SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

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

                  For the fiscal year ended December 31, 1997

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
                       For the transition period from to

                        Commission file number 0-1282-3

                            Swiss Army Brands, Inc.
             (Exact name of registrant as specified in its charter)

                   Delaware                       13-2797726
          (State of incorporation) (I.R.S. Employer Identification No.)

            One Research Drive, Shelton, Connecticut        06484
         (Address of principal executive offices)         (Zip Code)

       Registrant's telephone number, including area code: (203) 929-6391

          Securities registered pursuant to Section 12(b) of the Act:
                                                 Name of each exchange on
               Title of each class                    which registered
                     None                              Not applicable

          Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, $.10 par value per share
                                (Title of Class)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.                               Yes X No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by  reference in Part III of this Form 10-K or any  amendments  to
this Form 10-K. [ ]

     The  aggregate  market value of voting stock held by  nonaffiliates  of the
registrant on March 17, 1998, was approximately  $52,436,400.  On such date, the
closing  price of  registrant's  common  stock was $11( per  share.  Solely  for
purposes of this calculation,  shares beneficially owned by directors, executive
officers and stockholders of the registrant that  beneficially own more than 10%
of the registrant's common stock have been excluded,  except shares with respect
to which  such  directors  and  officers  disclaim  beneficial  ownership.  Such
exclusion  should not be deemed a  determination  or admission by the registrant
that such individuals are, in fact, affiliates of the registrant.

     The  number  of  shares  of  Registrant's  Common  Stock,  $.10 par  value,
outstanding on March 17, 1998, was 8,217,860 shares.

                   DOCUMENTS INCORPORATED BY REFERENCE: NONE

<PAGE>

                          SWISS ARMY BRANDS, INC.
                                AND SUBSIDIARIES
                                     INDEX
<TABLE>
<CAPTION>

PART I:        INFORMATION                                       Page No.
<S>           <C>                                               <C>

Item 1.        Business                                          3 - 9

Item 2.        Properties                                            9

Item 3.        Legal Proceedings                                9 - 10

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

PART II:

Item 5.        Market for Registrant's Common Equity and Related
               Stockholder Matters                                  11

Item 6.        Selected Financial Data                              12

Item 7.        Management's Discussion and Analysis of
               Financial Condition and Results of Operations   13 - 16

Item 7a.       Quantitative and Qualitative Disclosures about
               Market Risk                                          17

Item 8.        Financial Statements and Supplementary Data          17

Item 9.        Disagreements on Accounting and Financial
               Disclosure                                           17

PART III:

Item 10:       Directors and Executive Officers of the
               Registrant                                      18 - 22

Item 11:       Executive Compensation                          23 - 26

Item 12.       Security Ownership of Certain Beneficial
               Owners and Management                           26 - 29

Item 13.       Certain Relationships and Related Transactions  29 - 31


PART IV:       FINANCIAL INFORMATION

Item 14.       Exhibits, Financial Statement Schedules, and
               Reports on Form 8-K                                  32

                 Report of Independent Public Accountants          F-1

                 Consolidated Balance Sheets as of
                  December 31, 1997 and 1996.               F-2 to F-3

                 Consolidated Statements of Operations for the
                  Years Ended December 31, 1997, 1996
                  and 1995.                                        F-4

                 Consolidated Statements of Stockholders Equity
                  for the Years Ended December 31, 1997,
                  1996 and 1995.                                   F-5

                 Consolidated Statements of Cash Flows for the
                  Years Ended December 31, 1997, 1996
                  and 1995.                                        F-6

                 Notes to Consolidated Financial Statements F-7 to F-22

                 Schedule II                                       F-23

               Exhibits and Reports                                  32

</TABLE>



                                     PART I


Item 1.      Business.

     Swiss  Army  Brands,  Inc.  ("SABI"  or the  "Company")  is  the  exclusive
distributor in the United States,  Canada (with one minor exception for cutlery)
and  the  Caribbean  of  the  Victorinox (r)   Original  Swiss  Army(tm)  Knife,
Victorinox(r) SwissTool(tm),  Victorinox(r) SwissCard(tm), Victorinox(r) cutlery
and  Victorinox(tm)  watches.  SABI also  markets its own line of Swiss  Army(r)
Brand Watches, Swiss Army Brand(tm) Sunglasses and other high quality Swiss-made
products  under its Swiss Army Brand  worldwide.  The Company has been marketing
Victorinox  Original  Swiss Army  Knives and  Victorinox  cutlery for over fifty
years and has been the  exclusive  United  States  distributor  of such products
since 1972, an arrangement  that was  formalized in 1983.  SABI added Canada and
the  Caribbean  (including  Bermuda) to its exclusive  territory for  Victorinox
Original Swiss Army Knives in 1992 and 1993,  respectively.  Victorinox Original
Swiss Army  Knives as well as watches and other  Swiss Army Brand  products  are
marketed primarily to retailers and also to corporate gift buyers as advertising
specialty  products.  SABI's cutlery line, which also includes imported products
from Germany,  England and France,  is sold primarily to the food processing and
service industries.

     Sales of Victorinox Original Swiss Army Knives,  Victorinox  SwissTools and
Victorinox  SwissCards,  accounted  for  approximately  34% of SABI's 1997 sales
while watches and other Swiss Army Brand  products  accounted for  approximately
50%. Sales of professional and consumer cutlery  accounted for approximately 16%
of SABI's 1997 sales.  Total SABI sales for the  calendar  years 1997,  1996 and
1995 were $118,744,000, $130,030,000 and $126,695,000, respectively. No customer
accounted  for more than 10% of net  sales  during  any year in the  three  year
period ended December 31, 1997. Foreign operations accounted for 14%,13% and 11%
of  SABI's  net  sales  in the  three  year  period  ended  December  31,  1997,
respectively.  See Note 14 to the Company's Financial Statements included herein
for further information regarding the Company's foreign operations.  At December
31,  1997 SABI had  backlog  orders of  approximately  $5,746,000,  compared  to
backlog orders of $5,193,000 at December 31, 1996.

     During  the past two  years  the  Company  has  recorded  special  charges,
primarily  related  to  discontinued   inventory,   investment  write-downs  and
restructuring  costs.  In 1997,  the Company  recorded a special  charge of $1.3
million  related to  discontinued  inventory  and $0.8 million in  restructuring
costs. These  restructuring  costs primarily  consisted of severance and related
expenses. In the second quarter of 1996, as part of an extensive analysis of the
Company's  operations,  the Company  recorded a special charge of  approximately
$7.4  million.  The special  charge  consisted  of a $4.5  million  write-off of
discontinued  inventory  and a $2.9  million  write-off  of  obsolete  displays,
goodwill,  non-strategic  investments and other assets. In the fourth quarter of
1996, the Company recorded an additional  special charge of  approximately  $2.5
million.  The special  charge  consisted of $1.6 million  write-down  related to
non-strategic investment, a $0.4 million write-off of discontinued inventory and
a $0.5 million  write-off of obsolete  displays  and other  assets.  See further
discussion in Management's  Discussions and Analysis of Financial  Condition and
Results of Operations  and the  Consolidated  Financial  Statements  and related
notes included herein.

     The Company was  incorporated  on December 12, 1974 as a successor to a New
York corporation. SABI's principal executive offices are located at One Research
Drive, Shelton, Connecticut 06484 and its telephone number is (203) 929-6391. As
of December 31, 1997,  SABI and its  subsidiaries  had 226 full-time  employees,
including 10 in Canada and 5 in Switzerland.


                Swiss Army Knives and Swiss Army Brand Products
                -----------------------------------------------

     SABI is the exclusive United States, Canadian (with one minor exception for
cutlery) and Caribbean  distributor  of Victorinox  Original  Swiss Army Knives,
Victorinox  SwissTools,  Victorinox  SwissCards  and  Victorinox  Watches  under
agreements  with  SABI's  principal  supplier  of  pocket  knives  and  cutlery,
Victorinox  Cutlery  Company  ("Victorinox"),  a Swiss  corporation and Europe's
largest  cutlery  producer.  SABI also  sells  watches  and other  high  quality
products under the Swiss Army Brand worldwide.

                                       3
<PAGE>
     Victorinox   Original  Swiss  Army  Knives  are  multiblade  pocket  knives
containing implements capable of more functions than standard pocket knives. For
example,  SABI's  most  popular  Swiss Army Knife  model,  the  Classic,  with a
suggested  retail  price of $16,  features  a knife,  scissors,  nail  file with
screwdriver  tip,  toothpick and  tweezers.  SABI markets more than 50 different
models of Victorinox  Original  Swiss Army Knives  containing up to 30 different
implements (with up to 40 separate features),  ranging from a basic knife with a
suggested retail price of $10 to the highest priced model at  approximately  $70
as well as a SwissChamp(r) Deluxe SOS kit with a suggested retail price of $175.
SABI also sells  multi-function  lockblade  knives  designed for the hunting and
outdoor   market.   In  1997,   the  Company  added  to  its  product  line  the
SwissCard(tm),   a  credit  card  shaped,  ten  function  instrument,   and  the
SwissTool(tm),  a multi-tool with 23 features, including a full size pliers. The
Company's line of Victorinox watches currently includes four models with a dozen
styles,  with  suggested  retail prices  ranging from $110 to $150.  The Company
distributes  its  Victorinox  Original  Swiss Army Knives  throughout the United
States,  Canada and the Caribbean through independent sales  representatives and
its  direct  sales  force to over 3,800  wholesalers  and  retailers,  including
cutlery shops, department, specialty, jewelry and sporting goods stores, catalog
showrooms,  mass  merchandisers  and  mail  order  houses.  In  Canada  and  the
Caribbean,  the Company  distributes  its Victorinox  Original Swiss Army Knives
principally through independent sales representatives.  In addition,  SABI sells
Victorinox  Original Swiss Army Knives through  distributors to corporations and
other  organizations  for  promotional  purposes,  premium,  employee gift award
programs and corporate identity  catalogs.  SABI imprints these knives primarily
at its own facilities with the customer's corporate name or logo.

     SABI's  line of Swiss Army Brand  products  includes 8 models of Swiss Army
Brand Watches with over 60 styles ranging from the Renegade(r), with a suggested
retail price of $85 to the Titanium  Two-Tone with a stainless  steel  bracelet,
with a suggested  retail price of $595.  Swiss Army Brand  Watches are sold both
through a direct sales force selling to approximately 550 department,  specialty
and jewelry stores and the same  independent  sales  representatives  which sell
Victorinox  products.  In the first  quarter of 1997,  the Company  added to its
product line newly  designed  Swiss  Army(r)  Brand  Sunglasses.  The  Company's
sunglass line includes  fifty styles with  suggested  retail prices ranging from
$85 to $110. In addition,  SABI sells Swiss Army(tm) Brand writing  instruments,
and  introduced in 1997 a line of watches under the Allenby  trademark.  Also in
1997, the Company  entered into an arrangement  pursuant to which it distributes
in North America and serves as sales and marketing  agent in most of the rest of
the  world a line of  watches  under the Swiss  Air  Force(tm)  trademark.  SABI
currently obtains a majority of its Swiss Army Brand Watches from a single Swiss
supplier,  who is  responsible  for  the  final  assembly  of  watch  components
manufactured  by several  manufacturers.  The Company  believes  that  alternate
suppliers  would be  available  if  necessary  and that the loss of its  current
supplier of Swiss Army Brand Watches would not have a material adverse effect on
the Company's business.

     Sales of Swiss Army Knives and Swiss Army Brand  products are seasonal with
sales typically stronger during July through December.

     Although  the Company is the  largest  United  States  seller of Swiss Army
Knives, it faces competition from Precise Imports Corp. ("Precise"),  the United
States and Canadian distributor of Swiss Army Knives manufactured by Wenger S.A.
("Wenger"),  the only company other than Victorinox  supplying  pocket knives to
the Swiss armed forces. Precise imports a substantially smaller number of knives
into the United States than does SABI. The Company also faces  competition  from
the  manufacturers  and  importers of other  multiblade  knives and  multi-tools
including  importers  which sell non  Swiss-made  pocket knives under the "Swiss
Army Knife" name.  SABI is unable to determine  its  competitive  position  with
respect to the estimated  seven major  competitors  in the general United States
pocket knife market.  SABI's  direct  competitors  in the specialty  advertising
market are  manufacturers  of name brand  products of similar price and quality.
SABI has many  competitors  in the sale of watches and  sunglasses  at all price
points. Many of these competitors have market shares and resources substantially
greater than those of SABI.

     In 1992, in connection with the settlement of litigation with Precise, SABI
granted Precise a perpetual  worldwide royalty free license to use the trademark
Swiss  Army in  connection  with  Swiss made  non-knife  goods,  other than time
pieces,  sunglasses and compasses.  Under this agreement,  Precise  acknowledges
SABI's  exclusive  rights to the Swiss Army  trademark  for  non-knife  products
including time pieces, compasses and sunglasses.  SABI and Precise are currently
involved  in  arbitration  related  to this  agreement,  see Item 3 for  further
discussion.

                                       4
<PAGE>
     The  Company is the owner of United  States and certain  foreign  trademark
registrations  for "Swiss Army",  as applied to watches and  sunglasses  and has
successfully defended this trademark in lawsuits in Federal courts. Although the
Company's registrations have been challenged,  on the basis of the advice of its
trademark counsel, SABI expects to prevail in those proceedings.  The Company is
dedicated to a vigorous enforcement of these exclusive trademark rights.

     No U.S.  trademark  registrations have ever been issued for "Swiss Army" as
applied to multi-bladed  knives.  In 1994, in a case originally  brought by SABI
against  Arrow  Trading Co.,  Inc.  ("Arrow") in September  1992 in the District
Court for the Southern  District of New York,  the U.S. Court of Appeals for the
Second Circuit reversed a judgment  originally issued in the Company's favor and
held that the use of "Swiss  Army" on Chinese  made knives could not be enjoined
on grounds of geographic misdescriptiveness. On remand, the District Court ruled
that Arrow had violated  Section 43(a) of the Lanham Act and New York common law
in connection  with its sale of  Chinese-made  multi-bladed  pocketknives  which
Arrow  called  "Swiss  Army  Knives."  The court  found that SABI had proved its
contention  that  Arrow  engaged  in unfair  competition  and held  that  Arrow,
although  free to use the phrase  "Swiss Army Knife" to  designate  its product,
must  amply  distinguish  it from the SABI  product  and  prohibited  Arrow from
selling any multi-function pocketknives as "Swiss Army Knives" unless the phrase
"Swiss Army Knife" is immediately preceded or followed by Arrow's name in such a
way as to clearly designate its origin and that the size of the type designating
origin be no smaller or less  prominent  than the type used in the phrase "Swiss
Army Knife".  The Company  intends to utilize all reasonable  means to safeguard
the public from being misled by inferior imitation products.

     On January 17, 1995,  Victorinox and Wenger  confirmed and  memorialized in
writing  the grant of  separate  trademark  licenses of Swiss Army as applied to
multifunction  pocket  knives to each of SABI and  Precise.  The  license to the
Company  is  royalty  free and  continues  so long as SABI is a  distributor  of
Victorinox.  Victorinox and Wenger have filed with the U.S. Patent and Trademark
Office a dual  application  for "Swiss Army" as applied to  multibladed  knives,
which application has been opposed by various third parties.

     If  the  Company's   efforts  to  protect  its   trademarks   prove  to  be
unsuccessful,  the Company may incur increased  competition  from non-Swiss made
knives and other products sold under the "Swiss Army" name. No assurances can be
given  that such  competition  from  non-Swiss  made  products  would not have a
material adverse effect on the business and prospects of the Company.

                  The Swiss Confederation Trademark Agreement
                  -------------------------------------------

     On December 18, 1996, the Swiss Military Department  representing the Swiss
Confederation  ("Swiss   Confederation")  and  SABI  entered  into  a  trademark
agreement (the "Trademark Agreement") pursuant to which SABI was granted certain
worldwide use and sublicensing  rights in connection with trademarks  containing
the words "Swiss Army" registered by the Swiss Confederation in Switzerland (the
"Swiss Confederation  Trademarks").  The Swiss Confederation acknowledged SABI's
exclusive right to use SABI's trademarks in the countries of their  registration
or application and agreed to assist SABI in enforcing SABI's rights with respect
to its trademarks.  In addition, the Swiss Confederation stated its intention to
assist  Victorinox,  Wenger,  SABI and Precise in safeguarding their rights with
respect to "Swiss Army" as applied to knives and in preventing the use of "Swiss
Army" with respect to multi-blade  pocketknives,  multi-tools and other products
which are not Swiss products.

     The Trademark  Agreement grants SABI the right to an exclusive royalty free
license  of the  Swiss  Confederation  Trademarks  as  applied  to  watches  and
sunglasses in the United States, Canada and the Caribbean.  SABI is also granted
such rights with respect to certain  designated  products  that either it or its
licensees  sell in commercial  quantities in the United  States,  Canada and the
Caribbean within designated time periods.  In the event SABI or its licensees do
not sell commercial quantities of product categories within the time periods set
by the  agreement,  the Swiss  Confederation  shall have the  right,  subject to
certain  conditions,  to license the Swiss  Confederation  Trademarks to a third
party and, in such event,  SABI shall be  obligated  to offer such third party a
license of SABI's appropriate trademark.

                                       5
<PAGE>
     Outside  of the United  States,  Canada and the  Caribbean,  the  Trademark
Agreement  provides for the grant to SABI of the right to an exclusive  license,
subject to the existing legal rights of others,  for watches and sunglasses at a
royalty equal to 3% of net sales.  In addition,  SABI has the right to a license
for certain  designated  products  outside of the United States,  Canada and the
Caribbean,  also  at a  royalty  equal  to 3% of net  sales,  to use  the  Swiss
Confederation  Trademarks  provided  that SABI  commences the sale of commercial
quantities  of such  products  within time periods  prescribed  by the Trademark
Agreement.

     The  Trademark  Agreement  also  provides  that all products sold under the
license must be of a quality at least equal in workmanship  and materials to the
products currently sold by SABI, Victorinox or Wenger and that in the event SABI
discontinues  sales of goods in  commercial  quantities in any category of goods
for three  consecutive  years, the Swiss  Confederation  shall have the right to
terminate  the  license as to that  category  after  giving  SABI  notice and an
opportunity to resume sales. Except for the foregoing limitation,  the rights of
SABI with  respect to the use of the Swiss  Confederation  Trademarks  under the
Trademark  Agreement are perpetual.  It is anticipated that the right to utilize
the Swiss Confederation Trademarks on certain products other than timepieces and
sunglasses  will be made  available  to  Precise  by  SABI  on  terms  yet to be
discussed.

                       Professional and Consumer Cutlery
                       ---------------------------------

     The majority of SABI's  professional  cutlery  products,  made of stainless
steel,  are  manufactured  by Victorinox and by other  manufacturers  located in
Germany,  England  and France.  Although  the  majority  of SABI's  professional
cutlery  products  are  marketed  under  the  trademarks  "Forschner"  and "R.H.
Forschner," the Company also has a private label business.  SABI's customers for
professional  cutlery  include  distributors  of  hotel,  restaurant,   butcher,
institutional, commercial fishing and slaughterhouse supplies and retail cutlery
stores  located  throughout  the United  States and Canada.  In  addition,  SABI
markets the Victorinox line of floral knives to wholesale  florists.  Except for
retail sales made by the Company's  sales force,  the majority of SABI's cutlery
is  sold  through  manufacturers'  representatives  and  can  be  obtained  from
approximately 2,500 dealers.

     In 1997, the Company entered into the  cut-resistant  glove category.  This
glove is being sold to the same class of trade as the  professional  cutlery and
is being manufactured by an independent third party in the United States.

     Professional  cutlery  imported from  Switzerland  and Germany is generally
more expensive than domestic United States  products.  SABI believes that it has
the largest market share of imported  professional  cutlery products sold in the
United  States  and that its  share of all  professional  cutlery,  foreign  and
domestic,  sold in  this  country  is  second  to the  dominant  seller  of such
products. SABI believes that it has achieved and maintained its market share due
to the  quality  of  its  products  and  its  merchandising  efforts.  Sales  of
professional cutlery products are not seasonal.

     Until January 31, 1997, SABI's wholly owned  subsidiary,  Cuisine de France
Limited,  imported and distributed  cutlery  products for consumer use under the
"Cuisine de France(r)  Sabatier(r)" brand. On January 31, 1997 Cuisine de France
Limited entered into an agreement providing for the sale of substantially all of
the assets of Cuisine de France Limited.  This  transaction was completed in the
fourth quarter of 1997.

                               License Agreement
                               -----------------

     On May 15, 1997,  SABI entered into an agreement with St. John Knits,  Inc.
("St. John") providing for the grant of an exclusive license, subject to certain
terms  and  conditions,  to SABI  to  market  watches  bearing  the St.  John(r)
trademark.  St. John is a leading  designer,  manufacturer  and marketer of fine
woman's  apparel.  SABI is presently  in the process of designing  watches to be
marketed under the St. John trademark.

                                       6
<PAGE>
                              Victorinox Agreements
                              ---------------------

     All of SABI's products are  manufactured by independent  suppliers.  SABI's
principal  supplier  of pocket  knives  and  cutlery  is  Victorinox,  which has
manufactured  the Original Swiss Army Knife for the Swiss Army for more than 100
years.  The loss of this supplier would have a material adverse effect on SABI's
business.  SABI, now Victorinox's largest single customer, has been distributing
Victorinox's products since 1937.  Distribution was on a non-exclusive basis for
more than 45 years when, as a result of understandings  reached on SABI's behalf
by Mr. Louis Marx,  Jr. and Mr. Stanley R. Rawn,  Jr., both now SABI  Directors,
and Mr. Charles Elsener, Sr., Chief Executive Officer of Victorinox, SABI became
Victorinox's  exclusive United States  distributor of Victorinox  Original Swiss
Army Knives under an agreement dated December 12, 1983 (as subsequently amended,
the "U.S.  Distribution  Agreement").  In 1992 and 1993, Messrs.  Marx and Rawn,
together  with Mr. James W.  Kennedy,  then  Co-Chairman  of the  Company,  held
extensive conversations,  principally in Switzerland, with Victorinox looking to
expand the scope of SABI's exclusive territory.  This resulted in SABI obtaining
exclusive  distributorship  rights first in Canada,  and then in Bermuda and the
Caribbean  areas,  as well as SABI's  receipt of  exclusive  U.S.,  Canadian and
Caribbean  distribution rights to the Victorinox watch, which is supplied to the
Company by another Swiss manufacturer.

     The U.S.  Distribution  Agreement,  together with the Company's  agreements
with respect to the rights obtained in 1992 and 1993 (together,  the "Victorinox
Agreements"), provides:

 *   SABI is the exclusive distributor in the United States, its territories and
     possessions,  Canada (with one minor exception),  Bermuda and the Caribbean
     (excluding  Cuba so long as SABI is  prohibited  by United  States law from
     operating therein) (together,  the  "Territories"),  of Victorinox Original
     Swiss Army Knives and most other Victorinox cutlery products and Victorinox
     Swiss-made watches (collectively, "Products").

 *   The U.S.  Distribution  Agreement was renewed through December 12, 1998 and
     is subject to renewal at five year  intervals at SABI's option  unless,  in
     any two  consecutive  years,  purchases  of Products by SABI fall below the
     average  purchases for 1981 and 1982,  which was  19,766,035  Swiss francs.
     SABI's  distribution  rights in Canada and the  Caribbean  are for  initial
     terms of seven years (expiring in 1999 and 2000, respectively),  subject to
     renewal for  successive  five year  periods.  In the event that  Victorinox
     elects not to renew SABI's Canada distribution  rights,  Victorinox will be
     required to pay SABI the amount of $3,500,000.

 *   During each calendar  year SABI must purchase from  Victorinox at least 85%
     of the  maximum  quantities  of each  of  Swiss  Army  Knives  and  cutlery
     (expressed in Swiss francs) purchased in any prior year. The only remedy of
     Victorinox  for  SABI's  failure  to  achieve  these  goals  would  be  the
     termination of SABI's U.S. distribution rights. By agreement dated December
     18,  1995,  Victorinox  and the  Company  agreed  that for 1996 the minimum
     purchase  requirement  for Swiss Army Knives would be reduced to 75% of the
     maximum  quantity  purchased  in any  prior  year.  The  Company  met  this
     requirement in 1996. In 1996,  Victorinox agreed to reduce the 1997 minimum
     purchase  requirements for Swiss Army Knives to 65% of the maximum quantity
     purchased in any preceding year. The Company met this  requirement in 1997.
     The  Company is  currently  in the  process  of  establishing  the  minimum
     requirement for 1998. Pursuant to U.S. Distribution Agreement,  the Company
     has notified  Victorinox  of its desire to renew the  agreement for another
     five-year term commencing December 12, 1998.

 *   In each calendar year Victorinox  must, if requested,  furnish SABI with up
     to 105% of each type of product purchased during the immediately  preceding
     year.  Victorinox has historically  been able to accommodate  SABI's supply
     requirements   even  when  they  have   exceeded   such  amount.   However,
     Victorinox's  plant has a finite  capacity and no  assurances  can be given
     that Victorinox will continue to meet any increased supply  requirements of
     SABI.

 *   Pricing provisions assure that the prices paid by SABI for products shipped
     to the United  States  will be as low or lower  than  those  charged to any
     other Victorinox  customer.  In addition,  SABI is granted a 4% discount on
     purchases of pocket  knives and a 3% discount on purchases of cutlery.  For
     products shipped directly to Canada and the Caribbean  (including Bermuda),
     the prices paid by SABI are Victorinox's  regular export prices.  SABI also
     pays a royalty to Victorinox of 1% of net sales of Victorinox Watches.

                                       7
<PAGE>
 *   SABI  will  not  sell  any new  cutlery  items  without  the  agreement  of
     Victorinox.

 *   SABI will have complete  discretion as to advertising,  packaging,  pricing
     and other marketing matters.

     In consideration of the grant of the Canada distributorship rights in 1992,
SABI issued to Victorinox  277,066  shares of common  stock,  par value $.10 per
share, of SABI ("Common Stock"). In consideration for the grant of the Caribbean
distribution  rights in 1993, the Victorinox watch  distribution  rights and the
acquisition by SABI of  Victorinox's  20% interest in a subsidiary of SABI, SABI
issued to Victorinox a five-year warrant to purchase  1,000,000 shares of Common
Stock at a discount  from the market price on the date of  exercise.  Victorinox
exercised  the  warrant in full in April  1994 at a price per share of $9.75,  a
discount of $4.25 per share from the then  current  market  price of SABI Common
Stock.  All of the shares issued upon exercise of the warrant were  subsequently
sold to Brae  Group,  Inc.  ("Brae"),  a corporate  shareholder  of SABI that is
controlled by Louis Marx, Jr., a Director of SABI, in exchange for shares of the
common stock of that corporation.

                                   Investments
                                   -----------

     In 1994, SABI invested a total of $7,002,990, paid in cash and in shares of
stock of a publicly  traded  corporation,  to acquire 700,299 shares of Series A
Preferred  Stock of Forschner  Enterprises,  Inc., a privately held  corporation
which was merged into Victory Capital LLC. In 1996,  Victory Capital LLC changed
its name to Hudson River Capital LLC ("Hudson  River").  In 1996,  SABI invested
$2,000,209,  paid in cash, to acquire 190,477 Series B Preferred Units of Hudson
River. SABI's interest in Hudson River currently  represents,  in the aggregate,
approximately  9.1% of the  equity of Hudson  River.  Hudson  River is a private
equity firm specializing in middle market  acquisitions,  recapitalizations  and
expansion  capital  investments.  Hudson  River  currently  has equity and other
interests in several private and publicly traded companies.  The preferred units
of Hudson River held by SABI carry a preference  on  liquidation  equal to their
cost and, in certain instances, are entitled to an annual preferred return.

     In 1996,  Hudson  River  distributed  pro-rata  to its  members  all of its
interest in Victory  Ventures LLC, a private equity firm  specializing  in small
market venture capital investments  ("Victory  Ventures").  SABI received in the
distribution, and continues to hold, 890,776 Series A Preferred Units of Victory
Ventures  valued at the time of the  distribution  at $1.23 per unit,  currently
representing approximately 1.3% of the equity of Victory Ventures. The preferred
units of Victory  Ventures held by SABI carry a preference on liquidation  equal
to the value of the  Series A  Preferred  Units on the date of the  distribution
and, in certain instances, are entitled to an annual preferred return.

     490,000 of Hudson  River's  common units and  2,327,382  of Hudson  River's
Series  B  Preferred   Units   (currently   representing,   in  the   aggregate,
approximately  28.7% of  Hudson  River's  outstanding  equity)  are held by Brae
Capital  Corporation  ("Brae Capital"),  a wholly-owned  subsidiary of Brae. Mr.
Marx is the owner of 700,000  plan  units  (representing  approximately  7.1% of
Hudson  River's  outstanding  equity)  issued by Hudson  River  under its Equity
Incentive Plan, which entitle Mr. Marx to voting rights and to receive a portion
of the  appreciation  of Hudson  River's  assets after the date of grant of such
units under certain circumstances.

     490,000  of  Victory  Ventures'  common  units and  12,440,088  of  Victory
Ventures'  Series A Preferred  Units  (currently  representing in the aggregate,
approximately  18.2% of Victory Ventures'  outstanding  equity) are held by Brae
Capital.  In  addition,  Brae  Capital  is the  owner of  2,911,613  plan  units
(representing approximately 4.1% of Victory Ventures' outstanding equity) issued
by Victory  Ventures under its Equity Incentive Plan, which entitle Brae Capital
to voting  rights  and to  receive  a portion  of the  appreciation  of  Victory
Ventures'  assets  after  the  date  of  grant  of  such  units,  under  certain
circumstances.  Pursuant  to an  agreement  between  Hudson  River and Brae,  if
certain  conditions  are met,  Brae is required to purchase from Hudson River at
Hudson  River's cost 10%,  and may  purchase up to 20%, of the "equity  portion"
(defined as the common and warrant portion, or the preferred and warrant portion
if no common is purchased  provided that the preferred portion is participating)
of each investment  made by Hudson River.  Brae may allocate all or a portion of
the  securities to be acquired  pursuant to such  agreement  among the officers,
directors,  employees,  consultants and common equityholders of Hudson River and
such other  persons  who may be in a position  to benefit  Hudson  River in such
proportions as Brae shall determine.  Brae is party to a similar  agreement with
Victory Ventures.

                                       8
<PAGE>
     Mr. Marx, a Director of SABI, is a Co-Chairman of the Board, a director and
an equity holder of each of Hudson River and Victory Ventures,  and a consultant
to Victory Ventures.  Mr. Clarke H. Bailey, a Director of SABI, is a Co-Chairman
of the Board,  a Director and an  equityholder  of Hudson River.  Mr. Stanley R.
Rawn, Jr.,  Senior Managing  Director and a Director of SABI, and Mr. Herbert M.
Friedman,  a Director of SABI, also serve as directors and are  equityholders of
each of Hudson River and Victory Ventures. M. Leo Hart, a Director of SABI, also
serves as a director of Victory Ventures.

Item 2.      Properties.

     The  executive  and  administrative  offices of SABI  occupy  approximately
42,500  square feet of leased  space in an office  building  located in Shelton,
Connecticut. SABI moved into these premises in September, 1993. The initial term
of the lease on this space  expires on September  1, 2001,  subject to a renewal
option for an additional five-year term.

     In addition,  SABI leases  approximately 7.4 acres in Shelton,  Connecticut
upon which the landlord has constructed a 85,000 square foot building, increased
in January  1995 from  60,000  square  feet,  which SABI uses as a facility  for
warehousing, distribution, imprinting and assembly. The lease commenced in June,
1991 and has a term of ten years. SABI also leases  approximately  13,000 square
feet in a  building  in  Toronto,  Canada  which it uses for  office  space  and
warehousing of products.  The lease  commenced in December,  1992 and expired in
December,  1997.  The Company has extended the term on this lease for a one year
period.

   In 1996, SABI entered into a four-year lease for 7,000 square feet of space
in  a  30,000  square  foot  building  in  Bienne,  Switzerland  for  use  as  a
distribution center.

     SABI believes its properties are sufficient for the current and anticipated
needs of its business.

Item 3.      Legal Proceedings.

     Except as set forth or referenced below, the Company is not involved in any
material pending legal proceedings.

     K-Swiss filed on December 30, 1996 petitions to cancel the  Company's  U.S.
Trademark Reg. No.  1,734,665 for watches and Reg. No.  1,715,093 for sunglasses
for "Swiss Army".    The Company believes it has meritorious defenses to these
petitions although their outcome cannot be predicted at this time.

     On  July  14,  1997,  the  Company  filed  with  the  American  Arbitration
Association  in New York,  New York a demand  for  arbitration  against  Precise
Imports  Corporation,  the United States and Canadian  distributor of Swiss Army
Knives  manufactured  by Wenger  S.A.,  the only company  other than  Victorinox
supplying pocketknives to the Swiss Armed Forces. In the demand for arbitration,
the Company  charges that Precise has violated the license  agreement dated June
30, 1992 between  Precise and the Company by utilizing the trademark  Swiss Army
in ways  prohibited  by the  agreement.  The  Company  seeks  to  enjoin  future
violations by Precise as well as damages resulting from past violations. Precise
has filed an answer, defenses and counterclaims denying the Company's claims and
alleging, as counterclaims,  that the Company has violated the license agreement
to  Precise's  detriment,  that the  Company  has  engaged  in  anti-competitive
activity  against  Precise  in  violation  of both  the  license  agreement  and
anti-trust  laws,  that the Company  has  engaged in acts of unfair  competition
against Precise and that the Company has knowingly  published  false  statements
regarding  Precise in addition to other  counterclaims.  Precise seeks to enjoin
the Company from all of the acts cited in Precise's  counterclaims as well as an
award of the  Company's  profits and Precise's  damages  caused by the Company's
alleged acts.  While the Company cannot predict the outcome of the  arbitration,
it believes that its claims against Precise are meritorious,  it has meritorious
defenses to Precise's  counterclaims and intends to vigorously pursue its claims
and defend against the counterclaims.

     Certain  parties  have  informed  the Company  that they  believe  that the
Victorinox  SwissTool or portions of it infringe  patent rights held by them. If
the Company is unable to resolve these issues amicably no assurance can be given
as to the outcome and the Company may incur substantial legal fees in connection
with the  infringement  defense of any patent  action that may be  brought.  The
result of an adverse  decision  in any such action  could be the  issuance of an
injunction  prohibiting  the Company's sale of the  Victorinox  SwissTool or the
imposition of damages or both.  Any of these could have material  adverse effect
on the Company's future results of operations.

                                       9
<PAGE>

     The  Company is also a  plaintiff  in several  proceedings  to enforce  its
intellectual property rights.

     In  addition,  see  "Business  - Swiss  Army  Knives  and Swiss  Army Brand
Products".

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

             Not Applicable.
                                    10
<PAGE>

                                    PART II
                                    -------


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

          A.      Market Information.
                  -------------------

     Shares of SABI's  Common  Stock are traded on The Nasdaq Stock Market under
the symbol  SABI.  The range of high and low  transactions  for shares of Common
Stock, which is the only class of capital stock of SABI outstanding, as reported
by Nasdaq since the first quarter of 1996 were as follows:
<TABLE>
<CAPTION>

                        Fiscal 1996       Fiscal 1997        Fiscal 1998*
                        -----------       -----------        ------------


                        High     Low       High     Low        High     Low
                        ----     ---       ----     ---        ----     ---
<S>                    <C>      <C>       <C>      <C>        <C>      <C>

First Quarter          $12 1/2  $11 1/4   $14 1/8  $11 3/4    $12 1/2  $9 3/4
Second Quarter          15       12        13       11 1/8
Third Quarter           14       11 1/2    13 1/2    9 1/8
Fourth Quarter          14 1/4   12 3/4    11 1/2    9 5/8


*Through March 17, 1998.
</TABLE>

     The public market for Common Stock is limited and the foregoing  quotations
should not be taken as necessarily  reflective of prices which might be obtained
in actual market transactions or in transactions  involving  substantial numbers
of shares.

          B.      Holders.
                  --------

     On March 17, 1998 shares of Common Stock were held by 341 persons, based on
the number of record holders,  including several holders who are nominees for an
undetermined number of beneficial owners.

          C.      Dividends.
                  ----------

     The  Company  has not paid a cash  dividend  since its  inception,  and its
present  policy  is to  retain  earnings  for use in its  business.  Payment  of
dividends is dependent  upon the  earnings and  financial  condition of SABI and
other factors which its Board of Directors  may deem  appropriate.  Under SABI's
bank loan agreement, as amended, which expires on June 30, 1998, SABI agreed not
to declare or pay any dividends unless immediately following such payment SABI's
ratio of  indebtedness  to tangible  net worth,  calculated  as set forth in the
agreement,  does not exceed 0.75 to one, and SABI's  ratio of current  assets to
current  liabilities  is in  excess  of 2.5 to one.  The  Company  is  currently
negotiating a new bank loan agreement which could contain similar restrictions.

                                       11

<PAGE>

Item 6.   Selected Financial Data

     The following selected financial data for the five years ended December 31,
1997,  was derived from the  consolidated  financial  statements of the Company.
This  data  should  be read in  conjunction  with  Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations and the  Consolidated
Financial  Statements,  related notes and other financial  information  included
herein.
<TABLE>
<CAPTION>

   (In thousands, except per share amounts)              Year Ended December 31,

                           1997(1)      1996(2)     1995       1994       1993
<S>                       <C>          <C>        <C>        <C>        <C>

Net sales                 $118,744     $130,030   $126,695   $144,437   $102,543
Gross profit                42,724       40,836     44,264     55,804     42,027
Selling, general and
administrative expenses     49,639       46,241     40,265     40,293     30,753
Operating income (loss)     (6,915)      (5,405)     3,999     15,511     11,274
Gain (loss) on sale
(write-down) of investments    398       (2,382)     1,771         37         -
Other income (expense), net    116          179       (134)       445        251
Income (loss) before income
taxes and cumulative effect
of accounting change        (6,401)      (7,608)     5,636     15,993     11,525
Income tax provision
(benefit)                   (2,376)      (2,343)     2,523      6,633      4,221
Income (loss) before
cumulative effect of
accounting change           (4,025)      (5,265)     3,113      9,360      7,304
Cumulative effect of
accounting change for
income taxes                    -            -          -          -         220
                            --------    --------    --------   --------  -------
Net income (loss)          ($4,025)     ($5,265)    $3,113    $ 9,360    $ 7,524
                           ---------    --------    --------   --------  -------
Earnings per share:
Income (loss) before
cumulative effect of
 accounting change:
      Basic                 ($0.49)      ($0.64)    $ 0.38    $  1.20    $  1.10
      Diluted               ($0.49)      ($0.64)    $ 0.38    $  1.16    $  1.04
  Net income (loss)
   per share
      Basic                 ($0.49)      ($0.64)    $ 0.38    $  1.20    $  1.14
      Diluted               ($0.49)      ($0.64)    $ 0.38    $  1.16    $  1.07

Other Financial Data:
Current assets             $64,144      $70,933    $74,355    $78,641    $57,551
Total assets                94,051       98,643    101,230    105,708     78,004
Current liabilities         18,343       18,787     16,291     23,932     17,651
Long-term debt                 -            -          -          -          -
Stockholders' equity        75,708       79,856     84,939     81,775     60,353
Cash dividends per common
  share                    $   -        $   -      $   -      $   -      $   -
Weighted average number
of shares outstanding:
      Basic                  8,209        8,202      8,185      7,832      6,610
      Diluted                8,209        8,202      8,236      8,062      7,053

</TABLE>

(1)  The  financial  results  for  1997  include  a $1.3  million  write-off  of
discontinued  inventory  (included  in  cost  of  sales)  and  $0.8  million  of
restructuring costs (included in selling, general and administrative  expenses).
See Note 3 to the Company's Consolidated Financial Statements.

(2) The financial results for 1996 include special charges of approximately $9.9
million.  See Note 3 to the Company's  Consolidated  Financial  Statements.  The
special charges consisted of a $4.9 million write-off of discontinued  inventory
(included  in cost of sales),  a $2.6 million  write-off  of obsolete  displays,
goodwill  and other  assets  (included  in selling,  general and  administrative
expenses) and a $2.4 million write-down of non-strategic investments.

                                       12
<PAGE>
Item 7.     Management's Discussion and Analysis of Financial Condition and
            Results of Operations

                           FORWARD LOOKING STATEMENTS
                           --------------------------

     The following  discussion,  as well as other portions of this Annual Report
on Form 10-K, contains, in addition to historical  information,  forward looking
statements. The forward looking statements were prepared on the basis of certain
assumptions  which  relate,  among other  things,  to the demand for and cost of
purchasing  and  marketing  the  Company's  products;  the  prices at which such
products may be sold; new product  development;  seasonal  selling  trends;  the
Swiss franc-U.S.  dollar exchange rates; the extent to which the Company is able
to successfully hedge against foreign currency  fluctuations;  and the Company's
anticipated  credit  needs  and  ability  to  obtain  such  credit.  Even if the
assumptions upon which the projections are based prove accurate and appropriate,
the actual  results of the  Company's  operations  in the future may vary widely
from financial  projections  due to increased  competition,  changes in consumer
tastes and other factors not yet known or anticipated.  Accordingly,  the actual
results of the  Company's  operations  in the future  may vary  widely  from the
forward looking statements included herein.

Results of Operations

     In 1997, net sales totaled $118.7 million,  an 8.7% decrease from 1996. The
financial  results for 1997 and 1996 have been negatively  impacted by inventory
write-offs and  restructuring  costs. The 1997 financial  results include a $1.3
million  inventory  write-off  of  discontinued  inventory  (included in cost of
sales) and $0.8 million of restructuring costs (included in selling, general and
administrative  expenses).  These  restructuring  costs  primarily  consisted of
severance and related  expenses.  The 1996  financial  results  include  special
charges of approximately $9.9 million, which resulted from an extensive analysis
of the Company's  operations.  The special  charges in 1996  consisted of a $4.9
million write-off of discontinued  inventory (included in cost of sales), a $2.6
million write-off of obsolete  displays,  goodwill and other assets (included in
total  selling,  general  and  administrative  expenses),  and  a  $2.4  million
write-down of non-strategic investments.

     The  following  table shows,  as a percentage  of net sales,  the Company's
Consolidated  Statements of Operations for each of the three years in the period
ended December 31, 1997:
<TABLE>
<CAPTION>

                                                   Year Ended December 31,
                                                  1997       1996       1995
                                                  ----       ----       ----
<S>                                             <C>        <C>        <C>

Net sales                                        100.0%     100.0%     100.0%
Cost of sales                                     64.0       68.6       65.1
                                                 -----      -----      -----
Gross profit                                      36.0       31.4       34.9

Selling, general and administrative
  expenses before special charges                 41.8       33.6       31.8

Special charges                                     -         2.0         -
                                                 -----       -----      -----
Total selling, general and
  administrative expenses                         41.8       35.6       31.8
Operating income (loss)                           (5.8)      (4.2)       3.1
Interest expense                                    -         (.1)       (.2)
Interest income                                     .1         .1         .4
Gain (loss) on sale (write-down) of
   investments                                      .3       (1.8)       1.4
Equity interest in
  unconsolidated affiliates                         -          -         (.4)
Other income, net                                   -          .2         .1
                                                 ------     -------    -------
Income (loss) before income taxes                 (5.4)      (5.8)       4.4
Income tax provision (benefit)                    (2.0)      (1.8)       2.0
                                                 ------     -------    -------
Net income (loss)                                 (3.4)%     (4.0)%      2.4%
                                                 ======     =======    =======
</TABLE>

                                       13
<PAGE>


Comparison of the Years Ended December 31, 1997 and December 31, 1996
---------------------------------------------------------------------

     Net sales for the year ended December 31, 1997 were $118.7  million,  $11.3
million or 8.7% lower than in 1996.  Approximately  $3.6 million of the decrease
is due to the sale of substantially  all the assets of Cuisine de France Limited
("CDF") in January 1997,  with the remaining  sales  decrease due primarily to a
17% decrease in  Victorinox  Original  Swiss Army Knife sales,  a 6% decrease in
watch sales,  a 6% decrease in cutlery  sales offset in part sales of Swiss Army
Brand Sunglasses, Victorinox SwissCards and Victorinox SwissTools.

     Gross profit for the year ended December 31, 1997 was $42.7  million,  4.6%
higher than in 1996.  This is due  primarily to an  inventory  write-off of $4.9
million in 1996,  and the  increase in the value of the U.S.  dollar  versus the
Swiss  franc,  offset in part by lower net  sales and a $1.3  million  inventory
write-off in 1997. The inventory  write-off in 1997, was primarily the result of
discontinuing  certain watch styles.  The inventory  write-off in 1996,  was the
result of the Company discontinuing certain products,  including certain cutlery
products sold by CDF.  Excluding the inventory  write-offs in 1997 and 1996, the
gross profit margin  percentage  increased  from 35.2% in 1996 to 37.1% in 1997.
The  Company's  gross profit  margin is a function of both product mix and Swiss
franc exchange rates.  Since the Company  imports  virtually all of its products
from  Switzerland,  its costs are affected by both the spot rate of exchange and
by its foreign  currency  hedging  program.  Increases in the value of the Swiss
franc versus the dollar may  effectively  increase the cost of these products to
the  Company.  The increase in the cost of products to the Company may result in
either higher prices charged to customers or reductions in gross profit, both of
which may have an adverse  effect on the Company's  results of  operations.  The
Company enters into foreign currency contracts and options to hedge the exposure
associated  with foreign  currency  fluctuations.  Based upon current  estimated
Swiss franc  requirements,  the Company  believes it is hedged through the third
quarter of 1998.  However,  such hedging activity cannot eliminate the long-term
adverse impact on the Company's  competitive  position and results of operations
that would  result from a sustained  decrease in the value of the dollar  versus
the Swiss franc. These hedging  transactions,  which are meant to reduce foreign
currency risk, also reduce the beneficial effects to the Company of any increase
in the dollar  relative to the Swiss  franc.  The  Company  plans to continue to
engage in  hedging  transactions;  however,  the  extent to which  such  hedging
transactions  will  reduce  the  effect  of  adverse  currency  fluctuations  is
uncertain.

     Selling, general and administrative expenses (excluding the special charges
described  below) for the year ended December 31, 1997 were $49.6 million,  $6.0
million or 13.6% higher than in 1996. The expense  increase  resulted  primarily
from  increased  selling  expenses and  increased  expenditures  in the areas of
merchandising and promotion and approximately  $0.8 million related to continued
restructuring  costs.  As a  percentage  of  net  sales,  selling,  general  and
administrative   expenses   (excluding  the  special  charges  described  below)
increased from 33.6% in 1996 to 41.8% in 1997.

     Special  selling,  general and  administrative  expenses of $2.6 million in
1996 consisted of the write-off of obsolete displays, goodwill and other assets.
The  goodwill  write-off  related  to CDF,  and  was  taken  due to the  lack of
recoverability  of the asset.  Substantially  all the assets of CDF were sold by
the Company in 1997 with no significant gain or loss.

     As a result of the above,  the Company  recorded an operating  loss of $6.9
million for the year ended December 31, 1997 as compared to an operating loss of
$5.4  million  in 1996.  Excluding  the  effects  of the  inventory  write-offs,
restructuring  costs and the special charges,  the Company recorded an operating
loss of $4.8 million in 1997, as compared to operating income of $2.1 million in
1996.

     Interest  expense  of  $40,000  for the year ended  December  31,  1997 was
$107,000 lower than interest expense in 1996, due to lower borrowings in 1997 as
compared to 1996.

     Interest  income of  $155,000  for the year  ended  December  31,  1997 was
$35,000  higher than  interest  income in 1996,  due to increased  invested cash
balances during 1997 as compared to 1996.

                                       14
<PAGE>
     The gain on the sale of  investments  for the year ended  December 31, 1997
was  $398,000,  as compared to a loss of $2.4 million in 1996.  The gain in 1997
was due to a distribution from the Company's investment in Victory Ventures LLC,
which resulted in a gain of $286,000 and a $112,000 recovery of a privately held
startup entity that was  written-off in 1996. The loss in 1996 was primarily due
to the $1.6 million  write-down of the Company's  investment in the common stock
of SWWT, Inc.( formerly known as SweetWater,  Inc.), a  publicly-traded  entity,
and an $800,000  write-down  of the Company's  investment in the  aforementioned
privately held start-up entity.

     As a result of the above,  the loss before  income taxes for the year ended
December 31, 1997 was $6.4 million compared to $7.6 million in 1996.

     Income tax expense (benefit) was provided at an effective rate of 37.1% for
the year  ended  December  31,  1997 as  compared  to 30.8%  for the year  ended
December 31, 1996.  The change in the  effective tax rate was due to foreign and
state income taxes.

     As a result of the above, the net loss for the year ended December 31, 1997
was $4.0 million ($0.49 per share) as compared to $5.3 million ($0.64 per share)
in 1996.

Comparison of the Years Ended December 31, 1996 and December 31, 1995
---------------------------------------------------------------------
     Net sales for the year ended  December 31, 1996 were $130.0  million,  $3.3
million or 2.6% higher than in 1995.  The Company's net sales  increased for the
year due to a 6% increase in watch  sales and a 13%  increase in cutlery  sales,
offset in part by a 9% decrease in Victorinox Original Swiss Army Knife sales.

     Gross profit for the year ended December 31, 1996 was $40.8  million,  7.7%
lower than in 1995.  This is due  primarily  to an  inventory  write-off of $4.9
million  in  1996.  The  inventory  write-off  was  the  result  of the  Company
discontinuing certain products,  including certain cutlery products sold by CDF.
Excluding  the  $4.9  million  inventory  write-off,  the  gross  profit  margin
percentage  increased from 34.9% in 1995 to 35.2% in 1996.  The Company's  gross
profit margin is a function of both product mix and Swiss franc exchange  rates.
Since the Company imports  virtually all of its products from  Switzerland,  its
costs are affected by both the spot rate of exchange and by its foreign currency
hedging program. Increases in the value of the Swiss franc versus the dollar may
effectively  increase the cost of these products to the Company. The increase in
the cost of products to the Company may result in either higher  prices  charged
to customers or reductions  in gross  profit,  both of which may have an adverse
effect on the Company's  results of operations.  The Company enters into foreign
currency  contracts  and options to hedge the exposure  associated  with foreign
currency  fluctuations.  However,  such hedging  activity  cannot  eliminate the
long-term  adverse impact on the Company's  competitive  position and results of
operations  that would  result  from a  sustained  decrease  in the value of the
dollar versus the Swiss franc.  These hedging  transactions,  which are meant to
reduce foreign currency risk, also reduce the beneficial  effects to the Company
of any increase in the dollar relative to the Swiss franc. The Company currently
plans to  continue  to engage in hedging  transactions;  however,  the extent to
which such  hedging  transactions  will  reduce  the effect of adverse  currency
fluctuations is uncertain.

     Selling, general and administrative expenses (excluding the special charges
described  below) for the year ended December 31, 1996 were $43.7 million,  $3.4
million or 8.5% higher than in 1995.  The expense  increase  resulted  primarily
from  increased  selling  expenses and  increased  expenditures  in the areas of
merchandising and promotion. As a percentage of net sales, selling,  general and
administrative   expenses   (excluding  the  special  charges  described  below)
increased from 31.8% in 1995 to 33.6% in 1996.

     Special  selling,  general and  administrative  expenses of $2.6 million in
1996 consisted of the write-off of obsolete displays, goodwill and other assets.
The goodwill  write-off  related to CDF, and was  written-off due to the lack of
recoverability of the asset.

     As a result of the above,  the Company  recorded an operating  loss of $5.4
million for the year ended December 31, 1996 as compared to operating  income of
$4.0 million in 1995.  Excluding the effects of the inventory  write-off and the
special charges,  the Company recorded operating income of $2.1 million in 1996,
as compared to operating income of $4.0 million in 1995. This decrease is due to
higher selling,  general and administrative  expenses,  offset in part by higher
gross profit.

     Interest  expense of  $147,000  for the year ended  December  31,  1996 was
$70,000 lower than interest  expense in 1995, due to lower borrowings in 1996 as
compared to 1995.

                                       15
<PAGE>
     Interest  income of  $120,000  for the year  ended  December  31,  1996 was
$437,000  lower than  interest  income in 1995,  due to decreased  invested cash
balances during 1996 as compared to 1995.

     The loss on the write-down of  investments  for the year ended December 31,
1996 was $2.4 million,  as compared to a gain on the sale of investments of $1.8
million  in  1995.  The  loss in 1996  was  primarily  due to the  $1.6  million
write-down  of the  Company's  investment  in the common stock of SWWT,  Inc., a
publicly-traded  entity, and an $800,000 write-down of the Company's  investment
in a privately held start-up entity.  Both of these investments  became impaired
in 1996.  Gain on sale of  investments of $1.8 million in 1995 was due primarily
to the sale of the Company's  investment in the common stock of Simmons  Outdoor
Corporation.

     Equity interest in unconsolidated affiliates was a loss of $548,000 in 1995
due to the Company using the equity method of accounting for its  investments in
Simmons  Outdoor  Corporation and SWWT, Inc. The equity method of accounting was
not applicable in 1996.

     As a result of the above,  the loss before  income taxes for the year ended
December  31,  1996 was $7.6  million  compared to income  before  taxes of $5.6
million in 1995.

     Income tax expense (benefit) was provided at an effective rate of 30.8% for
the year  ended  December  31,  1996 as  compared  to 44.8%  for the year  ended
December 31, 1995.  The change in the  effective tax rate was due to foreign and
state income taxes.

     As a result of the above, the net loss for the year ended December 31, 1996
was $5.3  million  ($0.64 per share) as compared  to net income of $3.1  million
($0.38 per share) in 1995.

Liquidity and Capital Resources
-------------------------------

     As of December 31, 1997,  the Company had working  capital of $45.8 million
compared with $52.1 million as of December 31, 1995, a decrease of $6.3 million.
Significant  uses of working  capital  consisted of additions to other assets of
$3.1 million and capital expenditures of $1.1 million. The Company currently has
no material commitments for capital expenditures.

     Cash provided from operating  activities was approximately  $2.7 million in
the year ended  December 31, 1997 compared  with cash  provided  from  operating
activities  of $7.6  million in the year ended  December  31,  1996.  The change
primarily  resulted from a smaller  decrease in inventory in 1997 as compared to
1996 and  decrease  in  accounts  payable in 1997 as  compared to an increase in
1996, offset in part by a decrease in accounts receivable in 1997 as compared to
an increase in 1996 and an increase in accrued  liabilities  in 1997 as compared
to a decrease in 1996.

     The Company meets its short-term  liquidity  needs with cash generated from
operations,  and, when necessary,  bank borrowings under its bank agreements. As
of December 31, 1997, the Company had no outstanding  borrowings  under its bank
agreements. The Company currently has a $5.0 million line of credit which it can
use for any borrowings and a $5.0 million  commercial  promissory note agreement
which expires on June 30, 1998.  The Company is currently  reviewing its options
to  establish  a  new  revolving  credit  agreement.  The  Company's  short-term
liquidity is affected by seasonal changes in inventory levels, payment terms and
seasonality  of sales.  The Company  believes its current  liquidity  levels and
financial resources continue to be sufficient to meet its operating needs.

Year 2000
---------

     The  Company  has been  conducting  a review  of its  computer  systems  to
identify  those  areas that could be  affected  by the "Year 2000" issue and has
developed an implementation plan to minimize  disruption.  The Company presently
believes that, with  modifications to existing  software,  of which some already
have been implemented, and investment in new software,  the Year 2000 problem as
it relates to its own  computer  systems will not pose  significant  operational
concerns,  and the costs to ensure  compliances of its own computer systems will
not have a material impact on the financial position or results of operations in
any given year.  However,  the Year 2000  readiness of the Company's  customers,
suppliers and lenders may vary,  and no  assurances  can be given that Year 2000
problem will not have a material impact on the financial condition or results of
operations in any given year.

                                       16
<PAGE>
Item 7a.      Quantitative and Qualitative Disclosures About Market Risk


Foreign Exchange Risk
---------------------

     The  Company  is exposed to market  risk from  changes in foreign  exchange
rates as the Company  imports  virtually all its products from  Switzerland.  To
minimize the risks associated with  fluctuations in the value of the Swiss franc
versus the U.S. dollar,  the Company enters into foreign currency  contracts and
options.  Pursuant to guidelines approved by its Board of Directors, the Company
is to engage in these  activities  only as a hedging  mechanism  against foreign
exchange  rate  fluctuations   associated  with  specific   inventory   purchase
commitments to protect gross margin and is not to engage in speculative trading.
Gains or losses on these  contracts  and options are deferred and  recognized in
cost of sales when the related  inventory  is sold.  See further  discussion  in
"Results of  Operations".  At December  31,  1997,  the Company has entered into
foreign  currency  contracts and options to purchase  46,000,000 Swiss francs in
1998 at a  weighted  average  contractual  rate  of  1.443  Swiss  franc/dollar.
Deferred  gains and losses on these  contracts  are  immaterial  at December 31,
1997.

Item 8.       Financial Statements and Supplementary Data

     The financial  information required by Item 8 is included elsewhere in this
report. See Part IV, Item 14.

Item 9.       Disagreements on Accounting and Financial Disclosure

     None.

                                       17

<PAGE>
                                    PART III
                                    --------

Item 10.      Directors and Executive Officers of the Registrant

     The Directors and Executive Officers of SABI are as follows:
<TABLE>
<CAPTION>
                                                                      Director
                                                                       and/or
        Name              Age     Position(s)                      Officer Since
       -----              ---     -----------                      -------------
<S>                      <C>     <C>                                    <C>
J. Merrick Taggart        47      President (1)                            1995
Peter W. Gilson           58      Chairman of the Executive
                                  Committee and Director (2)               1994
Louis Marx, Jr.           66      Chairman of the Management
                                  Committee and Director (3)               1990
Stanley R. Rawn, Jr.      70      Senior Managing Director
                                  and Director (4)                         1990
Harry R. Thompson         68      Managing Director                        1994
Thomas M. Lupinski        45      Senior Vice President, Chief
                                  Financial Officer, Secretary
                                  and Treasurer                            1986
Michael J. Belleveau      41      Vice President and General Manager -
                                  Swiss Army Brands Division               1994
David J. Parcells         39      Vice President - Operations              1992
Jerald J. Rinder          51      Vice President and General Manager -
                                  Victorinox Division                      1996
Robert L. Topazio         49      Vice President and General Manager -
                                  R.H. Forschner Division                  1996
Douglas M. Rumbough       41      Vice President and General Manager -
                                  Corporate Markets Division               1992
A. Clinton Allen          54      Director (5)                             1993
Clarke H. Bailey          43      Director (6)                             1997
Thomas A. Barron          46      Director                                 1983
Vincent D. Farrell, Jr.   51      Director (7)                             1992
Herbert M. Friedman       66      Director (8)                             1981
M. Leo Hart               49      Director (9)                             1991
James W. Kennedy          47      Director (10)                            1981
Keith R. Lively           46      Director (11)                            1994
Lindsay Marx              32      Director                                 1994
Eric M. Reynolds          45      Director                                 1994
John Spencer              68      Director (12)                            1990
John V. Tunney            63      Director (13)                            1992
</TABLE>


1.      Mr. Taggart is a member of the Company's Executive Committee, Management
        Committee and Foreign Exchange Committee.

2.      Mr. Gilson is Chairman of the Company's Executive Committee and a member
        of the Nominating Committee.

3.      Mr.  Marx  is  Chairman  of  the  Company's  Management  Committee   and
        Nominating  Committee and a member of the Company's Executive Committee
        and Foreign Exchange Committee.

4.      Mr. Rawn is a member of the Company's  Executive  Committee,  Management
        Committee and Nominating Committee.

5.      Mr. Allen is Chairman of the  Company's  Stock  Option and  Compensation
        Committee and a member of the Executive Committee.

6.      Mr. Bailey is a member of the Company's Executive Committee.

7.      Mr. Farrell is Chairman of the Company's Audit Committee and a member of
        the Executive Committee and Foreign Exchange Committee.

8.      Mr.  Friedman is a member of the Company's  Executive  Committee,  Audit
        Committee and Nominating Committee.

9.      Mr. Hart is a member of the Company's Nominating Committee.

                                       18
<PAGE>
10.     Mr. Kennedy is a member of the Company's Foreign Exchange Committee.

11.     Mr. Lively is a member of the Company's Stock Option and Compensation
        Committee.

12.     Mr.  Spencer is a member of the  Company's  Audit  Committee  and Stock
        Option and Compensation Committee.

13.     Mr. Tunney is a member of the Company's  Stock Option and  Compensation
        Committee.

Biographical Information
------------------------

     J. Merrick  Taggart,  President and a Director of the Company,  was elected
President  on December  13,  1995.  From 1993 to November  1995 Mr.  Taggart was
President of Duofold,  Inc, a sports  apparel  company,  and Pringle of Scotland
U.S.A., an apparel company. From 1990 to November 1992 Mr. Taggart was President
of O'Brien International, a manufacturer and marketer of water sports equipment.
Prior to that Mr. Taggart was Senior Vice President of Product  Development  for
the Timberland Company, a footwear and apparel company.

     Peter W. Gilson,  Chairman of the Executive Committee and a Director of the
Company, also served as  President  and Chief  Executive  Officer  of  Physician
Support Systems,  Inc., a company  specializing in the management of physicians'
health care practices, from 1991 through January 1998. From 1989 to the present,
Mr.  Gilson has also  served as  President  and Chief  Executive  Officer of the
Warrington Group, Inc., a manufacturer of safety products which was previously a
division of The  Timberland  Company.  From 1987 to 1988,  Mr.  Gilson served as
Chief Operating  Officer of The Timberland  Company,  a manufacturer of footwear
and outdoor  clothing.  From 1978 to 1986,  he served as President of the Gortex
Fabrics Division of W.L. Gore Associates. Mr. Gilson is also a director of SWWT,
Inc.  ("SWWT"),  a holding company formerly in the business of manufacturing and
marketing  portable water  filtration  systems and Glenayre  Technologies,  Inc.
("Glenayre  Technologies"),  a paging and messaging  infra-structure  technology
firm.

     Louis Marx, Jr., Chairman of the Management Committee and a Director of the
Company,  has been  associated with the Company for over 20 years and has played
the key role in helping to guide its affairs during that entire period.  Through
discussions  with the Chief  Executive  Officer of  Victorinox  Cutlery  Company
("Victorinox"),   the  Company's  principal  supplier,  he  and  Mr.  Rawn  were
responsible for the Company  obtaining  exclusive U.S.  distribution  rights for
Victorinox  products  and  later,  together  with  Mr.  Rawn  and  Mr.  Kennedy,
negotiated the expansion of the Company's distribution rights to include Canada,
Bermuda  and  the  Caribbean  and  also  obtained  for  the  Company   exclusive
distribution  rights to the  Victorinox  Watch.  In a prior year he and Mr. Rawn
played  an  important  part  in  negotiating,  on  behalf  of the  Company,  the
settlement of potentially expensive litigation,  and more recently, Mr. Marx has
played an active role in the Company's  investment policy and, together with the
Company's  advisors,  has  successfully  managed the Company's  currency hedging
program.  Mr. Marx is a director  and member of the  Compensation  Committee  of
Cyrk,  Inc.  ("Cyrk"),  a distributer of products for  promotional  programs and
custom-designed  sports  apparel  and  accessories.  Mr. Marx has been a venture
capital investor for more than thirty years.  Mr. Marx,  together with his close
business  associates,  have  been  founders  or  substantial  investors  in such
companies as Pan Ocean Oil Corporation,  Donaldson,  Lufkin & Jenrette,  Bridger
Petroleum  Corporation  Ltd.,  Questor  Corporation,  Environmental  Testing and
Certification  Corporation,  Garnet Resources  Corporation,  The Prospect Group,
Inc. and Noel Group, Inc.  ("Noel"),  a publicly held company which prior to its
adoption in 1996 of a Plan of Complete  Liquidation and  Dissolution,  conducted
its principal  operations through small and medium sized operating  companies in
which it holds  controlling  interests.  Mr.  Marx  served as a director  of The
Prospect Group,  Inc., a company which,  prior to its adoption in 1990 of a Plan
of Complete Liquidation and Dissolution,  conducted its major operations through
subsidiaries  acquired  in  leveraged  buyout  transactions  ("Prospect"),  from
February 1986, and as Chairman of Prospect's  Asset Committee from October 1988,
until  January  1990.  Mr. Marx  serves as a trustee of the New York  University
Medical Center and Middlebury College and as Chairman of the Madison Avenue Fund
for  Children.  Mr.  Marx is also  Co-Chairman  and a director  of Hudson  River
Capital LLC, a private equity firm  specializing in middle market  acquisitions,
recapitalizations  and expansion capital  investments  ("Hudson  River"),  and a
Co-Chairman,  director and consultant of Victory  Ventures LLC, a private equity
firm  specializing  in  small  market  venture  capital  investments   ("Victory
Ventures").  He is  President  and a  director  of  Victorinox-Swiss  Army Knife
Foundation,  a  non-profit  corporation  formed by the  Company  for  charitable
purposes including the improvement of the welfare of  underprivileged  children.
Mr. Marx is the father of Lindsay Marx, a Director of the Company.

                                       19
<PAGE>
     Stanley  R. Rawn,  Jr.,  Senior  Managing  Director  and a Director  of the
Company,  actively  participates  with  Messrs.  Marx,  Taggart  and  Kennedy in
furthering  the  relationship  between the Company and  Victorinox as well as in
coordinating  management  strategies.  He has also played an  important  part in
obtaining and expanding the Company's  exclusive  distribution  rights  covering
Victorinox  products.  Mr. Rawn was Chairman and Chief  Executive  Officer and a
director  of  Adobe  Resources  Corporation,  an oil  and  gas  exploration  and
production company from November,  1985 until the merger of that company in May,
1992.  Mr. Rawn is also the Chief  Executive  Officer and a director of Noel;  a
director  of  Hudson  River,  Victory  Ventures,  Staffing  Resources,  Inc.,  a
temporary help corporation,  and Victorinox - Swiss Army Knife Foundation; and a
Trustee of the California Institute of Technology.

     Harry R. Thompson,  Managing Director of the Company was appointed Managing
Director in December 1994.  From 1987 to 1995, Mr. Thompson was president of The
Strategy  Group,  a business and marketing  consulting  firm.  Mr.  Thompson had
previously  served as a director of the Company from June 1987 to June 1991, and
as Chairman of the  Company's  Board of  Directors  from January 1990 to October
1990 and served in senior  executive  capacities with the  Interpublic  Group of
Companies, Inc., a leading marketing and communications organization.

     Thomas  M.  Lupinski,  Senior  Vice  President,  Chief  Financial  Officer,
Secretary and Treasurer of the Company,  has been Vice  President of the Company
for more than five years. Prior to joining the Company, Mr. Lupinski was Finance
Manager  for The Revlon  Health Care Group from 1982 to 1986 and was with Arthur
Andersen & Co., from 1976 through 1982.

     David J.  Parcells,  Vice  President  -  Operations,  joined the Company in
December  1992. Mr.  Parcells was employed by Arthur  Andersen & Co. as a Senior
Manager - Audit and Business  Advisory Practice from 1989 through 1992 and as an
Audit Manager from 1986 to 1989.

     Michael J.  Belleveau,  Vice President - Sales and General  Manager - Swiss
Army Brands Division,  was elected to the office of Vice President in June 1994.
Mr.  Belleveau has served the Company in various  positions since 1991. Prior to
that  Mr.  Belleveau  was  a  regional  sales  manager  for  Cartier,   Inc.,  a
manufacturer and marketer of watches and luxury goods.

     Jerald J. Rinder, Vice President and General Manager - Victorinox Division,
was elected to the office of Vice President in February, 1996. From 1994 through
1995 Mr.  Rinder was  Executive  Vice  President of Pringle of Scotland  USA, an
apparel   company.   From  1993  to  1994  Mr.  Rinder  was  Vice   President  -
Sales/Marketing  of  Walkover  Shoe Co.  and  from  1991  through  1993 was Vice
President - Sales of Stride Rite Corp.

     Robert L.  Topazio,  Vice  President and General  Manager - R.H.  Forschner
Division,  was elected to the office of Vice  President in February,  1996.  Mr.
Topazio has served the Company in various positions since September,  1992. From
1991 to 1993 Mr.  Topazio  was Vice  President  of Cuisine de  France,  Ltd.,  a
marketer of consumer  cutlery which was purchased by the Company in 1992.  Prior
to that Mr. Topazio was National Sales Manager for J.A. Henckels.

     Douglas M. Rumbough, Vice President and General Manager - Corporate Markets
Division, was elected to the office of Vice President in June 1992. Mr. Rumbough
has served the Company in various positions since 1981.

     A. Clinton Allen,  a Director of the Company,  is Chairman of A. C. Allen &
Co., a  Massachusetts  based  consulting  firm.  Mr.  Allen also  serves as Vice
Chairman and a director of  Psychemedics  Corporation,  a company that  provides
testing services for the detection of abused  substances  through an analysis of
hair samples,  and of Dewolfe Companies,  Inc., a real estate company,  and as a
director of SWWT, and of Response U.S.A., a company in the home alarm business.

     Clarke H. Bailey was elected a director of the Company in January  1997. He
served as Chief Executive  Officer and a director of Glenayre  Technologies from
December  1990  until  March  1994 and as its Vice  Chairman  of the Board  from
November 1992 to July 1996. In March 1994,  Mr. Bailey was named Chairman of the
Executive Committee of the Board of Glenayre  Technologies,  and he relinquished
the title of Chief Executive Officer. Since February 1995, Mr. Bailey has served
as Co-Chairman of the Board and a director of Hudson River. He is also currently
Chairman of the Executive Committee and a director of Connectivity Technologies,
Inc., an acquisition company with interests in the wire and cable industry,  and
a director of Iron Mountain Incorporated. He served as Chairman, Chief Executive
Officer and a director of Arcus Group  Inc.,  the leading  national  provider of
secure off-site  computer data storage and related disaster recovery services as
well as information technology staffing solutions, from February 1995 to January
1998.

                                       20
<PAGE>
     Thomas A.  Barron,  a Director  of the  Company,  is an author and has been
Chairman of Evergreen Management Corp., a private investment firm since January,
1990.  From November,  1983 through  November 1989, Mr. Barron was President and
Chief Operating  Officer and a director of Prospect.  From 1988 through January,
1990, Mr. Barron served as Chairman of the Board of the Company. Mr. Barron also
serves as a director and Chairman of the Board of SWWT. Mr. Barron has served as
a Trustee of Princeton University.

     Herbert M.  Friedman,  a Director of the  Company,  is a partner in the law
firm of Zimet, Haines, Friedman & Kaplan, where he has been a member since 1967.
Zimet, Haines, Friedman & Kaplan acts as counsel to the Company. Mr. Friedman is
also a director of Noel, Prospect, Hudson River, Victory Ventures,  Connectivity
Technologies and Victorinox - Swiss Army Knife Foundation.

     Vincent D.  Farrell,  Jr., a Director of the  Company,  has been a Managing
Director of the investment management firm of Spears, Benzak, Salomon & Farrell,
Inc.,  ("Spears,  Benzak")  since  1982.  Mr.  Farrell  is  also a  director  of
HealthPlan  Services  Corporation,  a provider of marketing  and  administrative
services for health and benefit programs.

     M. Leo Hart, a Director of the Company,  is President  and Chief  Executive
Officer of Brae  Group,  Inc.,  a  privately  held  acquisition  company.  Until
December 13, 1995,  Mr. Hart was  Co-Chairman  of the Board and Chief  Executive
Officer of the Company,  which  capacity he had served in since  February  1994.
Previously,  he was Executive Vice President and a Director. Mr. Hart joined the
Company in October 1991.  Prior to this, Mr. Hart spent the previous 15 years in
senior sales and marketing  positions in the  hospitality  industry,  serving as
Senior Vice President of Marketing for The Ritz-Carlton  Hotel Company from 1987
to 1991 and before that as Vice  President  -Sales and  Marketing  for  Fairmont
Hotels from 1983 to 1987.  Until 1991, he was the North American  Chairperson of
Leading Hotels of the World, a hotel marketing association.  Prior to his career
in sales, Mr. Hart played  professional  football with the NFL's Atlanta Falcons
and  Buffalo  Bills.  Mr.  Hart is also a  director  of Victory  Ventures  and a
director of Victorinox - Swiss Army Knife Foundation.

     James W. Kennedy, a Director of the Company, is President of Lahinch Group,
Inc., a start-up company engaged in the garment imprinting and apparel business.
Until  December 13, 1995,  Mr.  Kennedy was  Co-Chairman  of the Board and Chief
Executive Officer of the Company, which capacity he had served in since February
1994. Previously,  he was President of the Company, a position he had held since
1988.  Prior to 1988,  Mr.  Kennedy was Senior Vice President of the Company and
had served in various sales and marketing positions with the Company since 1975.
Mr. Kennedy has served on committees for the Specialty  Advertising  Association
International, the National Restaurant Association, the American Meat Institute,
the Sporting Goods  Manufacturers  Association  and the American  Association of
Exporters and Importers.

     Keith R. Lively,  a Director of the  Company,  is Chairman of the Board and
Chief Executive Officer of Authentic  Specialty Foods,  Inc., a manufacturer and
marketer of specialty  foods, a position he has held since August 1997. Prior to
that Mr. Lively was a private investor and, from January 1995 through  December,
1995,  was a consultant to the Company.  From 1988 through  September  1994, Mr.
Lively was the President,  Chief Executive  Officer and a Director of The Famous
Amos Chocolate Chip Cookie  Corporation.  From September 1992 through  September
1994,  Mr.  Lively was also Senior  Vice  President,  a member of the  Executive
Committee and a Director of President Baking Company, which purchased The Famous
Amos Chocolate Cookie Corporation in September 1992. Mr. Lively also serves as a
director of SWWT.

     Lindsay  Marx,  a  Director  of the  Company  is a private  investor.  From
November 1992 to January 1994,  she was a production  assistant at Iron Mountain
Productions,  a dramatic  production  company.  Ms. Marx was an assistant to the
director at the Paper Mill  Playhouse in 1992 and, from  September 1989 to March
1992,  an artistic  assistant at The Body  Politic,  also a dramatic  production
company.  Ms. Marx  graduated from  Middlebury  College in 1987. Ms. Marx is the
daughter of Louis Marx, Jr.

     Eric M. Reynolds,  a Director of the Company, is a private investor and was
President, Chief Executive Officer and a director of SWWT, from January, 1993 to
February 5, 1998.  Previously,  from 1987 through 1990, Mr. Reynolds served as a
marketing  consultant to various companies  including W.L. Gore & Associates and
Marmot Mountain  Works,  Ltd., a company founded by Mr. Reynolds in 1974 that is
in the  business  of  designing,  manufacturing  and  marketing  mountaineering,
backpacking and ski outerwear products.

                                       21
<PAGE>
     John  Spencer,  a  Director  of the  Company,  holds  the  African  Studies
Professorship  at  Middlebury  College  where he has  served  as a member of the
faculty since 1974.  Mr.  Spencer has also served as Dean of Middlebury  College
and Chairman of its History  Department.  Mr.  Spencer is  Vice-Chairman  of the
African  American  Institute and of the Institute of Current  World  Affairs,  a
Trustee of the Cape of Good Hope  Foundation,  the  University of Capetown Fund,
Inc.  and Atlanta  University  and a director of  Victorinox  - Swiss Army Knife
Foundation.

     John V.  Tunney,  a Director of the Company,  is currently  Chairman of the
Board of Cloverleaf  Group,  Inc., a general partner of Sun Valley  Ventures,  a
partnership  engaged in venture  capital and leveraged  buyout  activities and a
consultant to Trace  International,  Inc. an investment  firm. From 1971 to 1977
Mr. Tunney served as a United States Senator from the state of California and as
a Member of the United States House of  Representatives  from 1965 to 1971.  Mr.
Tunney is also a director  of Illinois  Central  Corporation,  Illinois  Central
Railroad Company, and Foamex International, Inc., a foam manufacturer.

Compliance with Section 16(a) of the Securities Exchange Act of 1934
--------------------------------------------------------------------

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers  and  directors,  and  persons  who own  more  than  ten  percent  of a
registered  class  of the  Company's  equity  securities,  to  file  reports  of
ownership and changes in ownership with the Securities and Exchange  Commission.
Officers,  directors and greater than  ten-percent  shareholders are required by
regulation  to furnish the Company  with copies of all Section  16(a) forms they
file.

     Based  solely on its review of the copies of such forms  received by it, or
written  representations  from  certain  reporting  persons that no Forms 5 were
required  for those  persons,  the Company  believes  that during the year ended
December 31, 1997 all filing requirements  applicable to the Company's officers,
directors, and greater than ten-percent beneficial owners were complied with.

                                       22
<PAGE>
Item 11.        Executive Compensation

                           Summary Compensation Table
                           --------------------------

     The Summary  Compensation  Table below sets forth  individual  compensation
information  of the  President  and the five other most  highly  paid  executive
officers of the  Company for  services  rendered  in all  capacities  during the
fiscal years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>

                                 Annual Compensation                     Long-Term Compensation


                                                                       Awards         Payouts
    (a)                  (b)      (c)       (d)       (e)            (f)       (g)        (h)         (i)
                                                       Other
                                                      Annual      Restricted                         All Other
Name and                                              Compen-        Stock      Options/    LTIP       Compen-
Principal Position       Year    Salary      Bonus    sation         Award       SARS      Payouts     sation
------------------      ------   ------      -----    -------     ----------    --------   -------   ---------
<S>                     <C>     <C>         <C>      <C>         <C>           <C>        <C>       <C>

J. Merrick Taggart       1997   $300,000       -        -             -           -           -      $  4,750 (1)
President                1996   $250,000    $40,000  $50,809 (2)      -          40,000       -      $  3,353 (3)
                         1995   $ 33,654       -        -             -         100,000 (4)   -         -

Peter W. Gilson          1997   $210,000       -        -             -           -           -         -
Chairman of the          1996   $200,000       -        -             -          20,000       -         -
 Executive Committee     1995   $150,000       -        -             -         150,000       -

Stanley G. Mortimer III  1997   $109,200       -        -             -           -           -      $255,029 (6)
Executive Vice           1996   $210,000    $17,500     -             -          10,000       -        $8,515 (7)
President (5)            1995   $210,000    $ 5,000     -             -          25,000       -        $8,584 (8)

Harry R. Thompson        1997   $210,000       -        -             -           -           -        $2,410 (9)
Managing Director        1996   $200,000    $20,000     -             -          25,000       -        $2,392 (10)
                         1995   $200,000    $15,000     -             -          25,000       -        $2,195 (11)

Leslie H. Green          1997   $185,000       -        -             -           -           -      $281,444 (13)
Vice President (12)      1996   $175,000    $17,500     -             -          10,000       -        $3,845 (14)
                         1995   $175,000    $10,000     -             -          10,000       -        $3,796 (15)

Jerald J. Rinder         1997   $170,000    $15,000   $103,737 (17)   -           -           -        $2,779 (18)
Vice President (16)      1996   $153,546    $25,000    $44,797 (19)   -          10,000       -           -

Michael J. Belleveau     1997   $160,000       -        -             -           -           -        $3,145 (20)
Vice President           1996   $150,000    $17,500     -             -          10,000       -        $2,740 (21)
                         1995   $120,000    $18,000     -             -          10,000       -        $2,440 (22)
</TABLE>

     1 Consists of $4,750  contributed by the Company to Mr.  Taggart's  account
under the Company's 401K savings plan.

     2 Includes relocation benefits of $45,109.

     3 Consists of $3,353  contributed by the Company to Mr.  Taggart's  account
under the Company's 401K savings plan.

     4 Consists of warrants to purchase Common Stock.

     5 Mr. Mortimer  resigned from the office of Executive Vice President on May
23, 1997.

     6  Consists  of a  $250,000  payment  in  1997  related  to Mr.  Mortimer's
resignation,  $2,215  contributed by the Company to Mr. Mortimer's account under
the  Company's  401K  savings  plan and  $2,814 in benefit  to Mr.  Mortimer  of
insurance  premiums  paid by the  Company  with  respect  to split  dollar  life
insurance for the benefit of Mr. Mortimer.

     7 Consists of $2,423  contributed by the Company to Mr. Mortimer's  account
under the Company's  401K savings plan and $6,092 in benefit to Mr.  Mortimer of
insurance  premiums  paid by the  Company  with  respect  to split  dollar  life
insurance for the benefit of Mr. Mortimer.

                                       23
<PAGE>
     8 Consists of $4,300  contributed by the Company to Mr. Mortimer's  account
under the Company's  401K savings plan and $4,284 in benefit to Mr.  Mortimer of
insurance  premiums  paid by the  Company  with  respect  to split  dollar  life
insurance for the benefit of Mr. Mortimer.

     9 Consists of $2,410  contributed by the Company to Mr. Thompson's  account
under the Company's 401K savings plan.

     10 Consists of $2,392  contributed by the Company to Mr. Thompson's account
under the Company's 401K savings plan.

     11 Consists of $2,195  contributed by the Company to Mr. Thompson's account
under the Company's 401K savings plan.

     12 Ms.  Green  resigned  from the  office  of Vice  President  on  December
12,1997.

     13  Consists  of a $278,250  payment  made in January  1998  related to Ms.
Green's resignation and $3,194 contributed by the Company to Ms. Green's account
under the Company's 401K savings plan.

     14 Consists of $3,845  contributed  by the Company to Ms.  Green's  account
under the Company's 401K savings plan.

     15 Consists of $3,796  contributed  by the Company to Ms.  Green's  account
under the Company's 401K savings plan.

     16 Mr. Rinder joined the Company on January 11, 1996.

     17 Includes relocation benefits of $102,297.

     18 Consists of $2,779  contributed by the Company to Mr.  Rinder's  account
under the  Company's  401K  savings  plan.

     19 Includes relocation benefits of $40,693.

     20 Consists of $3,145 contributed by the Company to Mr. Belleveau's account
under the Company's 401K savings plan.

     21 Consists of $2,740 contributed by the Company to Mr. Belleveau's account
under the Company's 401K savings plan.

     22 Consists of $2,440 contributed by the Company to Mr. Belleveau's account
under the Company's 401K savings plan.

                       Option Grants in Last Fiscal Year
                       ---------------------------------

     The following table sets forth, for each of the executive officers named in
the  Summary  Compensation  Table  information  regarding  individual  grants of
options made in the last fiscal year, and their potential realizable values.
<TABLE>
<CAPTION>

                                                      Potential Realizable
                                                        Value at Assumed
                                                      Annual Rates of Stock
                                                      Price Appreciation for
                                 Individual Grants                 Option Term
                                 -----------------                 -----------

(a)                    (b)             (c)             (d)           (e)        (f)     (g)
                                   % of Total
                                  Options Granted   Exercise or
                       Options    To Employees in    Base Price    Expiration
Name                  Granted      Fiscal Year       ($/Sh)          Date       5% ($)   10% ($)
----                  -------    ---------------   -----------    ----------   -------- --------
<S>                    <C>              <C>           <C>           <C>         <C>       <C>

J. Merrick Taggart      N/A              N/A           N/A           N/A         N/A       N/A
Peter W. Gilson         N/A              N/A           N/A           N/A         N/A       N/A
Stanley G. Mortimer III N/A              N/A           N/A           N/A         N/A       N/A
Harry R. Thompson       N/A              N/A           N/A           N/A         N/A       N/A
Leslie H. Green         N/A              N/A           N/A           N/A         N/A       N/A
Jerald J. Rinder        N/A              N/A           N/A           N/A         N/A       N/A
Michael J. Belleveau    N/A              N/A           N/A           N/A         N/A       N/A
</TABLE>
                                       24
<PAGE>
                   Option Exercises and Year-End Value Table

     The following table sets forth option exercise  activity in the last fiscal
year and fiscal  year-end  option  values with respect to each of the  executive
officers named in the summary Compensation Table.

 Aggregated Options Exercises in Last Fiscal year, and FY -End Option/SAR Value
<TABLE>
<CAPTION>
                                      (a) (b) (c) (d) (e)
                                                                     Value of
                                                    Number of       Unexercised
                                                   Unexercised      In-the-Money
                                                   Options/SARs   Options/SARs at
                                                   at FY-End #        FY-End($)

                   Shares Acquired     Value        Exercisable/    Exercisable/
Name               on Exercise (#)   Realized ($)  Unexercisable    Unexercisable
----               ---------------   ------------  -------------    -------------
<S>                    <C>            <C>          <C>                <C>

J. Merrick Taggart      -              -             92,000/45,000     -/-
Peter W. Gilson         -              -            121,500/47,500     -/-
Stanley G. Mortimer III -              -             46,250/-          -/-
Harry R. Thompson       750           $5,531         39,500/18,750     40,219/-
Leslie Green            -              -             32,500/-          -/-
Jerald J. Rinder        -              -              5,000/5,000      -/-
Michael J. Belleveau    -              -             23,750/7,500      -/-
</TABLE>

                           Compensation of Directors
                           -------------------------

     The Company  compensates  those of its  directors who were not employees of
the Company in the amount of $10,000 annually plus $1,000 for attendance at each
meeting of the Board of Directors.  The Chairmen of the Audit  Committee and the
Stock Option and Compensation  Committee of the Board of Directors are each paid
an  additional   annual  fee  of  $10,000  in   recognition  of  the  additional
responsibilities and time commitments associated with such positions.

     In addition, the Company has purchased split dollar life insurance policies
in respect of each of  Messrs.  Louis  Marx,  Jr. and  Stanley R. Rawn,  Jr. See
"Certain Transactions".

                Employment Agreement and Severance Arrangements
                -----------------------------------------------

     The Company  entered  into a Severance  Agreement  dated as of July 1, 1997
with Mr.  Stanley G. Mortimer  III, who was,  until May 23, 1997, a Director and
Executive  Vice  President  of the  Company.  The  agreement  provides  that  in
connection  with Mr.  Mortimer's  resignation  from those  positions he would be
provided certain severance benefits including a one time payment of $250,000.

     The Company  entered  into a Severance  Agreement  dated as of December 12,
1997 with Ms. Leslie H. Green, who was, until that date, a Vice President of the
Company.  The agreement provides that in connection with Ms. Green's resignation
from that position she would be provided certain severance  benefits including a
one time  severance  payment of $ 278,250  which was paid in January  1998.  Ms.
Green is also to receive certain other specified benefits through June 30, 1999.

                                  Pension Plan
                                  ------------

     Each employee of the Company at least twenty years of age, becomes eligible
to  participate  in the  Company's  Pension  Trust (the  "Pension  Trust") after
completing  two Years of Credited  Service  (as  defined in the Pension  Trust).
Monthly  benefits at Normal  Retirement  Age,  age  sixty-five,  are computed as
follows:  Average Monthly  Compensation  (as defined below)  multiplied by 0.65%
plus  Average  Monthly   Compensation  in  excess  of  Social  Security  Covered
Compensation  (as defined  below)  multiplied by 0.65%,  such sum  multiplied by
Years of Credited  Service,  not to exceed 35 years.  Accrued benefits under the
prior  formula  used by the  Company's  Pension  Trust are  grandfathered  as of
December 31, 1993 for  Non-Highly  Compensated  Employees and as of December 31,
1988 for Highly Compensated Employees.

                                       25
<PAGE>

     "Average  Monthly  Compensation"  is defined as  one-twelfth of the highest
five  consecutive   years  of  total   compensation.   Social  Security  Covered
Compensation is defined as the average of the Taxable Wage Base over the 35-year
period ending with the year of the Social Security Normal  Retirement (ages 65 -
67, depending on year of birth).

     Participants  will receive  reduced  benefits on a life annuity  basis with
continuation of benefits to their spouses after death unless an optional form of
benefit is selected.  Pre-retirement  death benefit coverage is also provided. A
participant  is 100% vested in his accrued  benefits,  as defined in the Pension
Trust, upon such accrual.  The Years of Credited Service as of December 31, 1997
of each of the individuals  named in the Cash  Compensation  table herein are as
follows:
<TABLE>
<CAPTION>
       <S>                         <C>

        J. Merrick Taggart          2 year
        Peter W. Gilson             2 year
        Stanley G. Mortimer III    12 years
        Harry R. Thompson           2 year
        Leslie H. Green             7 years
        Jerald J. Rinder            2 years
        Michael J. Belleveau        6 years
</TABLE>

     The following  table shows annual pension  benefits under the Pension Trust
assuming  retirement at age  sixty-five in 1997,  payable as a life annuity,  in
various  remuneration  and years of  employment  classifications.  Note that the
maximum  allowable  compensation  for years  beginning in 1994 is  $150,000,  so
remuneration  in excess of that  amount is not  shown.  Some  grandfathering  of
benefits earned at higher compensation levels is provided.
<TABLE>
<CAPTION>

                  Pension Benefits for 1997 Retirees at Age 65
                  --------------------------------------------


                                Years of Service
 Remuneration         15           20           25          30            35
 ------------       ------       ------       ------      ------        ------
<S>                <C>          <C>          <C>         <C>           <C>

 50,000          $   6,715    $   8,953   $   11,192      13,430    $   15,668
 75,000             11,590       15,453       19,317      23,180        27,043
100,000             16,465       21,953       27,442      32,930        38,418
125,000             21,340       28,453       35,567      42,680        49,793
150,000             26,215       34,953       43,692      52,430        61,168
</TABLE>


          Compensation Committee Interlocks and Insider Participation
          -----------------------------------------------------------

     In 1997,  the  Compensation  Committee was  comprised of A. Clinton  Allen,
Keith R. Lively,  John V. Tunney and John Spencer.  None of these individuals is
an officer or employee of the Company or any of its subsidiaries.


Item 12.        Security Ownership of Certain Beneficial Owners and Management

     The following table sets forth information  regarding  beneficial ownership
of the Common  Stock on March 17,  1998,  by each  person or group  known by the
Company to own beneficially 5% or more of the outstanding  Common Stock.  Except
as otherwise  noted,  each person  listed  below has sole voting and  investment
power with respect to the shares listed next to his or its name.

                                       26
<PAGE>
<TABLE>
<CAPTION>
        Number of
Name of Beneficial Owner                Shares             Percent owned (1)
------------------------                ------             -----------------
<S>                                  <C>                         <C>
Louis Marx, Jr.
667 Madison Avenue
New York, NY  10021                   3,099,2222  (2)             35.6%

Brae Group, Inc.
15710 John F. Kennedy Blvd.
Houston, TX  77032                    3,075,2003  (3)             35.3%

Victorinox A.G.
CH-6438
Ibach-Schwyz
Switzerland                            1,999,500                  24.3%

David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, MA 02142                     535,5004  (4)              6.5%

Dimensional Fund Advisors, Inc.
1299 Ocean Avenue
Santa Monica, CA 90401                  477,9245  (5)              5.8%
</TABLE>
     1.Based on 8,217,860  shares of Common  Stock  outstanding,  not  including
614,108 shares held as Treasury  stock.  Treated as outstanding for the purposes
of computing  percentage  ownership  of each holder are shares  issuable to such
holder upon exercise of options and warrants.

     2.Consists of 19,730 shares held directly by Mr. Marx, 4,292 shares held by
a trust for the benefit of Mr. Marx,  2,575,200 shares held by Brae Group, Inc.,
which corporation Mr. Marx may be deemed to control, and 500,000 shares issuable
upon the exercise of a stock option held by Brae Group, Inc.

     3.Includes 500,000 shares issuable upon the exercise of a stock option held
by Brae Group, Inc.

     4.According  to a Schedule 13G dated  January 20, 1998,  consists of shares
which  David L.  Babson & Co.,  Inc.  beneficially  owns by virtue of serving as
investment  advisor.

     5.According to a Schedule 13G dated February 9, 1998, consists of shares as
to which  Dimensional Fund Advisors,  Inc. shares power of disposition by virtue
of serving as investment advisor to its clients.

     The  following  table  sets  forth  certain   information   concerning  the
beneficial  ownership of Common Stock on March 17, 1998, by each Director,  each
officer named in the Summary  Compensation Table herein and by all Directors and
officers of the Company as a group.

                                       27
<PAGE>
<TABLE>
<CAPTION>
                                 Number of
        Name                      Shares          Percent of Class (1)
        ----                     ---------        --------------------
<S>                            <C>                      <C>

J. Merrick Taggart               95,000 (2)               1.1%
Stanley G. Mortimer III           1,010                    *
Harry R. Thompson                37,500 (3)                *
Leslie H. Green                  32,500 (4)                *
Jerald J. Rinder                  5,000 (5)                *
Michael J. Belleveau             26,250 (6)                *
A. Clinton Allen                 35,000 (7)                *
Clarke H. Bailey                   -0-
Thomas A. Barron                 85,000 (8)               1.0%
Vincent D. Farrell, Jr.          35,000 (9)                *
Herbert M. Friedman              15,868 (10)               *
Peter W. Gilson                 122,500 (11)              1.5%
M. Leo Hart                     101,000 (12)              1.2%
James W. Kennedy                101,010 (13)              1.2%
Keith R. Lively                   1,000                    *
Lindsay Marx                     25,000 (14)               *
Louis Marx, Jr.               3,099,222 (15)             35.6%
Stanley R. Rawn, Jr.            142,711 (16)              1.7%
Eric M. Reynolds                 26,000 (17)               *
John Spencer                      1,000                    *
John V. Tunney                     -0-                     *
All officers and directors    4,106,133 (18)             42.7%
  as a group (25 persons)
</TABLE>

*Less than 1% of the Class.

     1.Based on 8,217,860  shares of Common  Stock  outstanding,  not  including
614,108 shares held as Treasury Stock. Treated as outstanding for the purpose of
computing  the  percentage  ownership of each  director and of all directors and
officers as a group are shares  issuable to such  individuals  upon  exercise of
options.

     2.  Includes  72,000  shares of Common  Stock  issuable  upon  exercise  of
warrants  held by Mr.  Taggart and 20,000  shares of Common Stock  issuable upon
exercise of Options held by Mr. Taggart.

     3.  Consists of 37,500  shares of Common Stock  issuable  upon  exercise of
Options held by Mr. Thompson.

     4.  Consists of 32,500  shares of Common Stock  issuable  upon  exercise of
Options held by Ms. Green.

     5.  Consists of 5,000  shares of Common  Stock  issuable  upon  exercise of
Options held by Mr. Rinder.

     6.  Consists of 26,250  shares of Common Stock  issuable  upon  exercise of
Options held by Mr. Belleveau.

     7.  Consists of 35,000  shares of Common Stock  issuable  upon  exercise of
Options held by Mr. Allen.

     8. Includes 50,000 shares of Common Stock issuable upon exercise of Options
held by Mr. Barron.

     9.  Consists of 35,000  shares of Common Stock  issuable  upon  exercise of
Options  held by Mr.  Farrell.  Excludes  shares  beneficially  owned by Spears,
Benzak, a general partnership in which Mr. Farrell has a 22% interest.

     10.  Includes  12,500  shares of Common  Stock  issuable  upon  exercise of
Options held by Mr. Friedman.

     11.  Includes  121,500  shares of Common Stock  issuable  upon  exercise of
options held by Mr. Gilson.

     12.  Includes  100,000  shares of Common Stock  issuable  upon  exercise of
Options held by Mr. Hart.

     13.  Includes  100,000  shares of Common Stock  issuable  upon  exercise of
Options held by Mr. Kennedy.

                                       28
<PAGE>

     14.  Consists of 25,000  shares of Common Stock  issuable  upon exercise of
Options held by Ms. Marx.

     15.  Consists of 19,730  shares of Common Stock held  directly by Mr. Marx,
4,292 shares held by a trust for the benefit of Mr. Marx,  2,575,200 shares held
by Brae Group,  Inc., which  corporation Mr. Marx may be deemed to control,  and
500,000 shares issuable upon exercise of options held by Brae Group, Inc.

     16.  Includes  100,000  shares of Common Stock  issuable  upon  exercise of
Options held by Mr. Rawn.

     17.  Includes  25,000  shares of Common  Stock  issuable  upon  exercise of
Options held by Mr. Reynolds.

     18.  Includes  1,320,250  shares of Common Stock  issuable to directors and
officers  upon  exercise of Options and 72,000  shares of Common Stock  issuable
upon exercise of warrants.

Item 13.        Certain Relationships and Related Transactions

     Messrs.  Louis Marx, Jr., Chairman of the Company's  Management  Committee,
and a Director of the Company, and Stanley R. Rawn Jr., Senior Managing Director
and a Director of the Company,  devoted  considerable  time and attention to the
affairs of the  Company  during  1997.  During 1997  Messrs.  Marx and Rawn were
principally  compensated through split dollar insurance on their lives, a method
which allows the Company to recover,  without interest, all premiums paid on the
death of the insured and which has substantially  lower earnings impact over the
years than would similar amounts paid as cash  compensation.  Specifically,  the
Company has purchased  split dollar life  insurance  payable on the death of Mr.
Marx, some of which is payable on the later to die of Mr. Marx and his wife, and
split  dollar  life  insurance  payable on the death of Mr.  Rawn.  Under  these
arrangements  the Company will pay  approximately  $3,700,000 over the course of
the next 16 years as premiums under the policies for Mr. Marx and  approximately
$2,700,000  over the course of the next 12 years  under the policy for Mr.  Rawn
(in each case including  amounts paid in the first fiscal quarter of 1998),  and
will be reimbursed,  without interest,  for all of the premiums that it has paid
upon the death of the respective insured.  The actual premiums to be paid may be
higher than estimated  depending upon the performance of the insurance company's
investments  and  other  factors.  Pursuant  to  the  terms  of  life  insurance
agreements  entered into with each of Messrs.  Marx and Rawn,  the Company shall
continue to be obligated to pay these premiums  during the insured's  employment
with the Company and in the event of the  termination of such employment for any
reason,  unless the insured  willfully  and  materially  breaches the terms of a
consulting  agreement  between him and the Company and such breach continues for
30 days after written  notice.  Under the terms of such  consulting  agreements,
each of  Messrs.  Marx and Rawn is to be  engaged  as a  consultant  immediately
following the termination of his employment with the Company and, in such event,
shall receive such  compensation as shall be fair under the  circumstances.  Mr.
Marx has been so engaged as a consultant to the Company since February 15, 1995,
the date on which he  ceased to serve as  Chairman  of the  Company's  Executive
Committee.  The  consulting  agreements  may be  terminated  by the Company upon
thirty days  notice.  In 1997,  the  Company  paid an  aggregate  of $552,664 in
premiums on the policies  pertaining to Mr. Marx and $315,150 in premiums on the
policy pertaining to Mr. Rawn. There will be an insignificant earnings impact in
1998 of the policies on Messrs.  Marx's and Rawn's  lives,  and an  increasingly
positive impact on earnings in the later years.

     In July 1994,  the  Company  entered  into a Services  Agreement  with Brae
Group,  Inc. ("Brae") which  beneficially  owns 35.6% of the outstanding  Common
Stock and in which Louis Marx, Jr., a Director of the Company, has a controlling
interest, and in which Victorinox Cutlery Company ("Victorinox"), a key supplier
and beneficial owner of approximately 24.3% of the outstanding Common Stock, has
a non-controlling stock interest. Mr. M. Leo Hart, a Director of the Company, is
Chief  Executive  Officer  of Brae.  Under the  Services  Agreement,  Brae is to
provide  various  services to the Company for a period of four years relating to
maintaining, enhancing and expanding the Company's relationship with Victorinox.
In exchange  for these  services,  Brae  received an option to purchase  500,000
shares of the Company's  Common Stock at the then current market price of $10.75
per share.  The option is fully vested and can be  exercised  for ten years from
the date of the Services Agreement.

     Lahinch  Group,  Inc.,  of which Mr.  James W.  Kennedy,  a Director of the
Company, is president,  director and a significant stockholder, and of which Mr.
Louis Marx, Jr. and Victorinox Cutlery Company are investors, purchased from the
Company products for resale to the golf oriented channel of trade in 1997 in the
amount of $172,670.

                                       29
<PAGE>
     In 1997, the Company paid $555,000 for legal  services  rendered by the law
firm of Zimet,  Haines,  Friedman & Kaplan, of which Mr. Herbert M. Friedman,  a
Director of the Company, is a partner.

     Victorinox  Cutlery  Company owns  approximately  24.3% of the  outstanding
Common  Stock  and  is the  supplier  to  the  Company  of  Swiss  Army  Knives,
professional  cutlery  products and  Victorinox  Watches.  During the year ended
December 31, 1997, the Company purchased Victorinox products in aggregate amount
of approximately $31,000,000.

              Swiss Army Brands, Inc. Charitable Insurance Program
              ----------------------------------------------------

     The Company  recognizes its  responsibility to the communities in which its
products are sold and the importance of charitable  organizations to the country
at large.  The  Company is also aware of the  benefits to  commercial  good will
resulting from the proper discharge of its responsibilities. In order to further
these objectives,  the Company instituted its Charitable Insurance Program. This
program  allows the  Company to  provide  the  maximum  assistance  to  numerous
charities by utilizing tax provisions intended to encourage such activities, and
to eventually recover, without interest, all amounts expended.

     Under the Company's Charitable  Insurance Program (the "Program"),  adopted
by the Company's Board of Directors in 1993, the Company will utilize  insurance
on the lives of each of its directors and other designated persons (the "Insured
Directors") to fulfill  charitable  pledges to the  Victorinox-Swiss  Army Knife
Foundation  (the  "Foundation")  and to  charities  recommended  by the  Insured
Directors.  The  Company  previously  purchased  life  insurance  on  one of the
Company's then  Co-Chairmen  and designated the Foundation as a beneficiary of a
portion  of the  proceeds,  subject  to  the  Company's  right  to  revoke  such
designation.

     The  Program  enables the Company to make a  meaningful  commitment  to the
Victorinox-Swiss  Army Knife  Foundation,  as well as a broad range of charities
benefiting our communities. The Company anticipates that it will be able to make
substantial  contributions in the future to these charities at a minimal cost to
the Company.

     The  Victorinox-Swiss   Army  Knife  Foundation  is  a  tax-exempt  private
foundation,  funded primarily by contributions  from the Company and Victorinox.
It was organized in December,  1992 for general charitable  purposes,  including
the improvement of the welfare of underprivileged  children (and others) through
the encouragement of organized  athletic  activities,  including those sports in
which an  underprivileged  child would not ordinarily  participate.  Louis Marx,
Jr., a director of the Company,  is President and a director of the  Foundation.
Stanley R. Rawn, Jr.,  Senior  Managing  Director and a director of the Company,
and Herbert M. Friedman, M. Leo Hart and John Spencer, directors of the Company,
are directors of the Foundation.

     The Company is the owner and beneficiary of the policies, with the right to
borrow  against  them,  and will  receive  the  proceeds  upon the death of each
Insured.  The proceeds will not be legally segregated from the Company's general
funds and will remain  subject to claims of the  Company's  creditors.  Upon the
death of an Insured  Director,  the Company will retain a share of the insurance
proceeds equal to the cumulative  premiums paid by the Company for the policy on
that Insured  Director's  life. One half of the remaining amount will be used to
fulfill a pledge to the  Foundation  and the other  half will be used to fulfill
pledges to tax-exempt charities recommended by Insured Directors and approved by
the Board.

     Generally, the Company will be bound to continue to pay all premiums on the
policy for the life of the Insured or, in the case of Mr. Marx, as long as he is
an officer or Board member or agrees to serve as a consultant to the Company.

     Generally,  there will be a small, negative impact on earnings in 1998, and
an  increasingly  positive  impact on earnings  after 1998 as the cash surrender
value of the insurance increases.

     If a  director  were to leave the  Company  prior to the time when the cash
surrender  value of the policy exceeds the aggregate  premiums,  and the Company
received no further substantial benefit from his or her services, the obligation
to pay future  premiums  would  result in a charge to earnings at the time he or
she left. The charge to earnings for 1997 with respect to directors who left the
Company in 1997 was insignificant.

                                       30
<PAGE>
     The Company would not be entitled to a tax deduction, nor would the Company
realize  income  for  regular  income  tax  purposes,  at the time the policy is
obtained  nor as premiums  are paid.  Upon the death of the  director  (when the
policy  matures  and the  insurance  proceeds  are paid) the  Company  would not
realize  income for  "regular"  income tax  purposes,  but the Company  might be
subject to alternative minimum tax ("AMT") on a portion of the receipts from the
policy.  Upon the  making of the cash  contribution  following  the death of the
insured  director,  the  Company  would be entitled  to a  deduction.  Since the
Company is entitled to claim as  charitable  deductions  only 10% of its taxable
income in any year, the extent of the utilization of this deduction would depend
upon income. These deductions may be carried forward for a period of five years.

                                       31

<PAGE>



                                    PART IV
                                    -------
<TABLE>
<CAPTION>

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

(a)         Documents filed as part of this report:
                                                                       Page(s)
<S>        <C>                                                       <C>


(1)
            Financial Statements:

            Report of Independent Public Accountants                         F-1

            Consolidated Balance Sheets - December 31, 1997 and 1996  F-2 to F-3

            Consolidated Statements of Operations for the Years Ended
            December 31, 1997, 1996 and 1995                                 F-4

            Consolidated Statements of Stockholders' Equity for the
            Years Ended December 31, 1997, 1996 and 1995                     F-5

            Consolidated Statements of Cash Flows for the Years
            Ended December 31, 1997, 1996 and 1995                           F-6

            Notes to Consolidated Financial Statements               F-7 to F-22
(2)
            Schedule --

            Schedule II -- Valuation and Qualifying Accounts for
            the Years Ended December 31, 1997, 1996 and 1995                F-23
</TABLE>


All other schedules  called for under  Regulation S-X are not submitted  because
they are not applicable or not required,  or because the required information is
included in the financial statements or notes thereto.

                                       32
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Swiss Army Brands, Inc.:

We have  audited  the  accompanying  consolidated  balance  sheets of Swiss Army
Brands,  Inc. (a Delaware  corporation) and subsidiaries as of December 31, 1997
and 1996, and the related consolidated  statements of operations,  stockholders'
equity and cash flows for each of the three years in the period  ended  December
31, 1997.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Swiss Army Brands,  Inc. and
subsidiaries  as of  December  31,  1997  and  1996,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial  statements  taken as a whole. The schedule listed in Item 14(a)(2) is
presented  for  purposes  of  complying   with  the   Securities   and  Exchange
Commission?s  rules  and is not part of the  basic  financial  statements.  This
schedule has been subjected to the auditing  procedure  applied in the audits of
the  basic  financial  statements  and,  in our  opinion,  fairly  states in all
material  respects  the  financial  data  required  to be set forth  therein  in
relation to the basic financial statements taken as a whole.



                                                    ARTHUR ANDERSEN LLP

Stamford, Connecticut
  February 10, 1998
                                      F-1
<PAGE>

<TABLE>
<CAPTION>

                    SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

                                     ASSETS





                                                               December 31,
                                                            1997         1996
                                                            ----         ----
<S>                                                        <C>          <C>
Current assets
   Cash and cash equivalents                               $1,078       $2,067
   Accounts receivable, less
    allowance for doubtful accounts
    of $975 and $1,032, respectively                       28,224       32,992
   Inventories                                             27,438       29,657
   Deferred income taxes                                    3,519        3,295
   Prepaid and other                                        3,885        2,922
                                                           ------       ------
      Total current assets                                 64,144       70,933
                                                           ------       ------
Deferred income taxes                                       2,407        1,597

Property, plant and equipment, net                          3,751        3,969

Investments in preferred units                              8,793        9,003

Investments in common stock                                   369          150

Foreign distribution rights, net                            3,551        4,226

Other assets, net                                          11,036        8,765
                                                           ------       ------
Total assets                                              $94,051      $98,643
                                                          =======      =======
</TABLE>


     The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
                                      F-2
<PAGE>

<TABLE>
<CAPTION>

                    SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)

                      LIABILITIES AND STOCKHOLDERS' EQUITY


                                                           December 31,

                                                         1997            1996
<S>                                                    <C>            <C>

Current liabilities
   Accounts payable                                     $8,478         $10,952
   Accrued liabilities                                   9,865           7,835
                                                        ------          -------
 Total current liabilities                              18,343          18,787


 Commitments and contingencies (Note 13)

Stockholders' equity
   Preferred stock, par value $.10 per
      share: shares authorized -
      2,000,000; no shares issued                          -               -

   Common stock, par value $.10 per
      share: shares authorized -
      18,000,000; shares issued - 8,823,718
      and 8,822,968, respectively                        882               882

   Additional paid-in capital                         46,186            46,182

   Foreign currency translation adjustment              (240)             (113)

   Retained earnings                                  33,993            80,821
                                                      -------           ------
                                                      38,018            84,969

   Less-cost of common stock in
      treasury; 614,108 shares                        (5,113)           (5,113)
                                                      -------           -------
Total stockholders' equity                            75,708            79,856
                                                      -------           -------
Total liabilities and stockholders' equity           $94,051           $98,643
                                                     ========          ========
</TABLE>

     The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
                                      F-3
<PAGE>

<TABLE>
<CAPTION>


                    SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)



                                                 Year Ended December 31,
                                             1997         1996         1995
                                             ----         ----         ----
<S>                                      <C>           <C>          <C>

Net sales                                 $118,744      $130,030     $126,695
Cost of sales                               76,020        89,194       82,431
                                          --------      --------     --------
Gross profit                                42,724        40,836       44,264
Selling, general, administrative
   expenses before special charges          49,639        43,679       40,265
Special charges                                 -          2,562           -
                                          --------      --------     --------
Total selling, general and
   administrative expenses                  49,639        46,241       40,265
Operating income (loss)                     (6,915)       (5,405)       3,999
Interest expense                               (40)         (147)        (217)
Interest income                                155           120          557
Gain (loss) on sale (write-down) of
investments                                    398        (2,382)       1,771
Equity interest in unconsolidated affiliates    -             -          (548)
Other income, net                                1           206           74
                                           -------        -------      -------
 Total interest and other income
(expense), net                                 514        (2,203)       1,637
                                           -------        -------     --------
Income (loss) before income taxes           (6,401)       (7,608)       5,636
Income tax provision (benefit)              (2,376)       (2,343)       2,523
                                           -------        -------     -------
Net income (loss)                          ($4,025)      ($5,265)      $3,113
                                           =======        =======     =======
Earnings per share:
   Basic earnings per share                 ($0.49)       ($0.64)       $0.38
                                           =======        =======     =======
   Diluted earnings per share               ($0.49)       ($0.64)       $0.38
                                           =======        =======     =======
Weighted average number of shares
   outstanding:
   Basic                                     8,209         8,202        8,185
                                           =======        =======     =======
   Diluted                                   8,209         8,202        8,185
                                           =======        =======     =======
</TABLE>

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

                                      F-4
<PAGE>

<TABLE>
<CAPTION>


                    SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                       (in thousands, except share data)



                                                            Foreign
                            Common Stock     Additional     Currency
                          Par Value  $.10      Paid-In    Translation    Retained    Treasury
                         Shares     Amount     Capital     Adjustment    Earnings     Stock
<S>                     <C>         <C>       <C>           <C>          <C>          <C>

BALANCE
December 31, 1994        8,796,968   $880      $45,867       ($28)        $40,170     ($5,113)
Net income                    -        -          -            -            3,113         -
Stock options exercised      3,750     -            31         -              -           -
Foreign currency
   translation adjustment     -        -          -            19             -           -
                         ---------   -----     --------     ---------     -------     ---------
BALANCE
December 31, 1995        8,800,718   $880       45,898         (9)         43,283      (5,113)
Net loss                      -        -          -            -           (5,265)        -
Stock options and
   warrants exercised       22,250      2          284         -              -           -
Foreign currency
   translation adjustment     -        -          -          (104)            -           -
                         ---------   -----     --------     ---------     -------     ---------
                         8,822,968    882       46,182       (113)         38,018      (5,113)
BALANCE
December 31, 1996

Net loss                      -        -          -            -           (4,025)        -
Stock options exercised        750     -             4         -              -           -
Foreign currency
  translation adjustment      -        -          -          (127)            -           -
                         ---------   -----     ---------    ---------     -------     ---------
BALANCE
December 31, 1997        8,823,718   $882      $46,182      ($240)        $33,993     ($5,113)
                         =========   =====     =========    =========     =======     =========
</TABLE>


     The accompanying notes to consolidated financial statements are an integral
part of these statements.
                                      F-5
<PAGE>

<TABLE>
<CAPTION>

                    SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)



                                                      Year Ended December 31,
                                                    1997       1996       1995
<S>                                              <C>         <C>        <C>

Cash flows from operating activities:
   Net income (loss)                              ($4,025)    ($5,265)   $3,113
   Adjustments to reconcile net income (loss)
   to cash provided from (used for) operating
   activities:
      Depreciation and amortization                 2,709       4,035     3,249
      Deferred income taxes                        (1,034)     (1,725)     (643)
      Equity interest in unconsolidated affiliates     -           -        548
      Loss on sales of property, plant and equipment   -            3         9
      (Gain) loss on (sale) write-down of
       investments                                   (398)      2,382    (1,771)
                                                  --------     -------   -------
                                                   (2,748)       (570)    4,505
Changes in other current assets and liabilities:
   Accounts receivable                              4,745      (1,091)   (2,330)
   Inventories                                      2,204       6,966    (9,741)
   Prepaid and other                                 (967)       (270)   (1,144)
   Accounts payable                                (2,462)      4,509    (7,581)
   Accrued liabilities                              1,880      (1,937)      (64)
                                                  --------     -------   -------
    Net cash provided from (used for)
      operating activities                          2,652       7,607   (16,355)
                                                  --------     -------  --------

Cash flows from investing activities:
   Capital expenditures                            (1,056)     (1,465)   (1,430)
   Proceeds from sale of property, plant
   and equipment                                      -           -          22
   Additions to other assets                       (3,070)     (3,021)   (2,814)
   Investment in preferred units                      -        (2,000)      -
   Investments in common stock                        -           -      (3,710)
   Sales of short-term investments                    -           -       5,311
   Proceeds from sale of investments                  550          60     6,822
                                                 --------     --------  --------
   Net cash provided from (used for)
     investing activities                          (3,576)     (6,426)    4,201
                                                 --------     --------  --------
Cash flows from financing activities:
   Borrowings under bank agreements                 1,930      10,246    15,970
   Repayments under bank agreements                (1,930)    (10,246)  (15,970)
   Proceeds from exercise of stock options
    and warrants                                        4         286        31
                                                 --------     --------  --------
   Net cash provided from financing activities          4         286        31

 Effect of exchange rate changes on cash              (69)         (9)       24
 Net increase (decrease) in cash and cash
    equivalents                                      (989)      1,458   (12,099)
   Cash and cash equivalents, beginning of period   2,067         609    12,708
                                                 ---------    --------  --------
   Cash and cash equivalents, end of period        $1,078      $2,067     $ 609
                                                 =========    ========  ========
Cash paid during the period:
   Interest                                           $34        $147      $252
                                                 =========    ========  ========
   Income taxes                                      $321        $233    $3,429
                                                 =========    ========  ========

</TABLE>

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

                                      F-6
<PAGE>

                    SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)     NATURE OF BUSINESS
          Swiss  Army  Brands,  Inc.  ("Swiss  Army"  or the  "Company")  is the
          exclusive  distributor  in the United  States,  Canada (with one minor
          exception  for cutlery) and the Caribbean of the  Victorinox  Original
          Swiss  Army  Knife,   Victorinox   SwissTool,   Victorinox  SwissCard,
          Victorinox cutlery and Victorinox watches. Swiss Army also markets its
          own line of Swiss  Army  Brand  Watches,  Sunglasses  and  other  high
          quality Swiss made products under its Swiss Army Brand worldwide.  The
          Company's  cutlery line,  which also includes  imported  products from
          Germany,  England and France, is sold primarily to the food processing
          and service industries. Swiss Army has only one business segment - the
          importation  and  distribution of cutlery,  knives,  watches and other
          consumer  products.  No customer accounted for greater than 10% of net
          sales in the three years ended December 31,1997.

(2)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
           Principles of consolidation
          The  consolidated  financial  statements  include the  accounts of the
          Company   and   its   wholly-owned   subsidiaries.   All   significant
          inter-company transactions have been eliminated.

           Revenue recognition
          The Company recognizes revenue upon shipment of product.  Net sales is
          comprised of gross revenues less expected returns, trade discounts and
          customer allowances.

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

           Foreign currency translation and transactions
          Assets  and  liabilities  of  the  Company's  foreign  operations  are
          translated into U.S.  dollars using the exchange rate in effect at the
          balance sheet date.  Results of operations  are  translated  using the
          average exchange rate prevailing throughout the period. The effects of
          exchange rate fluctuations on translating  foreign currency assets and
          liabilities  into U.S.  dollars are  included in the foreign  currency
          translation  adjustment component of stockholders' equity, while gains
          and losses resulting from foreign  currency  transactions are included
          in net income (loss).

          The  vast  majority  of  the  Company's  products  are  imported  from
          Switzerland  and are paid for in Swiss francs.  Increases in the value
          of the Swiss franc versus the dollar may effectively increase the cost
          of these products to the Company. The increase in the cost of products
          to the Company may result in either higher prices charged to customers
          or  reductions  in gross  margin,  both of which  may have an  adverse
          effect on the Company's results of operations. The Company enters into
          foreign   currency   contracts  and  options  to  hedge  the  exposure
          associated with foreign currency  fluctuations.  However, such hedging
          activity  cannot  eliminate  the  long-term   adverse  impact  on  the
          Company's  competitive  position and results of operations  that would
          result from a sustained decrease in the value of the dollar versus the
          Swiss  franc.  Gains and losses on these  contracts  are  deferred and
          recognized in cost of sales when the related  inventory is sold. These
          hedging transactions, which are meant to reduce foreign currency risk,
          also reduce the  beneficial  effects to the Company of any increase in
          the dollar relative to the Swiss franc.  The Company plans to continue
          to engage in hedging transactions;  however, it is uncertain as to the
          extent to which such  hedging  transactions  will reduce the effect of
          adverse currency fluctuations.

           Cash and cash equivalents
          Cash and cash  equivalents  consist of all highly  liquid  investments
          with  original  maturities of three months or less.  Investments  with
          maturities  between three and twelve months are considered  short-term
          investments.

                                      F-7
<PAGE>
           Inventories
          Domestic inventories are valued at the lower of cost determined by the
          last-in,   first-out  (LIFO)  method  or  market.  Had  the  first-in,
          first-out (FIFO) method been used to value domestic  inventories as of
          December  31,  1997 and 1996,  the  balance at which  inventories  are
          stated would have been $2,993,000 and $3,157,000 higher, respectively.
          Foreign  inventories  are  valued  at the  lower  of  cost  or  market
          determined  by the  FIFO  method.  Inventories  primarily  consist  of
          finished goods and packaging materials.

           Property, plant and equipment
          Property,  plant and equipment are stated at cost. Major  improvements
          which add to  productive  capacity  or extend the life of an asset are
          capitalized  while repairs and  maintenance  are charged to expense as
          incurred.   Property,   plant  and  equipment  are  comprised  of  the
          following:

<TABLE>
<CAPTION>


                                                       December 31,
                                                  1997             1996
                                                      (in thousands)
       <S>                                      <C>             <C>

        Leasehold improvements                   $1,090          $1,030
        Equipment                                 7,945           7,228
        Furniture and fixtures                    1,923           1,670
                                                 ------           -----
                                                 10,958           9,928
        Accumulated depreciation                 (7,207)         (5,959)
                                                 ------           ------
                                                 $3,751          $3,969
                                                 ======          =======
</TABLE>

     Depreciation  is computed  principally by use of the  straight-line  method
based on the following estimated useful lives:
<TABLE>
<CAPTION>


<S>                                       <C>

                                            Years
Equipment                                  3 to 10
Furniture and fixtures                     3 t0 10
</TABLE>

          The provision for  amortization of leasehold  improvements is provided
          on a straight-line basis over the estimated useful lives of the assets
          or terms of the  leases,  whichever  is  shorter.  For the years ended
          December 31,  1997,  1996,  and 1995,  depreciation  and  amortization
          expense of property, plant and equipment was approximately $1,260,000,
          $1,599,000 and $1,521,000, respectively.

           Long-lived assets
          The  Company  adopted  Statement  of  Financial   Accounting  Standard
          ("SFAS") No. 121,  "Accounting for the Impairment of Long-Lived Assets
          and for  Long-Lived  Assets  to Be  Disposed  Of" in  1996,  and  this
          accounting  standard did not have a material  effect on the  Company's
          financial position or results of operations.  The Company  continually
          reviews the recoverability of the carrying value of these assets using
          the provisions of SFAS No. 121.

           Investments
          Investments  in common  stock of  companies  in which the Company owns
          between 20% to 50% are accounted for under the equity method, with the
          Company  recording its  proportional  share of net income or losses of
          these  companies  and   amortization   of  goodwill   related  to  the
          acquisition  of the  investments.  These  amounts  equaled  losses  of
          $548,200  for  1995.

          Investments  in preferred  units or stock are  accounted  for at cost,
          subject to review for impairment.  Since these investments do not have
          a readily  determinable fair value, the valuation of these investments
          is subject to uncertainty.

                                      F-8
<PAGE>
          Investments  in common  stock of  companies  in which the Company owns
          less than 20% are accounted  for at fair value,  subject to review for
          permanent  impairment.   Changes  between  cost  and  fair  value  are
          reflected as a component of  stockholders'  equity.  Any write-down of
          the cost due to impairment is reflected in income.

           Earnings per share
          In  1997,  the  Company  adopted  Statement  of  Financial  Accounting
          Standards  ("SFAS") No. 128,  "Earnings per Share",  and the Company's
          reported  earnings  per share  were  restated.  There was no effect on
          diluted earnings per share in the three years ended December 31, 1997.

          Basic  earnings per share is computed by dividing net income (loss) by
          the number of weighted  average  number of common shares  outstanding.
          Diluted  earnings per share is computed by dividing net income  (loss)
          by the weighted  average  number of common shares and dilutive  common
          share  equivalents  outstanding  during the  period.  No common  share
          equivalents  have been  included in the years ended  December 31, 1997
          and 1996, as they would have had an anti-dilutive effect. Common share
          equivalents are calculated using the treasury stock method.

           Stock-based compensation
          In  October  1995,   SFAS  No.  123,   "Accounting   for   Stock-Based
          Compensation",  was issued.  As permitted under the provisions of SFAS
          No. 123,  the Company  has not  changed its method of  accounting  for
          stock-based  compensation;  however,  SFAS No. 123 requires additional
          footnote  disclosures  relating  to the  effect of using a fair  value
          based method of accounting for stock-based compensation cost. See Note
          12 for the additional footnote disclosures required by SFAS No. 123.

           Income taxes
          The Company follows SFAS No. 109, "Accounting for Income Taxes". Under
          SFAS No. 109, the provision for income taxes, as determined  using the
          liability  method,  includes  deferred taxes  resulting from temporary
          differences  in income for financial and tax purposes.  Such temporary
          differences primarily result from differences between the tax bases of
          assets  and  liabilities  and their  carrying  amounts  for  financial
          reporting purposes.

           New Accounting Pronouncements
          In June 1997, the Financial  Accounting  Standards  Board (the "FASB")
          issued SFAS No. 130, "Reporting Comprehensive Income." This statement,
          which   establishes   standards  for   reporting  and   disclosure  of
          comprehensive  income,  is  effective  for interim and annual  periods
          beginning  after  December  15,  1997,  although  earlier  adoption is
          permitted.  Reclassification  of  financial  information  for  earlier
          periods presented for comparative  purposes is required under SFAS No.
          130. As this  statement  only requires  additional  disclosures in the
          Company's  consolidated  financial  statements,  its adoption will not
          have any impact on the Company's  consolidated  financial  position or
          results of  operations.  The Company will adopt SFAS No. 130 effective
          January 1, 1998.

          In June  1997,  the FASB  issued  SFAS  No.  131,  "Disclosures  about
          Segments of an Enterprise and Related  Information."  This  statement,
          which  establishes  standards for the reporting of  information  about
          operating segments and requires the reporting of selected  information
          about operating segments in interim financial statements, is effective
          for fiscal years beginning after December 15, 1997,  although  earlier
          application is permitted. The Company does not expect adoption of this
          statement  to result in  significant  changes to its  presentation  of
          financial data. The Company will adopt SFAS No. 131 effective  January
          1, 1998.

(3)     SPECIAL CHARGES
          In 1997,  the Company  recorded  $0.8 million of  restructuring  costs
          (included  in selling,  general  and  administrative  expenses)  and a
          special charge of $1.3 million  (included in cost of sales) related to
          discontinued inventory. The restructuring costs primarily consisted of
          severance and related expenses.

          In  1996,  the  Company  recorded  special  charges  of  approximately
          $9,887,000   related  to  an  extensive   analysis  of  the  Company's
          operations and non-strategic assets. The special charges consisted of:

                                      F-9
<PAGE>
<TABLE>
<CAPTION>

                                                    (in thousands)
        <S>                                           <C>

         Write-off of inventory                        $4,932 (A)
         Selling, general and administrative charges    2,562 (B)
         Write-down of investments                      2,393 (C)
                                                      --------
                                                       $9,887
                                                      ========

</TABLE>
          (A)  Represents  the write-off of  discontinued  inventory,  including
          certain  cutlery  products sold by Cuisine de France  Limited  ("CDF")
          (see Note 7).

          (B)  Consists of an $870,000  write-off  of goodwill  and other assets
          related  to CDF (see  Note 7), a  $1,151,000  write-off  for  obsolete
          displays and a $541,000 write-off of other assets.

          (C) Consists of a $1,593,000  write-down of the Company's common stock
          investment in SWWT, Inc. (formerly known as SweetWater,  Inc.), and an
          $800,000  write-off of the Company's  investment  in a privately  held
          affiliated start-up entity (see Note 6).

(4)     PRINCIPAL SUPPLIERS

          Swiss  Army   imports  for  resale  all  of  its  Swiss  Army  Knives,
          SwissTools,  SwissCards and certain of its other cutlery products from
          a principal  supplier,  Victorinox Cutlery Company  ("Victorinox"),  a
          Swiss  company.  Effective  December  12,  1993,  Swiss Army renewed a
          five-year  agreement  (originally  signed on December  12, 1983 and as
          amended)  with  Victorinox  which  appoints  Swiss  Army as  exclusive
          distributor  of  Victorinox  Original  Swiss Army Knives,  SwissTools,
          Victorinox  SwissCards  and most of its other cutlery  products in the
          United States and gives Swiss Army exclusive  rights to use Victorinox
          trademarks  and trade names in the United States with respect to Swiss
          Army Knives and cutlery.  The  agreement is subject to renewal at five
          year  intervals at the Company's  option and remains in effect as long
          as Swiss Army  continues to purchase  quantities  of Swiss Army Knives
          and cutlery (based on the Swiss franc  purchase  price) at least equal
          to 85% of the maximum  amount of  purchases  of each in any  preceding
          year . In 1995,  Victorinox agreed to reduce the 1996 minimum purchase
          requirements  on knives to 75% of the maximum  amount of  purchases in
          any  preceding  year.  In 1996,  Victorinox  agreed to reduce the 1997
          minimum  purchase  requirements on knives to 65% of the maximum amount
          of purchases in any preceding year. The Company purchased the required
          minimums  in  1997,   with  total   purchases   from   Victorinox   of
          approximately $31,000,000.  The Company is currently in the process of
          establishing  the minimum  purchase  requirement for 1998. As required
          under the agreement,  Swiss Army has notified Victorinox of its desire
          to renew the agreement for another five year term commencing  December
          12,  1998.  Pursuant  to  this  agreement,   Swiss  Army  must  obtain
          Victorinox's  permission to sell new cutlery  items.  All of the Swiss
          Army Knives and certain of the cutlery  items that Swiss Army sells in
          Canada and the Caribbean also are supplied by Victorinox.
<TABLE>
<CAPTION>
   Foreign distribution rights with Victorinox are comprised of the following:

                                           December 31,          Amortization
                                         1997       1996            Period
                                          (in thousands)
      <S>                               <C>        <C>            <C>
       Canadian distribution
         rights (A)                      $3,483     $3,483         10 Years
       Caribbean and Victorinox Watch
         distribution rights (B)          3,261      3,261         10 Years
                                         ------     ------
                                          6,744      6,744
       Accumulated amortization          (3,193)    (2,518)
                                         ------     ------
                                         $3,551     $4,226
                                         ======     ======
</TABLE>
                                      F-10
<PAGE>
     (A) In April 1992,  Swiss Army entered into an  agreement  with  Victorinox
     under which it received the exclusive  distribution  rights for  Victorinox
     Original  Swiss  Army  Knives in Canada  and was  appointed  the  principal
     distributor of Victorinox  professional  cutlery in Canada. In exchange for
     the grant of these rights,  Swiss Army issued to Victorinox  277,066 shares
     of its common  stock from  treasury.  The rights  received  were awarded to
     Swiss Army for a fixed seven-year term with a continuous  five-year renewal
     arrangement upon expiration of the fixed term. Victorinox has the right not
     to renew the agreement; however, should Victorinox choose not to renew upon
     expiration  of the fixed  term,  Victorinox  is  required to pay Swiss Army
     $3,500,000.

     (B) On  December  21,  1993,  Swiss Army  entered  into an  agreement  with
     Victorinox  under which it received the exclusive  distribution  rights for
     Victorinox  Original  Swiss  Army  Knives and  professional  cutlery in the
     Caribbean.  Swiss Army also  received  the right to  distribute  Victorinox
     Swiss-made  watches in the United  States,  Canada  and the  Caribbean  and
     acquired  the  20%  share  of  the  Company's  subsidiary,   Victorinox  of
     Switzerland,  Ltd.,  that  Victorinox  owned.  In exchange for the grant of
     these  rights and the stock  acquired,  Swiss Army issued to  Victorinox  a
     five-year  warrant to purchase  1,000,000 shares of common stock at a $3.75
     discount to the current market price on the date of exercise.  The value of
     the  warrant of  $3,750,000  was  allocated  between  the  purchase  of the
     distribution  rights  ($3,261,144)  and the acquisition of the 20% share of
     Victorinox of Switzerland,  Ltd.,  ($488,856).  In April 1994, the discount
     from the  current  market  price  was  modified  to $4.25 in  exchange  for
     Victorinox's  agreement to pay the exercise  price  immediately  instead of
     after one year as  allowed  by the  original  agreement.  All of the shares
     issued upon exercise of the warrant were  subsequently  sold to a corporate
     shareholder  of Swiss Army that is  controlled by a director of Swiss Army,
     in exchange for shares of the common stock of that corporation.  As part of
     the agreement,  Swiss Army pays  Victorinox a royalty of 1% of net sales of
     Victorinox  Watches.  The  Caribbean  distribution  rights  are for a fixed
     seven-year term  automatically  renewable in successive  five-year  periods
     unless  either  party  notifies  the  other at least  six  months  prior to
     expiration  of  such  period  of its  intent  not to  renew.  The  term  of
     Victorinox Watch distribution  rights in each territory  coincides with the
     term for Victorinox cutlery products in that territory.

     The  Company  does  not  have  any  manufacturing  facilities  and  imports
     virtually all of its products  from  independent  suppliers.  The Company's
     business is subject to certain risks related to its  arrangements  with its
     foreign suppliers,  including  possible  restrictions on transfer of funds,
     the risk of  imposition  of quotas on the amount of  products  which may be
     imported  into the United  States  (although  no quota  currently  exists),
     maritime union strikes and political instability.  Although the Company has
     exclusive  distributorship   agreements  with  Victorinox,   its  principal
     supplier,  it does not have such  contractual  arrangements  with its other
     suppliers.  The  agreement  with  Victorinox  provides for certain  minimum
     annual  purchases of products by the Company,  and failure to achieve these
     goals  would  result  in  Victorinox  having  the  right to  terminate  the
     agreement. Such a termination would have a material adverse effect upon the
     Company's  operations.  Although  the  Company has a  contractual  right to
     receive minimum quantities of Swiss Army Knives from Victorinox,  were this
     source of supply to fail for any  reason,  the  Company  probably  would be
     unable to find an alternative  source.  Any  substantial  disruption of the
     Company's  relationships  with  Victorinox  would have a  material  adverse
     effect  on its  operation  and  results.  Virtually  all  of the  Company's
     imported products are subject to United States custom duties.

     Although  approximately 60%, or $16,700,000,  of total payments for watches
     and  watch  parts in 1997 were made to a single  watch  supplier,  which is
     responsible  for the final  assembly of watch  components  manufactured  by
     several manufacturers,  the Company believes that alternate watch suppliers
     would be available,  if necessary.  Furthermore,  the Company believes that
     the loss of this  supplier  of Swiss  Army Brand  Watches  would not have a
     material adverse effect on the Company's business.

(5)     RELATED PARTY TRANSACTIONS

     One of Swiss  Army's  directors  is a partner in a law firm which  provides
     legal services to the Company.  For the years ended December 31, 1997, 1996
     and 1995,  Swiss Army  incurred  fees of $629,000,  $598,000 and  $516,000,
     respectively, relating to these services.

                                      F-11
<PAGE>
     Four of Swiss Army's  directors  serve as directors of Hudson River Capital
     LLC, including two who serve as Co-Chairman. Four of Swiss Army's directors
     serve as directors of Victory  Ventures  LLC,  including  one who serves as
     Co-Chairman.  Four of Swiss  Army's  directors  serve as directors of SWWT,
     Inc. See Note 6 for further discussion.

     A Company  policy  authorizes  Swiss Army to  compensate,  in the form of a
     commission  of up to 3% of net sales for up to three  years,  non-employees
     for their  direct role in  introducing  significant  new  customers  to the
     Company.  In 1995,  Swiss  Army paid to a relative  of one of Swiss  Army's
     directors  half of a 3%  commission  on net sales to a  customer,  on whose
     board the same  director  also serves as a member.  In 1995,  this customer
     represented approximately 6% of Swiss Army's net sales.

     In July 1994, Swiss Army entered into a Services Agreement with Brae Group,
     Inc. ("Brae"),  a company which is a stockholder of Swiss Army and in which
     a Swiss Army  director  and a principal  supplier  have a  controlling  and
     non-controlling stock interest, respectively. Under the Services Agreement,
     Brae is to  provide  various  services  to Swiss  Army for a period of four
     years  relating  to  maintaining,  enhancing  and  expanding  Swiss  Army's
     relationship with the Company's principal  supplier.  In exchange for these
     services,  Brae  received  an option to  purchase  500,000  shares of Swiss
     Army's  common stock at the then current  market price of $10.75 per share.
     The option  vested  immediately  and can be exercised for 10 years from the
     date of the Services Agreement.

     Effective  January 1, 1995,  Swiss Army entered  into an  agreement  with a
     director,   under  which  the  director  received  $10,000  per  month  for
     consulting  services  rendered in 1995.  This  agreement was  terminated on
     December 31, 1995.

     In December 1995, a Swiss Army director and former Co-Chairman entered into
     an agreement  with the Company to become a sole  distributor  of Swiss Army
     Brand products to the golf market. Investors in this new entity include the
     Company's  principal  supplier  and a  member  of  Swiss  Army's  Board  of
     Directors,  who is a controlling  stockholder of Brae. This agreement ended
     in the fourth  quarter of 1997.  Sales to this  entity  were  approximately
     $173,000 and $270,000 in 1997 and 1996, respectively.

(6)     INVESTMENTS
          Investments consist of the following:
<TABLE>
<CAPTION>
                                                            1997       1996
                                                            (in thousands)
              <S>                                         <C>        <C>
               Preferred units of Hudson
                  River Capital LLC (A)                    $7,907     $7,907
               Preferred units of
                  Victory Ventures LLC (B)                    886      1,096
                                                           ------     ------
                  Total investments in preferred units     $8,793     $9,003
                                                           ======     ======
              Common stock of Chaparral Resources, Inc. (C)  $219        -
              Common stock of SWWT, Inc. (D)                  150        150
                                                           ------     ------
                  Total investments in common stock          $369       $150
                                                           ======     ======
</TABLE>

                                      F-12
<PAGE>
     (A) Hudson River Capital LLC ("Hudson  River"),  formerly  known as Victory
     Capital LLC  ("Victory"),  is a private equity firm  specializing in middle
     market acquisitions,  re-capitalization  and expansion capital investments.
     Hudson River  currently has equity and other  interests in several  private
     and publicly  traded  companies.  In 1994,  Swiss Army  invested a total of
     $7,002,990  paid in cash  and in  shares  of  stock  of a  publicly  traded
     corporation,  to acquire  700,299  shares of  preferred  stock of Forschner
     Enterprises,  Inc. ("FEI"), the predecessor company to Victory. On March 1,
     1996, FEI merged into Victory and the preferred  stock of FEI was converted
     to preferred units of Victory.  In May 1996, Swiss Army invested a total of
     $2,000,009 in Victory,  acquiring 190,477 preferred units. In October 1996,
     Victory  Capital  LLC  changed  its name to Hudson  River  Capital  LLC. In
     November  1996,  Hudson  River  distributed  to its members  its  ownership
     interest  in Victory  Ventures  LLC  ("Victory  Ventures").  This event was
     non-taxable  and  resulted in no gain or loss to the  Company.  See (B) for
     further discussion of Victory Ventures.  At December 31, 1997 and 1996, the
     Company owns 890,776  preferred  units of Hudson  River,  which  represents
     approximately 9.1% of the outstanding equity of Hudson River, respectively.
     The preferred units in Hudson River owned by the Company carry a preference
     on  liquidation  equal  to  their  per unit  cost as well  as,  in  certain
     instances,  an annual preferred return.  The Company is accounting for this
     investment on the cost basis,  subject to review for permanent  impairment.
     Since these investments do not have a readily  determinable fair value, the
     valuation of these investments is subject to uncertainty.

     (B) Victory Ventures is a private equity firm  specializing in small market
     venture capital  investments.  As a result of the distribution  from Hudson
     River,  the Company  received  890,776  preferred units of Victory Ventures
     valued at $1.23 per unit.  The Company owns 890,776  preferred  units as of
     December 31, 1997 and 1996, which represent  approximately 1.3% and 4.2% of
     the  outstanding  equity of Victory  Ventures,  respectively.  In the third
     quarter of 1997,  the Company  received a cash  distribution  from  Victory
     Ventures of $438,000, of which $286,000 was recorded as a gain and has been
     included in gain (loss) on sale  (write-down) of investments with remaining
     distribution  of $152,000  recorded as a return of capital.  On December 3,
     1997,  Victory  Ventures  distributed  to its  members  its  investment  in
     Chaparral Resources,  Inc.  ("Chaparral").  See (C) for further discussion.
     The  preferred  units in  Victory  Ventures  owned by the  Company  carry a
     preference  on  liquidation  equal to their  per unit  cost as well as,  in
     certain  instances,  an annual preferred return.  The Company is accounting
     for this  investment  on the cost  basis,  subject to review for  permanent
     impairment. Since these investments do not have a readily determinable fair
     value, the valuation of these investments is subject to uncertainty.

     (C) Chaparral,  a publicly  traded  company,  is an independent oil and gas
     exploration and production  company.  As a result of the distribution  from
     Victory  Ventures,  at December 31, 1997, the Company owns 87,634 shares of
     common stock of Chaparral valued at $2.50 per share.

                                      F-13
<PAGE>
     (D) SWWT, Inc.  ("SWWT") is a holding  company  formerly in the business of
     manufacturing  and marketing  portable  water  purification  and filtration
     systems to the sporting goods, recreational,  travel and tourist, emergency
     preparedness  and military  markets.  As of December  31, 1993,  SWWT was a
     private  company  and Swiss  Army owned  preferred  stock with a 40% voting
     interest. In January 1994, SWWT issued 718,750 shares of common stock in an
     initial  public  offering  (resulting  in 1,837,243  shares of common stock
     outstanding),  at which time Swiss Army's  holdings of preferred stock were
     converted into 430,000 shares of common stock. In January 1994,  Swiss Army
     sold 72,000 shares of SWWT to a stockholder of Victorinox for approximately
     $374,000.  Swiss Army's cost for the stock sold was approximately $338,000.
     Through  December 31, 1994,  the Company  accounted for this  investment at
     fair  value  with  changes  between  cost and  fair  value  reflected  as a
     component  of  stockholders'  equity.  During  1995,  Swiss Army  purchased
     additional  shares of common stock for  $1,837,000,  raising its percentage
     ownership to 38%.  Accordingly,  in 1995,  the Company  accounted  for this
     investment  under the equity method.  Swiss Army's share of the 1995 losses
     of SWWT,  including  amortization of goodwill,  totaled $1,638,000.  During
     1995, SWWT issued additional shares to outside  investors.  As a result, as
     of December 31, 1995,  Swiss Army owned 20.5% of the  outstanding  stock of
     SWWT.  Effective  January 1, 1996,  Swiss Army  decreased its percentage of
     ownership of SWWT to below 20% due to the sale by Swiss Army of SWWT common
     stock.  Accordingly,  as of January 1, 1996,  this investment was accounted
     for at fair value.  In December  1996,  the  investment in SWWT was written
     down to $150,000,  its estimated fair value, due to impairment in the value
     of the  investment.  This write-down of  approximately  $1,593,000 has been
     included in gain (loss) on sale  (write-down) of  investments.  At December
     31,  1997,  the Company has  recorded  this  investment  at  $150,000,  the
     estimated fair value.  At December 31, 1997, the Company's cost of the SWWT
     investment  was  $3,382,000.  Due to the limited  trading of SWWT's  common
     stock, the valuation of this investment is subject to uncertainty and could
     change in the near term.

     In 1995,  the  Company  purchased  5,160  shares of common  stock and an 8%
     convertible  note  due in the  year  2000 of a  privately  held  affiliated
     start-up  entity that was in the business of designing,  manufacturing  and
     marketing fine jewelry.  In 1995, the common stock and the convertible note
     had been recorded at cost of $800,000.  In the second  quarter of 1996, the
     investment  was fully written off due to the impairment in the value of the
     investment.  The write-down of $800,000 has been included in gain (loss) on
     sale  (write-down)  of  investments.  During  1997,  the Company  recovered
     $112,000  related to this  investment  which is  included in gain (loss) on
     sale (write-down) of investments.

     Simmons Outdoor Corporation ("Simmons") was a publicly traded company whose
     primary  business was marketing and  distributing  branded  sporting  goods
     products (principally optical in nature). In the fourth quarter of 1995 the
     Company's  investment  in common stock of Simmons was sold,  resulting in a
     pre-tax profit of $1,740,000,  which is included in the gain (loss) on sale
     (write-down)  of  investments.  In 1995,  prior  to the sale of the  common
     stock,  the Company  accounted for this investment under the equity method.
     Swiss  Army's  share of the  income  of  Simmons,  net of  amortization  of
     goodwill, totaled $1,090,000.

 (7)    OTHER ASSETS
<TABLE>
<CAPTION>
          Other assets consist of the following :
                                                                  Amortization
                                        1997           1996           Period
                                           (in thousands)
<S>                                   <C>           <C>          <C>

Cash surrender value of
    life insurance (see Note 13)       $9,804        $7,317             N/A
Goodwill (A)                              -             -           10 years
Other                                   2,455         1,944        1-5 years
                                       ------        ------
Accumulated amortization               (1,223)         (496)
                                       ------        ------
                                      $11,036        $8,765
                                      =======        ======
</TABLE>
                                      F-14
<PAGE>
     (A) On September 2, 1992, the Company  acquired  certain assets and assumed
     certain  liabilities  of  CDF.  This  acquisition  was  accounted  for as a
     purchase with the assets acquired and liabilities assumed recorded at their
     fair value. As discussed in Note 3, in 1996 the remaining net book value of
     the goodwill was written off. In January 1997, the Company  entered into an
     asset purchase agreement to sell certain assets and liabilities of CDF. The
     Company completed the sale in the fourth quarter of 1997.

     For the years ended December 31, 1997, 1996 and 1995,  amortization expense
     was approximately $1,449,000, $2,436,000 and $1,728,000, respectively.

(8)     ACCRUED LIABILITIES
<TABLE>
<CAPTION>
             Accrued liabilities consist of the following:
                                                         1997          1996
                                                            (in thousands)
               <S>                                     <C>       <C>
                Sales, marketing and promotional        $4,374    $2,631
                Payroll related                          1,269     1,425
                Other                                    4,222     3,779
                                                        ------    ------
                                                        $9,865    $7,835
                                                        ======    ======
</TABLE>
(9) DEBT AGREEMENTS
     Swiss Army had a $15,000,000  revolving credit agreement which, as amended,
     carried  interest at either the bank's Base Rate,  or the London  Interbank
     Offered Rate (LIBOR) rate,  plus 1.25%.  This agreement  expired on January
     30, 1997. The interest rate was at Swiss Army's  discretion  subject to the
     terms  of the  loan.  Swiss  Army had no  outstanding  balance  under  this
     agreement at December 31,  1996.  Borrowings  under this line were used for
     working  capital  requirements  and, within certain  restrictions,  for any
     corporate  purpose.  The revolving  term loan agreement  contained  certain
     restrictions  relating to the payment of  dividends,  repurchase  of stock,
     issuance of additional  debt and sale of certain assets.  In addition,  the
     agreement required the continuation of the exclusive distribution agreement
     with Victorinox. On December 4, 1997, the Company entered into a $5,000,000
     commercial promissory note agreement with same financial institution.  This
     agreement expires on June 30, 1998 and is governed by the terms included in
     the prior revolving credit agreement.  No borrowings were outstanding under
     this agreement as of December 31, 1997. The Company is currently  reviewing
     its  options to  establish  a long term  revolving  credit  agreement,  and
     believes it can establish a new credit  agreement at the appropriate  date.
     The  Company  plans  to use the  borrowings  available  under  the  current
     agreement and the line of credit described below for borrowings, if needed,
     prior to establishment of a new revolving credit agreement.

     The  Company  maintains  a  $5,000,000  line  of  credit  with a  financial
     institution.  This  facility is unsecured and contains no  restrictions  or
     requirements.  The Company had no outstanding  balance under this agreement
     at December 31, 1997 and 1996, respectively.

(10)    INCOME TAXES
     The income tax provision  (benefit) for the years ended  December 31, 1997,
     1996 and 1995, consists of the following:
<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                               1997          1996           1995
                                                         (in thousands)
<S>                                         <C>           <C>           <C>
 Current
        Federal                              ($1,276)      ($1,140)      $2,614
        Foreign                                 (280)          292           44
        State                                    214           230          508
                                             --------      --------     --------
             Total current                    (1,342)         (618)       3,166
 Deferred
        Federal                                 (700)       (1,332)        (492)
        State                                   (334)         (394)        (151)
                                             --------      ---------    --------
            Total deferred                    (1,034)       (1,726)        (643)
                                             --------      ---------    --------
 Provision (benefit) for income taxes        ($2,376)      ($2,344)      $2,523
                                             ========      =========    ========
</TABLE>
                                      F-15
<PAGE>
     The  significant  components  of the  deferred tax asset as of December 31,
     1997 and 1996 are as follows:
<TABLE>
<CAPTION>
                                                          1997         1996
                                                            (in thousands)
<S>                                                     <C>           <C>
Loss on write-down of investments                        $1,211        $1,211
Inventory related reserves                                1,400         1,152
Sales and marketing reserves                              1,608         1,074
Depreciation and amortization                               666           586
Accrued employee benefits                                   471           541
Net operating loss carryforward for state purposes          411           197
Other, net                                                  159           131
                                                         -------       -------
                                                         $5,926        $4,892
                                                         =======       =======
</TABLE>
     No valuation allowance has been recorded against the Company's deferred tax
     assets as the Company  believes it is more likely than not that the Company
     will realize the deferred tax assets.

     A reconciliation  of the income tax provision  (benefit)  calculated at the
     federal  income tax statutory rate and the Company's  effective  income tax
     rate for 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
                                               1997        1996        1995
        <S>                                  <C>         <C>          <C>
         Statutory federal income tax rate    (34.0%)     (34.0%)      34.0%
         State income taxes, net of
           federal income tax benefit          (.08)       (4.1)        6.8
         Foreign taxes                         (4.0)        3.8         0.8
         Other                                  1.7         3.5         3.2
                                              ------      ------      ------
         Effective income tax rate            (37.1%)     (30.8%)      44.8%
                                              ======      ======      ======
</TABLE>
     At December 31, 1997,  the Company has net  operating  loss  carryforwards,
     subject to Internal Revenue Service review, of approximately  $3.7 million.
     The Company plans to utilize the loss  carryforwards  by carrying them back
     to previous years.

(11)    EMPLOYEE BENEFITS
     Substantially all employees of the Company are covered by a noncontributory
     defined  benefit  pension plan.  Benefits are based on years of service and
     the   employee's   compensation   during  the  five   highest   consecutive
     compensation  years.  Costs  under the plan are  accrued  and funded on the
     basis of accepted  actuarial  methods.  Total pension expense  approximated
     $336,000,  $232,000 and  $324,000,  for the years ended  December 31, 1997,
     1996 and 1995, respectively.

     The net periodic  pension cost of Swiss Army's  pension plan in 1997,  1996
     and 1995 includes the following components:
<TABLE>
<CAPTION>
                                                1997         1996        1995
                                                       (in thousands)
              <S>                              <C>         <C>         <C>
               Service cost - benefits
                    earned during the period    $339        $240         $256
               Interest cost on projected
                    benefit obligation           189         156          160
               Return on assets                 (171)       (144)        (110)
               Amortization of net
                    transition asset             (14)        (14)         (14)
               Amortization of unrecognized
                    prior service cost           (13)        (13)         (14)
               Amortization of net loss            6           7           46
                                             --------     --------     -------
               Net periodic pension cost        $336        $232         $324
                                             ========     ========     =======
</TABLE>

     The funded  status of the  Company's  defined  benefit plan at December 31,
     1997 and 1996 follows:

                                      F-16
<PAGE>
<TABLE>
<CAPTION>

                                                       1997          1996
                                                         (in thousands)
<S>                                                 <C>           <C>

Actuarial present value of:
      Vested benefit obligation                      $1,970         $2,073
                                                     ======         ======
      Accumulated benefit obligation                 $1,970         $2,073
                                                     ======         ======
Projected benefit obligation                         $3,211         $2,629
Market value of plan assets                           1,792          2,111
                                                     ------         ------
Plan assets less than projected
      benefit obligation                             (1,419)          (518)
Unrecognized net loss                                 1,036            333
Unrecognized prior service cost                        (256)          (269)
Unrecognized net transition asset                       (71)           (85)
                                                     ------         -------
Accrued pension cost                                  ($710)         ($539)
                                                     ======         =======
</TABLE>


     Rates used in  determining  the  actuarial  present  value of the projected
     benefit obligation are as follows:

<TABLE>
<CAPTION>

                                                                December 31,
                                                             1997          1996

    <S>                                                     <C>          <C>

     Discount rate                                            7.00%        7.00%
     Rate of increase in future compensation levels           5.00%        5.00%
     Expected long-term rate of return on plan assets         8.00%        8.00%
</TABLE>

     Plan assets consist  principally of investments in fixed income securities,
     short-term investments and common stock.

     The Company  maintains a 401(k)  employee  benefit  plan  pursuant to which
     participants  can defer a certain  percent of their annual  compensation in
     order to receive certain  benefits upon  retirement,  death,  disability or
     termination  of  employment.  The  Company  can  elect  to make a  matching
     contribution of up to 6% of annual eligible compensation per employee.  The
     determination  to make a matching  contribution is made at the beginning of
     each fiscal year. During 1997, 1996 and 1995, the Company incurred expenses
     of approximately $175,000, $135,000 and $129,000 related to this plan.

     The Company offers no other post retirement benefits.

(12)    STOCKHOLDERS' EQUITY

     During  1996 and 1994,  the  stockholders  approved  adoption of Swiss Army
     Brands,  Inc.  1996 Stock Option Plan and The  Forschner  Group,  Inc. 1994
     Stock  Option  Plan,  respectively,  providing  for the grant of options to
     employees,  including officers of the Company,  and members of the Board of
     Directors.  Under these plans and  previous  stock  option  plans,  872,813
     shares of common stock are reserved and  available  for  issuance.  Options
     expire no later than ten years after the date of grant. Option prices equal
     at least 100% of the fair market value of Swiss Army's  common stock on the
     date of grant. The vesting of options is determined by the Stock Option and
     Compensation  Committee of the Board of Directors,  which  administers  the
     plan, and for options  outstanding as of December 31, 1997,  vesting ranges
     from immediately upon grant to three years.

                                      F-17
<PAGE>
     The following table  summarizes  stock option plan and warrant activity for
     the three years ended December 31, 1997:
<TABLE>
<CAPTION>

                                                    Number
                                                   of Shares       Option Price
              <S>                                 <C>            <C>

               Outstanding at December 31, 1994    1,348,533     $ 3.32 - $17.50

               Granted (A) (B)(C) (D)                912,000     $11.75 - $12.88
               Exercised                              (3,750)    $ 6.50
               Canceled (B) (D)                     (248,658)    $ 3.32 - $17.50
                                                   ----------
               Outstanding at December 31, 1995    2,008,125     $ 5.25 - $14.50

               Granted (E)                           348,750     $13.63
               Exercised                             (22.250)    $ 5.25 - $12.88
               Canceled                              (22,625)    $12.25 - $12.88
                                                   ----------
               Outstanding at December 31, 1996    2,312,000     $ 5.25 - $14.50

               Granted                                   -              -
               Exercised                                (750)    $ 5.25
               Canceled                              (70,219)    $12.25 - $14.00
                                                   ----------
               Outstanding at December 31, 1997    2,241,031     $ 5.25 - $14.50
                                                   ==========
</TABLE>

     Of the options and warrants outstanding at December 31, 1997, 1,928,594 are
     exercisable at a weighted average option price of $12.10 per share.

     (A) In January 1995, the Company issued 637,000  options to purchase common
     stock at $12.88  per  share to  various  Company  employees,  officers  and
     directors.  These options are exercisable in four equal  installments  over
     three years starting with the grant date.

     (B)  Included as granted are  options to purchase  25,000  shares of common
     stock at $11.75 per share to a former  director,  which  replaced  the same
     number of options  granted in 1993 at $17.50 per share,  that were canceled
     concurrently. The newly issued options retain vesting rights of the options
     they replaced.

     (C) In  December  1995,  the Company  issued a warrant to purchase  100,000
     shares of common  stock at $12.50 per share to an  officer of the  Company.
     The  warrant is  exercisable  in four equal  installments  over three years
     starting with the grant date.

     (D)  Included as canceled are 150,000  options to purchase  common stock at
     $12.88 per share which were issued to a director. In December 1995, options
     covering  150,000  shares  were  granted to another  director at $12.50 per
     share.  These options are exercisable in four equal installments over three
     years starting with the grant date.

     (E) In November 1996, the Company issued 348,750 options to purchase common
     stock at $13.63 per share to various Company employees and officers.  These
     options  are  exercisable  in four  equal  installments  over  three  years
     starting with the grant date.

     The  weighted-average  fair value of the stock options and warrants granted
     in 1996 and 1995 was  approximately  $5.45  and  $5.80,  respectively.  The
     weighted-average fair value of the options and warrants was estimated using
     the  Black-Scholes  option-pricing  model with the  following  assumptions:
     expected  volatility  of 30%;  expected  life of options and  warrants of 6
     years;  dividend  yield of 0%; and risk free interest rate of 6.04% in 1996
     and 6.70% in 1995, respectively.

     The Company  accounts  for stock  options  and  warrants  under  Accounting
     Principles   Board  Opinion  No.  25,   "Accounting  for  Stock  Issued  to
     Employees",  under  which no  compensation  cost has been  recognized.  Had
     compensation  cost for the three  years  ending  December  31,  1997,  been
     determined  under the  principles of SFAS No. 123, the Company's net income
     (loss) and earnings per share would have been the following:

                                      F-18
<PAGE>
<TABLE>
<CAPTION>

                                              1997       1996        1995

                                        (in thousands, except per share data)
<S>                                        <C>        <C>          <C>

 Net income (loss)    As reported:         ($4,025)    ($5,265)     $3,113
                      Pro forma:           ($5,320)    ($6,386)     $2,343


 Earnings per share   As reported:
                         Basic              ($0.49)     ($0.64)      $0.38
                         Diluted            ($0.49)     ($0.64)      $0.38

                      Pro forma:
                         Basic              ($0.65)     ($0.78)      $0.28
                         Diluted            ($0.65)     ($0.78)      $0.28
</TABLE>


     The effects of applying SFAS No. 123 in this pro forma  disclosure  are not
     indicative  of  future  amounts  as SFAS No.  123  does not  apply to stock
     options and warrants  granted  prior to 1995,  and  additional  options and
     warrants may be granted in future years.

     In 1997, the Company's  stockholders  approved an increase in the number of
     authorized shares of its common stock from 12,000,000 to 18,000,000.

(13)    COMMITMENTS AND CONTINGENCIES
     The Company has minimum purchase  requirements  under an agreement with its
     principal Swiss Army Knife and cutlery supplier (see Note 4).

     On December 18, 1996, the Swiss Military Department  representing the Swiss
     Confederation  ("Swiss  Confederation")  and  the  Company  entered  into a
     trademark  agreement  (the  "Trademark  Agreement")  pursuant  to which the
     Company  was  granted  certain  worldwide  use and  sublicensing  rights in
     connection with trademarks  containing the words "Swiss Army" registered by
     the  Swiss   Confederation   in  Switzerland   (the  "Swiss   Confederation
     Trademarks").  The Swiss Confederation acknowledged the Company's exclusive
     right  to  use  the   Company's   trademarks  in  the  countries  of  their
     registration  or application  and agreed to assist the Company in enforcing
     the Company's rights with respect to its trademarks. In addition, the Swiss
     Confederation  stated its intention to assist  Victorinox,  the Company and
     two other  companies  in  safeguarding  their rights with respect to "Swiss
     Army" as applied to knives and in  preventing  the use of "Swiss Army" with
     respect to multi-blade  pocketknives,  multi-tools and other products which
     are not Swiss products.

     The  Trademark  Agreement  grants  the  Company  the right to an  exclusive
     royalty free license of the Swiss  Confederation  Trademarks  as applied to
     watches and sunglasses in the United States, Canada and the Caribbean.  The
     Company is also  granted  such  rights with  respect to certain  designated
     products that either it or its licensees  sell in commercial  quantities in
     the United States, Canada and the Caribbean within designated time periods.
     In the event the Company or its licensees do not sell commercial quantities
     of product  categories  within the time periods set by the  agreement,  the
     Swiss Confederation shall have the right, subject to certain conditions, to
     license the Swiss  Confederation  Trademarks  to a third party and, in such
     event,  the Company  shall be obligated to offer such third party a license
     of the Company's appropriate trademark.

     Outside  of the United  States,  Canada and the  Caribbean,  the  Trademark
     Agreement  provides  for  the  grant  to the  Company  of the  right  to an
     exclusive  license,  subject to the existing  legal  rights of others,  for
     watches and sunglasses at a royalty equal to 3% of net sales.  In addition,
     the  Company has the right to a license  for  certain  designated  products
     outside of the United  States,  Canada and the Caribbean  also at a royalty
     equal  to 3% of  net  sales,  to use  the  Swiss  Confederation  Trademarks
     provided that the Company  commences  the sale of commercial  quantities of
     such products within time periods prescribed by the Trademark Agreement.

                                      F-19
<PAGE>
     The  Trademark  Agreement  also  provides  that all products sold under the
     license must be of a quality at least equal in workmanship and materials to
     the products currently sold by the Company, Victorinox or one other company
     and that in the event the Company discontinues sales of goods in commercial
     quantities in any category of goods for three consecutive  years, the Swiss
     Confederation  shall  have the right to  terminate  the  license as to that
     category  after  giving the  Company  notice and an  opportunity  to resume
     sales. Except for the foregoing limitation,  the rights of the Company with
     respect  to  the  use of  the  Swiss  Confederation  Trademarks  under  the
     Trademark  Agreement are  perpetual.  It is  anticipated  that the right to
     utilize the Swiss  Confederation  Trademarks on certain products other than
     timepieces  and  sunglasses  will be made available to one other company by
     the Company on terms yet to be discussed.

     At December 31, 1997,  minimum  rental payment  commitments  for office and
     warehouse space leased by Swiss Army under operating leases are, as follows
     (in thousands):
<TABLE>
<CAPTION>
                    <S>               <C>

                     1998             $1,320
                     1999              1,345
                     2000              1,296
                     2001                828
</TABLE>
     During the years ended December 31, 1997,  1996 and 1995,  rent expense was
     approximately $1,390,000, $1,313,000 and $1,390,000, respectively.

     At  December  31,  1997,   the  Company  has  open  contracts  to  purchase
     approximately  46,000,000  Swiss francs in 1998 as a hedge  against  future
     purchase of  inventories.  Deferred gains and losses on these contracts are
     immaterial at December 31, 1997.

     The Company maintains split dollar life insurance  agreements  covering two
     members of the Board of Directors.  Primarily,  these  policies can only be
     canceled upon the mutual agreement of the Company and the insured. However,
     if these  policies  were  canceled at December 31, 1997,  the Company would
     receive in cash an amount equal to the lesser of the cash  surrender  value
     or  cumulative  premiums  paid  to  date  on  these  policies,   which  was
     approximately $4,487,000. Under the terms of these life insurance policies,
     the Company will make approximate future premium payments,  if the policies
     remain in force, as follows (in thousands):
<TABLE>
<CAPTION>
                      <S>                      <C>

                       1998                    $827
                       1999                     843
                       2000                     858
                       2001                     788
                       2002 and thereafter    3,152
</TABLE>
     In 1993,  Swiss Army's Board of  Directors  adopted a charitable  insurance
     program  that  will  enable  Swiss  Army  to  make  a  commitment   to  the
     Victorinox-Swiss  Army Knife  Foundation (the  "Foundation"),  a foundation
     which engages in various charitable  activities  including the promotion of
     athletic events for  underprivileged  urban youth, as well as a broad range
     of charities.  In 1994, Swiss Army made a special $1.5 million contribution
     in the form of cash and common stock to the Foundation.  Under the program,
     Swiss Army owns, is the  beneficiary  of and pays all the premiums for life
     insurance  policies on the lives of certain Board members.  Pursuant to the
     program,  upon the death of each Director,  the Company will retain a share
     of the  insurance  proceeds  equal to the  cumulative  premiums paid by the
     Company for the policy on that Director's  life. One half of any additional
     insurance  proceeds  received upon the death of an insured Director will be
     used to fulfill charitable pledges made to the Victorinox-Swiss  Army Knife
     Foundation.  The remaining half of the additional  proceeds will be used to
     fulfill charitable pledges recommended by the individual  Directors.  Swiss
     Army is generally bound to continue to pay all premiums on the policies for
     the lives of the insured  Directors  or, in the case of the Chairman of the
     Management  Committee,  as long as he is an  officer  or a board  member or
     agrees  to serve as a  consultant  to the  Company.  Swiss  Army  will make
     approximate  future premium  payments  related to these programs as follows
     (in thousands):

                                      F-20
<PAGE>
<TABLE>
<CAPTION>
                         <S>                        <C>

                          1998                      $1,115
                          1999                       1,115
                          2000                       1,115
                          2001                       1,102
                          2002 and thereafter        7,103
</TABLE>

     Under existing  federal tax laws, the receipt by Swiss Army of the proceeds
     from an insurance  policy upon the death of a director  would not result in
     regular taxable income to the Company;  however,  Swiss Army may be subject
     to  alternative  minimum tax on a portion of the receipts.  When Swiss Army
     makes cash contributions to a designated  charity, it will be entitled to a
     tax deduction equivalent to the sum of those  contributions.  The extent of
     the  utilization  of this  deduction  in that year will  depend  upon Swiss
     Army's taxable income,  since Swiss Army is entitled to claim as charitable
     deductions  only 10% of its  taxable  income  in any year.  However,  these
     deductions  may be carried  forward for tax  purposes  for a period of five
     years.

     Based  upon  estimates  prepared  by the  Company's  insurance  agent,  the
     anticipated earnings impact related to the policies for both the Foundation
     and  the  two  members  of  the  Board  of  Directors  is  expected  to  be
     insignificant.

     Swiss Army entered into an employment agreement dated as of January 2, 1996
     with  a  director  of  the  Company  who,  until  December  13,  1995,  was
     Co-Chairman  of the Board and Chief  Executive  Officer of Swiss Army.  The
     agreement  provides  that the former  Co-Chairman  shall be  employed in an
     executive  capacity with the Company and shall be available to consult with
     and advise  the  Company on such  matters as might be  requested  by senior
     management  of the  Company  for at least  eighty-five  hours  per month on
     issues  dealing with the  maintenance  of corporate  trademarks,  corporate
     legal matters,  and strategic support relative to strategic  relations with
     Victorinox,  the Company's key supplier.  The former  Co-Chairman  is being
     paid a salary of $140,000  per annum and,  during 1996  received a one-time
     bonus of  $300,000.  The  agreement,  which has a term of five years,  also
     provides that following the  termination of the agreement,  this individual
     would be  prohibited  from  competing,  with certain  exceptions,  with the
     business of the Company for a period of three years.

     On  July  14,  1997  the  Company  filed  with  the  American   Arbitration
     Association in New York, New York a demand for arbitration  against Precise
     Imports  Corporation,  the United States and Canadian  distributor of Swiss
     Army  Knives  manufactured  by Wenger  S.A.,  the only  company  other than
     Victorinox supplying  pocketknives to the Swiss Armed Forces. In the demand
     for arbitration,  the Company charges that Precise has violated the license
     agreement  dated June 30, 1992 between Precise and the Company by utilizing
     the trademark Swiss Army in ways  prohibited by the agreement.  The Company
     seeks to enjoin future  violations by Precise as well as damages  resulting
     from  past   violations.   Precise  has  filed  an  answer,   defenses  and
     counterclaims  denying the Company's claims and alleging, as counterclaims,
     that the Company has violated the license agreement to Precise's detriment,
     that the Company has engaged in  anti-competitive  activity against Precise
     in violation of both the license  agreement and anti-trust  laws,  that the
     Company has engaged in acts of unfair competition  against Precise and that
     the Company has knowingly  published false statements  regarding Precise in
     addition to other  counterclaims.  Precise seeks to enjoin the Company from
     all of the acts cited in Precise's counterclaims as well as an award of the
     Company's  profits and Precise's  damages  caused by the Company's  alleged
     acts. While the Company cannot predict the outcome of the  arbitration,  it
     believes  that  its  claims  against  Precise  are   meritorious,   it  has
     meritorious  defenses to Precise's  counterclaims and intends to vigorously
     pursue its claims and defend against the counterclaims.

     Certain  parties  have  informed  the Company  that they  believe  that the
     Victorinox SwissTool or portions of it infringe patent rights held by them.
     If the Company is unable to resolve these issues  amicably no assurance can
     be given as to the outcome and the Company may incur substantial legal fees
     in connection with the  infringement  defense of any patent action that may
     be brought.  The result of an adverse  decision in any such action could be
     the  issuance  of an  injuction  prohibiting  the  Company's  sale  of  the
     Victorinox  SwissTool or the  imposition  of damages or both.  Any of these
     could have a material  adverse  effect on the Company's  future  results of
     operations.

                                      F-21
<PAGE>
     In addition,  the Company is involved in certain legal matters  relating to
     trademark,  patent, and other general business matters. Management believes
     that the outcome of these legal  matters  will not have a material  adverse
     effect on the financial position and results of operations of the Company.

(14)    INTERNATIONAL OPERATIONS
     A summary of selected financial information for international operations is
     as follows:
<TABLE>
<CAPTION>
                                              1997          1996          1995
                                                       (in thousands)
<S>                                        <C>           <C>           <C>
Net sales                                   $16,122       $17,239       $14,164

Operating income (loss)                         783         1,674          (185)

Identifiable assets                          10,760        12,204        12,801
</TABLE>

     The Company's net assets of foreign  operations  amounted to  approximately
     $6.6 million at December 31, 1997.

(15)    QUARTERLY FINANCIAL DATA (Unaudited)

<TABLE>
<CAPTION>

                                                      Quarter Ended
                                          (in thousands, except per share data)
                              March 31    June 30    September 30   December 31
<S>                            <C>        <C>             <C>          <C>

1997
Net sales                      $24,215    $28,862         $27,866      $37,801
Gross profit                     9,020     10,308          10,596       12,800
Loss before income
    taxes                       (1,762)    (1,624)         (1,250)      (1,765)
Net  loss                       (1,048)      (966)           (775)      (1,236)
Net loss per share              ($0.13)    ($0.12)         ($0.09)      ($0.15)

1996
Net sales                      $26,079    $28,677         $34,616      $40,658
Gross profit                     8,593      5,389          11,996       14,858
Income (loss) before income
 taxes                            (415)    (6,998)          1,140       (1,335)
Net income (loss)                 (245)    (4,057)            642       (1,605)
Net income (loss) per share     ($0.03)    ($0.49)          $0.08       ($0.20)
</TABLE>

Results for the quarter  ended June 30, 1997 and December 31, 1997 were impacted
by an inventory  write-off and  restructuring  costs of $300,000 and $1,800,000,
respectively. See Note 3 for further discussion.

Results for the quarter  ended June 30, 1996 and December  31,1996 were impacted
by  inventory  write-offs,   investment   write-downs  and  special  charges  of
$7,394,000 and $2,493,000, respectively. See Note 3 for further discussion.

There was no difference  between basic and fully diluted  earnings per share for
the periods presented above.

(16)    SUBSEQUENT EVENT (Unaudited)

In  January  1998,  the  Company  received  a  distribution  from  Hudson  River
consisting  of $1.6 million in cash and 42,018 shares of common stock (valued at
approximately  $1,480,000  on February 10, 1998) of Iron  Mountain  Incorporated
("Iron Mountain").  Iron Mountain,  a publicly traded company, is a full service
provider of records management and related services.
<TABLE>
<CAPTION>
                                      F-22
<PAGE>


                    SWISS ARMY BRANDS, INC. AND SUBSIDIARIES

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                 (in thousands)


           Column A                Column B     Column C     Column D   Column E
                                                Additions
                                  Balance At    Charged to            Balance At
                                   Beginning    Costs and               End of
         Classification             of Year      Expenses    Deductions  Year
<S>                                 <C>            <C>         <C>        <C>

Year Ended December 31, 1997:

   Allowance for Doubtful Accounts  $1,032          $   57        -         $975
                                    =======        =======    ========    ======
   Inventory Reserve                $1,950          $1,310       (410)    $2,852
                                    =======        =======    ========    ======
Year Ended December 31, 1996:

   Allowance for Doubtful Accounts  $  975          $   57        -       $1,032
                                    =======        =======    ========    ======
   Inventory Reserve                $  918          $4,932    ($3,900)    $1,950
                                    =======        =======    ========    ======
 Year Ended December 31, 1995:

   Allowance for Doubtful Accounts  $  755          $  220        -       $  975
                                    =======        =======    ========    ======
   Inventory Reserve                $  750          $  168        -       $  918
                                    =======        =======    ========    ======
</TABLE>

                                      F-23
<PAGE>

(3)     Exhibits.
<TABLE>
<CAPTION>

          Exhibit Title                                             Exhibit No.
<S>                                                                    <C>

(2) Not Applicable

(3) (A) Articles of Incorporation,  as amended, incorporated by
reference to theExhibits  to  Quarterly  Report on Form 10-Q for
the fiscal  year ended June 30, 1997.                                       *


(B)  By-laws,  as amended,  incorporated  by reference to the Exhibits
 to Annual Report on Form 10-K for the fiscal year ended December 31, 1995. *

(4) Instruments defining the rights of security holders, including
 indentures:

     (A) Excerpts from  Certificate of  Incorporation,  as amended,
      incorporated  by reference to Exhibit 3(a) hereto.                    *

     (B) Excerpts from By-Laws, as amended, incorporated by reference
     to the Exhibits from Annual Report on Form 10-K for the fiscal
     year ended December 31, 1992.                                          *

(9)     Not Applicable.

(10)    Material Contracts

     (A) Employment Agreement dated as of September 15, 1983 between
     SABI and Michael M.  Weatherly,  incorporated  by  reference
     to the Exhibits to Registration Statement on Form S-18,
     No. 2-87357-B.                                                         *

     (B) 1983 Stock Option Plan,  incorporated by reference to the
     Exhibits to Annual Report on Form 10-K for the fiscal year ended
     December 31, 1990.                                                     *

     (C) Letter Agreement dated December 12, 1983 between Victorinox
     Cutlery Company and The Forschner Group., Inc., incorporated
     by reference to the Exhibits to Annual Report on Form 10-K for
     the fiscal year ended December 31, 1994.                               *

     (D) Mutual  Agreement  dated as of October 20, 1986 between
     Victorinox Cutlery Company and The Forschner Group, Inc.,
     incorporated by reference to the Exhibits to Annual Report on
     Form 10-K for the fiscal year ended December 31, 1994.                 *

     (E) Letter  Agreement  dated as of October 20, 1986 between
     Victorinox  Cutlery Company and The Forschner Group, Inc.,
     incorporated by reference to the Exhibits to Annual Report
     on Form 10-K for the fiscal year ended December 31, 1994.              *

     (F) Letter Agreement dated August 24, 1988 between The Forschner
     Group, Inc. and Recta S.A.,  incorporated  by reference to the
     Exhibits to Annual Report on Form 10-K for the fiscal year ended
     December 31, 1994.                                                     *

     (G) Mutual Agreement dated October 25, 1988 between  Victorinox
     Cutlery Co. and The Forschner Group,  Inc.,  incorporated by
     reference to the Exhibits to Annual Report on Form 10-K for the
     fiscal year ended December 31, 1994.                                   *

     (H) Letter Agreement dated June 12, 1989 between  Victorinox
     Cutlery Co. and The Forschner  Group,  Inc.,  incorporated  by
     reference  to the Exhibits to Annual Report on Form 10-K for the
     fiscal year ended December 31, 1989.                                   *

     (I) Agreement to Lease dated June 14, 1990 between The Forschner
     Group, Inc. and Pefran Trap Falls  Associates,  incorporated  by
     reference  to the  Exhibits to Annual Report on Form 10-K for the
     fiscal year ended December 31, 1990.                                   *


<PAGE>
     (J) Security  agreement dated January 31, 1991 between The
     Forschner Group, Inc. and  Connecticut  National  Bank,
     incorporated  by reference to the Exhibits to Annual Report on
     Form 10-K for the fiscal year ended December 31, 1989.                 *

     (K) Security agreement dated January 31, 1991 between Swiss Army
      Brands Ltd. and Connecticut  National Bank,  incorporated by
      reference to the Exhibits to Annual Report on Form 10-K for the
      fiscal year ended December 31, 1989.                                  *

     (L) Security agreement dated January 31, 1991 between Victorinox
     of Switzerland, Ltd. and Connecticut National Bank, incorporated
     by reference to the Exhibits to Annual Report on Form 10-K for
     the fiscal year ended December 31, 1989.                               *

     (M) Security  agreement  dated January 31, 1991 between
     Excelsior  Advertising, Inc. and Connecticut National Bank,
     incorporated by reference to the Exhibits to Annual Report on
     Form 10-K for the fiscal year ended December 31, 1989.                 *

     (N) Agreement of guarantee and  suretyship  dated January 31, 1991
     by Swiss Army Brands Ltd. in favor of Connecticut National Bank,
     incorporated by reference to the  Exhibits to Annual  Report on
     Form 10-K for the fiscal year ended  December 31, 1989.                *

     (O) Agreement of guarantee and suretyship dated January 31, 1991
     by Victorinox of  Switzerland,  Ltd. in favor of Connecticut
     National Bank,  incorporated  by reference  to the  Exhibits  to
     Annual  Report on Form 10-K for the fiscal  year ended
     December 31, 1989.                                                     *

     (P)  Agreement of guarantee and suretyship dated January 31, 1991
     by Excelsior Advertising  Inc. in favor of Connecticut National
     Bank,  incorporated  by reference  to the  Exhibits  to Annual
     Report on Form 10-K for the fiscal year ended December 31, 1989.       *

     (Q) Life insurance  agreement dated as of December 7, 1991
      between The Forschner Group,  Inc.  and Stanley R. Rawn,  Jr.,
      as Trustee  u/a dtd.  December 9, 1986 between Louis Marx, Jr.
      and Stanley R. Rawn,  Jr.,  incorporated by reference to the
      Exhibits to Annual  Report on Form 10-K for the fiscal year
      ended  December 31, 1992.                                             *

     (R)  Amended  and  Restated  Loan Agreement dated June 18, 1992
     between  The Forschner  Group, Inc. and The Connecticut National
     Bank (now known as Shawmut Bank  Connecticut,  N.A.), incorporated
     by reference to the Exhibits to Annual Report on Form 10-K for the
     fiscal year ended December 31, 1992.                                   *

     (S) Letter agreement dated June 18, 1992 between The Forschner
     Group,  Inc. and The Connecticut National  Bank,  incorporated
     by reference to the Exhibits to Annual Report on Form 10-K for the
     fiscal year ended December 31, 1992.                                   *

     (T) License  Agreement dated June 30, 1992 between The Forschner
     Group, Inc. and Precise Imports Corporation, incorporated by
     reference to the Exhibits to Annual Report on Form 10-K for the
     fiscal year ended December 31, 1992.                                   *

     (U) Letter agreement dated November 11, 1992 between The Forschner
     Group,  Inc. and Michael M.  Weatherly,  incorporated  by reference
     to the Exhibits to Annual Report on Form 10-K for the fiscal year
     ended December 31, 1992.                                               *

     (V) Life  insurance  agreement  dated  December 24, 1992  between
     The  Forschner Group,  Inc.  and Louis  Marx,  Jr.,  as Trustee
     u/a dtd. as of October 24, 1988 between Stanley R. Rawn, Jr. and
     Barbara Rawn and Louis Marx, Jr.,  incorporated by reference  to
     the Exhibits to Annual  Report on Form 10-K for the fiscal year
     ended December 31, 1992.                                               *

     (W)  License  Agreement  dated as of January 1, 1993  between
     Cuisine de France Limited and Coutel 'Innov,  incorporated
     by reference to the Exhibits to Annual Report on Form 10-K for
     the fiscal year ended December 31, 1992.                               *


<PAGE>
     (X) Mutual Agreement dated April 6, 1992 between The Forschner
     Group,  Inc. and Victorinox  Cutlery  Company,  incorporated
     by reference to the Exhibits to Annual Report on Form 10-K for
     the fiscal year ended December 31, 1992.                               *

     (Y) 1993 Stock Option Plan,  incorporated by reference to the
     Exhibits to Annual Report on Form 10-K for the fiscal year
     ended December 31, 1993.                                               *

     (Z) First Modification to Amended and Restated Loan Agreement
     dated as of August 13, 1993 between The Forschner Group, Inc. and
     Shawmut Bank  Connecticut,  N.A., incorporated  by reference to
     the Exhibits to Annual Report on Form 10-K for the fiscal year
     ended December 31, 1993.                                               *

     (AA) Second  Modification  to Amended and Restated Loan Agreement
     dated as of February  17,  1994  between  The  Forschner   Group,
     Inc. and Shawmut Bank Connecticut, N.A., incorporated by reference
     to the Exhibits to Annual Report on Form 10-K for the fiscal year
     ended December 31, 1993.                                               *

     (BB) Commercial  Promissory Note dated February 17, 1994 of The
     Forschner Group, Inc. in the principal  amount of  $15,000,000,
     incorporated by reference to the Exhibits to Annual  Report on
     Form 10-K for the fiscal year ended  December  31, 1993.               *

     (CC) Lease  dated May 3, 1993  between One  Research  Drive
     Associates  Limited Partnership  and The Forschner  Group,  Inc.,
     incorporated  by reference to the Exhibits to Annual  Report on
     Form 10-K for the fiscal year ended  December  31, 1993.               *

     (DD)  License  Agreement  dated as of July 1,  1993  between
     Cuisine  de France Limited and Coutel 'Innov,  incorporated  by
     reference to the Exhibits to Annual Report on Form 10-K for the
     fiscal year ended December 31, 1993.                                   *

     (EE)  Life  insurance  agreement  dated as of  December  24, 1992
     between  The Forschner  Group,  Inc. and Louis Marx,  Jr.,
     incorporated  by reference to the Exhibits to Annual  Report on
     Form 10-K for the fiscal year ended  December  31, 1993.               *

     (FF) Life  insurance  agreement  dated as of  September  24, 1993
     between  The Forschner  Group,  Inc. and Louis Marx,  Jr.,
     incorporated  by reference to the Exhibits to Annual  Report on
     Form 10-K for the fiscal year ended  December  31, 1993.               *

     (GG) Life  insurance  agreement  dated as of  September  24, 1993
     between  The Forschner Group,  Inc. and James D. Rawn, as Trustee
     u/a dtd. as of June 4, 1992 between Louis Marx,  Jr.,  Grantor
     and James D. Rawn,  Trustee,  incorporated by reference  to the
     Exhibits  to Annual  Report on Form 10-K for the fiscal  year
     ended December 31, 1993.                                               *

     (HH) Mutual Agreement dated December 21, 1993 between The Forschner
     Group,  Inc. and Victorinox  Cutlery  Company,  incorporated  by
     reference to the Exhibits to Annual Report on Form 10-K for the
     fiscal year ended December 31, 1993.                                   *

     (II) 1994 Stock  Option  Plan,  incorporated  by  reference  to the
     Exhibits to Registration  Statement on Form S-8, No. 33-87078 filed
     by The Forschner  Group, Inc.                                          *

     (JJ) Services  Agreement dated as of July 29, 1994 between The
     Forschner  Group, Inc.  and Brae  Group,  Inc.,  incorporated  by
     reference  to the  Exhibits  to Quarterly Report on Form 10-Q for
     the fiscal quarter ended September 30, 1994.                           *

     (KK)Non-Incentive  Stock Option Agreement dated as of July 29, 1994
     between The Forschner  Group,  Inc. and Brae Group,  Inc.,
     incorporated by reference to the Exhibits to Quarterly Report on
     Form 10-Q for the fiscal quarter ended September 30, 1994.             *

     (LL) Consulting  Agreement  dated as of  December  7, 1991 by and
     between  The Forschner  Group,  Inc. and Louis Marx,  Jr.,
     incorporated  by reference to the Exhibits to Annual  Report on
     Form 10-K for the fiscal year ended  December  31, 1994.               *


<PAGE>
     (MM) Third  Modification  to Amended and  Restated Loan Agreement
     dated as of September  30,  1994  between  The  Forschner  Group,
     Inc.  and  Shawmut  Bank Connecticut, N.A., incorporated by
     reference to the Exhibits to Annual Report on Form 10-K for the
     fiscal year ended December 31, 1994.                                   *

     (NN) First  Amendment to Lease dated June 16, 1994 between The
     Forschner  Group, Inc. and Pefran Trap Falls Associates,
     incorporated by reference to the Exhibits to Annual Report on
     Form 10-K for the fiscal year ended December 31, 1994.                 *

     (OO) Life insurance  agreement dated as of April 15, 1994
     between The Forschner Group,  Inc. and  Lawrence T.  Warble, as
     Trustee u/a dtd.as of March 21, 1994 between  Stanley R. Rawn, Jr.,
     Grantor  and  Lawrence  T.  Warble,  Trustee, incorporated  by
     reference to the Exhibits to Annual Report on Form 10-K for the
     fiscal year ended December 31, 1994.                                   *

     (PP)  Agreement  dated June 30,  1995  between The  Forschner
     Group, Inc. and Bill-Mar Specialty Company,  Inc., incorporated
     by reference to the Exhibits to Quarterly Report on Form 10-Q
     for the fiscal quarter ended June 30, 1995.                            *

     (QQ) Letter agreement dated February 15, 1995 between The
     Forschner Group,  Inc. and Harry  Thompson, incorporated
     by  reference  to the  Exhibits to Quarterly Report on Form 10-Q
     for the fiscal quarter ended September 30, 1995.                       *

     (RR) Letter agreement dated October 25, 1995 between The
     Forschner  Group,  Inc. and Harry  Thompson,  incorporated  by
     reference  to the  Exhibits to Quarterly Report on Form 10-Q for
     the fiscal quarter ended September 30, 1995.                           *

     (SS)  Employment  agreement  dated as of January 2, 1996
     between The  Forschner Group,  Inc. and James W. Kennedy,
     incorporated by reference to the Exhibits to Annual Report on
     Form 10-K for the fiscal year ended December 31, 1995.                 *

     (TT) Warrant dated as of December 13, 1995 between The Forschner
     Group, Inc. and J. Merrick  Taggart,  incorporated by reference
     to the Exhibits to Annual Report on Form 10-K for the fiscal year
     ended December 31, 1995.                                               *

     (UU) Letter Agreement dated December 18, 1995 between The
     Forschner Group,  Inc. and Victorinox  Cutlery  Company,
     incorporated  by reference to the Exhibits to Annual Report
     on Form 10-K for the fiscal year ended December 31, 1995.              *

     (VV) Watch design and Consulting  Agreement dated as January 2,1995
     between The Forschner  Group,  Inc.,  Polenberg,  Inc. and Myron
     Polenberg  Incorporated by reference  to the  Exhibits  to
     quarterly  report on Form  10-Q for the  fiscal quarter ended
     March 31, 1996.                                                        *

     (WW) 1996 Stock  Option Plan  incorporated  by reference to the
     Exhibits on Form 10-K for the fiscal year ended December 31, 1996.     *

     (XX)Employment and Severance  Agreement dated as November 15, 1996
     between Thomas D.  Cunningham and Swiss Army Brands,  Inc.
     incorporated by reference to the Exhibits on Form 10-K for the
     fiscal year ended December 31, 1996.                                   *

     (YY) Trademark  Agreement dated as of December 18, 1996 by and
     between the Swiss Confederation  represented by the Federal
     Military Department  represented b the Federal  Defense
     Production  Group and Swiss Army  Brands,  Inc.  (confidential
     treatment has been granted for certain portions of this exhibit)
     incorporated by reference  to the  Exhibits on Form 10-K for
     the fiscal year ended  December 31, 1996.                              *

     (ZZ) Asset  Purchase  Agreement  dated  January 31, 1997 among
     Cuisine de France Limited,  Sabatier USA, LLC, Robert P. Wolff
     and Robert Candler  incorporated by reference on Form 10-K for
     the fiscal year ended December 31, 1996.                               *


<PAGE>
     (AAA)  Agreement  dated July 1, 1997 by and between Swiss Army
     Brands,  Inc. and Stanley G. Mortimer III,  incorporated by
     reference to the Exhibits on Form 10-Q for the fiscal quarter
     ended June 30, 1997.                                                   *

     (BBB)  License  Agreement  dated May 15, 1997 by and between
     Swiss Army Brands, Inc. and St. John Knits, Inc., incorporated
     by reference to the Exhibits on Form 10-Q for the fiscal quarter
     ended June 30, 1997.                                                   *

     (CCC) Letter Agreement dated September 27, 1996 between Swiss
     Army Brands,  Inc. and Victorinox Cutlery Company.                (10)-1

     (DDD)  Agreement dated December  12,1997 by and between Swiss
     Army Brands,  Inc. and Leslie H. Green.                           (10)-2

     (EEE) Commericial Promissory Note Agreement dated December 4, 1997
     between Swiss Army Brands, Inc. and Fleet National Bank.          (10)-3

(11) Statement re computation of per share earnings is not required because
     the  relevant  computations  can be clearly  determined  from the  material
     contained in the financial statements included herein.

(12)  Not applicable.

(13)  Not applicable.

(16)  Not Applicable.

(18)  Not Applicable.

(21)  Subsidiaries of Registrant.                                          21

(22)  Not Applicable.

(23)  Consents of experts and counsel:  Consent of Arthur Andersen LLP.    23

(27)  Financial Data Schedule.

(28)  Not Applicable.

(99)  Not Applicable.
</TABLE>

*       Incorporated by reference

     No Current  Reports on Form 8-K were filed during the fiscal quarter ending
     December 31, 1997.


<PAGE>
                                   SIGNATURES

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

                                               SWISS ARMY BRANDS, INC.
                                              (Registrant)


                                               By  /s/ J. Merrick Taggart
                                               J. Merrick Taggart
                                               President


                                               By  /s/ Thomas M. Lupinski
                                               Thomas M. Lupinski
                                               Senior Vice President, Chief
                                               Financial Officer, Secretary, and
                                               Treasurer

Date:  March 26,1998


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

 /s/ J. Merrick Taggart                                   March 26, 1998
J. Merrick Taggart
President and Director

 /s/ Thomas M. Lupinski                                   March 26, 1998
Thomas M. Lupinski
Senior Vice President,
Chief Financial Officer,
Secretary, and Treasurer

 /s/ A. Clinton Allen                                     March 26, 1998
A. Clinton Allen
Director

 /s/ Clarke H. Bailey                                     March 26, 1998
Clarke H. Bailey
Director

 /s/ Thomas A. Barron
Thomas A. Barron                                          March 26, 1998
Director

 /s/ Vincent D. Farrell, Jr.                              March 26, 1998
Vincent D. Farrell, Jr.
Director

 /s/ Herbert M. Friedman                                  March 26, 1998
Herbert M. Friedman
Director

 /s/ Peter W. Gilson                                      March 26, 1998
Peter W. Gilson
Director

 /s/ M. Leo Hart                                          March 26, 1998
M. Leo Hart
Director

 /s/ James W. Kennedy                                     March 26, 1998
James W. Kennedy
Director

Keith R. Lively                                           March 26, 1998
Director

Lindsay Marx                                              March 26, 1998
Director


<PAGE>


 /s/ Louis Marx, Jr.                                      March 26, 1998
Louis Marx, Jr.
Director

 /s/ Stanley R. Rawn, Jr.                                 March 26, 1998
Stanley R. Rawn, Jr.
Director

 /s/ Eric M. Reynolds                                     March 26, 1998
Eric M. Reynolds
Director

John Spencer                                              March 26, 1998
Director

 /s/ John V. Tunney
John V. Tunney                                            March 26, 1998
Director


<PAGE>