenue 1,13 $ 11,406,491 $ 12,224,095
Cost of sales (8,797,053) (8,084,432)
----------- ----------
Gross profit 2,609,438 4,139,663
----------- ----------
Operating expenses:
Selling, general and administrative (2,288,039) (3,368,118)
Research and development 1 (228,663) (216,904)
----------- ---------
Total operating expenses (2,516,702) (3,585,022)
----------- ---------
Income from continuing operations 92,736 554,641
----------- ---------
Other income (expense)
Interest expense 5,7,11 (1,254,510) (1,199,148)
Interest income 34,270 36,224
Other income (expense) (39,723) 40,344
Foreign currency transaction
gains (losses) 1 50,780 (7,079)
Loss from continuing operations ---------- ---------
before income taxes and
cumulative effect of a
change in accounting principle (1,116,447) (575,018)
(Provision) benefit for income
taxes 1,8 442,758 (43,457)
---------- ---------
Loss from continuing operations
before cumulative effect of a
change in accounting principle (673,689) (618,475)
Cumulative effect of a change in
accounting principle 1,8 (826,165)
---------- ---------
Net loss $ (1,499,854) $ (618,475)
========= =========
Per share:
Loss per share before cumulative
effect of a change in accounting
principle (.00449) (.00412)
Cumulative effect of a change in
accounting principle (.00551)
------- -------
Net loss per share 10 (.01000) (.00412)
======= =======
Pro forma loss and loss per share:
Loss from continuing operations
before cumulative effect of a
change in accounting principle (673,689) (562,334)
Cumulative effect of a change in
accounting principle 1,8 (826,165) (1,049,411)
--------- ---------
Net loss $ (1,499,854) $(1,611,745)
========= =========
Per share:
Loss per share before cumulative
effect of a change in accounting
principle (.00449) (.00375)
Cumulative effect of a change in
accounting principle (.00551) (.00700)
------ ------
Net loss per share 10 (.01000) (.01075)
====== ======
See accompanying notes to the consolidated financial statements.
Steiner Optics International, Inc. and Subsidiary
Consolidated Balance Sheets
at December 31, Notes 1993 1992
- ---------------------------------------------------------------
Assets
Current assets:
Cash $ 44,973 $ 71,914
Accounts receivable
Trade 1,13,14 2,111,584 2,463,465
less allowance for
doubtful accounts (68,644) (82,812)
--------- ---------
Trade, net 2,042,940 2,380,653
Due from related
parties 12 433,356 203,038
Other 42,877 119,278
Notes receivable,
short-term portion 67,937 -
Inventories 1,2 6,164,147 7,101,377
Prepaid expenses 16,596 24,983
Deferred tax assets 1,8 302,121 -
--------- ---------
Total current assets 9,114,947 9,901,243
Noncurrent assets:
Property, plant and
equipment, net 1,3,11 5,399,546 6,239,480
Intangible assets, net 4 205,502 221,412
Assets related to pension
plan obligation 9 234,921 220,307
Cash value of life
insurance 3,9 785,901 694,941
Notes receivable 142,346 95,923
--------- ---------
Total noncurrent assets 6,768,216 7,472,063
--------- ---------
Total assets $15,883,163 $17,373,306
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Bank loans 5 $ 6,442,030 $ 8,512,593
Current portion of long
-term debt 7 59,362 167,518
Current portion of capital
lease obligations 11 115,736 -
Accounts payable 1,512,668 1,774,453
Due to related parties 12 144,818 -
Income taxes payable - 70,988
Accrued and other current
liabilities 6,12 1,364,348 1,151,850
--------- ----------
Total current liabilities 9,638,962 11,677,402
--------- ----------
Noncurrent liabilities:
Long-term debt, less current
portion 7 4,702,998 3,523,670
Long-term capital lease
obligations 11 247,988 -
Accrued pension liability 9 216,265 183,468
Other long-term liabilities 4,055 -
Deferred tax liabilities 1, 8 865,872 298,393
--------- ---------
Total noncurrent liabilities 6,037,178 4,005,531
--------- ---------
Total liabilities $15,676,140 $15,682,933
---------- ----------
Commitments and contingencies 11
Stockholders' equity:
Common stock $0.00001 par
value; authorized
150,000,000 shares; issued
and outstanding 150,000,000
shares 1,500 1,500
Additional paid-in capital 3,481,842 3,481,842
Accumulated deficit (3,535,455) (2,035,601)
Cumulative translation
adjustments 1 259,136 242,632
--------- ---------
Total stockholders' equity 207,023 1,690,373
Total liabilities and ---------- ----------
stockholders' equity $15,883,163 $17,373,306
========== ==========
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, 1993 and 1992
<TABLE>
<CAPTION>
Addt'l Accumu- Cumulative
Common paid-in lated Translation
(in U.S. dollars) Stock Capital Deficit Adjustments Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1991 $ 1,500 $ 3,481,842 $(1,417,126) $ 466,602 $2,532,818
Net loss (618,475) (618,475)
Translation adjustment (223,970) (223,970)
------- --------- ---------- ------- ---------
Balances at December 31, 1992 1,500 3,481,842 (2,035,601) 242,632 1,690,373
Net loss (1,499,854) (1,499,854)
Translation adjustment 16,504 16,504
------- --------- --------- ------- ---------
Balances at December 31, 1993 $ 1,500 $3,481,842 $(3,535,455) $259,136 $ 207,023
====== ========= ========= ======= ========
</TABLE>
See accompanying notes to the consolidated financial statements.
Steiner Optics International, Inc. and Subsidiary
Consolidated Statements of Cash Flows
for the years ended December 31, 1993 1992
- ---------------------------------------------------------------
Cash flows from operating activities:
Net loss $(1,499,854) $ (618,475)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Effect of change in accounting
principle 826,165 -
Depreciation and amortization 691,549 630,128
Deferred income taxes (560,807) (43,013)
Gains on the disposal of assets (172,586) -
Changes in operating assets and
liabilities:
Trade receivables, net 188,988 (1,571,451)
Due from related parties (251,706) (122,418)
Other accounts receivable 70,947 -
Inventories 491,232 (943,601)
Prepaid expenses 6,989 5,375
Other assets and liabilities, net 4,191 110,051
Assets related to pension plan
obligation (29,918) -
Cash value of life insurance (140,741) (139,158)
Accounts payable (151,268) 752,389
Income taxes payable (68,600) 73,718
Accrued and other current liabilities 297,083 151,015
Accrued pension liability 46,235 42,081
--------- ---------
Total adjustments 1,247,753 (1,054,884)
--------- ---------
Net cash used by operating activities (252,101) (1,673,359)
--------- ---------
Cash flows from investing activities:
Additions to property, plant and
equipment (125,405) (1,375,527)
Proceeds from sales of equipment 49,977 -
--------- ---------
Net cash used by investing activities (75,428) (1,375,527)
--------- ---------
Cash flows from financing activities:
Principal repayments of capital
lease obligations (132,851) -
Proceeds from and (repayments of)
bank loans, net (1,567,746) 2,682,307
Proceeds from issuance of long-term
debt 1,848,824 271,517
Principal repayments on long-term
debt (39,627) -
Proceeds from a subsidiary equity
increase financed by a shareholder 144,818 -
--------- ---------
Net cash provided by financing activities 253,418 2,953,824
--------- ---------
Effect of exchange rates on cash 47,170 (108,485)
Net decrease in cash (26,941) (203,547)
Cash, beginning of year 71,914 275,461
--------- ---------
Cash, end of year $ 44,973 $ 71,914
========= =========
See accompanying notes to the consolidated financial statements.
Steiner Optics International, Inc. and Subsidiary
Notes to the Consolidated Financial Statements, Years Ended December 31, 1993
and 1992
(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 foreign subsidiaries 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 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.
RECLASSIFICATION
Certain 1992 amounts have been reclassified to conform to 1993 presentation.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is maintained to absorb future 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 cost;
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 2 - 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 the patent are stated at cost less accumulated
amortization 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 generally expensed as incurred
and totaled $517,750 in 1993 and $795,924 in 1992.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". Statement 109 requires a change from the deferred
method of accounting for income taxes of APB Opinion 11 to the asset and
liability method of accounting for income taxes. Under the asset and
liability method of Statement 109, deferred 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. 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. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Effective January 1, 1993, the Company adopted Statement 109 and has reported
the cumulative effect of that change in the method of accounting for income
taxes in the 1993 consolidated income statement.
Pursuant to the deferred method under APB Opinion 11, which was applied in
1992 and prior years, deferred income taxes are recognized for income and
expense items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year
of the calculation. Under the deferred method, deferred taxes are not
adjusted for subsequent changes in tax rates.
SUPPLEMENTARY DISCLOSURE OF CASH FLOWS AND NONCASH TRANSACTIONS
lnterest payments in 1993 and 1992 totaled $1,266,726 and $1,190,317,
respectively. Income taxes paid in 1993 and 1992 amounted to $21,226 and
$42,469, respectively.
The Company sold equipment during 1993 in exchange for noninterest bearing
notes receivable with a nominal value of $161,177 payable annually over five
years. The amounts recorded in the financial statements related to these
notes have been discounted to yield 5.75 % per annum resulting in net
proceeds from the sales of $137,654.
SALE OF RECEIVABLES
In July 1993, the Company entered into a one-year agreement with
a factoring agent to sell trade receivables. The agreement provides for
the sale without recourse of up to $4,600,000 per year of receivables from
seven customers. During 1993, $1,949,441 of receivables were sold at a total
cost of $52,214 including $25,443 in factoring fees and $26,771 in interest
expense. These fees and expenses were charged to selling, general and
administrative expenses and interest expense, respectively, in the 1993
consolidated income statement. Amounts received from such sales in 1993 have
been reported in the 1993 statement of cash flows as operating activities.
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.
(2) INVENTORIES
Inventories consisted of the following at December 31, 1993 and 1992:
1993 1992
--------- ----------
Raw materials $ 1,640,778 $ 2,169,338
Work in process 3,697,826 4,018,412
Finished goods 825,543 913,627
--------- ----------
Total inventories $ 6,164,147 $ 7,101,377
========= ==========
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31,
1993 and 1992:
1993 1992
--------- ----------
Land and buildings $ 6,110,953 $ 6,515,400
Machinery and equipment 3,124,652 3,904,606
Furniture and fixtures 2,507,542 2,790,312
---------- ----------
11,743,147 13,210,318
Less accumulated depreciation (6,343,601) (6,970,838)
---------- ----------
Total property, plant and equipment,
net $ 5,399,546 $ 6,239,480
========== ==========
Depreciation expense totaled $647,878 and $605,698 in 1993 and 1992,
respectively.
The Company's land and buildings are partially financed by a loan
collateralized by a life insurance policy on the President of the
Company. The cash surrender value of the insurance policy totaled
$785,901 at December 31, 1993 and $694,941 at December 31, 1992
and is scheduled to equal the amount of the loan at the loan's maturity.
See Note (7).
(4) INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 1993 and 1992:
1993 1992
--------- ---------
Purchased software and patent $ 226,418 $ 211,432
Goodwill 113,203 113,203
-------- --------
339,621 324,635
Less accumulated amortization (134,119) (103,223)
-------- --------
Total intangible assets, net $ 205,502 $ 221,412
======== ========
Amortization expense totaled $43,671 and $24,430 in 1993 and 1992,
respectively.
(5) BANK LOANS
The disclosures for short-term borrowings are as follows:
(in thousands of dollars except for interest rates)
1993 1992
--------- ---------
Short-term lines of credit $ 5,503 $ 8,604
Lines of credit utilized 4,904 8,513
Outstanding bank notes 1,538 -
Short-term borrowings:
Maximum interest rate charged 11.00 % 12.75 %
Minimum interest rate charged 5.75 % 4.19 %
Weighted average interest rate 10.13 % 10.84 %
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 1994.
(6) ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other current liabilities consisted of the following at December
31, 1993 and 1992:
1993 1992
--------- ---------
Estimated loss from guarantees for
the indebtedness of others $ 319,046 $ -
Payroll and other taxes 211,118 374,570
Warranty 158,142 124,074
Owed to employees 209,791 80,273
Vacation pay and overtime 131,901 105,709
Trade receivables with credit
balances 101,886 -
Accrued interest expenses 81,501 -
Severance pay 75,885 -
Miscellaneous 75,078 467,224
--------- ---------
Total $1,364,348 $1,151,850
========= =========
See Note (12) concerning related party transactions.
(7) LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1993 and 1992:
1993 1992
-------- --------
Note payable to a bank,
collateralized by land and
buildings with a book value of
$4,291,278 at December 31, 1993
and a life insurance policy,
interest is payable monthly at
the annual rate of 6.98 %,
principal is due in full on
February 28, 2002 $ 2,896,368 $ 3,086,420
Notes payable to a bank,
collateralized by land and
buildings, subordinate to the
6.98 % note payable to a bank,
composed of three notes of
$579,274 each, bearing interest
at the annual rate of 7.9 % or
8 %. Through 1994, only interest
is due, afterwards, quarterly
installments of $16,058, including
interest are due. Although each
note's maturity can be extended
until the year 2010, the conditions
are only fixed until varying dates
(March 31, 1996, 1998 and 2003),
and the unpaid principal at maturity
is payable in full if the loan is
not extended 1,737,821 -
Note payable to a bank, interest rate
of 7.5 %, collateralized by a lens
centering machine with a book value
of $40,619, principal and interest
of $3,529 due quarterly, matures in
September 1996 33,224 46,662
Five notes payable to a bank, interest
rates ranging from 9.3 to 10.9 %,
collateralized by computer software,
maturities from June 1996 to October
1996, principal and interest due
monthly 94,947 100,854
Note payable to finance company,
10 - 15 % p.a. due through 1997
(reclassified as leasing liability
in 1993) - 457,252
----------- ----------
Total debt 4,762,360 3,691,188
less: current portion (59,362) (167,518)
---------- ----------
Long-term debt $ 4,702,998 $ 3,523,670
========== ==========
Future scheduled maturities of long-term debt are payable as follows:
Years ended December 31,
1994 $ 59,362
1995 106,289
1996 95,217
1997 67,401
1998 72,909
Thereafter 4,361,182
---------
$ 4,762,360
=========
(8) INCOME TAXES
As discussed in Note (1), the Company adopted Statement 109 as of
January 1, 1993. The cumulative effect of this change in accounting
for income taxes of $826,165 was determined as of January 1, 1993 and
is reported separately in the consolidated income statements for the year
ended December 31, 1993.
1993 1992
-------- ---------
Current:
German income taxes $ (118,049) $ (86,470)
Deferred:
German income taxes 560,807 43,013
------- ------
(Provision) benefit for income taxes $ 442,758 $ (43,457)
======= ======
German income tax regulations provide for a regular tax rate of 50 %
(plus a surtax of 3.75 % for 1992).
The second component of the provision for income taxes is the trade tax
on income which is levied at rates varying according to the individual
municipalities. In the case of the Company, the applicable rate is 14.89 %
of the taxable trade income. The trade tax on income is deductible for
income tax purposes.
Deferred tax assets and liabilities are calculated at the German statutory
rate of between 57.45 % and 59.04 % with the exception of the net operating
loss carryforwards for U.S. income taxes only, which are calculated using a
35 % tax rate.
Reconciliation of the German statutory income tax rate to the financial
statements effective tax rates are as follows:
1993 1992
---------- ----------
German statutory tax rate (57.45) % (59.04) %
Unusable parent company losses 32.25 % 37.11 %
Settlement of prior years taxes 2.41 % 5.30 %
Expenses not deductible for tax
purposes - 0.65 %
Temporary differences at trade
tax rates - 23.54 %
------ ------
Effective tax rate (22.79) % 7.56 %
====== ======
The German corporation income tax rate will decrease 5 % from 50% to 45 %
in 1994. Computing the deferred tax on temporary differences at the lower
tax rate reduced 1993 deferred taxes by $58,676.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1993 and the net operating losses, valuation allowances and net deferred
tax liability at December 31, 1992 are presented below. The Company changed
its method of accounting for income taxes in 1993.
1993 1992
------ ------
Current deferred tax assets:
Inventories, due to differences
between measurement according
to U.S. generally accepted
accounting principles (GAAP)
and German GAAP $ 140,119 -
Accrued liabilities, due to
differences between measurement
according to U.S.-GAAP and
German GAAP 162,002 -
------- --------
Total current deferred tax assets $ 302,121 -
Non-current deferred tax liabilities:
Net operating loss carryforwards
(U.S. income taxes only) 744,469 724,079
Net operating loss carryforwards
(German income taxes only) 61,187 88,510
Pension, due to differences between
measurement according to U.S.-GAAP
and German GAAP 51,205 -
Plant and equipment, due to
differences in depreciation (947,671) -
Timing differences - (298,393)
------- --------
Total gross noncurrent deferred tax
(liabilities) assets (90,810) 514,196
Less valuation allowance - U.S. net
operating loss carryforwards (744,469) (724,079)
Less valuation allowance - German
net operating loss carryforwards (30,593) (88,510)
------- --------
Net non-current deferred tax
liability (865,872) (298,393)
------- --------
Net deferred tax liability $(563,751) $(298,393)
======== ========
The valuation allowance for deferred tax assets as of January 1, 1993 was
$812,589. The net change in the total valuation allowance for the year ended
December 31, 1993 was a decrease of $37,527.
At December 31, 1993, the company had net operating loss carryforwards for
U.S. federal income tax purposes of $2,127,053 which are available to offset
future U.S. federal taxable income, if any, and expire between 2003 and 2008.
Such losses may only be offset against income earned in the U.S.
The Company had net operating loss carryforwards for German income tax
purposes of $115,032 at December 31, 1993 which are available to offset
future taxable income in Germany over an indefinite period.
(9) PENSION BENEFITS
The Company's wholly-owned German subsidiary has a defined benefit pension
obligation to the President of the Company, beginning at the age of 65. The
benefits are based on 50 % of the President's 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 a
life insurance policy with a cash surrender value of $234,921 at December 31,
1993 to provide for the funding of the plan and the related obligation. This
amount is included as assets related to pension plan obligation in the
accompanying consolidated balance sheets.
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, 1993 and 1992 for the accrued pension liability:
1993 1992
-------- ---------
Actuarial present value of benefit
obligations:
Vested benefit obligation $ 120,214 $ 114,422
Accumulated benefit obligation 151,992 114,422
Projected benefit obligation 360,695 274,141
Plan assets at fair value
Projected benefit obligation in
excess of plan assets 360,695 274,141
Unrecognized net obligation at
transition, amortized over 26
years (144,430) (142,012)
Unrecognized net actuarial gain - 51,339
------- -------
Accrued pension liability $ 216,265 $ 183,468
======= =======
Net pension cost for 1993 and 1992 included the following components:
1993 1992
-------- --------
Service cost - benefits earned
during the year $ 18,997 $ 14,899
Interest cost on projected
benefit obligation 26,097 21,214
Amortization of initial net benefit
obligation 6,786 5,968
------- -------
$ 51,880 $ 42,081
======= =======
Assumptions used in accounting for the pension plan as of December 31, 1993
and 1992 were:
1993 1992
-------- --------
Weighted-average discount rate 7 % 8 %
Rate of increase in compensation
levels 5 % 5 %
Weighted average expected long-term
return on plan assets 3 % 3 %
The 1993 pension obligation has been calculated by an actuary.
(10) LOSS PER SHARE
Loss per share is determined by dividing net loss by category (loss before
cumulative effect of a change in accounting principle and cumulative effect
of a change in accounting principle) by the weighted number of common shares
issued and outstanding (150,000,000 shares in 1993 and 1992). The Company
has a simple capital structure with no dilutive securities.
(11) COMMITMENTS AND CONTINGENCIES
Legal proceedings
The Company, through its wholly-owned German subsidiary, is a party to a
distribution agreement with Pioneer Research ("Pioneer"), dated April 1, 1982
(the "Agreement"). Pioneer has acted as exclusive distributor of the Company's
products within the U.S. since the date of the agreement.
The Company, seeking to renegotiate the Agreement, informed Pioneer on
November 29, 1991 that it was canceling the Agreement effective at a future
date in accordance with the terms of the Agreement. The Company and Pioneer
disagree as to the effective date of the termination.
In August 1992, Pioneer attempted to commence an arbitration proceeding
before the German American Chamber of Commerce (the arbitration entity
specified in the Agreement) and thereafter sought to have that entity enter a
default award in the amount of $7,500,000 and an injunction against the
Company. As a basis for its damage claims, Pioneer alleged that the Company,
among other acts, breached the Agreement through improper pricing of products,
unfair business practices, and failure to adhere to exclusivity provisions of
the Agreement. The Company believes it has meritorious defenses to Pioneer's
claims and that it has substantial and significant claims against Pioneer for
the failure by Pioneer to adhere to its obligations under the Agreement. The
Company believes that the value of its claims against Pioneer is in excess of
the value of Pioneer's claims against the Company. As a result of the dispute
and the threatened arbitration proceedings, collections from and shipments to
Pioneer were interrupted in early 1993. In April 1993, the Company reached
an interim agreement with Pioneer, which is embodied in certain correspondence
between the Company and Pioneer. Under the terms of the interim agreement,
the Company and Pioneer resolved a number of their previous disagreements,
and the Company and Pioneer agreed to stay the arbitration proceeding during
the term of the interim agreement. Since the date of the interim agreement,
Pioneer has resumed its marketing of the Company's products.
Financial guarantees
The Company has a contingent liability for discounted notes related to
customer payments totaling $183,217 and $248,457, net of allowances at
December 31, 1993 and 1992, respectively.
The Company also has a contingent liability of $76,783 and $85,455 at
December 31, 1993 and 1992, respectively, relating to its guarantee of a
bank loan of its related party, the professional sports team. See Note (12).
The Company is contingently liable for pension payments to a related party of
the Company's President should he fail to meet his obligations. The present
value of the pension is $477,624 and $530,052 at December 31, 1993 and 1992,
respectively. The Company's land and buildings are held as collateral
(subordinate to all current and future debt secured by real property).
Environmental remediation
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 have revealed contamination of the groundwater and soil
with substantial levels of chloromethanes as well as mineral oil and lead.
In his analysis of the samples dated March 23, 1993, the environmental
consultant recommended that further samples be taken to determine the source
and horizontal spread of the contamination.
The Company's policy is to accrue site remediation costs in the accounting
period 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
in the financial statements of the Company as of December 31, 1993.
Operating leases
The Company has operating lease commitments for machinery and office
equipment and motor vehicles extending for varying periods of time until
the year 2000. Minimum annual rentals payable under these leases with a
remaining noncancelable term of more than one year are as follows:
Machinery
and office Motor
Year ended December 31, equipment Vehicles Totals
- ---------------------- ---------- --------- ---------
1994 $ 171,745 $ 43,837 $ 215,582
1995 150,855 9,319 160,174
1996 129,384 415 129,799
1997 120,727 - 120,727
1998 116,591 - 116,591
Thereafter 113,928 - 113,928
--------- ------- --------
$ 803,230 $ 53,571 $ 856,801
========= ======= ========
Total rental expense charged to operations was approximately $224,500 and
$150,000, in 1993 and 1992, respectively.
Capital leases
The following is an analysis of property under capital leases:
1993 1992
-------- --------
Machinery and equipment $ 515,196 $ 792,110
Less accumulated depreciation (246,885) (187,003)
-------- -------
Total machinery and equipment, net $ 268,311 $ 605,107
======== =======
The following is a schedule by years of future minimum lease payments under
capital leases:
Year ended December 31, Machinery and equipment
- ----------------------- -----------------------
1994 $ 153,554
1995 119,450
1996 98,766
1997 63,278
1998 6,517
--------
Total minimum lease payments 441,565
Less: amount representing executionary
costs and interest (77,841)
--------
Present value of minimum lease payments $ 363,724
========
(12) RELATED PARTY TRANSACTIONS
The Company is majority owned by the Company's President who is
also President of a professional sports team. The Company paid
amounts representing advertising costs of approximately $119,750
and $128,000 in 1993 and 1992, respectively, to support this
team. The Company has granted loans to the team of which $48,659
and $30,864 was outstanding at December 31, 1993 and 1992, respectively.
In addition to these loans, the team owed the Company $26,992 and
$29,630 at December 31, 1993 and 1992, respectively.
During 1993 the Company made various payments totaling $253,991 on
behalf of the President, who owed the Company $357,705 and $203,038
as of December 31, 1993 and 1992, respectively.
The estimated loss from guarantees for the indebtedness of others
of $319,046 accrued in 1993 concern the Company's guarantees for the
indebtedness of a related third party of the President.
The Company owed its President $144,818 as of December 31, 1993 in
relation to a capital increase in the Company's German subsidiary
financed personally on behalf of the Company by the President.
(13) SEGMENT AND GEOGRAPHIC INFORMATION
Worldwide sales in 1993 and 1992 consisted 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 $1,300,000 and $800,000 in 1993 and
1992, respectively.
Operating profit is essentially the same for each segment.
Net sales by geographic region were as follows:
1993 1992
(in thousands)
---------------------
Germany $ 4,952 $ 5,694
Remainder of Europe 2,593 2,232
USA 2,315 3,068
Asia 908 1,049
Other 638 181
------ ------
$11,406 $12,224
====== ======
(14) 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.
THESE NOTES ARE AN INTEGRAL PART OF THE ACCOMPANYING CONSOLIDATED
FINANCIAL STATEMENTS.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> DEC-31-1993
<CASH> 44,973
<SECURITIES> 0
<RECEIVABLES> 2,111,584
<ALLOWANCES> 68,644
<INVENTORY> 6,164,147
<CURRENT-ASSETS> 9,114,947
<PP&E> 5,399,546
<DEPRECIATION> 647,878
<TOTAL-ASSETS> 15,883,163
<CURRENT-LIABILITIES> 9,638,962
<BONDS> 247,988
0
0
<COMMON> 1,500
<OTHER-SE> 207,023
<TOTAL-LIABILITY-AND-EQUITY> 15,883,163
<SALES> 11,406,491
<TOTAL-REVENUES> 11,406,491
<CGS> 8,797,053
<TOTAL-COSTS> 2,516,702
<OTHER-EXPENSES> 39,723
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,254,510
<INCOME-PRETAX> (1,116,447)
<INCOME-TAX> (442,758)
<INCOME-CONTINUING> (673,689)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (826,165)
<NET-INCOME> (1,499,854)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
