<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

                 ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998      COMMISSION FILE NUMBER: 0-26022

                             SERENGETI EYEWEAR, INC.
                 (Name of Small Business Issuer in its Charter)

           NEW YORK                                      65-0665659
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
 Incorporation or Organization)

           8125 25TH COURT EAST
            SARASOTA, FLORIDA                             34243
(Address of Principal Executive Offices)                (Zip Code)

         Issuer's Telephone Number, Including Area Code: (941) 359-3599

                              --------------------

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

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

                          COMMON STOCK, $.001 PAR VALUE
                    REDEEMABLE COMMON STOCK PURCHASE WARRANTS
                                (Title of Class)

                              --------------------

           Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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
                                    ---     ---

           Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. 9

           The issuer's revenues for the year ended December 31, 1998 were
$43,323,222

           The aggregate market value of the voting stock of the issuer held by
non-affiliates of the issuer as of March 31, 1999 was approximately $591,356.

           Number of shares of Common Stock outstanding as of March 31, 1999:
2,384,000

           Transitional Small Business Disclosure Format

                                Yes      No  X
                                    ---     ---


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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

COMPANY OVERVIEW

           Serengeti Eyewear, Inc. (the "Company") is engaged in the business of
designing, manufacturing through outside sources, marketing and distributing a
wide array of quality sunglasses.

           On February 13, 1997, the Company acquired for $27.5 million (the
"Acquisition") in cash the assets of the Serengeti Eyewear division of Corning
Incorporated ("Corning") used in the design, manufacture and distribution of
Serengeti brand sunglasses. Drivers sunglasses, first introduced by Corning in
1985, constitute the core of the Serengeti product line. Over the years,
Serengeti sunglasses have developed a brand identity which provides appeal to
consumers in the market for premium sunglasses. The Serengeti brand identity is
based upon superior lens technology, quality and performance.

           Prior to the Acquisition, the Company primarily designed and marketed
selected non-premium lines of sunglasses, such as Solar*X sunglasses, which were
targeted for distribution through mass merchandisers and designed as a sunglass
with quality comparable to that of premium sunglasses at popular prices. Solar*X
features a ground and polished lens which provides virtually complete protection
from harmful ultraviolet sun rays and glare. The Company also markets to mass
merchandisers other sunglass brands, each of which the Company believes creates
a niche among popular priced sunglasses of various categories. Non-premium
sunglass sales accounted for approximately 31% of the Company's total sales in
1998.

           In the latter part of 1995, with the proceeds of its initial public
offering completed in August 1995, the Company launched its H2Optix line of
sunglasses which is designed specifically for use in the water environment.
H2Optix utilizes a combination of characteristics which the Company believes
differentiates it from other competing sunglasses which target the water sports
market. H2Optix sales approximated $1.2 million in each of 1996 and 1997 and $2
million in 1998. The Company has included H2Optix within the Serengeti (premium)
line, thereby tapping into Serengeti's well-established distribution networks.
Premium sunglass sales accounted for approximately 69% of the Company's total
sales in 1998.

           The Company is a New York corporation formed in 1976. The Company
maintains its principal executive offices at 8125 25th Court East, Sarasota,
Florida 34243, and its telephone number is (941) 359-3599.

INDUSTRY BACKGROUND

           The sunglass industry is generally divided into two principal
segments, the under-$30 or "non-premium" market and the over-$30 or "premium"
market. The retail market for sunglasses in recent years has experienced the
emergence of a broader premium market,


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reflected by increased sales of higher-priced, quality-oriented sunglass
products. This premium sunglass market, the category in which the Company's
Serengeti products compete, showed an increase in sales of 82%, from $825.6
million in 1989 to $1.5 billion in 1998.

           Management of the Company believes that consumer willingness to pay
more for premium sunglass products results from increased awareness of the need
for quality eye protection, the continued growth of sunglasses as a fashion
accessory, an increased demand for specialized sunglasses for different sports
and activities and growing brand awareness. The Company seeks to capitalize on
these changes in the sunglass market by emphasizing sales of its premium
products which are designed to appeal to the quality conscious consumer and
which are marketed for use in specifically targeted sporting and recreational
activities in which participants tend to spend a significant amount of
disposable income on equipment and accessories.

           The under-$30 market is primarily served by mass merchandisers such
as Wal-Mart, chain drug stores and discount department stores. These outlets
generally offer sunglasses in the $8 to $25 price range. The Company currently
serves the top of the retail price range in the under-$30 market primarily with
its Solar*X, Sensor-X and Grafix brands of sunglasses.

BUSINESS STRATEGY

           The Company's objective is to become a leading designer and
distributor of premium sunglass products. The Company believes that its success
will depend upon its ability to control, protect and enhance the Serengeti brand
image. Accordingly, the Company has adopted a growth-oriented business strategy
which includes the following key elements:

           MAINTAIN BRAND NAME RECOGNITION. The Company believes that a brand
name provides instant appeal for many consumers. The Company intends to continue
developing Serengeti signature styles that incorporate superior lens technology,
quality and performance, factors which the Company believes differentiate its
products from those of its competitors and increase brand recognition among
consumers.

           FOCUS ON SELECTIVE DISTRIBUTION. It is the policy of the Company to
maintain strict control over the distribution of its Serengeti products to avoid
overexposure of the brand. The Company sells its Serengeti products through
carefully selected retailers that will be routinely assessed to ensure they
conform with the Company's standards. The Company believes this selective
distribution policy will promote a high degree of loyalty from retailers and a
stable retail price environment, while increasing the Company's control over
diversion and counterfeiting of its products.

           AGGRESSIVELY PROTECT ITS INTELLECTUAL PROPERTY RIGHTS. The Company
will continue to rely on patent, trademark, trade secret, unfair competition and
copyright law to protect its rights to certain aspects of its products,
including product designs, proprietary manufacturing processes and technologies,
product research and concepts and recognized trademarks and trade dress.


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           INTRODUCING INNOVATIVE NEW PRODUCTS. The Company has capitalized and
will continue to capitalize on Serengeti's strong brand identity by introducing
new Serengeti signature styles. These new styles incorporate the Serengeti name
and logo into the frame decor with logo plaques and lens decoration. In addition
to the retail space Serengeti accounts have provided for the Company's strong
performing existing products, such accounts have made space available for the
new products introduced by the Company in 1998. These new products accounted for
approximately 25% of premium sales in 1998.

           The Company will utilize its existing relationships with European and
Asian designers to design the new styles. The Company has an existing
relationship with a renowned European design team that has worked with the
Company for the past four years and which has developed new products for other
well-known sunglass distributors. The Company believes that this team has
consistently demonstrated the ability to create top selling styles.

           FOCUS ON INTERNATIONAL EXPANSION. The Company believes that wider
international distribution also represents a significant opportunity for
expansion of sales. Sales outside North America represented approximately 15% of
total sales of the Serengeti line in 1998. To improve the consistency of its
image and operating strategy worldwide, the Company is establishing closer
working relationships with its international distributors. The Company believes
that concentrating its efforts in existing regions and introducing Serengeti to
new regions abroad provide a significant opportunity for increased growth. The
Company also expects to continue benefitting from the global expansion of its
retail accounts, particularly Sunglass Hut International ("Sunglass Hut"), the
largest customer for the Serengeti line.

PRODUCT LINES

PREMIUM PRODUCTS

           The Serengeti line is presently divided into two distinct lines,
Drivers and Kinetix, each of which is targeted at a different portion of the
premium area of the sunglass market. The Company has also integrated its H2Optix
products into the Serengeti line. The premium product line accounted for
approximately 64% and 69% of the Company's total sales in 1997 and 1998,
respectively.

           DRIVERS

           Drivers, which is a general purpose sunglass, is the core Serengeti
product line, accounting for approximately 84% of 1998 premium product sales.
Several popular Drivers models have been marketed since the mid-1980s.
Independent marketing surveys have indicated that Drivers inspire exceptional
customer loyalty. All Drivers lenses are photochromic and incorporate "spectral
control" technology. Photochromic lenses automatically darken to adjust to
bright daylight conditions and lighten to adjust to darker daylight conditions
thereby adjusting the amount of light being transmitted to the user. Proprietary
spectral control filters are then created by "hydrogen firing" a photochromic
lens. The resultant lens filters out 95% of blue light, cutting glare, boosting
contrast and reducing eye


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fatigue in fog and haze without distorting the colors seen through the lens. The
combination of a special base glass and hydrogen firing give Drivers lenses a
lustrous copper color. Drivers lenses are available in a single-gradient lens
that reduces glare from above and are also available in a darker, non-gradient
version known as Drivers Sienna. The Company presently offers 10 collections and
115 products within the Drivers line.

           KINETIX

           Kinetix, Serengeti's sports/lifestyle, active line, is equipped with
photochromic, spectral control lenses of specific colors engineered to enhance
their performance in particular sports environments. Distinct Kinetix
collections are designed specifically for boaters, skiers, drivers, golfers,
hunters and target shooters. The Company presently offers nine products within
the Kinetix line.

           H2OPTIX

           Although there are a number of sunglasses currently marketed that can
be used by water sports enthusiasts, they are not designed specifically for use
in the water environment. The Company believes that each of the existing
sunglass product lines distributed to the water sports market has significant
drawbacks or technical omissions. The H2Optix line has been designed by the
Company to differentiate it from other competing sunglasses which target the
water sports market. The Company believes that its H2Optix product incorporates
a distinctive combination of elements that work together to provide a total
optical system for all of the needs of the water sports enthusiast. The base
material for the H2Optix lens is polycarbonate, which exhibits both optical
clarity and extraordinary strength. The lamination of polarized film between two
such lenses results in a lens ideally suited for any water sport activity. The
Company presently offers approximately 26 products within the H2Optix line.

NON-PREMIUM PRODUCTS

           The Company's Solar*X, Sensor-X, Grafix and Mach 1 lines of
sunglasses have been marketed by the Company as a high quality line of
sunglasses with a ground and polished lens. Although these sunglasses retail at
approximately $20, the Company believes that their quality makes them
competitive with higher priced premium sunglasses in the premium market. They
are available in a variety of popular, classic and contemporary frame styles.
The non-premium product line accounted for approximately 36% and 31% of the
Company's total sales in 1997 and 1998, respectively.

DISTRIBUTION

PREMIUM DISTRIBUTION

           The Company's principal customers are regional optical distributors,
sunglass specialty stores and optical chains. The Company also uses independent
direct sales representatives to focus on sporting goods and non-direct optical
accounts. Regional sales managers are


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responsible for maintaining relationships with optical distributors in their
region, as well as direct accounts with optical and sunglass chains.

           OPTICAL DISTRIBUTORS

           The network of optical distributors for the Serengeti line is
comprised of eight regional optical distributors which distribute to optical
chains, independent optical retailers and specialty sunglass retailers
throughout the United States and Canada. The Company encourages its optical
distributors to distribute exclusively to premium retailers.

           The number of distributors was reduced to eight in 1998 from 13 in
1997. The remaining distributors' territories were expanded and granted regional
exclusivity to induce increased market penetration. Distributors are limited to
selling Serengeti products to optical retail outlets.

           In 1998, optical distributors accounted for approximately seven
percent of total sales of the Serengeti product line. The Company intends to
increase distribution through independent optical retailers with prescription
Serengeti lenses as it believes that continued opportunities for growth lie in
increasing Serengeti sales to independent optical retailers.

           SPECIALTY SUNGLASS RETAILERS

           The principal specialty sunglass retailer of the Serengeti product
line is Sunglass Hut, the world's largest sunglass retailer, which has more than
2,000 stores worldwide. Sunglass Hut, which is serviced directly by the
Company's in-house sales staff, accounted for approximately 22% of total sales
of the Serengeti product line in 1998, up from 11% in 1997.

           OPTICAL CHAINS

           In 1998, approximately 19% of total sales of the Serengeti product
line were to optical chains. Of these optical chains, Lenscrafters was the most
significant customer. The Serengeti brand also has long-standing relationships
with other large chains, including Pearle Incorporated, Eyecare Centers of
America, National Vision, Wal-Mart Optical and DOC Optics Inc. The Company
believes that optical chains present significant opportunities for increased
penetration; specifically, that the Company may be able to leverage the
Serengeti reputation for high performance lenses with the optical chains in
order to help create and grow a substantial prescription sunglass business.

           INTERNATIONAL DISTRIBUTION

           Sales outside North America accounted for approximately 14% of total
sales of the Serengeti product line in 1998. Sales in each region are conducted
through distributors and, in certain countries, directly to large retail chains
or buying groups. European sales, which includes sales to markets in the
Netherlands, Switzerland, Belgium and Finland accounted for


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approximately two-thirds of 1998 foreign sales. The Asia Pacific region
accounted for the balance of such sales.

           OTHER

           The Company further sold its premium products to sporting goods
stores and non-direct optical stores, both domestically and internationally, and
excess inventories of its premium products through a variety of outlets,
aggregating approximately 38% of the Company's 1998 premium sales.

NON-PREMIUM DISTRIBUTION

           During 1995, the Company had sales of approximately $9.6 million to
Wal-Mart, a major national retailer and a principal customer of the Company for
over ten years, representing approximately 92% of the Company's total sales. As
a result of the Company's strategy to broaden its distribution network for its
non-premium products, the Company had sales in 1996 of approximately $7.2
million to Wal-Mart, representing approximately 53% of the Company's total
sales. With the acquisition of the Serengeti business, the Company's dependence
upon Wal-Mart was further reduced, with sales to Wal-Mart of approximately $9.2
million or approximately 27% of the Company's total sales in 1997 and $8.2
million or approximately 19% of the Company's total sales in 1998.

           Sales volume to Wal-Mart is generally higher toward the end of the
year due to seasonal consumer buying patterns. The Company has not experienced
any collection difficulties with its Wal-Mart account. Under its new strategy,
the Company sells its premium products through a nationwide network of sales
representatives and distributors, but intends to continue to sell its
non-premium products directly to mass merchandisers such as Wal-Mart.

           Although the Company does not intend to target the marketing of its
premium products lines to the mass merchandise market, the loss of Wal-Mart as a
customer would have a material adverse effect on the Company's business as
presently conducted. The Company does not presently have any formal written
contract with Wal-Mart, but rather receives individual purchase orders from
Wal-Mart for the Company's products.

           The Company utilizes independent sales representatives throughout the
United States to generate its non-premium sales. The Company's sales
representatives are each responsible for soliciting, selecting and securing
accounts within a particular regional territory. Such sales representatives are
paid on a commission basis, with commissions depending on the product line and
terms of the sale. The Company provides service and support to its sales
representatives, including advertising and sales literature.

           As a result of strategy changes by retailers, including
consolidations and increases in the size of retail locations, retailers have
imposed additional requirements on their merchandisers. The Company has
increased the services provided to its mass merchandise customers, particularly
Wal-Mart, in many areas including the sourcing of products necessary to fill a


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specific demand, the tracking of supply inventory by direct computer link-up and
the implementation of specifically tailored systems for the shipment of
inventory.

MARKETING

           The Company's marketing and promotion strategies for its Serengeti
products are focused on building and maintaining a high-quality image, and
providing multiple price points to meet the needs of the retailer and consumer.
The Company seeks to maintain high visibility for its Serengeti products through
the efforts of its in-house marketing staff which coordinates the sales efforts
of the Company's distributors and develops programs to help retailers increase
their sales of Serengeti products. The marketing staff also designs, develops
and produces sales materials for use by distributors. These sales materials
include point-of-purchase packaging, photography, advertising layouts, signage,
logo designs and catalogs.

           The Company intends to continue advertising and marketing Serengeti
products with point-of-purchase displays and through high quality general
publications, as well as through catalogs, billboards, event sponsorships,
product promotions, trade and consumer publications and trade shows. The Company
intends to assist in the funding and preparation of advertising campaigns
initiated by retailers. The Company also intends to promote the Serengeti brand
name by utilizing high visibility sports and celebrity figures to provide
product exposure to the consumer.

           Additionally, the Company attends trade shows targeting specific
activities to increase retailer awareness and enthusiasm for its products which
relate to such activities. The Company also intends to continue to promote
Serengeti through the sponsorship of sporting activities on both a national and
local level, and by providing decals and posters.

           The Company seeks to establish a value purchase for the quality-and
price-conscious consumer by maintaining a premium quality product at a price
more attractive than that of competing brands, providing a significant value to
the consumer. The Company provides counter cards to retailers which compare the
features and price of Serengeti sunglasses with those of the competition,
exploiting the price/value advantage of Serengeti. The Company determines prices
with the goal of providing both the Company and the trade with the opportunity
for significant margins.

MANUFACTURING

           The Company currently obtains photochromic glass lens blanks for the
existing Serengeti lines pursuant to a three-year supply agreement entered into
with Corning upon the closing of the Acquisition. Pursuant to the supply
agreement, the Company is required to purchase such Serengeti lens blanks
exclusively from Corning only to the extent that Corning is able to provide such
lenses in the quantities and within the time periods required by the Company.
The lens blanks are currently manufactured by Corning in the United States,
Brazil and France and then shipped to Italy and other locations overseas for
finishing. All lenses currently mounted in the Drivers and Kinetix lines are
then subjected to the Company's


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proprietary hydrogen firing process at a Corning facility in France or
manufacturing facilities in Italy or Japan. Lenses are cut, edged, tempered,
coated, drop ball tested and inserted into the frames by third-party contractors
in Japan, Italy and the United States. Pursuant to a settlement agreement
between the Company and Corning, the Company may defer payment, without
interest, until December 31, 1999 for up to 250,000 lens blanks which were
purchased in 1998.

           The Company currently sources all of its sunglass frames from
third-party suppliers. The Company intends to retain cost-effective frame
suppliers worldwide for the manufacture of the Serengeti frames. The Company
believes that there are a number of suppliers with the ability to manufacture
such frames.

           Upon completion of the manufacturing process, the finished sunglasses
are shipped to the Company's facility in Sarasota, Florida from where
distribution takes place.

           The Company has developed long-standing collaborative relationships
with established manufacturers of sunglasses throughout the Far East for the
manufacture of its non-premium products and component parts. The Company
actively participates in the development and refining processes relating to the
manufacture of its products. To date, the Company's principal manufacturing
relationship has been with Swank, a leading manufacturer of sunglasses
worldwide, which primarily produces the Company's non-premium sunglasses. The
Company has also established a relationship with Wintec Corporation, based in
Japan, for the production of the polarized polycarbonate lenses used for the
Company's H2Optix product line.

           The manufacturers of the Company's products also manufacture
sunglasses for other companies, including competitors of the Company. Although
the Company has never experienced any difficulties in obtaining the necessary
supplies of its products, its manufacturers could choose to prioritize
production for other companies or cease production for the Company's products on
short notice. Although the Company believes it can find other manufacturers of
its products, there can be no assurance that it will be able to discover new
manufacturers for its products in a timely manner or that such new manufacturers
would be able to meet the Company's supply requirements. While the Company
believes it has available to it manufacturers with the capability of fabricating
Serengeti lenses utilizing the hydrogen firing process, there can be no
assurance that an alternative manufacturer with such capability will be
identified. Termination or disruption of supplies from these sources could
result in production delays, reductions in shipments, or increased costs that
could have a material adverse effect on the Company's operations. While the
Company continually explores ways to reduce its dependence on these limited
source suppliers, there can be no assurance that the Company will be successful
in doing so.

           Although the Company's policy is to work closely with its
manufacturing sources, there are certain risks associated with the use of
outside manufacturers, including foreign manufacturers. Risks inherent in the
use of such manufacturers include the absence of an adequate guaranteed supply,
unavailability of or delays in obtaining access to transportation of products
from the manufacturer, destruction, damage, loss or theft at the manufacturer's
facility, delay in delivery of orders, bankruptcy and other financial problems
of the manufacturer as well


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as potential misappropriation of proprietary intellectual property. Risks
arising in connection with the use of a foreign manufacturer include foreign
governmental regulation, economic instability in the country of manufacture,
labor strikes and the implementation of additional United States legislation and
regulations relating to imports, including the imposition of duties, taxes and
other charges or restrictions on imports.

COMPETITION

           The Company faces significant competition in the sunglass business.
The Company competes with a number of established manufacturers, importers and
distributors whose brand names enjoy recognition which exceeds that of the
Company's brand names. The Company competes with several manufacturers,
importers and distributors who have significantly greater financial,
distribution, advertising and marketing resources than the Company. The Company
competes primarily on the basis of performance features, quality, brand name
recognition and price.

           The Company believes that its continued success will depend upon its
ability to remain competitive in its product areas. The failure to compete
successfully in the future could result in a material deterioration of customer
loyalty and the Company's image and could have a material adverse effect on the
Company's business.

INTELLECTUAL PROPERTY

           The Company's trademarks include Country Club-Registered Trademark-,
Drivers-Registered Trademark-, Flex-Grip-TM-, Flyers-TM-, Grafix-Registered
Trademark-, H2Optix-Registered Trademark-, H2Optix Zero Tolerance-Registered
Trademark-, In-B-Teen-Registered Trademark-, KidzFlipz-TM-, Kinetix-Registered
Trademark-, Mach 1-Registered Trademark-, Marine Vision Systems-TM-, Outa
Limitz-Registered Trademark-, Photo-Blues-TM-, Power Plus-Registered Trademark-,
Range & River-Registered Trademark-, Rhythm `n' Blues-TM-, S Design-TM-,
Sensor-X-Registered Trademark-, Serengeti7, Signia-Registered Trademark-, Solar
Barriers-Registered Trademark-, Solar-Mates-Registered Trademark-,
Solar*X-Registered Trademark-, Spectral Control-Registered Trademark-, Sport
Shields-Registered Trademark-, Strata-Registered Trademark-, Sunglasses for the
Waters of the World-TM-, Sunpets-Registered Trademark-, Surf and
Cycle-Registered Trademark-, The Best Sunglass Value Money Can Buy-Registered
Trademark-, Vision Mates-Registered Trademark-, When You Buckle Up Clip It
On-TM- and Wickets-Registered Trademark-.

           As of March 31, 1999, the Company had 25 trademark registrations in
the United States and 135 trademark registrations in foreign countries,
including those for Serengeti, Drivers, Kinetix and H2Optix. As of such date,
the Company had 10 trademark applications pending in the United States and 21
trademark applications pending in foreign countries. No trademarks are licensed
by the Company for use on eyewear products due to the Company's strict quality
control standards and the desire to protect its proprietary technology and
prevent overexposure of the Company's trademarks. In connection with the
Acquisition, the Company granted to Corning a royalty-free, world-wide license
to utilize the hydrogen firing process technology and other proprietary
technology of the Company in connection with the manufacture and marketing of
lenses, lens blanks and other optical materials or prescription eyeglasses or
lenses used to treat or mitigate medical conditions or symptoms such as light
sensitivity, as well as in connection with other products manufactured or
practices engaged in by Corning prior to the Acquisition unrelated to the
Serengeti business and that do not relate to plano or prescription sunglass
lenses.


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           The following are the principal patents owned by the Company relating
to Serengeti sunglasses:

                      HYDROGEN FIRING PROCESS. The Company owns a patent
                      governing the hydrogen firing process, which expires
                      November 19, 1999 (Patent No. 4,290,794). This patent
                      covers the process by which Spectral Control filters are
                      created within a lens. The patent affects all Drivers and
                      Kinetix lenses.

                      DRIVER GLASS. The Company owns a patent for colored
                      photochromic lenses relating to Drivers and certain
                      Kinetix lenses (Patent No. 4,240,836) which expires
                      November 19, 1999. This patent covers color spaces that
                      provide glare control.

The Company owns twelve additional patents, which expire at various dates
through July 15, 2017.

           While there can be no assurance that the Company's patents or
trademarks protect the Company's proprietary information and technologies, the
Company intends to assert its intellectual property rights against any
infringer. Although the Company's assertion of its rights can result in a
substantial cost to, and diversion of effort by, the Company, management
believes that the protection of the Company's intellectual property rights is a
key component of the Company's operating strategy.

REGULATORY MATTERS

           The Company's products, which are imported to the United States, are
subject to United States customs duties, and, in the ordinary course of its
business, the Company may from time to time be subject to claims by the United
States Customs Services for duties and other charges. The United States and
foreign governments may from time to time impose new duties, tariffs or other
restrictions, or adversely adjust prevailing duty or tariff levels, which could
adversely affect the Company's operations and its ability to import products at
specified levels. In general, the Company cannot predict the likelihood or
frequency of any such events occurring or what effect such events could have on
its financial condition and results of operations.

           The Company's sunglasses are certified to the United States Food and
Drug Administration ("FDA") impact standards. The FDA requires that sunglasses
sold in the United States pass what is commonly referred to as the "drop ball
test." Pursuant to this test, a ball is dropped down a tube approximately four
feet long and allowed to hit the lens. A percentage of a statistical sampling of
lenses must not break or shatter. For the Company to take shipment of its
products from overseas, the Company must first deliver to the United States
Customs Service a certificate indicating that a statistical sampling of the
lenses being shipped to the Company meet FDA requirements. The Company believes
that all of its products comply with existing FDA requirements. To date, the
Company has not experienced any difficulties with regulatory compliance.


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INSURANCE

           The Company maintains product liability insurance coverage of $1
million per occurrence and $2 million in the aggregate and $4 million of excess
liability coverage. The adequacy of the Company's insurance coverage and
reserves to cover known and unknown claims is evaluated at the end of each
fiscal year. The Company believes that its current insurance coverage is
adequate.

EMPLOYEES

           As of March 31, 1999, the Company employed 67 individuals on a
full-time basis, 42 of whom were employed in executive, sales and administrative
positions and the remainder of whom were warehouse employees. The number of
warehouse employees increases during various time periods in the course of a
year due to the buying patterns of the Company's customers. None of the
Company's employees are covered by collective bargaining agreements, and
management believes that the Company's relations with its employees are good.

ITEM 2. DESCRIPTION OF PROPERTY.

           The Company's corporate offices, distribution and warehouse
facilities occupy approximately 15,500 square feet of space in Sarasota, Florida
under a lease expiring in March 2000 at a monthly rental of approximately
$6,700. The lease provides for various escalations based on cost of living and
real estate taxes. The Company also leases a satellite sales office in Windsor,
England expiring in March 2001 and an off-site warehouse facility in Sarasota,
Florida on a month-to-month basis.

ITEM 3. LEGAL PROCEEDINGS.

           On or about August 18, 1997, Argon, Inc. filed an action against the
Company and Corning in the Superior Court of California, County of Los Angeles.
The complaint alleges breach of contract in which the plaintiff seeks
approximately $250,000 based upon a non-exclusive distributor agreement and a
service agreement. The Company has denied the substantive allegations and has
asserted a counterclaim for $118,000 based upon Argon's breach of the above
mentioned agreements and non-payment of amounts due to the Company. This
proceeding is in the discovery stage.

           On or about January 28, 1998, RBB Bank Aktiengesellschaft ("RBB"),
the entity which purchased $22.5 million of the Company's Preferred Shares, the
proceeds of which were utilized by the Company to purchase the Serengeti
business, filed an action in the United States District Court, Southern District
of New York. In the action, RBB alleges various violations of the securities
laws in connection with its purchase of the Preferred Shares. RBB contends that
the Company failed to disclose certain material information and that RBB relied
to its detriment on these omissions in purchasing the Preferred Shares. There
are also common law claims for fraud and negligent misrepresentation. RBB seeks
compensatory damages in the sum of $22.5 million, equal to the purchase price of
the Preferred Shares, and punitive damages in the sum of $25


                                      -11-
<PAGE>

million. The Company has denied the substantive allegations and has moved to
dismiss the complaint.

           On or about March 19, 1997, Argent Securities, Inc. ("Argent"), the
underwriter of the Company's initial public offering, filed an action against
the Company which alleged, among other things, breaches by the Company of its
underwriting agreement with Argent, breach of corporate duties relating to the
issuance of the Preferred Shares, more fully discussed in Item 12, below, and
misstatements in the Company's Proxy Statement relating to the issuance of the
Preferred Shares. A settlement whereby the Company is required to pay to Argent
$35,000 was reached and the action was discontinued with prejudice.

           In the normal course of conducting its business, the Company is
involved in various other legal matters. The Company is not a party to any other
legal matter which management believes could result in a judgment that would
have a material adverse affect on the Company's financial position, liquidity or
results of operations.

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

           Not Applicable


                                      -12-
<PAGE>

                                                               PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

           The Company's common stock is quoted on the OTC Bulletin Board, an
NASD sponsored and operated inter-dealer automated quotation system for equity
securities not included in the Nasdaq Stock Market ("Nasdaq"). The trading
symbol of the Company's common stock is SOLR. The following table sets forth for
the periods indicated the range of the high and low sales prices of the common
stock, as reported by Nasdaq.

<TABLE>
<CAPTION>

                         Quarter Ended(1)                                        High         Low
---------------------------------------------------------------------            ----         ---
<S>                                                                            <C>          <C>
March 31, 1997.......................................................           $7.56        $2.13

June 30, 1997........................................................            3.44         2.00

September 30, 1997...................................................            3.50         1.88

December 31, 1997....................................................            2.88         1.63

March 31, 1998.......................................................            2.44         1.50

June 30, 1998........................................................            1.81         0.63

September 30, 1998...................................................            1.00         0.25

December 31, 1998....................................................            0.56         0.25

</TABLE>

----------

(1)   On June 11, 1998, the quotation of the Company's common stock and warrants
      was transferred from the Nasdaq National Market to the Nasdaq SmallCap
      Market. On October 1, 1998, the Company's securities ceased being listed
      on the Nasdaq SmallCap Market.

           At March 31, 1999, there were approximately 35 shareholders of record
of the common stock. Such number does not include beneficial owners holding
shares through nominee names.

DIVIDEND POLICY

           The Company has never paid any dividends and does not expect to pay
any dividends in the foreseeable future with respect to its common stock. Any
earnings which the Company may realize in the foreseeable future will be
retained to finance the growth of the Company. The Company's bank credit
facility restricts the Company's ability to pay dividends on its common stock.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations C Liquidity and Capital Resources."


                                      -13-
<PAGE>

ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

           The following should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto appearing elsewhere in this report.

GENERAL

           Prior to the 1980's, the Company manufactured its own sunglasses for
sale to the wholesale trade. As manufacturers in the Far East began playing
greater roles in the sunglass industry in the late 1970's, the Company began
importing its products and in 1980 discontinued its manufacturing operations
completely. From 1978 until the Acquisition, the Company focused primarily on
the sale of sunglasses and sunglass products to mass merchandisers such as large
retail chain stores. In late 1992, the Company introduced its line of Solar*X
sunglasses, which feature a ground and polished lens, comparable to optical
quality sunglasses, at non-premium prices. This product was the Company's
predominant line from 1994 until the Acquisition. The Company expects its
Solar*X line of sunglasses to remain its predominant product in the non-premium
product line of its business. During 1997 and 1998, the non-premium product line
accounted for approximately 36% and 31%, respectively, of the Company's total
sales. The Company intends to continue and expand the marketing of its
non-premium sunglasses to the mass merchandise market.

           On February 13, 1997, the Company acquired the assets of the
Serengeti Eyewear division of Corning. Corning's Serengeti Eyewear division had
first entered the premium sunglass market in 1985 with the introduction of the
Drivers line of sunglasses, which remain the core of the Serengeti product line.
Over the years, Serengeti sunglasses have developed a brand identity based upon
superior lens technology, quality and performance. During 1997 and 1998 the
premium line accounted for approximately 64% and 69%, respectively, of the
Company's total sales.

RESULTS OF OPERATIONS

COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1998

           Net sales increased from approximately $32.5 million in 1997 to
approximately $43.3 million in 1998, primarily as a result of increased sales of
the Serengeti premium eyeglass product line which accounted for approximately
69% of the Company's total sales in 1998. The Company also experienced increased
sales in its H2Optix products, as well as sales from new products introduced
late in 1997 and 1998. In addition, sales increased as a result of the inventory
reduction program that was put into place in the third quarter of 1998.

           The Company has restated its financial statements for the year ended
December 31, 1997 to correct certain erroneous information which was discovered
upon implementation of the Company's new inventory system and integrating this
system with its financial reporting and accounting system. In particular, the
1997 financial statements have been restated to reflect an


                                      -14-
<PAGE>

inventory write-down of $1,510,911 ($0.63 per share). Reference is made to Note
14 of Notes to the Consolidated Financial Statements.

           In the fourth quarter of 1998, the Company made adjustments to its
inventory balance, resulting in a charge to operations of approximately $4.2
million. These adjustments resulted from difficulties encountered by the Company
in connection with its implementation and integration of its new financial
reporting and accounting system, as noted above. Reference is made to Note 14 of
Notes to the Consolidated Financial Statements.

           Gross profit declined from 37.9% (restated) in 1997 to 30.9% in 1998
primarily as a result of lower profit margins from the inventory reduction
program and markdowns and other allowances provided to certain customers as
inducements to acquire new Company product offerings.

           Selling expenses decreased by approximately $0.5 million, from
approximately $6.2 million in 1997 to approximately $5.7 million in 1998. The
Company reduced its advertising expenses in 1998 as a response to cost reduction
programs. In 1997 the Company spent in excess of $1.1 million on a radio
advertising campaign which was not repeated in 1998.

           General and administrative expenses increased by approximately $1.0
million, from approximately $8.8 million in 1997 to approximately $9.8 million
in 1998, primarily as a result of an increase in executive and administrative
salaries incurred during the first half of 1998. Outside labor costs increased
due to the temporary help required to pack, ship and administer the Company's
inventory reduction programs. Higher consulting fees were also incurred in 1998,
attributable to the costs incurred upon the implementation of the financial
reporting and accounting systems.

           Interest expense increased by approximately $600,000 from
approximately $1.3 million in 1997 to approximately $1.9 million in 1998,
primarily as a result of the interest charges incurred on higher outstanding
debt and higher interest rates from its renegotiated bank credit facility,
discussed below.

LIQUIDITY AND CAPITAL RESOURCES

           The Company is presently not in compliance with the minimum tangible
net worth and other financial covenants set forth in its bank credit facility.
The Lenders have not declared the Company in formal default or accelerated
payment of the Company's indebtedness thereunder. There can be no assurance that
they will not do so in the future. The Company is engaged in discussions with a
prospective replacement lender. There can be no assurance that the Company will
successfully negotiate a new credit loan facility.

           The Company's current credit facility, last amended as of August 21,
1998, includes two term loans with renewed principal balances of $2,000,000 and
$5,575,000, respectively, and a $7,500,000 revolver facility. The first term
loan is to be paid in installments of $437,500 on each of September 30, 1998 and
December 31, 1998 and $538,333 on March 31, 1999, with the


                                      -15-
<PAGE>

balance due and payable on June 30, 1999. The second term loan is payable in
monthly installments of $300,000 with the balance due on December 31, 1999. The
banks have permitted the Company to delay its 1999 payments of principal,
pending negotiations with a potential new lender. Interest on the first term
loan is payable at the LIBOR rates plus 325 basis points or the "Base Rate" plus
1.75%. Interest on the second term loan is payable at the LIBOR rate plus 500
basis points or the "Base Rate" plus 3.50%.

           Under the current revolver facility, as amended, the Company was able
to borrow up to 75% of eligible accounts receivable and up to 50% of the value
of the Company's eligible inventory, subject to additional limitations on
inventory-based loans. The unused portion of the facility was $177,000 at
December 31, 1998. Interest on the revolver facility is payable at the LIBOR
rate plus 325 basis points or the "Base Rate" plus 1.75%.

           Pursuant to the credit facility, the Company is required to enter
into exchange agreements and/or other appropriate interest rate hedging
transactions for the purpose of interest rate protection covering at least 75%
of the borrowings under the facility through March 31, 2000.

           The credit facility requires the Company to maintain certain
financial ratios. Pursuant to the credit facility, the Company is required to
apply 75% of its "excess cash flow" for the preceding completed fiscal year, the
net proceeds from any sale of assets other than in the ordinary course, and the
net proceeds of equity issuances and permitted debt issuances to prepay
outstanding amounts under the credit facility. The credit facility also contains
a number of customary covenants, including, among others, limitations on liens,
affiliate transactions, mergers, acquisitions, asset sales, dividends and
advances. The credit facility is secured by a first priority lien on all of the
assets of the Company.

           The Company's liquidity decreased from a working capital deficit of
approximately $0.8 million at December 31, 1997 to a working capital deficit of
approximately $4.1 million at December 31, 1998. This decrease resulted
primarily from a decrease of approximately $3.5 million in accounts receivable
resulting from increased collection efforts and a decrease of approximately $4.4
million in inventory resulting from the sale of excess inventory. The decreases
were partially offset by an increase of approximately $1.6 million in accounts
payable and a reduction of $2.7 million in secured debt.

           The Company incurred approximately $0.3 million in capital
expenditures during 1998 primarily relating to the acquisition of equipment, and
furniture and fixtures. The Company anticipates that its level of capital
expenditures will decrease during 1999.

           The Company anticipates, based on its currently proposed plans,
including (i) replacement of its current senior bank lenders with a new lender,
of which there can be no assurance, (ii) the introduction of procedures designed
to strengthen management and increase sales effectively and (iii) the
development and introduction of new products, that the net cash available from
operations will be sufficient to satisfy its anticipated cash requirements for
the 1999 fiscal year.


                                      -16-
<PAGE>

GOING CONCERN CONSIDERATION

           As indicated by the independent certified public accountants in their
report and as shown in the financial statements, the Company has experienced
significant operating losses which have resulted in an accumulated deficit of
$18,221,197 at December 31, 1998. For the years ended December 31, 1998 and
1997, the Company reported net losses before preferred dividends of $5,289,033
and $4,912,792, respectively and was not in compliance with certain financial
covenants under the credit facility. These conditions raise substantial doubt
about the Company's ability to continue as a going concern.

FOREIGN CURRENCY EXCHANGE

           The Company presently transacts business internationally in United
States currency. To date, the Company has not been affected significantly by
currency exchange fluctuations. However, future currency fluctuations in
countries in which the Company does business could adversely affect the Company
by resulting in pricing that is not competitive with prices denominated in local
currencies.

YEAR 2000 ISSUES

           The Year 2000 problem arises because many computer systems were
designed to identify a year using two digits, instead of four digits, in order
to conserve memory and other resources. For instance, A1997" would be held in
the memory of a computer as A97".

           When the year changes from 1999 to 2000, a two digit system would
read the year as changing from A99" to A00." For a variety of reasons, many
computer systems are not designed to make such a date change or are not designed
to "understand" or react appropriately to such a date change. Therefore, as the
date changes to the year 2000, many computer systems could completely stop
working or could perform in an improper and unpredictable manner.

           During November, 1997 the Company began converting its information
system to be year 2000 compliant. At December 31, 1997, the Company had
completed the installation of the new software and completed the process of
updating application by mid-1998. The Company incurred charges aggregating
approximately $50,000 in 1998 and estimates that additional costs will aggregate
approximately $50,000 in 1999.

           Pursuant to the Company's year 2000 planning, the Company is in the
process of requesting information regarding the computer systems of its key
suppliers, customers, creditors and financial service organizations. Where
practicable, the Company will attempt to mitigate its risks with respect to the
failure of any of these institutions to be year 2000 compliant. The effect, if
any, on the Company's results of operations from the failure of each party to be
year 2000 compliant is not readily determinable.


                                      -17-
<PAGE>

SEASONALITY

           The Company anticipates that the seasonality of its premium sunglass
business generally will follow the selling activity of its largest customer,
Sunglass Hut. Historically, the strongest quarter in terms of Serengeti sales is
the second quarter, followed by the first, fourth and third quarters.

           The seasonality of the Company's non-premium sunglass business
generally follows the selling activity of its largest customer for such
products, Wal-Mart. Historically, the Company's strongest quarter in terms of
sales is the fourth quarter, followed by the first, second and third quarters.

RECENT PRONOUNCEMENT

           In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires companies to
recognize all derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge of the: (i) exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment ("fair value hedges"), (ii) exposure to variable cash flows of a
forecasted transaction ("cash flow hedges"), or (iii) foreign currency exposure
of a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency- denominated forecasted
transaction ("foreign currency hedges"). The objective of hedge accounting is to
match the timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument (e.g., derivative contracts entered into for speculative
purposes), the gain or loss is recognized as income in the period of change.

           SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company currently plans to adopt SFAS 133 on
July 1, 1999. On that date, hedging relationships will be designated anew and
documented. The Company periodically enters into derivative contracts for the
purpose of hedging risks attributable to interest rate fluctuations and, in
general, such hedges have been fully effective in offsetting the changed in fair
value of the underlying risk. The Company expects to continue its hedging
activities in the future. However, it has not yet evaluated the financial
statement impact of adopting SFAS 133.

FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS

           This report contains forward-looking statements, including statements
with respect to proposed financing activities and anticipated business trends,
which are made pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. These statements are based largely on
the Company's expectations and are subject to a number of risks and
uncertainties, some of which cannot be predicted or quantified and are beyond
the


                                      -18-
<PAGE>

Company's control. Future events and actual results could differ materially from
those set forth in, contemplated by, or underlying the forward-looking
statements. Statements in this Report, including those set forth under "Risk
Factors," below, describe factors, among others such as (i) the Company's
continued ability to develop and introduce innovative products, (ii) changing
consumer preferences, (iii) manufacturing capacity constraints of its outside
sources and the availability of raw materials, (iv) the effect of economic
conditions, (v) dependence on certain customers and (vi) other risks identified
from time to time in the Company's Securities and Exchange Commission filings,
that could contribute to or cause such differences.

RISK FACTORS

-          OPERATING LOSSES; ACCUMULATED DEFICIT. For the years ended December
           31, 1998 and 1997, the Company incurred net losses before preferred
           dividends of $5,289,033 and $4,912,792, respectively. Its accumulated
           deficit at December 31, 1998 was $18,221,197 and its working capital
           deficit at that date was $4,084,529. The Company's ability to expand,
           let alone sustain its current level of operations is dependent upon
           its receipt of additional financing. There can be no assurance as to
           the availability of such additional financing or, if available, the
           commercial reasonableness of its terms.

-          QUALIFIED INDEPENDENT AUDITORS' REPORT. The independent auditors'
           report upon the Company's consolidated financial statements
           comprising a portion of this Report includes an explanatory paragraph
           stating that such financial statements have been prepared assuming
           the Company's continuity as a going concern and also stating that the
           Company experienced net losses from operations, had an accumulated
           deficit and was in violation of certain debt financial covenants,
           which raises substantial doubt about the Company's ability to
           continue as a going concern.

-          CREDIT FACILITY NON-COMPLIANCE. The Company is currently not in
           compliance with the minimum tangible net worth and certain other
           financial covenants contained in its bank credit facility. Although
           the lenders have not declared the Company in formal default nor have
           they accelerated payment of the Company's indebtedness incurred
           thereunder, there can be no assurance that the lenders will not do so
           in the future.

-          CREDIT FACILITY TO EXPIRE ON DECEMBER 31, 1999. The Company's bank
           credit facility is scheduled to expire on December 31, 1999. The
           Company will have to negotiate an extension of this facility prior to
           its scheduled expiration date or, alternatively, secure replacement
           financing. The Company is currently seeking alternative financing.
           There can be no assurance of the Company's ability to secure such
           alternative financing in a timely fashion, if at all. In such event,
           the Company's ability to sustain its current level of operations may
           be materially adversely affected.

-          CONCENTRATION OF CUSTOMERS. Wal-Mart and Sunglass Hut accounted for
           19% and 10%, respectively, of the Company's sales for the year ended
           December 31, 1998. Such customers accounted for 28% and 11% of sales,
           respectively, for the year ended December 31, 1997. The loss of
           either or both of these customers or a significant future


                                      -19-
<PAGE>

           reduction in their respective purchases of the Company's products may
           be expected to materially adversely affect the Company's operations
           and prospects.

-          PENDING LITIGATION. Litigation instituted by RBB against the Company,
           discussed elsewhere herein, stemming from RBB's acquisition of
           certain of the Company's Preferred Stock in October 1996, seeks
           substantial damages against the Company. The Company's operations and
           prospects would be materially adversely affected if RBB were to
           prevail in this litigation.

-          DEPENDENCE ON SINGLE SUPPLIER. The Company relies on Corning as its
           sole source of supply for lens blanks for its Serengeti product line.
           Any disruption of this source may result, at a minimum, in a
           temporary curtailment of the Company's ability to ship these
           products, while a loss of this source may materially adversely affect
           the Company's operations and prospects.

-          SEASONALITY. The Company's sales are seasonal with historical premium
           product sales higher in the second quarter of each year.


                                      -20-
<PAGE>

ITEM 7.   FINANCIAL STATEMENTS.

                   Index to Consolidated Financial Statements
                   ------------------------------------------

<TABLE>
<CAPTION>

                                                                               Page
                                                                               ----
<S>                                                                     <C>
Report of Independent Certified Public Accountants............................. F-1

Consolidated Balance Sheet as of December 31, 1998....................... F-2 - F-3

Consolidated Statements of Operations for the Years Ended
        December 31, 1998 and 1997............................................. F-4

Consolidated Statements of Stockholders' Equity for the Years Ended
        December 31, 1998 and 1997............................................. F-5

Consolidated Statements of Cash Flows for the Years Ended
        December 31, 1998 and 1997........................................F-6 - F-7

Notes to Consolidated Financial Statements...............................F-8 - F-31

</TABLE>


<PAGE>


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders
Serengeti Eyewear, Inc.


We have audited the accompanying consolidated balance sheet of Serengeti
Eyewear, Inc. and subsidiary as of December 31, 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period then ended. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Serengeti Eyewear,
Inc. and subsidiary as of December 31, 1998 and the results of their operations
and their cash flows for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has experienced significant operating losses,
has a working capital deficit and accumulated deficit at December 31, 1998, and
is in default of certain loan covenants of its senior debt. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.



                                             -----------------------------------
                                             BDO Seidman, LLP
Orlando, Florida
March 26, 1999


                                      F-1
<PAGE>

<TABLE>
<CAPTION>

                                                                          SERENGETI EYEWEAR, INC.
                                                                                   AND SUBSIDIARY

                                                                       CONSOLIDATED BALANCE SHEET
=================================================================================================

DECEMBER 31,                                                                                1998
-------------------------------------------------------------------------------------------------
<S>                                                                                 <C>
ASSETS (Notes 6 and 7)

CURRENT ASSETS:
   Cash and cash equivalents                                                         $    87,774
   Accounts receivable, less allowance for doubtful accounts of
    $752,436 (Note 9)                                                                  7,796,963
   Income tax refund receivable (Note 11)                                                358,055
   Inventories (Notes 4 and 9)                                                        12,536,224
   Prepaid expenses                                                                      958,603
-------------------------------------------------------------------------------------------------

           TOTAL CURRENT ASSETS                                                       21,737,619
-------------------------------------------------------------------------------------------------

PROPERTY AND EQUIPMENT, less accumulated depreciation (Note 5)                         2,170,582
-------------------------------------------------------------------------------------------------

OTHER ASSETS:
   Patents and trademarks, net of accumulated amortization of
    $1,187,157 (Note 3)                                                               10,258,068
   Goodwill, net of accumulated amortization of $696,613 (Note 3)                      6,290,314
   Other assets (Note 7)                                                                 157,261
-------------------------------------------------------------------------------------------------

                                                                                     $40,613,844
=================================================================================================

                                     SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

</TABLE>


                                      F-2
<PAGE>

<TABLE>
<CAPTION>

                                                              SERENGETI EYEWEAR, INC.
                                                                       AND SUBSIDIARY

                                                           CONSOLIDATED BALANCE SHEET
=====================================================================================

DECEMBER 31,                                                                    1998
-------------------------------------------------------------------------------------
<S>                                                                    <C>

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Bank overdraft                                                       $    288,414
   Accounts payable                                                       10,952,090
   Note payable - bank (Note 6)                                            7,322,704
   Accrued expenses                                                          519,492
   Accrued dividends (Note 8)                                              1,476,000
   Current portion of long-term debt (Note 7)                              5,263,448
-------------------------------------------------------------------------------------

           TOTAL CURRENT LIABILITIES                                      25,822,148
-------------------------------------------------------------------------------------

LONG-TERM DEBT, less current portion (Note 7)                                 91,415

COMMITMENTS AND CONTINGENCIES (Note 9)                                          --

STOCKHOLDERS' EQUITY (Note 8):
   Convertible preferred stock, $.001 par value, 1,000,000 shares
    authorized, 23,908 shares issued and outstanding                      22,333,000
   Common stock, $.001 par value, 10,000,000 shares authorized,
    2,384,000 shares issued and outstanding                                    2,384
   Additional paid-in capital                                             10,586,094
   Accumulated deficit                                                   (18,221,197)
-------------------------------------------------------------------------------------

           TOTAL STOCKHOLDERS' EQUITY                                     14,700,281
-------------------------------------------------------------------------------------

                                                                        $ 40,613,844
=====================================================================================

                         SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

</TABLE>


                                      F-3
<PAGE>

<TABLE>
<CAPTION>

                                                               SERENGETI EYEWEAR, INC.
                                                                        AND SUBSIDIARY

                                                 CONSOLIDATED STATEMENTS OF OPERATIONS
======================================================================================

YEARS ENDED DECEMBER 31,                                     1998                1997
--------------------------------------------------------------------------------------
<S>                                                 <C>                 <C>
NET SALES                                            $ 43,323,222        $ 32,458,362
COST OF GOODS SOLD                                     29,927,850          20,155,683
--------------------------------------------------------------------------------------

           Gross profit                                13,395,372          12,302,679
--------------------------------------------------------------------------------------

OPERATING EXPENSES:
   Depreciation                                           490,776             364,753
   Amortization                                           977,699             906,071
   Selling expenses                                     5,664,785           6,245,338
   General and administrative expenses                  9,766,906           8,759,208
--------------------------------------------------------------------------------------

           Total operating expenses                    16,900,166          16,275,370
--------------------------------------------------------------------------------------

LOSS FROM OPERATIONS                                   (3,504,794)         (3,972,691)
--------------------------------------------------------------------------------------

OTHER INCOME (EXPENSE):
   Interest                                            (1,889,446)         (1,334,733)
   Other income, net                                      135,409              64,644
--------------------------------------------------------------------------------------

                                                       (1,754,037)         (1,270,089)
--------------------------------------------------------------------------------------

LOSS BEFORE INCOME TAXES (BENEFIT)                     (5,258,831)         (5,242,780)
PROVISION FOR INCOME TAXES (BENEFIT) (Note 11)             30,202            (329,988)
--------------------------------------------------------------------------------------

NET LOSS                                               (5,289,033)         (4,912,792)

PREFERRED STOCK DIVIDENDS (Note 8)                     (1,476,000)         (5,040,000)
--------------------------------------------------------------------------------------

NET LOSS APPLICABLE TO COMMON STOCK                  $ (6,765,033)       $ (9,952,792)
=====================================================================================

BASIC LOSS PER SHARE                                 $      (2.84)       $      (4.17)
=====================================================================================

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING              2,384,000           2,384,000
=====================================================================================

                         SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


</TABLE>


                                      F-4
<PAGE>

<TABLE>
<CAPTION>

                                                                                                             SERENGETI EYEWEAR, INC.
                                                                                                                      AND SUBSIDIARY

                                                                                     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
====================================================================================================================================
                                                    CONVERTIBLE                                          ADDITIONAL
                                                  PREFERRED STOCK                 COMMON STOCK            PAID-IN       ACCUMULATED
                                                 SHARES      AMOUNT           SHARES        AMOUNT        CAPITAL         DEFICIT
------------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>      <C>                <C>         <C>            <C>            <C>
BALANCE, December 31, 1996                        7,500   $  6,975,000       2,384,000   $      2,384   $  6,836,094   $ (1,503,372)

Preferred stock issued for cash pursuant
   to a  Regulation S offering                   15,000     15,000,000            --             --             --             --
Costs associated with Regulation S
   offering                                        --       (1,050,000)           --             --             --             --
Issuance of preferred stock as payment of
   preferred stock dividends                        118        118,000            --             --             --             --
Preferred stock dividend accrual                   --             --              --             --             --       (1,290,000)
Beneficial conversion feature of
   preferred stock (Note 8)                        --             --              --             --        3,750,000     (3,750,000)
Net loss                                           --             --              --             --             --       (4,912,792)
------------------------------------------------------------------------------------------------------------------------------------

BALANCE, December 31, 1997                       22,618     21,043,000       2,384,000          2,384     10,586,094    (11,456,164)

Issuance of preferred stock as payment of
   preferred stock dividend                       1,290      1,290,000            --             --             --             --
Preferred stock dividend accrual                   --             --              --             --             --       (1,476,000)
Net loss                                           --             --              --             --             --       (5,289,033)
------------------------------------------------------------------------------------------------------------------------------------

BALANCE, December 31, 1998                       23,908   $ 22,333,000       2,384,000   $      2,384   $ 10,586,094   $(18,221,197)
====================================================================================================================================

                                                                        SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


</TABLE>


                                      F-5
<PAGE>

<TABLE>
<CAPTION>

                                                                               SERENGETI EYEWEAR, INC.
                                                                                        AND SUBSIDIARY

                                                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
======================================================================================================

YEARS ENDED DECEMBER 31,                                                         1998            1997
------------------------------------------------------------------------------------------------------
<S>                                                                     <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                              $ (5,289,033)   $ (4,912,792)
   Adjustments to reconcile net loss to net cash provided by operating
activities:
     Depreciation and amortization                                          1,468,475       1,270,824
     Deferred loan fees charged to interest                                   291,097         105,000
     Loss on sale of assets                                                    35,754            --
     Cash provided by (used for):
       Accounts receivable                                                  3,462,093      (5,178,249)
       Other receivables                                                       78,730          20,462
       Income tax refund receivable                                            30,202        (388,257)
       Inventories                                                          4,391,446      (4,088,433)
       Trading securities                                                        --         4,976,625
       Prepaid expenses and other assets                                      539,370        (469,057)
       Accounts payable                                                    (1,580,963)      8,417,744
       Customer deposits                                                     (900,122)        900,122
       Accrued expenses                                                       129,529        (290,213)
       Accrued income taxes                                                      --          (232,930)
------------------------------------------------------------------------------------------------------

Net cash provided by operating activities                                   2,656,578         130,846
------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of Corning division assets                                        --       (26,264,530)
   Purchase of patents                                                        (53,113)        (23,053)
   Proceeds from disposal of property and equipment                              --            64,841
   Proceeds received from Corning settlement                                  405,500            --
   Purchase of property and equipment                                        (344,061)     (1,207,583)
------------------------------------------------------------------------------------------------------

Net cash provided by (used for) investing activities                            8,326     (27,430,325)
------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Bank overdraft                                                             288,414            --
   Net proceeds from note payable                                             822,704       5,000,000
   Proceeds from long-term debt                                                  --        10,000,000
   Principal payments on long-term debt                                    (3,607,820)     (1,345,858)
   Principal payments on note payable to related party                        (44,575)       (209,202)
   Net proceeds from preferred stock sales                                       --        13,950,000
   Deferred loan costs                                                       (164,041)       (600,000)
------------------------------------------------------------------------------------------------------

Net cash provided by (used for) financing activities                       (2,705,318)     26,794,940
------------------------------------------------------------------------------------------------------

Net decrease in cash and cash equivalents                                     (40,414)       (504,539)

CASH AND CASH EQUIVALENTS, beginning of year                                  128,188         632,727
------------------------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS, end of year                                   $     87,774    $    128,188
======================================================================================================

                                          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


</TABLE>


                                      F-6
<PAGE>

<TABLE>
<CAPTION>

                                                                               SERENGETI EYEWEAR, INC.
                                                                                        AND SUBSIDIARY

                                                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
======================================================================================================

YEARS ENDED DECEMBER 31,                                                         1998            1997
------------------------------------------------------------------------------------------------------
<S>                                                                       <C>             <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
   Cash paid for:
     Interest                                                              $1,835,411      $1,053,618
     Income taxes                                                                --           233,166
======================================================================================================

NON-CASH INVESTING AND FINANCING ACTIVITIES:
   Acquisition of property and equipment with debt                         $     --        $  164,252
   Issuance of preferred stock as payment of preferred stock dividends      1,290,000         118,000
======================================================================================================

                                         SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


</TABLE>


                                      F-7
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


1.        SIGNIFICANT            NATURE OF BUSINESS
          ACCOUNTING
          POLICIES               Serengeti Eyewear, Inc. and subsidiary (the
                                 "Company") is a distributor of premium and
                                 nonpremium sunglasses. The Company maintains
                                 its office and warehouse operations in
                                 Sarasota, Florida. Suppliers for the Company
                                 are primarily located in the United States,
                                 Asia and Europe. The Company's customers
                                 operate retail stores located principally
                                 throughout North America, Europe and the
                                 Pacific Rim.

                                 CONSOLIDATION

                                 The accompanying consolidated financial
                                 statements include the accounts of the Company
                                 and its wholly-owned subsidiary, Solartechnics
                                 (HK) Ltd. Intercompany transactions and
                                 balances were eliminated upon consolidation.

                                 CASH AND CASH EQUIVALENTS

                                 For purposes of the statement of cash flows,
                                 the Company considers all highly liquid debt
                                 instruments purchased with a maturity of three
                                 months or less to be cash equivalents.

                                 INVENTORIES

                                 Inventories are valued at the lower of cost or
                                 market on a first in-first out basis.

                                 PROPERTY AND EQUIPMENT

                                 Property and equipment are stated at cost.
                                 Depreciation is calculated using the
                                 straight-line method over the expected useful
                                 lives of the assets.


                                      F-8
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


                                 INTANGIBLE ASSETS

                                 Patents and trademarks are amortized using the
                                 straight-line method over periods of 10 to 13
                                 years for patents and 20 years for trademarks,
                                 which are based upon their estimated useful
                                 lives.

                                 Goodwill resulting from the acquisition of the
                                 Serengeti business is amortized using the
                                 straight line method over a period of 20 years.

                                 IMPAIRMENT OF LONG-LIVED ASSETS

                                 The Company evaluates impairment of long-lived
                                 assets in accordance with Statement of
                                 Financial Accounting Standards No. 121,
                                 "Accounting for the Impairment of Long-Lived
                                 Assets and for Long-Lived Assets to be Disposed
                                 of" (FAS 121). FAS 121 requires impairment
                                 losses to be recorded on long-lived assets used
                                 in operations and intangible assets when
                                 indications of impairment are present and the
                                 undiscounted cash flows estimated to be
                                 generated by those assets are less than the
                                 assets' carrying amount.

                                 REVENUE RECOGNITION

                                 The Company recognizes revenue upon the
                                 shipment of goods to its customers.

                                 ADVERTISING COSTS

                                 Advertising costs are charged to operations
                                 when incurred. Advertising costs charged to
                                 operations were $3,522,603 and $3,471,828
                                 during 1998 and 1997, respectively.

                                 WARRANTY COSTS

                                 The Company offers a one-year warranty on its
                                 premium sunglasses. Warranty costs are charged
                                 to operations as incurred. The Company accrued
                                 $150,000 for future estimated warranty


                                      F-9
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


                                 costs at December 31, 1998. Warranty costs were
                                 approximately $378,000 and $357,000 during 1998
                                 and 1997, respectively.

                                 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 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.

                                 FAIR VALUE OF FINANCIAL INSTRUMENTS

                                 Fair value estimates discussed herein are based
                                 upon certain market assumptions and pertinent
                                 information available to management as of
                                 December 31, 1998. The respective carrying
                                 value of certain on-balance-sheet financial
                                 instruments approximated their fair values.
                                 These financial instruments include cash and
                                 cash equivalents, trade receivables, accounts
                                 payable and accrued expenses. Fair values were
                                 assumed to approximate carrying values for
                                 these financial instruments because they are
                                 short term in nature and their carrying amounts
                                 approximate fair values or they are receivable
                                 or payable on demand. The fair value of the
                                 Company's long-term debt approximates its
                                 carrying value based on quoted market prices
                                 for the same or similar issues or on the
                                 current rates offered to the Company for debt
                                 of the same remaining maturities.

                                 LOSS PER SHARE

                                 Basic loss per share amounts have been computed
                                 based upon the weighted average number of
                                 shares outstanding of 2,384,000 in 1998 and
                                 1997. Potential common shares and the
                                 computation of diluted earnings per share are
                                 not considered as their effect would be
                                 anti-dilutive. Potential common shares consist
                                 of 925,000 options, 2,245,000 warrants and
                                 55,000,000 shares underlying the


                                      F-10
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


                                 convertible preferred stock.

                                 SEGMENT INFORMATION

                                 The Company does not identify separate
                                 operating segments for management reporting
                                 purposes. The consolidated results of
                                 operations are the basis on which management
                                 evaluates operations and makes business
                                 decisions.

                                 RECENT PRONOUNCEMENTS

                                 In June 1998, the Financial Accounting
                                 Standards Board issued SFAS 133, "Accounting
                                 for Derivative Instruments and Hedging
                                 Activities" ("SFAS 133"). SFAS 133 requires
                                 companies to recognize all derivatives
                                 contracts as either assets or liabilities in
                                 the balance sheet and to measure them at fair
                                 value. If certain conditions are met, a
                                 derivative may be specifically designated as a
                                 hedge of the: (i) exposure to changes in the
                                 fair value of a recognized asset or liability
                                 or an unrecognized firm commitment ("fair value
                                 hedges"), (ii) exposure to variable cash flows
                                 of a forecasted transaction ("cash flow
                                 hedges"), or (iii) foreign currency exposure of
                                 a net investment in a foreign operation, an
                                 unrecognized firm commitment, an
                                 available-for-sale security, or a
                                 foreign-currency-denominated forecasted
                                 transaction ("foreign currency hedges"). The
                                 objective of hedge accounting is to match the
                                 timing of gain or loss recognition on the
                                 hedging derivative with the recognition of (i)
                                 the changes in the fair value of the hedged
                                 asset or liability that are attributable to the
                                 hedged risk or (ii) the earnings effect of the
                                 hedged forecasted transaction. For a derivative
                                 not designated as a hedging instrument (e.g.,
                                 derivative contracts entered into for
                                 speculative purposes), the gain or loss is
                                 recognized in income in the period of change.

                                 SFAS 133 is effective for all fiscal quarters
                                 of fiscal years beginning after June 15, 1999.
                                 The Company currently plans to adopt SFAS 133
                                 on July 1, 1999. On that date, hedging
                                 relationships will


                                      F-11
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


                                 be designated anew and documented. The Company
                                 periodically enters into derivative contracts
                                 for the purpose of hedging risks attributable
                                 to interest rate fluctuations and, in general,
                                 such hedges have been fully effective in
                                 offsetting the changes in fair value of the
                                 underlying risk. The Company expects to
                                 continue its hedging activities in the future.
                                 However, it has not yet evaluated the financial
                                 statement impact of adopting SFAS 133.

                                 RECLASSIFICATIONS

                                 Certain amounts in the 1997 financial
                                 statements have been reclassified to conform to
                                 the 1998 presentation.

2.        GOING CONCERN          The Company's financial statements are
          CONSIDERATIONS         presented on a going concern basis, which
                                 contemplates the realization of assets and the
                                 satisfaction of liabilities in the normal
                                 course of business. The Company experienced net
                                 losses before preferred dividends of $5,289,033
                                 and $4,912,792 for the years ended December 31,
                                 1998 and 1997, respectively. These losses
                                 resulted in a working capital deficit of
                                 $4,084,529 and an accumulated deficit of
                                 $18,221,197 at December 31, 1998. In addition,
                                 the Company was in violation of certain of its
                                 loan financial covenants at December 31, 1998
                                 (see Notes 6 and 7). These conditions raise
                                 substantial doubt about the Company's ability
                                 to continue as a going concern.

                                 The Company believes that the following actions
                                 and plans will allow it to continue operations
                                 for a reasonable period of time.

                                 -          The Company is negotiating with a
                                            new lender to replace its current
                                            senior debt and to provide
                                            additional working capital.

                                 -          The Company has introduced
                                            procedures to strengthen management
                                            and increase sales efficiency.

                                 -          The Company has developed and
                                            introduced new product


                                      F-12
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


                                            styles for its 1999 catalog which
                                            management believes will become
                                            widely accepted by its customers.

                                 -          The Company has added to its
                                            non-premium line customer base
                                            during 1999.

3.        BUSINESS               On February 13, 1997, the Company changed its
          ACQUISITION            name to Serengeti Eyewear, Inc. in conjunction
                                 with the acquisition of certain assets
                                 ("Serengeti Acquisition") of the Serengeti
                                 Eyewear division of Corning Incorporated
                                 ("Corning") used in the design, manufacture and
                                 distribution of Serengeti premium brand
                                 sunglasses. The Company used the purchase
                                 method of accounting to record this transaction
                                 and has included these operations in its
                                 statement of operations since the acquisition
                                 date. Accordingly, the purchase price was
                                 allocated to the net assets acquired based upon
                                 their estimated fair market values. The Company
                                 acquired the Serengeti assets for cash
                                 aggregating $27.5 million. The Company financed
                                 the purchase and related transaction expenses
                                 with the net proceeds from the sale of shares
                                 of preferred stock (see Note 8) and the
                                 borrowings under the credit facility described
                                 below. In addition, the Company incurred other
                                 costs related to the acquisition aggregating
                                 $855,561, which have been included in goodwill.
                                 In 1998, the Company received $405,500 under a
                                 settlement agreement with Corning which was
                                 recorded as a reduction of goodwill (see Note
                                 9).

                                 In order to partially finance the acquisition,
                                 the Company entered into a bank revolving line
                                 of credit and term loan agreements. Under these
                                 agreements, the Company had the ability to
                                 borrow up to $17.5 million in the form of (a) a
                                 three-year revolving credit facility in the
                                 amount of $7.5 million and (b) a five-year
                                 amortizing term loan facility in the amount of
                                 $10 million. The Company borrowed the entire
                                 $10 million under the term loan to finance a
                                 portion of the acquisition and to repay the
                                 $1.5 million of outstanding indebtedness under
                                 an existing line of credit. As more fully
                                 described in Notes 6 and 7, the Company
                                 restructured the


                                      F-13
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


                                 terms of these debt agreements during 1998.

                                 The purchase price of the Serengeti division,
                                 including the additional costs and settlement
                                 described above, was allocated as follows:

<TABLE>

                                 -----------------------------------------------
<S>                                                                 <C>
                                 Inventory                           $ 8,830,856
                                 Furniture and equipment                 832,278
                                 Trademarks                            9,500,000
                                 Patents                               1,800,000
                                 Goodwill                              6,986,927
                                 -----------------------------------------------

                                                                     $27,950,061
                                 ===============================================

</TABLE>

                                 The following unaudited pro forma summary
                                 presents the consolidated results of operations
                                 as if the acquisition had occurred at the
                                 beginning of 1997 and does not purport to be
                                 indicative of what would have occurred had the
                                 acquisition been made as of that date or the
                                 results which may occur in the future.

<TABLE>
                                                                                   1997
                                 ------------------------------------------------------
                                                                         (IN THOUSANDS)
<S>                                                                          <C>
                                 Net sales                                    $  35,097
                                 Net loss applicable to common stock          $  (9,971)
                                 Per share                                    $   (4.18)
                                 ======================================================

</TABLE>


                                      F-14
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


4.        INVENTORIES            Inventories consist of the following:

<TABLE>
<CAPTION>

                                                                                                     1998
                                 ------------------------------------------------------------------------
<S>                                                                                          <C>
                                 Raw materials                                                $ 4,490,117
                                 Work-in-process                                                2,768,884
                                 Finished goods                                                 5,277,223
                                 ------------------------------------------------------------------------

                                                                                              $12,536,224
                                 ========================================================================

</TABLE>

5.        PROPERTY, PLANT        Property, plant and equipment consist of the
          AND EQUIPMENT          following:

<TABLE>
<CAPTION>

                                                                                 USEFUL
                                 DECEMBER 31,                                      LIFE              1998
                                 ------------------------------------------------------------------------
<S>                                                                         <C>              <C>
                                 Furniture and equipment                     3-10 years       $ 2,386,535
                                 Leasehold improvements                       3-7 years           519,192
                                 Transportation equipment                       5 years           178,084
                                 ------------------------------------------------------------------------

                                                                                                3,083,811
                                 Less accumulated depreciation                                    913,229
                                 ------------------------------------------------------------------------

                                                                                              $ 2,170,582
                                 ========================================================================

</TABLE>


                                      F-15
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


6.        NOTE PAYABLE - BANK    During February 1997, the Company secured a
                                 $7,500,000 line of credit with a bank with
                                 interest payable at the LIBOR rate or a base
                                 rate, plus applicable margins. In July 1998,
                                 the Company renegotiated this borrowing
                                 facility. The terms of the new agreement allow
                                 the Company to borrow up to $7,500,000 with
                                 interest payable at the LIBOR rate plus 325
                                 basis points (8.8% at December 31, 1998) or the
                                 bank's prime lending rate plus 1 3/4% (9 1/2%
                                 AT December 31, 1998), at the borrower's
                                 option.

                                 Under the renegotiated borrowing facility, the
                                 Company is able to borrow up to 75% of eligible
                                 accounts receivable and 50% of eligible
                                 inventory with certain limitations. The credit
                                 facility is collateralized by substantially all
                                 the Company's assets. The credit line is
                                 guaranteed by the Company's wholly-owned
                                 subsidiary. At December 31, 1998, the Company's
                                 balance outstanding on this credit line was
                                 $7,322,704. The current line of credit
                                 agreement is scheduled to mature on December
                                 31, 1999.

                                 Certain information related to this note is as
                                 follows:

<TABLE>
<CAPTION>

                                                                                        1998
                                 -----------------------------------------------------------
<S>                                                                              <C>
                                 Maximum amount outstanding during year           $7,500,000
                                 Average month-end balance                        $6,924,017
                                 Weighted average interest rate                        8.82%
                                 Unused balance at December 31                    $  177,296
                                 -----------------------------------------------------------

</TABLE>

                                 As more fully described in Note 7, the Company
                                 was in violation of certain of the financial
                                 loan covenants under the renegotiated revolving
                                 loan agreement.


                                      F-16
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


7. LONG-TERM DEBT                Long-term debt consists of the following:

<TABLE>
<CAPTION>

                                                                                                                    1998
                                 ---------------------------------------------------------------------------------------
<S>                                                                                                          <C>
                                 $5,575,000 note payable to bank; due in monthly
                                  principal payments of $300,000, plus interest
                                  at the LIBOR rate plus 500 basis points (10.6%
                                  at December 31, 1998) or the bank's prime
                                  lending rate plus 3 1/2% (11 1/4% at December
                                  31, 1998), at the borrower's option; all unpaid
                                  principal and accrued interest due December 31,
                                  1999; collateralized by substantially all the
                                  Company's assets and a $2,000,000 key man life
                                  insurance policy on the Company's CEO;
                                  guaranteed by the Company's wholly-owned
                                  subsidiary.                                                                 $4,075,000

                                 $2,000,000 note payable to bank; principal
                                  payments of $583,333 due March 31, 1999 with
                                  the remaining unpaid principal and accrued
                                  interest due June 30, 1999; interest at the
                                  LIBOR rate plus 325 basis points (8.8% at
                                  December 31, 1998) or the bank's prime lending
                                  rate plus 1 3/4% (9 1/2% at December 31, 1998),
                                  at the borrower's option; collateralized by
                                  substantially all the Company's assets and a
                                  $2,000,000 key man life insurance policy on the
                                  Company's CEO; guaranteed by the Company's
                                  wholly-owned subsidiary.                                                     1,125,000

                                 Various equipment notes payable in aggregate
                                  monthly installments totaling approximately
                                  $6,300 principal and interest at rates ranging
                                  from 5% to 13%; maturing at various dates
                                  between December 1999 to August 2002;
                                  collateralized by equipment.                                                   154,863
                                 ---------------------------------------------------------------------------------------

                                                                                                               5,354,863
                                 Less current portion                                                          5,263,448
                                 ---------------------------------------------------------------------------------------

                                                                                                              $   91,415
                                 ---------------------------------------------------------------------------------------

                                 Long-term debt maturities are as follows:

                                 ---------------------------------------------------------------------------------------

                                 1999                                                                         $5,263,448
                                 2000                                                                             48,453
                                 2001                                                                             27,600
                                 2002                                                                             15,362
                                 ---------------------------------------------------------------------------------------

                                                                                                              $5,354,863
                                 =======================================================================================

</TABLE>


                                      F-17
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


                                 The notes payable to bank were renegotiated in
                                 July 1998 when the principal balance under the
                                 original term loan was $7,575,000. The original
                                 term loan was restructured into two separate
                                 notes, and the maturity date was changed from
                                 December 2001 to December 31, 1999 for the
                                 $5,575,000 note and June 30, 1999 for the
                                 $2,000,000 note.

                                 INTEREST RATE SWAP

                                 In February 1997, the Company entered into an
                                 interest rate swap agreement for the line of
                                 credit and long-term debt. The fair value of
                                 the interest rate swap was approximately
                                 $77,000 at December 31, 1998 and is included in
                                 other assets.

                                 In connection with this agreement, the
                                 counterparty will pay the Company interest at a
                                 variable rate based on LIBOR. In the event the
                                 counterparty to the agreements default in all
                                 the provisions, the accounting loss suffered by
                                 the Company would be limited to the interest
                                 rate differential between the fixed rate and
                                 the LIBOR rate if the LIBOR rate is in excess
                                 of the fixed rate. In the event the agreements
                                 are terminated, the Company may be required to
                                 pay a termination fee to the counterparty based
                                 on the difference between the LIBOR rate and
                                 the fixed rate.

                                 LOAN COVENANTS

                                 The Company is subject to various loan
                                 covenants with respect to its line of credit
                                 and long-term debt borrowings with the bank.

                                 The Company was in violation of the minimum
                                 tangible net worth requirement and
                                 "going-concern" covenant. The Company did not
                                 obtain a waiver from the bank for these
                                 violations.


                                      F-18
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


8.        STOCKHOLDERS'          STOCK OPTIONS
          EQUITY
                                 The Company sponsors the Serengeti Eyewear 1995
                                 Stock Option Plan (the "Plan"). Under the Plan,
                                 the Company's Board of Directors has reserved
                                 1,500,000 shares which may be granted at the
                                 Board of Directors' discretion. No options may
                                 be granted after January, 2005 and the maximum
                                 term of the options granted under the Plan is
                                 ten years.

                                 The Company applies APB 25, "Accounting for
                                 Stock Issued to Employees," and related
                                 interpretations in accounting for options
                                 issued. Under APB Opinion 25, compensation
                                 expense is recorded for the difference between
                                 the grant price and the fair market value only
                                 if options are granted or extended at exercise
                                 prices less than fair market value.

                                 Statement of Financial Accounting Standards No.
                                 123 (FAS 123) "Accounting for Stock Based
                                 Compensation," requires the Company to provide
                                 pro forma information regarding net income and
                                 earnings per share as if compensation cost for
                                 the Company's stock options had been determined
                                 in accordance with the fair value based method
                                 prescribed in FAS 123. The Company estimated
                                 the fair value of each stock option at the
                                 grant date by using the Black-Scholes
                                 option-pricing model with the following
                                 weighted-average assumptions used for grants
                                 during 1997. No options were granted in 1998.

                                 -          No dividend yield for both years,

                                 -          Volatility of 50% and 60%,

                                 -          Risk-free interest rates of 6.1% and
                                            6.6% and

                                 -          Expected lives of three years for
                                            both years.


                                      F-19
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


                                 Under the accounting provisions of FAS 123, the
                                 Company's net loss and loss per share for 1997
                                 would be as follows:

<TABLE>

                                 ------------------------------------------------------------------
<S>                                                                                   <C>
                                 Net loss                                              $(6,403,977)
                                 Net loss per share                                    $     (2.69)
                                 ==================================================================

</TABLE>

                                 Changes in options outstanding under the Plan
                                 are summarized as follows:

<TABLE>
<CAPTION>

                                                                                                         WEIGHTED-
                                                                                      WEIGHTED-            AVERAGE
                                                                                        AVERAGE         FAIR VALUE
                                                                                       EXERCISE         OF OPTIONS
                                                                         SHARES           PRICE            GRANTED
                                 ---------------------------------------------------------------------------------
<S>                                                                  <C>                 <C>                <C>
                                 BALANCE, December 31, 1996             925,000           $8.08              $  --
                                    Granted above market                220,065            3.24               1.25
                                    Granted at market                   914,935            2.94               1.33
                                    Forfeited                          (925,000)           8.08                 --
                                 ---------------------------------------------------------------------------------

                                 BALANCE, December 31, 1997           1,135,000            3.00                 --
                                    Forfeited                          (210,000)           2.94                  --
                                 ---------------------------------------------------------------------------------

                                 BALANCE, December 31, 1998             925,000           $3.02                 --
                                 =================================================================================

</TABLE>

                                 As of December 31, 1998, a total of 807,487 of
                                 the outstanding Plan options were exercisable
                                 with a weighted-average exercise price of $2.99
                                 per share and a weighted-average remaining
                                 contractual life of 3.6 years.


                                      F-20
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


                                 STOCK WARRANTS

                                 The following details the common stock warrants
                                 outstanding as of December 31, 1998:

<TABLE>
<CAPTION>

                                                                              UNDERLYING        EXERCISE
                                 WARRANT SERIES                                   SHARES           PRICE         EXPIRATION
                                 --------------------------------------------------------------------------------------------
<S>                                                                           <C>                <C>              <C>
                                 IPO warrants                                  1,174,000          $ 6.50            8/16/99
                                 Underwriter warrants                             96,000            6.50            8/16/99
                                 Class A preferred stock                         150,000            5.56           12/31/02
                                 Class B preferred stock                         300,000            7.50           12/31/02
                                 Class C preferred stock                         300,000           10.00           12/31/02
                                 Class D (commission on Class A
                                    preferred stock)                             200,000            5.50            9/30/01
                                 Class F                                          25,000            3.50            8/31/03
                                                                              ----------

                                                                               2,245,000
                                                                              ==========

</TABLE>

                                 SHARES RESERVED

                                 At December 31, 1998, the Company has reserved
                                 common stock for the following purposes:

<TABLE>
<CAPTION>

                                                                            1998
                                 -----------------------------------------------
<S>                                                                  <C>
                                 Convertible preferred stock          11,000,000
                                 Stock options                         1,500,000
                                 Stock warrants                        2,245,000
                                 -----------------------------------------------

                                                                      14,745,000
                                 ===============================================

</TABLE>

                                 PREFERRED STOCK

                                 On October 4, 1996, the Company issued 7,500
                                 shares of its $.001 par value Series A 6.5%
                                 cumulative convertible non-voting preferred
                                 stock, to RBB Bank Aktiengesellschaft ("RBB"),
                                 a banking


                                      F-21
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


                                 institution located in Austria, in a private
                                 offshore offering pursuant to Regulation S for
                                 cash aggregating $7,500,000 less commissions
                                 aggregating $525,000. Concurrently with the
                                 closing of the acquisition described in Note 2,
                                 RBB purchased pursuant to said Regulation S
                                 offering 7,500 shares of the Company's $.001
                                 par value Series B 6% cumulative convertible
                                 non-voting preferred stock and 7,500 shares of
                                 the Company's $.001 par value Series C 6%
                                 cumulative convertible non-voting preferred
                                 stock for cash aggregating $15,000,000 less
                                 commissions aggregating $1,050,000. The
                                 dividends on the preferred shares are payable
                                 in cash or additional shares of preferred stock
                                 at the option of the Company. During 1997, 118
                                 shares of preferred stock valued at $118,000,
                                 which represent dividends accrued in 1996 were
                                 issued. During 1998, dividends aggregating
                                 1,290 shares of preferred stock, valued at
                                 $1,290,000, which represent dividends accrued
                                 in 1997, were issued. At December 31, 1998,
                                 dividends aggregating $1,476,000 were due and
                                 payable to RBB.

                                 Each of the Series A Preferred Shares may be
                                 converted into shares of common stock at any
                                 time. Each Series A share is convertible into
                                 such number of common shares as is determined
                                 by dividing its stated value of $1,000 by a
                                 conversion rate equal to the lower of (a) $5.50
                                 or (b) 80% of the average market price for the
                                 common stock for the ten trading days ending
                                 three days prior to the giving by the holder of
                                 a notice of conversion.

                                 Each of the Series B Preferred Shares may be
                                 converted into shares of common stock at any
                                 time. Each Series B share is convertible into
                                 such number of common shares as is determined
                                 by dividing its stated value of $1,000 by a
                                 conversion rate equal to the lower of (a) $6.75
                                 or (b) 80% of the average market price for the
                                 common stock for the ten trading days ending
                                 three days prior to the giving by the holder of
                                 a notice of conversion.

                                 Each of the Series C Preferred Shares may be
                                 converted into shares of common stock at any
                                 time after July 1, 1997. Each Series C


                                      F-22
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


                                 share is convertible into such number of common
                                 shares as is determined by dividing its stated
                                 value of $1,000 by a conversion rate equal to
                                 the lower of (a) $8.25 or (b) 80% of the
                                 average market price for the common stock for
                                 the ten trading days ending three days prior to
                                 the giving by the holder of a notice of
                                 conversion.

                                 During 1998, the Company recorded dividends of
                                 $1,476,000 ($61.74 per share). During 1997, the
                                 Company recorded preferred dividends of
                                 $5,040,000 ($222.83 per share) including
                                 $3,750,000 of dividends recorded as an issuance
                                 of the beneficial conversion features of the
                                 preferred stock.

                                 At any time after September 30, 2000, the
                                 Company will have the right to force conversion
                                 of the preferred shares into common stock.

9.        COMMITMENTS            EMPLOYMENT CONTRACTS
          AND
          CONTINGENCIES          On December 31, 1998, the Company is a party to
                                 employment agreements with four officers and
                                 two sales personnel. These agreements call for
                                 aggregate salaries of approximately $760,000 in
                                 1999, $294,000 in 2000 and $70,000 in 2001.
                                 Also included in the contracts are certain
                                 bonus compensation and options to purchase up
                                 to 375,000 shares of common stock at $2.94 per
                                 share through June 2001 based on sales and
                                 profit targets set by the Company. The sales
                                 and profit targets were not met in 1998 or
                                 1997.

                                 OPERATING LEASES

                                 The Company leases its warehouse and office
                                 facilities pursuant to a lease expiring March
                                 2000. This lease provides for various
                                 escalations based on cost of living, real
                                 estate taxes, and other provisions. In
                                 addition, the Company leases sales offices on a
                                 month-to-month basis and certain transportation
                                 equipment pursuant to leases classified as
                                 operating leases. Total monthly lease


                                      F-23
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


                                 payments for the warehouse and office facility
                                 aggregate approximately $6,700 per month.

                                 Rent expense was $198,457 and $278,823 for 1998
                                 and 1997, respectively.

                                 Future minimum rentals for operating leases
                                 with remaining terms in excess of one year are
                                 as follows as of December 31, 1998:

<TABLE>

                                 -------------------------------------------------
<S>                                                                      <C>
                                 1999                                     $112,500
                                 2000                                       21,300
                                 -------------------------------------------------

                                                                          $133,800
                                 -------------------------------------------------

</TABLE>

                                 CONCENTRATION OF CREDIT RISK

                                 During the years ended December 31, 1998 and
                                 1997, the Company made net sales to customers
                                 for amounts exceeding 10% of total net sales as
                                 follows:

<TABLE>
<CAPTION>

                                                                1998                    1997
                                 -----------------------------------------------------------------
<S>                                                    <C>             <C>    <C>             <C>
                                 WalMart                $8,200,000      19%    $9,200,000      28%
                                 Sunglass Hut            4,200,000      10%     3,600,000      11%
                                 =================================================================

</TABLE>

                                 Approximately $4,082,000 of the gross accounts
                                 receivable are due from the above two customers
                                 at December 31, 1998 and are unsecured.

                                 The Company relies on a single source for the
                                 supply of lens blanks for its Serengeti line of
                                 products. The loss of the source for lens
                                 blanks or a disruption of the supply from this
                                 source could cause, at a minimum, temporary
                                 shortages in needed materials and could have a
                                 material adverse effect on the Company's
                                 business operations.


                                      F-24
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


                                 During 1998, the Company had four suppliers
                                 which accounted for approximately 10%, 15%, 19%
                                 and 20% of total purchases, respectively.
                                 During 1997, the Company had one supplier which
                                 accounted for approximately 17% of total
                                 purchases.

                                 LEGAL PROCEEDINGS

                                 During March, 1997, Argent Securities, Inc.
                                 ("Argent"), the underwriter of the Company's
                                 initial public offering, filed an action
                                 against the Company in the United States
                                 District Court for the Northern District of
                                 Georgia, Atlanta Division. This action has
                                 since been transferred to the United States
                                 District Court for the Southern District of New
                                 York. The civil complaint alleges, among other
                                 things, breaches by the Company of its
                                 underwriting agreement with Argent, breach of
                                 corporate duties relating to the issuance of
                                 the Preferred Shares, and misstatements in the
                                 Company's Proxy Statement relating to the
                                 issuance of the Preferred Shares. In March
                                 1999, a preliminary settlement was made in
                                 which the Company is obligated to make a cash
                                 payment in the amount of approximately $30,000
                                 to Argent.

                                 During January 1998, RBB Bank ("RBB"), the
                                 entity which purchased $22.5 million of the
                                 Company's preferred stock, the proceeds of
                                 which were utilized by the Company to purchase
                                 the Serengeti business, filed an action in the
                                 United States District Court, Southern District
                                 of New York. In the action, RBB alleges various
                                 violations of the securities laws in connection
                                 with the purchase by RBB of the 22,500 shares
                                 of the Company's convertible preferred stock.
                                 RBB contends that the Company failed to
                                 disclose certain material information and that
                                 RBB relied to its detriment on these omissions
                                 in purchasing the Company's convertible
                                 preferred stock. There are also common law
                                 claims for fraud and negligent
                                 misrepresentation. RBB seeks compensatory
                                 damages in the sum of $22.5 million, equal to
                                 the purchase price of the preferred stock, and
                                 punitive damages in the sum of $25


                                      F-25
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


                                 million. The Company has reviewed the claims
                                 and intends to vigorously defend itself against
                                 this action. Although the risk of loss for this
                                 action is deemed reasonably possible, the
                                 amount of loss is not estimable, and therefore,
                                 no accrual for such is reflected in these
                                 financial statements.

                                 During February 1998, Corning Incorporated
                                 ("Corning"), the entity from whom the Company
                                 purchased the Serengeti business, filed an
                                 action in the Supreme Court, State of New York,
                                 County of Steuben. In the action, Corning
                                 alleged that it was owed by the Company for
                                 certain "transition services" rendered during
                                 the Serengeti Acquisition. Any funds owed for
                                 these transition services were to be disbursed
                                 from a $1.5 million escrow account established
                                 during the acquisition process. In May 1998,
                                 the Company and Corning entered into a
                                 settlement agreement releasing all claims. In
                                 connection therewith, Corning received
                                 $1,094,500 from the escrow account. The Company
                                 received the remaining $405,500, which was
                                 recorded as a reduction to the acquisition
                                 goodwill.

                                 In addition to the above matters and in the
                                 normal course of conducting its business, the
                                 Company is involved in various other legal
                                 matters. The Company is not a party to any
                                 legal matter which management believes could
                                 result in a judgment that would have a material
                                 adverse affect on the Company's financial
                                 position, liquidity or results of operations.

10.       RELATED PARTY          Certain of the Company's legal services are
          TRANSACTIONS           rendered by a law firm in which a member of the
                                 Company's Board of Directors is a partner. All
                                 of these services have been accounted for as an
                                 arm's-length transaction. Legal expenses for
                                 these services of approximately $370,000 and
                                 $565,000 were incurred during 1998 and 1997,
                                 respectively.


                                      F-26
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


11.       INCOME TAXES           The Company accounts for income taxes on the
                                 liability method. Under this method, deferred
                                 tax assets and liabilities are determined based
                                 on differences between financial reporting and
                                 tax bases of assets and liabilities.
                                 Measurement of deferred income tax is based on
                                 enacted tax rates and laws that will be in
                                 effect when the differences are expected to
                                 reverse, with the measurement of deferred
                                 income tax assets being reduced by available
                                 tax benefits not expected to be realized.

                                 The components of deferred tax assets and
                                 liabilities consisted of the following:

<TABLE>
<CAPTION>

                                                                                              1998
                                 ------------------------------------------------------------------
<S>                                                                                   <C>
                                 Deferred tax assets:
                                    Warranty reserve                                   $    57,000
                                    Allowance for doubtful accounts                        256,000
                                    Net operating loss carryforward                      3,547,000
                                    Inventory                                               37,000
                                    Valuation allowance                                 (3,654,000)
                                 ------------------------------------------------------------------

                                 Deferred tax assets                                       243,000

                                 Deferred tax liabilities:
                                    Depreciation and amortization                         (243,000)
                                 ------------------------------------------------------------------

                                 Net deferred tax assets                               $        --
                                 ==================================================================

</TABLE>

                                 The Company's valuation allowance increased by
                                 $3,038,000 during 1998. The Company has
                                 recorded a valuation allowance to state its
                                 deferred tax assets at estimated net realizable
                                 value due to the uncertainty related to
                                 realization of these assets through future
                                 taxable income.

                                 The amounts shown for income taxes in the
                                 statements of operations differ from amounts
                                 that would be derived from computing income
                                 taxes at federal statutory rates. The following
                                 is a reconciliation of those differences:


                                      F-27
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


<TABLE>
<CAPTION>

                                                                                1998      1997
                                 ---------------------------------------------------------------
<S>                                                                             <C>       <C>
                                 Tax at federal statutory rate                    34 %     (34)%
                                 Operating loss with no tax benefit              (33)       28
                                 ---------------------------------------------------------------

                                                                                   1 %      (6)%
                                 ===============================================================

</TABLE>

                                 Due to the net operating loss, the Company was
                                 able to file a claim for federal income tax
                                 refunds from 1995 and 1996 aggregating
                                 $358,055, which was received in January 1999.
                                 The unused amount of operating loss
                                 carryforwards will expire as follows:

<TABLE>

                                 ---------------------------------------------------------------
<S>                                                                                  <C>
                                 2012                                                 $4,153,000
                                 2018                                                  5,273,000
                                 ---------------------------------------------------------------

                                                                                      $9,426,000
                                 ===============================================================

</TABLE>


                                      F-28
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


12.       FOREIGN OPERATIONS     During 1998 and 1997, the Company operated in
                                 two geographic areas: the United States and
                                 Hong Kong. Following is a summary of
                                 information by area:

<TABLE>
<CAPTION>

                                                                                        1998             1997
                                 -----------------------------------------------------------------------------
<S>                                                                            <C>              <C>
                                 NET SALES TO UNAFFILIATED CUSTOMERS:
                                    United States                               $ 41,010,380     $ 31,341,200
                                    Hong Kong                                      2,312,842        1,117,162
                                 -----------------------------------------------------------------------------

                                                                                $ 43,323,222     $ 32,458,362
                                 =============================================================================

                                 INCOME (LOSS) FROM OPERATIONS:
                                    United States                               $ (3,558,690)    $ (3,466,468)
                                    Hong Kong                                         53,896         (506,223)
                                 -----------------------------------------------------------------------------

                                                                                  (3,504,794)      (3,972,691)

                                 OTHER INCOME                                        135,409           64,644
                                 INTEREST                                         (1,889,446)      (1,334,733)
                                 -----------------------------------------------------------------------------

                                 LOSS BEFORE INCOME TAXES                       $ (5,258,831)    $ (5,242,780)
                                 =============================================================================

                                 IDENTIFIABLE ASSETS:
                                    United States                               $ 39,732,702     $ 50,462,001
                                    Hong Kong                                        881,142        1,396,696
                                 -----------------------------------------------------------------------------

                                                                                $ 40,613,844     $ 50,795,710
                                 =============================================================================

</TABLE>

                                 Loss before income taxes represents net sales,
                                 less operating expenses for each geographic
                                 area and other income and expenses of a general
                                 corporate nature. Identifiable assets are those
                                 that are identifiable with operations in each
                                 geographic area. All of the sales made by the
                                 foreign subsidiary in 1998 and 1997 were made
                                 to a significant customer described in Note 9.

                                 Export sales for the years ended December 31,
                                 1998 and 1997 aggregated approximately
                                 $6,580,000 and $9,500,000, respectively, and
                                 were distributed to the following geographic
                                 regions:


                                      F-29
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


<TABLE>
<CAPTION>

                                                                                   1998          1997
                                 --------------------------------------------------------------------
<S>                                                                         <C>           <C>
                                 Canada                                      $1,630,000    $2,000,000
                                 Europe                                       2,850,000     5,000,000
                                 Pacific Rim and Latin America                2,100,000     2,500,000
                                 --------------------------------------------------------------------

                                                                             $6,580,000    $9,500,000
                                 ====================================================================

</TABLE>

13.       SIGNIFICANT            ACCOUNTS RECEIVABLE
          FOURTH QUARTER
          ADJUSTMENTS            During the fourth quarter of 1998 and 1997, the
                                 Company issued credits and markdowns to several
                                 customers which resulted in a charge to
                                 operations aggregating approximately $1,100,000
                                 and $2,100,000, respectively. These credits and
                                 markdowns were issued by the Company at the
                                 request of certain significant customers to
                                 allow them to increase the rate of sale of the
                                 Company's products and to allow these customers
                                 to adjust their mix of the Company's products
                                 at the retail level.

                                 INVENTORY

                                 During the fourth quarter of 1998, the Company
                                 made adjustments to its inventory balance,
                                 resulting in a charge to operations of
                                 approximately $4.2 million. These adjustments
                                 are the result of difficulties encountered by
                                 the Company in implementing the inventory
                                 system installed in late 1997 and integrating
                                 this system with their financial reporting and
                                 accounting system. Of the $4.2 million,
                                 approximately $2.0 million relates to the
                                 following fiscal quarters:

<TABLE>
<CAPTION>

                                 ----------------------------------------------
<S>                                                                 <C>
                                 First quarter 1998                  $1,200,000
                                 Second quarter 1998                    800,000
                                 ----------------------------------------------

                                 Total                               $2,000,000
                                 ==============================================

</TABLE>


                                      F-30
<PAGE>

                                                         SERENGETI EYEWEAR, INC.
                                                                  AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


14.       RESTATEMENT OF         The Company has restated its financial
          FINANCIAL              statements for the year ended December 31, 1997
          INFORMATION            related to errors encountered by the Company in
                                 implementing their new inventory system and
                                 integrating this system with their financial
                                 reporting and accounting system as discussed in
                                 Note 13. The 1997 financial statements have
                                 been restated to properly reflect the
                                 write-down of inventory in the amount of
                                 $1,510,911 as of December 31, 1997. The impact
                                 of this restatement on the Company's 1997
                                 financial results as originally reported is
                                 summarized below:

<TABLE>
<CAPTION>

                                                                              1997
                                                                  -----------------------------
                                                                  AS REPORTED      AS RESTATED
                                 --------------------------------------------------------------
<S>                                                              <C>              <C>
                                 Gross profit                     $13,813,590      $ 12,302,679
                                 Net loss                          (3,401,881)      (4,912,792)
                                 Basic loss per share                   (3.54)           (4.17)
                                 ==============================================================

</TABLE>


                                      F-31
<PAGE>

ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE.

           Not applicable.


                                      -22-
<PAGE>

                                    PART III

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

           The names and ages of the directors and executive officers of the
Company are set forth below.

<TABLE>
<CAPTION>

NAME                        AGE          POSITIONS
<S>                        <C>          <C>
Stephen Nevitt              51           President, Treasurer and Director

Milton Nevitt               77           Vice President, Secretary and Director

Michael J. Guccione         51           Vice President and Director

Michael Burke               49           Vice President-Marketing and Director

Edward Borix                49           Vice President of Operations, Worldwide
                                              and Director

Lucia Almquist              45           Vice President-Corporate Development

Douglas Hinton              46           Vice President - Premium Sales

William McMahon             46           Chief Financial Officer and Director

David B. Newman             44           Director

William Keener              53           Director

Dr. Jeffrey Sack            37           Director

John Kopinski               46           Director

</TABLE>

           Stephen Nevitt became the President of the Company in 1993. Prior to
such time, he served as Vice President and a director of the Company since its
founding in 1976 by his father, Milton Nevitt. As Vice President, he was
involved in all phases of operations including management and sales. As
President he has been given primary responsibility for management


                                      -23-
<PAGE>

and sales and has also been responsible for design and development of the
Company's products as well as product procurement.

           Milton Nevitt founded the Company in 1976 and served as its President
and a director until 1993, and has since served the Company as a Vice President
and a director. As President, Mr. Nevitt was primarily responsible for sales and
administration. Mr. Nevitt's career in the sunglass industry began in 1950 as a
manufacturer's representative for Rayex Corporation, a major domestic supplier
of popular priced sunglasses. Mr. Nevitt worked in that capacity until Rayex
ceased its business operations in 1976.
Mr. Nevitt founded the Company shortly thereafter.

           Michael J. Guccione became a Vice President and director of the
Company in December 1994. Since joining the Company in 1992, Mr. Guccione's
primary responsibilities have been marketing and product development of the
Company's H2Optix and other product lines. Mr. Guccione became employed by
Wal-Mart in 1976 and started and headed its fine jewelry division. Mr. Guccione
was also in charge of the development of the sunglass business at Wal-Mart and
traveled extensively throughout the Far East and Pacific Rim for the purpose of
developing resources for the purchase of sunglasses. After leaving Wal-Mart in
1990, Mr. Guccione independently ran a management consulting firm until joining
the Company.

           Michael Burke became Vice President-Marketing of the Company in
January 1997 and a director of the Company in May 1997. From January 1995 until
joining the Company, Mr. Burke served as a marketing consultant to the Company.
From November 1992 through June 1994, he was Vice President and general manager
of the sunglass division of Smith Sport Optics, a sunglass distributor. From
June 1985 until November 1992, Mr. Burke served as Vice President-Marketing of
Bausch & Lomb, Inc.'s Ray-Ban sunglasses division.

           Edward Borix became Vice President of Operations, Worldwide of the
Company in March 1997 and a director of the Company in May 1997. From January
1995 until joining the Company, Mr. Borix was a Vice President of Fidelity
Investments, an investment company. From 1979 to 1995, he was a general manager
and director of distribution for various manufacturing plants of Bausch & Lomb,
Inc., a manufacturer of diverse eyeglass, eyewear and other optical products.

           Lucia Almquist became Vice President-Corporate Development of the
Company in January 1997. Ms. Almquist was a director of the Company from May
1997 to May 1998. From 1991 through 1997, Ms. Almquist served as Vice President
- Licensing and Merchandising for the Bon Jour Group, Ltd., a designer and
manufacturer of various fashion products.

           Douglas Hinton became Vice-President-Premium Sales of the Company in
1998. From 1997 until joining the Company, Mr. Hinton was National Sales Manager
for Bucci, Inc. From 1996 to 1997, Mr. Hinton was Senior Vice President/Sales
and marketing for Optic Video USA. From 1990 to 1996, Mr. Hinton was Senior Vice
President/Optical & Golf Divisions for Bolle USA.


                                      -24-
<PAGE>

           William McMahon became the Chief Financial Officer of the Company and
a director in June 1998. From 1992 until joining the Company, Mr. McMahon was
Director of Financial Reporting and Corporate Development for Uniroyal
Technology Corporation, a plastic manufacturing company. From 1984 until 1992,
Mr. McMahon was a vice president of Buccino and Associates, Inc. a national
turnaround consulting firm.

           David B. Newman, a director of the Company since December 1994, has
for over the last ten years been a partner of Cooperman Levitt Winikoff Lester &
Newman, P.C., which has acted as outside counsel to the Company since 1987.

           William Keener, a director of the Company since July 1996, has served
as an Executive Vice President and Chief Credit Officer of SouthTrust Bank of
the Suncoast, a commercial bank, since May 1994. From March 1990 to May 1994,
Mr. Keener served as a Senior Vice President and Group President for Commercial
Lending and, thereafter, as First Vice-President for Commercial Real Estate for
Sunbank, N.A., a commercial bank.

           Jeffrey B. Sack, M.D. became a director of the Company in 1998. He is
board certified in internal medicine and cardiovascular disease and currently
practices in Sarasota, Florida. Dr. Sack has a degree in economics and over
twenty years of business experience in the management of small growth companies.

           John Kopinski became a director of the Company in 1998. He has been
serving as President of Rikart South, Inc. in Bradenton, Florida for the past
ten years. Rikart South, Inc. is a leader in the manufacturing of polyethylene
bags.

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 directors and executive officers and persons who beneficially own more
than 10% of the common stock to file reports of ownership and changes in
ownership of such common stock with the Securities and Exchange Commission, and
to file copies of such reports with the Company. Based solely on its review of
the copies of such forms received by it, or written representations from certain
reporting persons that no such forms were required for those persons, the
Company believes that during the fiscal year ended December 31, 1998, all filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with except that Messrs. Hinton, McMahon, Sack
and Kopinski were not timely in the filing of their respective Initial
Statements of Beneficial Ownership of Securities and Mr. Burke was not timely in
his filing of one monthly report of one transaction.

ITEM 10.   EXECUTIVE COMPENSATION.

           The following table summarizes the aggregate compensation for
services rendered in all capacities to the Company paid in 1996, 1997 and 1998
to the Chief Executive Officer and the Company's four most highly paid executive
officers whose compensation exceeded $100,000 (collectively, the "Named
Executives"):


                                      -25-
<PAGE>

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                                                 LONG TERM
                                                                COMPENSATION
                                                                   AWARDS
                                                                   ------
                                                                 SECURITIES
                                           ANNUAL COMPENSATION   UNDERLYING
NAME AND PRINCIPAL POSITION         YEAR      SALARY ($)(1)       OPTIONS
---------------------------         ----      -------------       -------
<S>                                 <C>        <C>                   <C>

Stephen Nevitt .........             1998       289,103              --
  President (CEO) ......             1997       178,763              --
                                     1996       166,730           750,000

Michael Burke ..........             1998       168,632              --
 Vice President ........             1997       158,515              --

Lucia Almquist .........             1998       158,271              --
 Vice President ........             1997       144,193              --

Ed Borix ...............             1998       139,342              --
 Vice President ........             1997       139,342              --

William McMahon
 Chief Financial Officer             1998       130,000              --

</TABLE>

----------
(1)   Messrs. Burke, Almquist and Borix received their respective salaries for
      the year ended December 31, 1998 at their respective 1997 salary rates.
      The difference between their respective 1998 salaries as shown above and
      1997 salaries includes perquisites paid to each officer pursuant to their
      respective employment agreements.

OPTION GRANTS IN 1998

           No options were granted to any of the Company's directors or
executive officers during the year ended December 31, 1998.

OPTION EXERCISES IN 1998 AND YEAR END OPTION VALUES

           No options were exercised by any of the Company's directors or
executive officers during the year ended December 31, 1998. Set forth below is
certain information with respect to exercisable and non-exercisable options to
acquire shares of the Company's common stock held by the Company's directors and
executive officers:


                                      -26-
<PAGE>

<TABLE>
<CAPTION>

                               NUMBER OF SECURITIES UNDERLYING UNEXERCISED        VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT
                                        OPTIONS AT FISCAL YEAR END                              FISCAL YEAR END **
                               -------------------------------------------        --------------------------------------------
NAME                              EXERCISABLE            UNEXERCISABLE*               EXERCISABLE              UNEXERCISABLE
----                              -----------            --------------               -----------              -------------
<S>                                <C>                     <C>                            <C>                      <C>
Stephen Nevitt..............        647,961                 102,039                        --                       --

Michael Burke...............         15,000                    --                          --                       --

Lucia Almquist..............           --                      --                          --                       --

Ed Borix....................           --                      --                          --                       --

William McMahon.............           --                      --                          --                       --

</TABLE>

----------
*  Pursuant to their respective employment agreements, Messrs. Burke, Almquist,
Borix and McMahon are each entitled to stock options upon certain performance
criteria being met for the year ending December 31, 1999. See "Employment
Agreements" below.

** The last sales price of the common stock was approximately $0.25 per share on
December 31, 1998.

EMPLOYMENT AGREEMENTS

           In January 1997, the Company entered into a three year employment
agreement with Michael Burke, whereby Mr. Burke became employed as Vice
President-Marketing of the Company, which provides for a current annual base
salary of $190,000. Mr. Burke has agreed to receive his 1997 annual salary of
$158,515 for the year ended December 31, 1998, notwithstanding his current
annual base salary pursuant to his employment agreement. The Company will not
accrue any portion of Mr. Burke's unpaid salary. This agreement also provides
that if the Company's net sales and pretax profits for the year ending December
31, 1999 exceed $80.0 million and $6.9 million, respectively, then Mr. Burke
will receive $15,000 and 20,000 stock options. Alternatively, if such net sales
and pretax profits exceed $84.0 million and $7.25 million, respectively, Mr.
Burke will receive $35,000 and 45,000 stock options.

           In January 1997, the Company entered into a three year employment
agreement with Lucia Almquist, whereby Ms. Almquist became employed as Vice
President-Corporate Development of the Company, which provides for a current
annual base salary of $180,000. Ms. Almquist has agreed to receive her 1997
annual salary of $144,193 for the year ended December 31, 1998, notwithstanding
her current annual base salary pursuant to her employment agreement. The Company
will not accrue any portion of Ms Almquist's unpaid salary. This Agreement also
provides that if the Company's net sales and pretax profits exceed $80.0 million
and $6.9 million, respectively, then Ms. Almquist will receive $15,000 and
10,000 stock options. Alternatively, if such net sales and pretax profits exceed
$84.0 million and $7.25 million, respectively, then Mr. Almquist will receive
$30,000 and 25,000 stock options.

           In January, 1997, the Company entered into a three year employment
agreement with Edward Borix, whereby Mr. Borix became employed as Vice President
of Operations, Worldwide, which provides for a current annual base salary of
$165,000. Mr. Borix has agreed to receive his 1997 annual salary of $139,342 for
the year ended December 31,1998, notwithstanding his current annual base salary
pursuant to his employment agreement. The Company will not accrue any portion of
Mr. Borix's unpaid salary. This agreement also provides that if the Company's
net sales and net profits for the year ended December 31, 1999 exceed


                                      -27-
<PAGE>

$80.0 million and $6.9 million, respectively, then Mr. Borix will receive
$30,000 and 20,000 stock options. Alternatively, if such net sales and net
profits exceed $84.0 million and $7.25 million, respectively, then Mr. Borix
will receive $45,000 and 40,000 stock options.

           In June 1998, the Company entered into a three year employment
agreement with William McMahon, whereby Mr. McMahon became employed as Chief
Financial Officer of the Company, which provides for an annual base salary of
$130,000 in 1998 with annual increases each January 1 by an amount equal to the
increase, if any, in the Consumer Price Index. The agreement also provides that
if the Company achieves revenue and EBITDA projections as determined in
consultation with the optionee, Mr. McMahon will receive 35,000 stock options
for the year ended December 31, 1999 and 45,000 stock options for the year ended
December 31, 2000.

           In January 1999, the Company entered into a three year employment
agreement with Douglas Hinton whereby Mr. Hinton became employed as Vice
President - Premium Sales of the Company which provides for a current annual
base salary of $130,000 and annual increases each January 1 by an amount equal
to the increase, if any, in the Consumer Price Index.

           Each of the employment agreements contain a covenant by the employee
not to compete with the Company until the expiration of a one year period after
the expiration or termination of the agreement.

           William Keener, a non-employee director of the Company, receives a
fee of $500 per month for his service as a director. No other non-employee
director receives any compensation for his services as such.

           ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                     MANAGEMENT.

           The following table sets forth certain information as of March 31,
1999 with respect to the beneficial ownership of the outstanding shares of
common stock by (i) any shareholder known by the Company to beneficially own
more than five percent of such outstanding shares, (ii) the Company's directors
and Named Executive Officers, and (iii) the directors and executive officers of
the Company as a group. Except as otherwise indicated, the address of each
beneficial owner of five percent or more of such common stock is the same as the
Company.


                                      -28-
<PAGE>

<TABLE>
<CAPTION>

                                                          Amount                             Ownership
      Name and Address of Beneficial Owner        Beneficially Ownership(1)                Percentage(1)
      ------------------------------------        -------------------------                -------------
<S>                                                              <C>                         <C>
Nevitt Family Trust(2).......................                       506,103                     9.3%
Milton Nevitt................................                       278,781                     5.1%
Stephen Nevitt...............................                     1,401,922 (3)(4)             25.8%
Michael J. Guccione..........................                       200,830 (5)                 3.7%
David B. Newman..............................                       556,103 (3)(6)             10.2%
   c/o Cooperman  Levitt
   Winikoff Lester & Newman, P.C.
   800 Third Avenue
   New York, New York 10022
William Keener...............................                         1,000                        *
Michael Burke................................                        17,000 (7)                    *
Lloyd J. Fuller..............................                             0                      --
Lucia Almquist...............................                             0                      --
Edward Borix.................................                         3,000                        *
William McMahon..............................                             0                      --
John R. Clarke...............................                       200,000 (8)                 3.7%
   1725 Lazy River Lane
   Dunwoody, Georgia  30350
RBB Bank Aktiengesellschaft..................                       750,000 (9)                13.8% (8)
   Burging 16
   8010 Graz, Austria
Jerome B. Fox................................                       122,700 (10)                2.3%
   7821 Wilton Crescent Circle
   University Park, Florida 34201
Directors and executive officers as a
 group (10 persons)..........................                     1,952,533 (11)               35.9%

</TABLE>

----------------
*    Less than 1%.

(1)        Computation based on the term beneficial ownership as used in the
           regulations of the Securities and Exchange Commission which, for
           purposes of the computation of ownership by the named holder, deems
           outstanding shares of common stock issuable upon exercise of options
           and convertible securities exercisable or convertible on the date,
           and within sixty days following the date, of determination of
           beneficial ownership. As of April 1, 1999, 2,384,000 shares of common
           stock were actually issued and outstanding.

(2)        The indicated trust (the "Trust") was created pursuant to a Trust
           Agreement, dated as of September 11, 1992, between Milton Nevitt, as
           grantor, and Stephen Nevitt and David B. Newman, as trustees. Such
           trustees have the sole power to vote the shares held by the Trust.
           The children of Milton Nevitt, including Stephen Nevitt, are the
           beneficiaries under the Trust.

(3)        Includes 506,103 shares held by the Trust, for which such beneficial
           owner acts as trustee.

(4)        Includes 647,961 shares issuable upon exercise of options granted
           pursuant to the Company's 1995 Stock Option Plan (the "Plan").
           Stephen Nevitt, pursuant to exercise of a power granted in the
           subscription agreement covering the issuance of the Company's


                                      -29-
<PAGE>

           Preferred Shares (as described in Footnote (9) below), has the power
           to direct the voting of shares of Common Stock issuable upon
           conversion thereof for the election of a majority of the directors of
           the Company through October 2000. The table does not include shares
           of Common Stock issuable upon conversion of such Preferred Shares.

(5)        Includes 68,026 shares issuable upon exercise of options granted
           pursuant to the Plan.

(6)        Includes 50,000 shares issuable upon exercise of options granted
           pursuant to the Plan.

(7)        Includes 15,000 shares issuable upon exercise of options granted
           pursuant to the Plan.

(8)        Represents shares issuable upon exercise of the Series D Warrant
           which entitles the holder to purchase such number of shares at an
           exercise price of $5.50 per share at any time prior to September 30,
           2001.

(9)        RBB is the registered owner of 7,500 shares of Series A 6.5%
           Convertible Preferred Stock ("Series A Stock"), 7,500 shares of
           Series B 6% Convertible Preferred Stock ("Series B Stock") and 7,500
           shares of Series C 6% Convertible Preferred Stock ("Series C Stock";
           collectively with the Series A Stock and the Series B Stock, the
           "Preferred Shares") of the Company. Such Preferred Shares is
           presently convertible into shares of Common Stock of the Company at a
           price determined by dividing the stated value of the series
           ($7,500,000 for each) by a price equal to the lower of (i) $5.50 in
           the case of the Series A Stock, $6.75 in the case of the Series B
           Stock and $8.25 in the case of the Series C Stock, and (ii) 80% of
           the average market price (as defined) for the ten consecutive trading
           days ending three days prior to the notice of conversion. As of April
           1, 1999, the average market price for the ten previous consecutive
           trading days was approximately $0.65 per share. The above computation
           of beneficial ownership excludes shares of Common Stock issuable upon
           conversion of the Preferred Shares. See "Legal Proceedings" and
           "Certain Relationships and Related Transactions - To Finance the
           Serengeti Acquisition."

(10)       Such information was set forth in a Schedule 13D, dated October 24,
           1997. Such Schedule 13D also stated that the spouse of Mr. Fox owns
           an additional 600 shares of Common Stock and that Mr. Fox disclaims
           beneficial ownership with respect to those shares.

(11)       Includes 780,987 shares issuable upon exercise of options granted to
           pursuant to the Plan.

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

           On October 4, 1996, the Company issued 7,500 shares of its Series A
6.5% Convertible Preferred Stock, $.001 par value (the "Series A Shares"), to
RBB, a banking institution whose principal offices are located in Austria, in a
private offshore offering pursuant to Regulation S under the Securities Act of
1933, as amended (the "Securities Act"). RBB purchased the Series A Shares for a
purchase price equal to their aggregate stated value of $7.5 million as set
forth in a Regulation S Offshore Subscription Agreement dated September 29,
1996, which also contemplated the purchase of the Series B Shares and Series C
Shares referred to below. The purpose of such investment was to fund, in part,
the Acquisition.

           Pursuant to an Agreement of Purchase and Sale, dated as of October
29, 1996, between the Company and Corning, the Company agreed to purchase the
Serengeti assets for a purchase price of $27.5 million, which was effected on
February 13, 1997. RBB purchased,


                                      -30-
<PAGE>

concurrently with the closing of the Acquisition, 7,500 shares of the Company's
Series B 6% Convertible Preferred Stock, $.001 par value (the "Series B
Shares"), and 7,500 shares of the Company's Series C 6% Convertible Preferred
Stock, $.001 par value (the "Series C Shares"; together with the Series A Shares
and the Series B Shares, the "Preferred Shares"), for a purchase price equal to
their aggregate stated value of $15.0 million. The proceeds to the Company from
the sale of the Preferred Shares were approximately $20.9 million (net of
commissions and the estimated expenses of such sale). The Company applied such
net proceeds to the Acquisition purchase price. The Company financed the
remainder of such purchase price and related costs and expenses with borrowings
under the New Credit Facility.

           Concurrent with the issuance of the Series A Shares, the Company also
issued to RBB a Series A Warrant of the Company (the "Series A Warrant") to
purchase up to an aggregate of 150,000 shares of Common Stock at an exercise
price of $5.5625 per share. The Series A Warrant is exercisable at any time
commencing January 1, 1999 and on or prior to December 31, 2002. In addition,
the Company issued to RBB, concurrent with the issuance of the Series B Shares
and the Series C Shares, a Series B Warrant of the Company (the "Series B
Warrant") and a Series C Warrant of the Company (the "Series C Warrant"), each
of which entitles RBB to purchase up to an aggregate of 300,000 shares of Common
Stock at a per share exercise price of (i) $7.50 with respect to the Series B
Warrant and (ii) $10.00 with respect to the Series C Warrant. Each of the Series
B Warrant and the Series C Warrant is exercisable at any time commencing January
1, 1999 and on or prior to December 31, 2002.

           The Company has also issued, as part of the commission payable to a
third party in connection with the sale of the Series A Shares, a Series D
Warrant of the Company (the "Series D Warrant") to purchase up to an aggregate
of 200,000 shares of Common Stock at an exercise price of $5.50 per share. The
Series D Warrant is immediately exercisable and expires on or prior to September
30, 2001.

           During 1997 and 1998, the Company repaid certain indebtedness owed to
Joseph Feldman, the brother-in-law of Milton Nevitt, and to Milton Nevitt,
respectively. Such indebtedness, incurred in 1991 and 1993, respectively, is
described in greater detail in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1998, to which reference is hereby made.


ITEM 13.   EXHIBITS, LISTS AND REPORTS ON FORM 8-K.

           (a) Exhibits.
               --------

<TABLE>
<CAPTION>

           EXHIBIT
           NUMBER                           EXHIBIT DESCRIPTION
           -------                          -------------------
<S>                             <C>
           3.1(i)                Restated Certificate of Incorporation of the
                                 Company(1)

</TABLE>


                                      -31-
<PAGE>

<TABLE>
<CAPTION>

           EXHIBIT
           NUMBER                           EXHIBIT DESCRIPTION
           -------                          -------------------
<S>                             <C>
           3.1(ii)               Certificate of Amendment of the Certificate of
                                 Incorporation of the Company relating to the
                                 designation of the Preferred Shares(2)

           3.2(i)                Amended and Restated By-laws of the Company
                                 ("By-laws")(1)

           3.2(ii)               Amendment No. 1 to By-laws(1)

           10.1                  Agreement dated December 30, 1994 between the
                                 Company and Joseph Feldman(1)

           10.2                  Agreement dated January 17, 1994 between the
                                 Company and Michael J. Guccione, Inc.(1)

           10.3                  Agreement dated December 7, 1994 between the
                                 Company and Michael J. Guccione(1)

           10.4                  Revolving Line of Credit and Term Loan
                                 Agreement dated as of February 13, 1997 by and
                                 among the Company, SunTrust Bank, Central
                                 Florida, National Association, individually and
                                 as agent, and Creditanstalt-Bankverein(3)

           10.5H                 First Amendment to Revolving Line of Credit and
                                 Term Loan Agreement dated as of February 13,
                                 1997

           10.6                  Lease Agreement dated March 3, 1993 between DRI
                                 II Partnership and the Company(1)

           10.7                  1995 Stock Option Plan of the Company(1)

           10.8*                 Employment Agreement between the Company and
                                 Michael Burke(7)

           10.9*                 Employment Agreement between the Company and
                                 Lucia Almquist(7)

           10.10*H               Employment Agreement between the Company and
                                 William McMahon

           10.11*H               Employment Agreement between the Company and
                                 Douglas Hinton

           10.12                 Form of Consulting Agreement between the
                                 Company and Argent Securities, Inc.(1)

           10.13                 Agreement of Purchase and Sale, dated as of
                                 October 29, 1996, between the Company and
                                 Corning(4)

           10.14                 Subscription Agreement, dated September 26,
                                 1996, between the Company and RBB(4)

           10.15                 Lens Blank Supply Agreement, dated as of
                                 February 13, 1997, between the Company and
                                 Corning (confidential treatment has been
                                 granted with respect to certain information
                                 contained in this Agreement)(2)

           10.16                 License Agreement, dated as of February 13,
                                 1997, between the Company and Corning(2)

           16.1                  Letter on change in certifying accountant(3)

           16.2                  Letter on change in certifying accountant(5)

           21                    Subsidiaries of the Company(6)

           27                    Financial Data Schedule

</TABLE>

----------
*          Management contract or compensatory plan or arrangement

H          To be filed by amendment to this Annual Report.

(1)        Filed as an Exhibit to the Company's Registration Statement on Form
           SB-2, Registration No. 33-89752-A, under the Securities Act of 1933
           and incorporated herein by reference.


                                      -32-
<PAGE>

(2)        Filed as an Exhibit to the Company's Annual Report on Form 10-KSB for
           the year ended December 31, 1996.

(3)        Filed as an Exhibit to the Company's Current Report on Form 8-K,
           dated February 11, 1997.

(4)        Filed as an Exhibit to the Company's Quarterly Report on Form 10-QSB
           for the quarterly period ended September 30, 1996.

(5)        Filed as an Exhibit to the Company's Current Report on Form 8-K,
           dated December 10, 1997.

(6)        Filed as an Exhibit to the Company's Annual Report on Form 10-KSB for
           the year ended December 31, 1995.

(7)        Filed as an Exhibit to the Company's Annual Report on Form 10-KSB for
           the year ended December 31, 1997.

           (b) The Company filed the following report on Form 8-K during the
fourth quarter of the year ended December 31, 1998:     None


                                      -33-
<PAGE>

                                   SIGNATURES

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

                                             SERENGETI EYEWEAR, INC.


Date: May 24, 1999                           By  /s/ Stephen Nevitt
                                                --------------------------------
                                                Stephen Nevitt
                                                President

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

<TABLE>
<CAPTION>

      SIGNATURES                     TITLE                                   DATE
<S>                                 <C>                                     <C>
/s/ Stephen Nevitt                   President, Treasurer and Director       May 24, 1999
------------------------------       (principal executive officer)
    Stephen Nevitt


/s/ Milton Nevitt                    Vice President, Secretary               May 24, 1999
------------------------------       and Director
    Milton Nevitt


/s/ Michael J. Guccione              Vice President and                      May 24, 1999
------------------------------       Director
    Michael J. Guccione


/s/ William L. Mcmahon               Chief Financial Officer                 May 24, 1999
------------------------------       (principal financial and
    William L. McMahon               accounting officer) and Director


/s/ Michael Burke                    Vice President and                      May 24, 1999
------------------------------       Director
    Michael Burke


/s/ Ed Borix                         Vice President and                      May 24, 1999
------------------------------       Director
    Ed Borix


/s/ David B. Newman                  Director                                May 24, 1999
------------------------------
    David B. Newman

</TABLE>


                                      -34-
<PAGE>

<TABLE>
<CAPTION>

      SIGNATURES                     TITLE                                   DATE
<S>                                 <C>                                     <C>
/s/ William Keener                   Director                                May 24, 1999
------------------------------
    William Keener


/s/ Jeffrey Sach                     Director                                May 24, 1999
------------------------------
    Dr. Jeffrey Sach


/s/ John Kopinski                    Director                                May 24, 1999
------------------------------
    John Kopinski

</TABLE>


                                      -35-