<PAGE>

                          SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C.  20549

                                     FORM 10-KSB
                          [X] ANNUAL REPORT UNDER SECTION 13
                   OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                     FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996

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

                             Commission File No. 0-21852
                                    ______________
                      FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                    (Name of small business issuer in its charter)
        Delaware                                              94-3123210
  (State or other jurisdiction                             (I.R.S. Employer
of incorporation or organization)                        Identification Number)

          1265 Naperville Drive, Romeoville, Illinois 60446, (630) 759-7666
            (Address and telephone number of principal executive offices)
                                    _____________

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, $0.001 par value; Redeemable Common Stock Purchase Warrants and Units,
each Unit consisting of one share of Common Stock, $0.001 par value, and one
Redeemable Common Stock Purchase Warrant.

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 twelve 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. [X]

The Registrant's revenues for the fiscal year ended September 30, 1996 totaled
$8,469,994.

As of December 11, 1996 , the aggregate market value of the voting stock held by
non-affiliates of the Registrant (assuming for this purpose that only directors
and officers of the Registrant are affiliates of the Registrant), based on the
average of the closing bid and asked prices on that date, was approximately $
9,284,581.

As of December 31 , 1996, there were 16,276,057 shares of Common Stock
outstanding.

Documents incorporated by reference:  None


Transitional Small Business Disclosure Format:   Yes     No  X
                                                     ---    ---

<PAGE>

                                 INDEX TO FORM 10-KSB
                                          OF
                      FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.

                                                                         Page
                                                                         ----
                                        PART I

ITEM 1.  DESCRIPTION OF BUSINESS ..........................................1

ITEM 2.  DESCRIPTION OF PROPERTY ..........................................6

ITEM 3.  LEGAL PROCEEDINGS ................................................6

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..............7

                                       PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED
         STOCKHOLDERS MATTERS .............................................7

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR
         PLAN OF OPERATION ................................................8

ITEM 7.  FINANCIAL STATEMENTS .............................................F-1

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
         ON ACCOUNTING AND FINANCIAL DISCLOSURE ...........................13

                                       PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
         CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
         OF THE EXCHANGE ACT ..............................................13

ITEM 10. EXECUTIVE COMPENSATION ...........................................15

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
         OWNERS AND MANAGEMENT ............................................17

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...................18

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K .................................20

                                          i

<PAGE>

                                        PART I

ITEM 1.  DESCRIPTION OF BUSINESS

General - The Company

    Franklin Ophthalmic Instruments Co., Inc., a Delaware corporation (the
"Company"), was incorporated pursuant to the laws of the State of Delaware in
November 1992.  Franklin Ophthalmic Instruments Co., Inc., a California
corporation ("FOI-California"), was incorporated pursuant to the laws of the
State of California in September 1990.  Effective January 1993, FOI-California
was merged with and into the Company.  The Company was formed by FOI-California
in order to enable FOI-California to reincorporate in the State of Delaware.
Unless otherwise indicated, references made hereinafter to the Company include
FOI-California.

    FOI-California was incorporated for the purpose of acquiring the ophthalmic
instrument distribution division of Franklin Optical Company ("Franklin
Optical"), which was incorporated in the State of California in 1932.  Franklin
Optical's primary business was operating retail locations in California and
Hawaii which dispensed prescription eyeglasses and contact lenses.  Franklin
Optical also operated an ophthalmic instrument distribution division.  In June
1990 and September 1990, respectively, Franklin Optical sold its two lines of
business in separate transactions.  The ophthalmic instrument distribution
division was purchased by the Company.  The retail dispensing business was sold
by Franklin Optical to a third party and continued to operate in California as
Franklin Optical Company.  Franklin Optical Company is not affiliated with the
Company.

    In July 1993, the Company completed its initial public offering (the
"Initial Public Offering") at which time the Company issued 1,437,500 Units (the
"Units").  The initial offering price of each Unit was $4.00 per Unit.  The
components of each Unit were immediately separable and consisted of one share of
Common Stock and one Class A Common Stock Purchase Warrant each exercisable to
purchase one share of Common Stock at an exercise price of $5.00 per share
through July 1998 (the "Class A Warrants").  The Company received net proceeds
from the Initial Public Offering, after deducting offering expenses, of
$4,084,766.

    In January 1994, the Company acquired certain of the assets and assumed
certain of the liabilities of Progressive Ophthalmic Instruments, Inc., a
Florida corporation ("POI").  Shortly thereafter, the Company relocated its
operations from Hayward, California to Jacksonville, Florida, where POI was
located.

    In July 1994, the Company acquired all of the issued and outstanding shares
of common stock of Midwest Ophthalmic Instruments, an Illinois corporation
("MOI").  MOI initially operated as a wholly owned subsidiary, and was
eventually dissolved and merged into the Company in March 1995.  In connection
with the dissolution and merger of MOI, the Company closed its operations in
Jacksonville, Florida and a sales office in Lawrenceville, Georgia, and
relocated its sales and operational functions to Romeoville, Illinois.  In
addition, along with a change of management of the Company during fiscal 1995,
the management of MOI became management for the Company, and the office in
Hayward, California, which then served as the Company's executive office, was
closed.  As a result of the above, all functions of the Company have been
consolidated into Romeoville, Illinois.

THE BUSINESS

    The Company's business consists primarily of the sale and servicing of
high-quality examination instruments and equipment required to furnish and
outfit examination rooms of ophthalmologists, optometrists, medical
organizations and clinics.  The Company currently distributes over 2,000
products from over 40 manufacturers.  The Company's operations and primary
distribution functions are located in Romeoville, Illinois.

THE INDUSTRY

    According to the National Eye Institute, the annual expenditures to society
of eye disorders, visual impairments and blindness exceed $5 billion.  Disorders
of the eye represent one of the most widespread health

                                          1

<PAGE>

care conditions in the world today.  It has been estimated that more than 67% of
the world's population suffers from one or more treatable eye disorders.  The
most common of these disorders are cataracts, glaucoma, and refractive error.
It has been forecasted that by the year 2000, the number of people aged 65 and
older in the United States will approach 35 million and the rate of eye disease
will increase to eight out of ten people.  This is expected to result in a
significant growth in the number of ophthalmologists, optometrists and eye care
centers.  (Source:  U.S. Ophthalmic Diagnostic Instruments & Intraocular Lens
Market, Theta Corporation, February 1991, referred to hereinafter as the "Theta
Report").

    The Company believes there are over 50,000 ophthalmologists and
optometrists that the Company and its competitors sell to and service in the
United States.  Within these groups there are several sub-specialties including
retina and vitreous, glaucoma, neuro, ocularplastics, pediatric, cataract,
cornea, and refractive surgery.  Such practitioners provide services through
entities such as private individual practices, private group practices, private
multi-specialty clinics, hospitals, universities and governmental agencies.  The
Company's belief is based upon information the Company received from Optometry
Today, a leading industry publication.

    The suppliers of product and services within the ophthalmic industry can be
categorized by the following: (i) ophthalmic diagnostic equipment firms ( the
category in which the Company is classified), (ii) optical (glasses, frames, and
contact lenses) manufacturing/fabricating and distribution firms, (iii) surgical
manufacturing and distribution firms, and (iv) pharmaceutical manufacturing and
distribution firms.  Many firms in the industry can be further characterized as
doing business in more than one of the above categories.

    The Company believes that it can be characterized as being somewhat
"unique" in the marketplace because of: (i) its level of high-tech service
capability; (ii) its more than 10 years experience in developing and integrating
digital imaging products for the ophthalmic marketplace; (iii) its development
and integration of products such as ophthalmic workstations; and (iv) its status
as the only ophthalmic distributor that is publicly owned.

    A majority of the Company's sales are comprised of products that can be
characterized as "capital purchases" and users strongly scrutinize each
instrument according to its price and operational efficiency.  Customers often
do not expect to pay list price.  In addition, many of the products are very
durable, making for a long replacement cycle.  Users also take advantage of
refurbished units.

    Despite the foregoing, the Company believes that innovations in equipment
development will support growth in the marketplace.  According to a report by
Frost & Sullivan, the ophthalmic diagnostic marketplace is expected to grow at
an annualized rate between 5 and 10% per year through the year 2000.  The
projected growth is expected as a result of clinical acceptance and new
technologies becoming more affordably priced.  In addition, end users that had
been postponing purchases of traditional equipment are expected to replace
existing devices with the latest technology during the period of projected
growth.  (Source: U.S. Ophthalmic Diagnostic Equipment Markets, Frost and
Sullivan, 1994, referred to hereinafter as the "Frost and Sullivan Report").


PRINCIPAL PRODUCTS AND SERVICES

    CHAIRS AND STANDS.  A mandatory component of any ophthalmic examination
room is the chair in which the patient will sit and/or lie while being examined.
There are several types of chairs, which may adjust automatically or manually to
allow for several patient positions for different examinations or surgical
procedures.  Instrument stands provide for one or an array of examination
instruments to be available to the examiner at the patient examinations chair
through use of counterbalanced articulating arms.  The Company distributes
chairs and instrument stands manufactured by Reliance Medical Products
("Reliance") and Marco Ophthalmic Inc. ("Marco Ophthalmic").

    OPHTHALMIC WORKSTATIONS.  The ophthalmic workstation primarily consists of
a station allowing for the adaptation of certain instrumentation and for the
control of electrical functions (illumination and instrument controls) in an
examination room.  The Company currently is a systems integrator of such
workstations and customizes the material for such products to meet the
specifications of the ophthalmic practitioner.


                                          2

<PAGE>

    SLIT LAMPS.  A slit lamp is used for examinations of all portions of the
eye.  It projects a slit of light onto the eye itself (slit illumination) which
can then be viewed at variable magnifications and illuminations.  Although the
slit lamp is primarily utilized by ophthalmic practitioners, many emergency
rooms in hospitals are equipped with slit lamps.  The slit lamp can be expanded
by adding photographic adaptations and/or digital applications through the use
of video or digital cameras which allows the user to receive hard copy
information or transmit data through phone lines.  The Company sells slit lamps
manufactured by Haag-Streit Service, Inc. (Haag-Streit), Marco Ophthalmic, Nikon
Inc. Instrument Group ("Nikon"), and Reichert/Leica.

    REFRACTORS.  A refractor, also known as a phoroptor, is used for exact 
diagnosis of a person's "refraction acuity."  The refractor determines 
exactly how well a person sees without glasses and what prescription lenses 
are required to correct that person's vision.  Refractors can be categorized 
as manual (an instrument where lenses are manually adjusted to the patient's 
needs) and automated (an instrument utilizing microprocessor technology and 
infrared light to determine a person's refractive error).  As automated 
refractors become more approachable in price and continue to allow for 
increased efficiencies in determining diagnosing refractive error, there 
is a gradual tendency to up-grade to the automated technology.  In addition, 
automated refractors provide for hard copy print-outs of refractive 
measurements and/or provide the ability for the practitioner to transfer 
refractive measurements to computers through networking.  The Company sells 
manual phoroptors manufactured by Reichert/Leica and Marco Ophthalmic, and 
automated refractors manufactured by Canon U.S.A., Inc. ("Canon") and Nikon.

    RETINAL/FUNDUS CAMERAS.  A retinal or fundus camera is an instrument with
optical components that allows the user to capture images primarily through the
posterior portion of the eye utilizing various fields of view and
magnifications.  Retinal cameras are classified as either mydriatic or
non-mydriatic.  The non-mydriatic type is utilized by users that do not dilate
the patient's pupil and is primarily used for general diagnosis purposes.
Mydriatic cameras are used in conjunction with a fluid which causes full
dilation of the pupil and allows for larger fields of view for the observation
of problems, including tissue degeneration and vein enlargement and/or
hemorrhages.  Mydriatic cameras offer versatile photographic applications,
including external and color fundus photography, fluorescein photography, and
stereo photography.  Images are acquired from retinal/fundus cameras by using
film (35mm or Polaroid film), video and/or digital cameras.  The Company sells
retinal/fundus cameras manufactured by Canon and Nikon.

    TONOMETERS.  The tonometer measures intra-ocular pressure, a measure for
the incidence of glaucoma.  Tonometers are either manual or automated (utilizing
micro-processor technology).  The Company distributes manual tonometers
manufactured by Clement-Clarke, Inc., Haag-Streit and Nikon.  The Company
distributes automated tonometers manufactured by Keeler Instruments,
Reichert/Leica  and Mentor Corporation ("Mentor").

    KERATOMETERS.  A keratometer measures the curvature of a patient's cornea.
Keratometers are either manual or automated.  Automated keratometers utilize
micro-processor technology and allow for hard copy print-outs of measurements
and/or the transfer of information digitally into a computer.  Automated
keratometers are also available with a combined autorefraction capability (see
Refractors) which allows for dual functionality.  The Company distributes manual
keratometers manufactured by Reichert/Leica and Marco Ophthalmic.  The Company
distributes automated keratometers manufactured by Canon and Nikon.

    LENSOMETERS.  The lensometer is used to measure the curvature of prescribed
lenses in order to verify that the lens is appropriate prior to dispensing.
Lensometers may be manual or automated.  Manual lensometers involve greater
knowledge of the process and require more time for measurements.  Automatic
lensometers utilize microprocessor technology and allow for hard copy print-outs
of measurements and/or the transfer of information digitally.  The Company
distributes manual and automatic lensometers manufactured by Marco Ophthalmic,
Nikon and Reichert/Leica.

    PROJECTION SYSTEMS.  The Company distributes a range of projection systems
which project acuity testing characters (arrangements of letters, numbers,
and/or symbols) onto a screen in an examination room.  Projection systems of
standard manual type projectors, automated projectors which utilize
microprocessor technology and infrared controls, and projection systems
utilizing computer monitors to display the aforementioned testing characters.
The Company distributes projection systems manufactured by Reichert/Leica and
Marco Ophthalmic, and automated systems by Reichert/Leica, Marco Ophthalmic,
Mentor and Nikon.

                                          3
<PAGE>

    USED AND REFURBISHED EQUIPMENT.  The Company also purchases and acquires,
through trade-in, used equipment.  After the equipment is checked and, if
applicable, refurbished, the equipment is then re-marketed providing customers
with a lower priced alternative to new equipment.

    OTHER.  In addition to the above, the Company sells other items such as
hand held diagnostic instruments, diagnostic and laser lenses, charts,
disposables and parts.

    TECHNICAL SERVICE AND SUPPORT.  Approximately 75% of the Company's
personnel are trained to provide technical service and support for ophthalmic
instrumentation.  In addition, as technology in the ophthalmic marketplace
continues to evolve, the Company believes this area will provide the Company
with a competitive advantage in the marketplace.


MARKETING

    DIRECT MAIL.  In the past, the Company has used direct mailing of catalogs
as a method of marketing the equipment and services that the Company provides.
However, as a result of the Company's restructuring and its fiscal constraints,
the Company has not distributed a catalog since approximately May, 1994. Thus,
the Company's sales in recent years have been primarily created by the
Company's direct sales force and past reputation.  The Company has recently
completed a new catalog and is currently in the process of distributing it
throughout the United States, thus constituting the Company's re-introduction
into this type of marketing.

    SALES REPRESENTATIVES.  The Company maintains a sales and service force of
approximately 22 representatives located in locations throughout the United
States.  It is the sales/service representative's responsibility to follow-up on
sales leads provided as a result of past business, marketing efforts, and from
equipment manufacturers of the equipment that the Company sells.  Sales and
service personnel are required to complete formal training sponsored by
ophthalmic manufacturers and the Company in order to maintain familiarity with
the latest technical developments.

    TRADE SHOWS.  The Company attends and exhibits at approximately 15 trade
shows or conventions per year including regional and national shows and
conventions (including the American Academy of Ophthalmology, American Academy
of Optometry and Vision Expo-East & West).  The Company has recently reduced the
number of trade shows it attends in comparison to past years in response to what
the Company believes is a trend in the industry for its customers to attend
fewer of the local trade shows in favor of the larger meetings that offer more
training sessions, industry updates and larger displays of technology.


CUSTOMERS

    The end-user marketplace in the United States for ophthalmic instruments is
comprised of different classifications of eye practitioners, and a diverse base
of institutional private and public health care providers.

    THE OPHTHALMOLOGIST.  The ophthalmologist is a medical doctor specializing
in the diagnosis, treatment and care of the eye and related systems.  The
ophthalmologist may prescribe glasses, contact lenses and medication and perform
surgical procedures.

    THE OPTOMETRIST.  An optometrist is a licensed doctor trained in the
diagnosis of refractive errors and the diagnosis (and the treatment in some
procedures) of diseases the eye.

    OTHER CUSTOMERS.  In addition to the eye-care professional described above
that work in individual and group practices, the Company sells to hospitals,
hospital groups, medical clinics, health maintenance organizations, surgical
centers, universities, teaching colleges, and various state and federal
agencies.

                                          4

<PAGE>

BUSINESS STRATEGY

    OPERATIONS.  Over the past 24 months, much of the Company's attention has
been devoted to the consolidation of locations into Romeoville, Illinois, the
reorganization of operations and the restructuring of the Company's financial
situation.  With the completion of the financial restructuring and the receipt
of funds from a private placement of equity during the first quarter of fiscal
1997, the Company is shifting strategy from restructuring to more actively
seeking sales growth through the re-introduction of a direct mail catalog and
the addition of sales and service personnel.  See Item 6 for further discussion.

    In connection with the financial restructuring the Company has recently
completed, the Company had reached agreement with Silicon Valley Bank
("Silicon"), the Company's primary lender, in which $3,160,327 owing to
Silicon was converted into 2,079,163 shares of the Company's Common Stock at a
conversion rate of $1.52 per share, and the remaining $1.8 million owed to
Silicon was transferred to a new credit facility with Silicon.  Silicon's
agreement was conditioned on, among other things: (i) the Company's simultaneous
receipt of at least $1 million of proceeds from the private placement of its
securities; and (ii) personal guaranty (for an amount not to exceed $200,000 in
the aggregate) of certain officers of the Company.

    The Company reached agreements with certain trade creditors pursuant to
which such creditors: (i) would convert an aggregate of approximately $530,000
owed to them into shares of Common Stock at a price of $1.52 per share; and (ii)
would forgive, and/or repay pursuant to terms of certain promissory notes
(having a maturity date up to twenty-four months from the date thereof and an
applicable interest rate of 10%), approximately $540,000.

    The Company plans to continue to grow the Company through the addition of
outside sales/service representatives and the reinstatement of its catalog
distribution.  The Company currently has sales/service representatives primarily
located in the Midwest and Southeast.  It is the Company's intention to expand
its representation by seeking sales candidates to represent the Company in other
heavily-populated parts of the United States.

    Prior to the acquisition of MOI in 1994, much of the sales of the Company
and that of MOI were derived from the bi-annual and annual distribution of a
catalog that displayed products and provided pricing information.  The Company
had not distributed a catalog in approximately three years, however, during the
first quarter of fiscal 1997, the Company has again commenced distributing a
sales catalog.

    ACQUISITIONS.  After a period of new instrument companies being organized,
the industry has now begun to consolidate following the recent trend of many
other industries.  This is evidenced by a number of consolidations in the
industry and by a trend in ophthalmic instrument manufacturers to reduce the
number of distributors primarily through sales quotas.  In addition, management
believes that industry characteristics, such as having numerous privately held
regional ophthalmic instrument distribution companies, has and will continue to
contribute to the Company's ability (assuming the Company is financially able)
to effectively pursue a program of growth through acquisition.


COMPETITION

    The distribution of ophthalmic instruments is competitive.  The Company has
historically competed on the basis of price, service, promptness of delivery,
reputation and relationship with customers.  The distribution of ophthalmic
instruments has traditionally been accomplished by many regionally-located,
owner operated distributors located in significant population centers throughout
the United States.  These distributors sell and service most well-known brands
of equipment in certain geographical areas and often have established
relationships with their clientele.  Other than Lombart Instrument Company (the
largest ophthalmic instrument distributor in the United States), management
believes that there is no other ophthalmic distributor with greater geographical
coverage than the Company.


                                          5

<PAGE>

BACKLOG

    Although backlog has not been material to the Company in prior years,
because of the financial constraints the Company has experienced with regard to
cash flow and reduced credit limits from its suppliers, the Company has started
to experience increasing backlogs and delays in supplying orders.
With the restructuring that occurred during the first quarter of fiscal 1997,
the Company believes that it should be better equipped to address the
aforementioned delays in supplying orders.

EMPLOYEES

    As of September 30, 1996, the Company employed 29 full-time employees,
including 7 in accounting and operations, and 22 sales and service
representatives.  Of the 29 employees, 6 are in management positions.  The
Company considers its relationship with its employees satisfactory and is not a
party to any collective bargaining agreement.

GOVERNMENT REGULATION

    The Company has no knowledge of any governmental regulations which
materially adversely affect its business operations.

ENVIRONMENTAL PROTECTION COMPLIANCE

    The Company has no knowledge of any federal, state or local environmental
compliance regulations which affect its business activities.  The Company has
not expended any capital to comply with environmental protection statutes, and
does not anticipate that such expenditures will be necessary in the future.

ITEM 2.  DESCRIPTION OF PROPERTY

    The Company maintains all executive, administrative, operational and
inventory distribution functions in a 19,000 square foot building located in
Romeoville, Illinois, a suburb of Chicago, Illinois.  The building is rented
pursuant to a lease at a rate of $10,240 per month and which will expire on
April 2, 2001.  The Company also maintains a facility in Jacksonville, Florida
which the Company subleases to tenants.  The lease and the sublease on the
facility in Florida are scheduled to expire in October 1999.  The monthly rental
under the lease is $5,425, and the sublease of the Company provides for
escalating monthly rent, which is currently at $4,501.  Management believes that
the condition of the aforementioned property is suitable for its intended
purposes.

    The Company owns no real estate and does not intend to invest in real
estate or interests in real estate, real estate mortgages, or securities of or
interests in persons primarily engaged in real estate activities for the
foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS

    In connection with the Company's restructuring efforts, Eastman Kodak
Company ("Kodak") agreed to dismiss a complaint filed against the Company on
April 26, 1996 in the United States District Court for the Northern District of
Illinois, Eastern Division (Docket No. 96C 2519), alleging default by the
Company under the provisions of a certain promissory note (the "Kodak Note") and
seeking to recover amounts outstanding under the Kodak Note.  The Kodak Note,
dated March 7, 1996, was in the principal amount of $296,604 and was issued by
the Company in favor of Kodak in connection with repayment of amounts owed by
the Company to Kodak for products acquired by the Company.  Interest under the
Kodak Note accrued at the rate of 11% per annum subject to increase upon default
to 15% per annum.  Repayment of principal and interest under the Kodak Note was
payable in installments upon the last day of each month through July 31, 1996.
A portion of the principal under the Kodak Note was repaid and reduced by the
return to Kodak of unused product.  The complaint alleged that there remained
outstanding $222,104 (exclusive of interest, fees , costs and late charges).
Kodak has agreed to convert approximately $155,473 of the foregoing debt into
shares of Common Stock at


                                          6

<PAGE>
$1.52 per share and to permit the Company to repay the balance under the Kodak
Note on a monthly basis (pursuant to the terms of a new promissory note) over 24
months beginning December 1, 1996.

    On December 5,1996, the Company filed a complaint against the accounting
and auditing firm of Marinelli & Scott (the Company's predecessor accounting and
auditing firm) in the United States District Court for the Northern District of
Illinois, Eastern Division (Docket No. 96C 7982), alleging professional
malpractice/negligence arising in connection with auditing and accounting
services performed by Marinelli & Scott.  The Company is seeking damages in
excess of $50,000.  Other than as set forth herein, the Company is not aware of
any material pending or ongoing litigation to which the Company is or would be a
party.

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

    During the year ended September 30, 1996, no matters were placed before the
stockholders of the Company for consideration.

                                       PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

    In July 1993, in connection with the Initial Public Offering, the Company 
applied for and was granted inclusion of its securities for quotation on the 
Nasdaq SmallCap Market-SM- ("NASDAQ").  Consequently, the Units, the Common 
Stock and the Class A Warrants commenced quotation on NASDAQ on July 23, 1993 
under the symbols "FKLNU", "FKLN", and "FKLNW", respectively.  Due to the 
Company's inability to fulfill the maintenance criteria for continued listing 
of its securities on NASDAQ, the Company was delisted from NASDAQ on April 
27, 1995, at which time the Company's securities commenced listing on the OTC 
Electronic Bulletin Board.

    The following table sets forth, for the periods indicated, the reported
high and low bid and asked price quotations for the Units, Common Stock and
Class A Warrants for the last two fiscal years ended September 30, 1995 and
1996.  Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.

<TABLE>
<CAPTION>
                                                  Common Stock                                       Class A Warrants
                                                  ------------                                       ----------------
                                       Bid ($)                   Asked ($)                  Bid ($)                 Asked ($)
                                       -------                   ---------                  -------                 ---------
Period of Quotation               High         Low          High         Low          High         Low          High         Low
-------------------               ----         ---          ----         ---          ----         ---          ----         ---
<S>           <C>                 <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>

Fiscal 1995:  First Quarter       2-5/8        1-1/4        3-3/8        1-3/8        6/8          2/8         1-1/8         2/8
              Second Quarter      1-3/8        3/8          1-5/8        3/8          2/8          1/8          3/8          1/8
              Third Quarter       13/16        3/81         3/16         1/2          N/A          N/A          N/A          N/A
              Fourth Quarter       3/4         3/8          3/4          3/8          N/A          N/A          N/A          N/A

Fiscal 1996:  First Quarter        5/8         1/8           1           7/32        3/100         1/100        3/50        7/200
              Second Quarter       3/4         5/32         7/8          7/32         2/25         1/100        1/10        7/200
              Third Quarter       11/16        15/16        27/32        7/16         9/50         7/200        3/10       11/200
              Fourth Quarter      1-7/25       1/4          1-3/10       11/25       17/100        6/100       23/100       1/10

                                                     Units
                                                     -----
                                       Bid ($)                   Asked ($)
                                       -------                   ---------
Period of Quotation               High         Low          High         Low
-------------------               ----         ---          ----         ---

Fiscal 1995:  First Quarter       2-3/48       1-3/8       2-3/4         3/4
              Second Quarter      1-3/8        3/4         1-3/8         3/4
              Third Quarter       1/2          1/2           1/2         1/2
              Fourth Quarter      1/2          1/2           5/8         1/2

Fiscal 1996:  First Quarter       1/4          1/8          7/8          7/16
              Second Quarter      9/16         1/8         1-1/2         7/16
              Third Quarter       1/2          1/2          5/8          1/2
              Fourth Quarter       1           1/4         1-3/4         3/4
</TABLE>
                                          7
<PAGE>

    As of December 11, 1996, there were 197 holders of record of Common Stock
and 79 holders of record of the Class A Warrants based upon information
furnished by Continental Stock Transfer and Trust Company, New York, New York,
the transfer agent for the Company's securities.  There have been no cash
dividends paid in fiscals 1995 and 1996.

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

    During the first two quarters of fiscal 1995, the Company underwent
significant structural, management and operational change whereas fiscal 1996
reflects the results of the Company operating under new management and the
completion of the aforementioned structural and operational consolidations.  As
a result of the items described below, the operating results for the fiscal year
ended September 30, 1996 lack in several aspects, comparability to the results
of operations for the fiscal year ended September 30, 1995.

    Until the second quarter of fiscal 1995, the Company operated a facility in
Hayward, California, a facility in Lawrenceville, Georgia, a Jacksonville,
Florida facility (which was added with the Company's acquisition of Progressive
Ophthalmic Instruments Co., Inc. previously defined as "POI") and a Romeoville,
Illinois facility (which was added with the Company's acquisition of Midwest
Ophthalmic Instruments, Inc. previously defined as "MOI").  See "Description of
Property".  During the second quarter of fiscal 1995, the Company underwent a
change in management, as described below, and under new management, decided to
close all but the Romeoville, Illinois facility.

    Pursuant to an agreement, dated April 1, 1995, between the Company, Robert
A. Davis (the Company's former chief executive officer, chief financial officer,
and president), and certain partnerships in which Mr. Davis has an interest, and
Michael J. Carroll, James J. Urban and Brian M. Carroll (the "Separation
Agreement"), Mr. Davis and Mr. Dallas Talley,  resigned their positions with the
Company and Messrs. Michael Carroll and James Urban were elected to fill
vacancies on the Company's Board of Directors (the "Board of Directors").  The
Separation Agreement also provided that: (i) Mr. Davis would contribute 800,000
shares of Common Stock back to the Company; and (ii) Mr. Davis would forgive
$200,000 owed to him by the Company.  Under the Separation Agreement, the
Company agreed to release and indemnify Mr. Davis for any claims, other than
claims for fraud and certain types of negligence, which might be made in
connection with Mr. Davis service as an officer or director of the Company.

    In January 1995, the new management of the Company commenced its attempt to
restructure the Company's operations around the MOI operations acquired by the
Company in July 1994, and commenced operating under the trade name Franklin.MOI.
Also, as part of the restructuring efforts, the Hayward, California facility,
the Lawrenceville, Georgia facility and the Jacksonville, Florida facility were
closed.  Additionally, the Company instituted throughout its sales force
compensation structures and other policies similar to those historically used by
MOI, which included: (i) the use of sales quotas and scheduling requirements;
(ii) a commission structure that contained lower base and higher incentive
components; (iii) greater accountability for expenses and inventory; and (iv)
limits on competitive activities.  As a result of the aforementioned changes,
approximately 50% of the Company's prior sales representatives terminated their
representation of the Company or were dismissed.  Some but not all of the these
representatives have been replaced and, as a result, the Company has lost
representation in certain geographic areas or with certain accounts previously
serviced by it.

    It is as a result of these substantial changes in the Company's operations,
that operating results for the fiscal year ended September 30, 1995 and 1996
lack comparability.  The results for fiscal 1995 reflect the Company operating
through the transition described above, which was initiated by current
management during the second quarter of fiscal 1995.  Conversely, the operating
results for fiscal 1996 reflect the results of the Company under the MOI
structure, which formed the core after the changes discussed above.

    As previously mentioned, fiscal 1996 reflects the first full year of the
Company operating under new management and the results of the Company's efforts
to reduce costs through the consolidation of sales and operational functions.
In addition, much effort by the Company during fiscal 1996 was directed to the
restructuring of its bank and trade credit.  As a result of the restructuring
efforts, the Company reached agreements during the fourth quarter of fiscal 1996
and the first quarter of fiscal 1997 with bank and trade

                                          8

<PAGE>


creditors such that over $3,000,000 of bank debt was converted to common stock
in the Company at a rate of $1.52 per share, and an amount in excess of
$1,000,000 of trade debt was (i) converted to stock at a rate of $1.52; (ii)
forgiven; or (iii) converted to 24 month promissory notes.  See Notes 2,3,5 and
6 of the Financial Statements included elsewhere herein.

GOING CONCERN AND MANAGEMENT'S 1997 PLANS

    The report of the Company's independent certified public accountants
contains an explanatory paragraph as to the substantial doubts that exist
concerning the Company's ability to continue as a going concern.

    As discussed in the notes to the financial statements and elsewhere herein, 
the Company at the end of fiscal 1996 was in default under the terms of its
revolving credit facility with Silicon Valley Bank, which is the Company's
primary credit facility.  Additionally, in part because of that default and the
resulting inability to obtain additional working capital, the Company has been
unable to make timely reductions in the amount owed to its product suppliers. 
As a consequence, the Company was unable to obtain otherwise customary trade
credit and was limited to purchases of product on limited credit terms or with
payment on delivery.

    The Company's ability to continue as a going concern is ultimately
dependent on its ability to increase its sales to a level that will allow it to
operate profitably and generate positive cash flows, and to refinance
outstanding debt when it comes due.   Although the reduction of expenses (which
was begun in the last half of fiscal 1995 and continued into fiscal 1996) can
contribute to the necessary return to profitability, achieving profitability
without an increase in sales would require much greater levels of expense
reductions and in all likelihood could only be accomplished through a
significant reduction and restructuring of the nature and scope of the Company's
operations.

    In addition, the Company's sales have been adversely affected by its lack
of working capital and liquidity, which has limited its marketing efforts and in
certain instances has prevented it from obtaining products to fill customer
orders.  Accordingly, to increase sales the Company must first resolve its
working capital shortage.

    In connection with the Company's financial restructuring efforts, the
Company reached agreements with Silicon Valley Bank, its primary trade creditors
and certain debtholders during the fourth quarter of fiscal 1996 and the first
quarter of fiscal 1997.  In addition, during the first quarter of fiscal 1997,
the Company was able to raise $1,200,250 in new capital through the private
placement of equity.

    The restructuring agreement with Silicon provided that Silicon would
convert approximately $3,000,000 owing to Silicon into shares of the Company's
Common Stock at a conversion rate of $1.52 per share, and transfer the remaining
1.8 million owing to Silicon into a new credit facility with Silicon.  The
agreement with Silicon was conditioned on, amongst other things: (i) the
Company's simultaneous receipt of at least $1 million of proceeds from the
private placement of its securities; (ii) the Company's best efforts in
converting certain amounts owed to trade suppliers into equity securities or
long-term notes, and (iii) the personal guarantees of Messrs. Michael Carroll,
James Urban, and Brian Carroll for an amount not to exceed an aggregate of
$200,000.  The Company met the conditions of the Silicon agreement during the
first quarter of fiscal 1997 and the new line of credit became effective in
November 1996.  See Note 3 to the Financial Statements included elsewhere
herein.

    In connection with the restructuring of trade debt during the fourth
quarter of fiscal 1996: (i) approximately $155,473 of trade debt was converted
to stock in the Company at a rate of $1.52 per share which resulted in a gain
from restructuring of $129,902; (ii) $101,358 was forgiven; and (iii)
approximately $106,000 was converted to promissory notes with terms up to 24
months.  This resulted in an extraordinary gain of $231,260.  Subsequent to the
fiscal year ended September 30, 1996, the Company completed agreements with
trade debt such that (i) $378,000 of trade debt was converted to stock at the
rate $1.52 per share (ii) $100,000 was forgiven; and (iii) $162,000 was
converted to a 24 month promissory note.


                                          9

<PAGE>

    With regard to the restructuring of certain notes payable, $292,500 was
converted to shares of the Company's common stock at a rate of $.25 per share
(the same pro rata price per share as sold in the Company's private placement)
during the fourth quarter of fiscal 1996.

    The Company believes that with (i) the completion of the above mentioned
restructuring of its debt; (ii) the equity infusion that it has received
subsequent to the Company's fiscal year end September 30, 1996, (iii) the
increase in trade credit which the Company has received upon the aforementioned
debt restructuring; and (iv) the expansion of the Company's marketing efforts
and sales territory expansion; the Company will be able to achieve sales
increases by reducing the limiting effects that the Company's lack of working
capital have had on marketing and the ability to obtain products necessary to
accept and fill customer orders on a timely basis and allow the Company to
refinance outstanding debt when it comes due in fiscal 1997.  The Company
believes that increases in sales should ultimately allow the Company to return
to profitability and generate positive cash flows.

    There can be no assurance that with the aforementioned restructuring that
the Company will be able to increase sales levels that would achieve
profitability which could force the Company to significantly reduce its
operations in order to reduce expenses or take other actions to resolve
liquidity constraints that may arise.

RESULTS OF OPERATIONS

    Sales declined by $4,846,955 or 36.4% from $13,316,949 in fiscal 1995 to
$8,469,994 for the year ended September 30, 1996.  The previously discussed
restructuring of the Company's sales operations, and the Company's lack of
working capital, were the dominant reasons for the overall decline in sales
volume.

    The Company's gross margin on sales declined from $2,653,669 for fiscal
1995 to $2,102,251 for the fiscal year ended September 30, 1996 as a result of
the decline in sales.  Gross margin as a percentage of sales increased from
19.9% in fiscal 1995 to 24.8%.  The increase in gross margin as a percentage of
sales for the fiscal year ended September 30, 1996 is primarily attributable to
the predominance of MOI's operations in the operating results for fiscal 1996. 
MOI's sales include a greater level of products it has designed, and related
technical services, and as a result have historically generated a higher gross
margin than those of the Company's other operations prior to the integration of
MOI.  The Company believes that MOI's historical gross margin levels can be
maintained while efforts are made to increase sales, however, there can be no
assurance that attempts to increase sales may not require incentive pricing that
would adversely affect the gross margin percentage.

    Selling, general and administrative ("SG&A") expenses decreased from
$5,315,753 in fiscal 1995 to $3,571,619 in fiscal 1996.  The reduction in
expenses related to SG&A was primarily attributed to the consolidation of all
operations into a single facility located in Romeoville, Illinois, and the
reduction in personnel and related overhead that had been associated with
Franklin's previous operations.  Of the SG&A attributed to fiscal 1996,
approximately $500,000 was attributed to professional fees related to
restructuring and the expense associated with the issuance of 600,000 shares to
Tiger Eye Capital.  In looking forward, as a result of the completion of the
aforementioned restructuring, the Company believes that it should be able to
reduce the level of costs attributable to these events.

    Interest expense increased from $688,345 for fiscal 1995 to $737,942.  The
interest charged to the Company consisted of: (i) approximately $515,000 of
interest associated with the Company's line of credit with Silicon; and (ii)
approximately $187,942 of interest related to trade creditors and short term
borrowings.  As a result of the conversion of over $3,000,000 owed to Silicon
into equity and the conversions to equity and/or forgiveness of over $700,000 of
trade debt, which was completed subsequent to fiscal 1996, management believes
that this should be reduced going forward.

    As a result of the foregoing factors, the Company reported a loss of
$1,977,939 for fiscal 1996 as compared to a loss of $4,336,499 for fiscal 1995.


                                          10

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

    Cash flow from operations was a negative $390,916 and $51,980 in fiscal
1995 and 1996 respectively.  This change can be attributable to management's
efforts in reducing costs.  

    The Company's principal credit facility is a revolving credit facility with
Silicon.  The line of credit, which is secured by essentially all of the
Company's assets, initially provided for borrowings of up to $4,000,000, limited
to (i) 80% of the amount of eligible accounts receivable; and (ii) the lesser of
$1,500,000 or 50% of the book value of eligible inventories, reduced by trade
accounts payable.  The line of credit provided for the payment of interest
monthly at the rate of 1% over the bank's prime rate for borrowings
collateralized by accounts receivable and 3% over the bank's prime rate for
borrowings collateralized by inventory.  The line of credit was scheduled to
mature on February 5, 1995.  See Notes 3 and 5 to the Financial Statements
included elsewhere herein.

    During fiscal 1995, the balance outstanding under the line of credit
exceeded the amount available under the borrowing formula and the Company was
otherwise in default with respect to certain provisions of the line of credit
agreement.  On April 1, 1995, Silicon agreed to extend the terms of the
Company's line of credit, as generally in effect in the original agreement,
through February 6, 1996 (subsequently extended to April 15, 1996), and agreed
to forbear in the exercise of its rights resulting from the Company's past
defaults or defaults in the future compliance with the financial covenants, and
to advance the Company an additional $500,000 (the "flat rate loan"),
conditioned upon the Company's agreement to make certain scheduled reductions in
both: (a) the amount of the total borrowings outstanding; and (b) the amount by
which total borrowings exceeded the amount available under the collateral
formula.  Under the extended agreement all borrowings bear interest, payable
monthly, at the annual rate of 3% above Silicon's prime rate, subject to
reduction as the amount  of the Company's over formula borrowings decrease.  In
addition, the Company agreed to modify the terms of warrants to purchase 44,119
shares of common stock to provide for exercise at a price of $.50 per share
through March 31, 2000.   

    Throughout fiscal 1996, the Company continued to be in default of the
provisions in the credit agreement with Silicon.  At September 30, 1996,
principal of $4,375,304 and accrued interest of $443,394 were outstanding under
the line of credit. 

    In September 1996, the Company reached agreement with Silicon on an Amended
and Restated Loan and Security Agreement ("Amended Agreement") such that Silicon
agreed to convert approximately $3 million of amounts owed to it by the Company
under its Line of Credit into shares of the Company's common stock at the rate
of $1.52 per share.  Silicon further agreed to extend the maturity date with
respect to the remaining $1.8 million under the Line of Credit to July 29, 1997.
The agreement was conditioned on, amongst other things, the Company's receipt of
at least $1 million in capital and the personal guarantees (for an amount not to
exceed $200,000 in the aggregate) of Michael J. Carroll, James J. Urban, and
Brian M. Carroll, officers of the Company.

    In November 1996, in connection with a private placement of equity, the
Company exceeded the $1,000,000 raising of capital and Messrs. M. Carroll, J.
Urban, and B. Carroll executed personal guaranty agreements thus satisfying the
remaining conditions on the Amended Agreement.

    The Amended Agreement provides a line of credit to the Company such that
advances against the line of credit for the lower of $1.8 million or the amounts
supported by a formula derived borrowing base.  The borrowing base is equal to
(i) 80% of the amount of eligible accounts receivable and (ii) 50% of eligible
inventories.  The lending rate on the Amended Agreement is 2% over Silicon's
prime rate and is payable on a monthly basis.  See Note 3 to the Financial
Statements included elsewhere herein.  

INFLATION

    While inflation has not had a material effect on the Company's operations
in the past, there can be no assurance that the Company will be able to continue
to offset the effects of inflation on the costs of its products or services
through price increases to its customers without experiencing a reduction in the
demand for its


                                          11

<PAGE>

products; or that inflation will not have an overall effect on the ophthalmic
medical instruments market that would have a material affect on the Company.

IMPLEMENTATION OF NEW ACCOUNTING STANDARDS

    In March 1995, the FASB issued Statement Number 121, "Accounting for the
Impairment of Long Lived Assets and for Long-Lived Assets to be Disposed Of"
which requires the Company to review long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.  The assessment of
the impairment is based upon the estimated undiscounted future cash flows from
operating activities compared with the carrying value of the assets.  If the
undiscounted future cash flows of an asset are less than the carrying value, a
write-down would be recorded measured by the amount of the difference between
the carrying value of the asset and the fair value of the asset.  The Statement
is required for financial statements for fiscal years beginning after December
15, 1995.  The Company will adopt this Statement during fiscal 1997 and
management believes it will not have a significant impact on the Financial
Statements when implemented.

    In December 1995, the FASB issued Statement Number 123, "Accounting for
Stock-Based Compensation."  Statement number 123 is effective for fiscal years
beginning after December 15, 1995, and requires either the application of an
option pricing model measurement for stock compensation, or, if a Company elects
to continue to measure stock compensation based on the difference between the
market price of the Company's common stock and the exercise price of the
employer stock option, disclosure of what the effects of the application of
option pricing model measurement would have been.  The Company will initially
apply Statement Number 123 in fiscal 1997 and will elect to disclose the effect
that the application of option pricing model measurement would have had for
options granted from October 1, 1996.


                                          12

<PAGE>

ITEM 7.       FINANCIAL STATEMENTS

                      FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                            INDEX TO FINANCIAL STATEMENTS
                                           
                                                                          Page
                                                                          ----

Report of Independent Certified Public Accountants....................... F-2

Balance Sheets........................................................... F-3

Statements of Operations................................................. F-5

Statements of Cash Flow.................................................. F-6

Statements of Stockholders' Equity (Deficit)............................. F-7

Notes to the Financial Statements........................................ F-8



                                         F-1

<PAGE>

                  REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
of Franklin Ophthalmic Instruments Co., Inc.
Romeoville, Illinois

    We have audited the accompanying balance sheets of Franklin Ophthalmic
Instruments Co., Inc. as of September 30, 1995 and 1996 and the related
statements of operations, stockholders' equity (deficit), and cash flows for the
years 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 financial statements referred to above present fairly,
in all material respects, the financial position of Franklin Ophthalmic
Instruments Co., Inc. at September 30, 1995 and 1996, and the results of their
operations and their cash flows for the years 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 suffered recurring losses from operations
and has a deficiency in stockholders' equity.  In addition, notes payable under
the Company's bank credit agreement are due on July 29, 1997.  The Company does
not have the ability to pay these debts should the lender demand payment.  These
factors raise substantial doubt about the Company's ability to continue as a
going concern.  Management's plans in regard to these matters are also discussed
in Note 2.  The financial statements do not include any adjustments that might
result from the outcome of this uncertainty. 


/s/ BDO Seidman, LLP
-------------------------------

Chicago, Illinois
December 23, 1996


                                         F-2

<PAGE>

                       FRANKLIN OPHTHALMIC INSTRUMENTS CO, INC.
                                    BALANCE SHEETS
                                        ASSETS


                                                    SEPTEMBER 30, SEPTEMBER 30,
                                                       1995          1996
                                                    ------------  ------------
Current assets:
   Cash and cash equivalents                         $         -   $         -
   Accounts receivable, less allowance for doubtful
     accounts of $349,852 and $40,135, respectively    1,331,184       720,277
   Inventory, less valuation allowance of
     $150,000 and $100,000, respectively               2,545,940     1,356,057
   Prepaid expenses                                       28,296        19,027
                                                    ------------  ------------

      Total current assets                             3,905,420     2,095,361
                                                    ------------  ------------

Property and equipment, at cost:
   Furniture and equipment                               599,307       605,638
   Automobiles and trucks                                119,193       119,193
   Leasehold improvements                                109,408       109,408
                                                    ------------  ------------
                                                         827,908       834,239
   Less: Accumulated depreciation and amortization       515,042       618,394
                                                    ------------  ------------

      Total property and equipment                       312,866       215,845
                                                    ------------  ------------

Other assets:
   Deposits                                               28,298        13,935
   Intangible assets, net of accumulated amortization
     of $382,019 and $706,623, respectively            2,596,875     2,272,271
                                                    ------------  ------------

      Total other assets                               2,625,173     2,286,206
                                                    ------------  ------------

      Total assets                                   $ 6,843,459   $ 4,597,412
                                                    ------------  ------------
                                                    ------------  ------------



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



                                         F-3

<PAGE>

                      FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                                    BALANCE SHEETS
                                     (CONTINUED)
                    LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)



                                                    SEPTEMBER 30,  SEPTEMBER 30,
                                                        1995          1996
                                                    -------------  -----------

Current liabilities:
   Bank overdrafts                                   $   251,078  $    55,597 
   Current portion of long-term debt                     324,660      567,395 
   Accounts payable                                    2,070,526    1,180,475 
   Notes payable to bank                               4,396,126    4,375,304 
   Current portion of capitalized lease obligations       14,687       16,125 
   Deposits                                              359,762      429,844 
   Accrued liabilities                                   666,346      859,279 
   Notes payable to related parties                      207,679      215,188 
                                                    -------------  -----------

      Total current liabilities                        8,290,864    7,699,207 
                                                    -------------  -----------

Long-term debt:
   Long-term debt, less current portion                  378,128       93,722 
   Capitalized lease obligations, less current
    portion                                               53,186       30,695 
                                                    -------------  -----------

      Total long-term debt                               431,314      124,417 
                                                    -------------  -----------

      Total liabilities                                8,722,178    7,823,624 
                                                    -------------  -----------

Stockholders' equity (deficit):
   Common stock: $0.001 par value; authorized
      25,000,000 shares; 7,656,025 issued and
      outstanding at September 30, 1995 and
      9,544,810 issued and outstanding at
       September 30, 1996                                  7,656        9,545 
   Additional paid-in capital                          8,240,020    8,868,577 
   Accumulated deficit                               (10,126,395) (12,104,334)
                                                    -------------  -----------

      Total stockholders' equity (deficit)            (1,878,719)  (3,226,212)
                                                    -------------  -----------

      Total liabilities and stockholders'
       equity (deficit)                              $ 6,843,459  $ 4,597,412 
                                                    -------------  -----------
                                                    -------------  -----------



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


                                         F-4


<PAGE>

                      FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                               STATEMENTS OF OPERATIONS


                                                      FOR THE YEAR ENDED
                                                         SEPTEMBER 30,
                                                 -----------------------------

                                                      1995             1996
                                                      ----             ----
Sales                                             $  13,316,949  $   8,469,994

Less:
  Cost of sales                                      10,663,280      6,367,743
  Selling, general and
     administrative expenses                          5,315,753      3,575,555
  Inventory loss                                        770,033           -
  Restructuring charge                                  241,415           -
                                                   -------------   ------------
Loss from operations                                 (3,673,532)    (1,473,304)
                                                   -------------   ------------

Other income (expense):
   Interest income                                        7,545             54
   Interest expense                                    (688,345)      (737,942)
   Other income (expense)                                17,833          1,993
                                                   -------------   ------------

      Other expense, net                               (662,967)      (735,895)
                                                   -------------   ------------
Loss before extraordinary item                       (4,336,499)    (2,209,199)

Extraordinary item, gain  from  debt restructuring            -        231,260
                                                   -------------   ------------

Net loss                                          $  (4,336,499)  $ (1,977,939)
                                                   -------------   ------------
                                                   -------------   ------------

Loss per common share:

  Loss before extraordinary item                  $       (0.80)  $      (0.28)
                                                   -------------   ------------
                                                   -------------   ------------

   Net loss                                       $       (0.80)  $      (0.25)
                                                   -------------   ------------
                                                   -------------   ------------

Weighted average # of common shares outstanding       5,395,182      7,854,393
                                                   -------------   ------------
                                                   -------------   ------------


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

                                         F-5

<PAGE>

                      FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                               STATEMENTS OF CASH FLOWS


                                                       FOR THE YEAR ENDED
                                                           SEPTEMBER 30,
                                              ----------------------------------
                                                        1995           1996
                                                        ----           ----

Cash flows from operating activities:
   Net loss                                      $   (4,336,499)  $ (1,977,939)
   Adjustments to reconcile net loss
    to net cash used in operating activities:
      Depreciation                                      117,648        103,351
      Amortization                                      390,526        324,604
      Gain from debt restructuring                            -       (231,260)
      Professional services performed in
       exchange for common stock                              -        312,374
      Loss on sale of equipment                           2,720           -
      Changes in current assets and liabilities:
         Accounts receivable                          1,888,585        610,907
         Inventory                                    2,229,681      1,189,883
         Prepaid expenses                               148,258          9,269
         Other assets                                    19,609         14,363
         Customer deposits                              133,530         70,083
         Accounts payable, trade and accrued
           liabilities                                 (984,974)      (373,655)
                                                      ----------     ----------
      Net cash used in operating activities            (390,916)        51,980
                                                      ----------     ----------

Cash flows from investing activities:
   Proceeds from sale of equipment                       53,790           -
   Acquisition of equipment                             (85,053)        (6,331)
   Acquisition of software rights                       (23,252)          -
                                                      ----------     ----------
      Net cash used in investing activities             (54,515)        (6,331)
                                                      ----------     ----------

Cash flows from financing activities:
   Loan origination fees                                (40,848)          -
   Net change in bank overdrafts                       (370,549)      (195,481)
   Payments on capital leases                           (23,578)       (21,053)
   Net change in borrowings under line of credit         20,822        (20,822)
   Net proceeds from issuance of common stock           189,200           -
   Proceeds from exercise of bridge warrants             31,250           -
   Increase in long-term debt                           200,000          4,198
   Repayment of debt                                    (38,747)       (27,679)
   Proceeds from issuance of promissory
     notes to related parties                           200,000        215,188
                                                      ----------     ----------
       Net cash provided by (used in) financing
        activities                                      167,550        (45,649)
                                                      ----------     ----------
Net decrease in cash and cash equivalents              (277,881)          -
Cash and cash equivalents at beginning of year          277,881           -
                                                      ----------     ----------
Cash and cash equivalents at end of year             $        -     $     -
                                                      ----------     ----------


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

                                         F-6

<PAGE>



                      FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                     STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)


<TABLE>
<CAPTION>

                                                       Common stock
                                                     $0.001 par value                                                Total
                                                       -------------                   Additional                 stockholders'
                                                         Number of                      paid-in                      equity
                                                          shares          Amount        capital        Deficit      (deficit)
                                                        --------        -------        -------        -------    -----------
<S>                                                  <C>                <C>          <C>           <C>           <C>
BALANCE, September 30, 1994                            4,037,673        $ 4,037      6,490,688     (5,789,896)   $   704,829

 Exercise of bridge unit warrants                         62,500             63         31,188              -         31,251
 Sale of stock for cash                                   81,378             82         64,118              -         64,200
 Conversion of MOI acquisition notes (Note 6)            600,000            600        299,400              -        300,000
 Issuance of shares related to MOI acquisition
  notes (Note 6)                                       1,389,474          1,389         (1,389)             -              -
 Sale of stock to related parties (Note 6)               250,000            250        124,750              -        125,000
 Conversion of 5% notes (Note 5)                       1,975,000          1,975        985,525              -        987,500
 Davis separation agreement (Note 1 (b))
  Return of stock                                       (800,000)          (800)           800              -              -
  Contribution of equity                                       -              -        200,000              -        200,000
 Issuance of stock for software rights                    60,000             60         44,940              -         45,000
 Net loss                                                      -              -              -     (4,336,499)    (4,336,499)
                                                   -------------    -----------    -----------   ------------   ------------

BALANCE, September 30, 1995                            7,656,025          7,656      8,240,020    (10,126,395)    (1,878,719)

 Issuance of stock for services                           16,500             17         12,358              -         12,375
 Issuance of stock for services (Note 6)                 600,000            600        299,400              -        300,000
 Conversion of accounts payable (Note 5)                 102,285            102         25,469              -         25,571
 Conversion of shareholder notes payable (Note 4)        720,000            720        179,280              -        180,000
 Conversion of 9% notes (Note 5)                         450,000            450        112,050              -        112,500
 Net loss                                                      -              -              -     (1,977,939)    (1,977,939)
                                                   -------------    -----------    -----------   ------------   ------------

BALANCE, September 30, 1996                            9,544,810    $     9,545    $ 8,868,577   $(12,104,334)  $ (3,226,212)
                                                   -------------    -----------    -----------   ------------   ------------
                                                   -------------    -----------    -----------   ------------   ------------

</TABLE>

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

                                         F-7

<PAGE>

                      FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                            NOTES TO FINANCIAL STATEMENTS

    1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    (A)  NATURE OF BUSINESS

    Franklin Ophthalmic Instruments Co., Inc. (the "Company"), located in
Romeoville, Illinois, is engaged in the national retail sale of ophthalmic
instruments which are marketed to doctors, hospitals, universities and the
military through the use of catalogs and outside sales representatives.  The
Company's principal markets are located in the Midwest, Southeast and West Coast
of the United States.  The Company's operations involve granting credit to
local, regional and national medical practices, hospitals, universities and to
the military.  Concentrations of credit risk are limited by the large number of
entities comprising the Company's customer base and by the geographic diversity
of the Company's customers.  The Company operates under the trade name "Franklin
MOI".

    (B)  SIGNIFICANT MATTERS AFFECTING COMPARABILITY

    During the fiscal year ended September 30, 1995, the Company underwent
significant structural, management and operational changes, whereas fiscal 1996
reflects the results of the Company operating under new management and the
completion of the aforementioned structural and operational changes.  As a
result, the operating results for fiscal 1996 lack, in several respects,
comparability to the results of operations for the fiscal year ended September
30, 1995.

    Until the second quarter of fiscal 1995, the Company operated facilities in
Hayward, California and Lawrenceville, Georgia (which represented the Company's
original operations), Jacksonville, Florida (which was acquired in January 1994
in the Company's acquisition of certain assets of Progressive Ophthalmic
Instruments, Inc., "POI") and Romeoville, Illinois (which was added with the
Company's July 1994 acquisition of MOI).  During the second quarter of fiscal
1995, the Company underwent a change in management, as previously described and
further described below, and under new management, decided to close all but the
Romeoville, Illinois facility.

    Pursuant to an agreement, dated April 1, 1995, between the Company, Robert
A. Davis (the Company's former Chief Executive Officer, Chief Financial Officer,
and President), certain partnerships in which Mr. Davis has an interest, Michael
J. Carroll, James J. Urban and Brian M. Carroll (the "Separation Agreement"),
Mr. Davis and Mr. Dallas Talley resigned their positions with the Company and
Messrs. Michael Carroll and James Urban were elected to fill the vacancies on
the Company's Board of Directors.  The Separation Agreement also provided that:
(i) Mr. Davis would contribute 800,000 shares of the common stock back to the
Company; and (ii) Mr. Davis would forgive $200,000 owed to him by the Company.
Under the Separation Agreement , the Company agreed to indemnify Mr. Davis for
and against any claims, other than claims for fraud and certain types of
negligence, which might be made in connection with Mr. Davis' service as an
officer or director of the Company.

    Subsequently, new management of the Company decided to attempt to
restructure the Company's operations around the MOI operations acquired in July
1994.  As a result, the California, Florida and Georgia facilities were closed.
A result of these substantial changes in the Company's operations, is that
operating results for fiscal 1995 and fiscal 1996 lack comparability.  Until the
second quarter of fiscal 1995, the Company operated the Hayward Facility, the
Georgia Facility, a Jacksonville, Florida Facility (which was added with the
Company's acquisition of Progressive Ophthalmic Instruments) and a Romeoville
facility (which was added with the Company's acquisition of Midwest Ophthalmic
Instruments, Inc., previously defined as "MOI").

                                         F-8

<PAGE>

                      FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                            NOTES TO FINANCIAL STATEMENTS
                                     (CONTINUED)

    (C)  USE OF ESTIMATES

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

    (D)  INVENTORIES

    Inventories consisting of new equipment, used equipment and parts, are
valued at the lower of cost (using the first in first-out method) or market.

    (E)  PROPERTY AND EQUIPMENT

    Property and equipment are recorded at cost.  Depreciation is provided
using straight-line and accelerated methods over the estimated useful lives of
three to seven years.  Leasehold improvements are amortized on a straight-line
basis over the lesser of the estimated useful lives of the assets or the related
lease terms.

    (F)  INTANGIBLE ASSETS

    Intangible assets include employment contracts and goodwill, which
represents the excess of cost over fair market value of net assets acquired in
the purchase of MOI and in the acquisitions of individual distributorships.

    It is the Company's policy to periodically evaluate the carrying value of
its operating assets, including goodwill, and to recognize impairments when the
estimated future net operating cash flows to be generated from the use of the
assets are less than their carrying value.  The Company measures impairment of
goodwill by the difference between the carrying value and the estimated
discounted cash flows from the assets.

    Effective July 1, 1995, the Company reduced the estimated useful life for
goodwill related to the acquisition of MOI from 30 years to 15 years.  This
change was made, retroactively to the beginning of fiscal 1995, to reflect
management's revised estimate of the useful life of the MOI goodwill, which was
revised to reflect the significance of certain key personnel at MOI and the rate
at which the ophthalmic industry could change.  The effect of this change was a
fourth quarter increase in net loss of approximately $90,000 or $.02 per share
for fiscal 1995.

    Amortization expense related to intangible assets was $390,526 for the year
ended September 30, 1995 and $324,604 for the year ended September 30, 1996.

    (G)  INCOME TAXES

    The Company provides for deferred taxes on the difference between the
financial reporting and tax bases of assets and liabilities in accordance with
Statement of Financial Accounting Standards No. 109.


                                         F-9

<PAGE>

                    FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

     (H)  NET LOSS PER SHARE

     Net loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding.  Outstanding common stock options,
warrants and shares of common stock issuable upon the conversion of outstanding
convertible debentures have been excluded from the computation of net loss per
share as their effect would be anti-dilutive.

     (I)  CASH AND CASH EQUIVALENTS

     The Company considers all highly liquid investments that have maturity of
three months or less on the date of purchase to be cash equivalents.

     (J)  FINANCIAL INSTRUMENTS

     Financial instruments which potentially subject the Company to
concentrations of risk consist principally of accounts receivable.  The accounts
receivable is from numerous entities located throughout the United States and
the associated credit risks are limited.  The carrying values reflected in the
balance sheet at September 30, 1996 reasonably approximate the fair values for
accounts receivable and payable.

     (K)  ADVERTISING

     Advertising costs are expensed as incurred and included in "selling,
general and administrative expenses".  Advertising expenses amounted to
approximately $181,000 in fiscal 1995 and approximately $44,000 in fiscal 1996.

     (L)  RECLASSIFICATIONS

     Certain reclassifications have been made to prior year for consistency
purposes.

     2.   GOING CONCERN

     The accompanying financial statements have been prepared on the assumption
that the Company will continue as a going concern and therefore assume the
realization of the Company's assets and the satisfaction of its liabilities in
the normal course of operations.

     As discussed below, the Company was in default under the terms of its
revolving credit facility with Silicon Valley Bank ("Silicon"), which is the
Company's primary credit facility through the end of fiscal year 1996.
Additionally, in part because of that default and the resulting inability to
obtain additional working capital, the Company has been unable to make timely
reductions in the amount owed to its product suppliers.  As a consequence, the
Company was unable to obtain otherwise customary trade credit and was limited to
purchases of product on limited credit terms or with payment on delivery.

     The Company's ability to continue as a going concern is ultimately
dependent on its ability to increase its sales to a level that will allow it to
operate profitably, generate positive operating cash flows, and to refinance
outstanding debt when it comes due.  Although the reduction of expenses (which
was begun in the last half of fiscal 1995 and continued into fiscal 1996) can
contribute to the necessary return to profitability, achieving profitability
without an increase in sales would require much greater levels of expense
reductions and in all likelihood could only be accomplished through a
significant reduction and restructuring of the nature and scope of the Company's
operations.



                                      F-10
<PAGE>

                    FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

     In addition, the Company's sales have been adversely affected by its lack
of working capital and liquidity, which has limited its marketing efforts and in
certain instances has prevented it from obtaining products to fill customer
orders.  Accordingly, to increase sales the Company must first resolve its
working capital shortage.

     In connection with the Company's financial restructuring efforts, the
Company reached agreements with Silicon, its primary trade creditors and certain
debtholders during the fourth quarter of fiscal 1996, and the first quarter of
fiscal 1997.  See Note 3 to the Financial Statements included elsewhere herein.
In addition, the Company raised $1,200,250 in new capital through the private
placement of equity in the first quarter of fiscal 1997.

     The restructuring agreement with Silicon provided that Silicon would
convert approximately $3,000,000 owing to Silicon into shares of the Company's
common stock at a conversion rate of $1.52 per share, and transfer the remaining
$1.8 million owing to Silicon into a new credit facility with Silicon.  The
agreement with Silicon was conditioned on, among other things: (i) the Company's
simultaneous receipt of at least $1 million of proceeds from the private
placement of its securities; (ii) the Company's best efforts in converting
certain amounts owed to trade suppliers into equity securities or long-term
notes; and (iii) the personal guarantees of certain officers of the Company for
an amount not to exceed an aggregate of $200,000.  The Company met the
conditions of the Silicon agreement during the first quarter of fiscal 1997 and
the new line of credit became effective in November 1996.

     In connection with the restructuring of trade debt during the fourth
quarter of fiscal 1996: (i) $155,473 of trade debt was converted to stock in the
Company at a rate of $1.52 per share which resulted in a gain from restructuring
of $129,902; (ii) $101,358 was forgiven; and (iii) approximately $106,000 was
converted to promissory notes with terms of up to 24 months.  This resulted in
an extraordinary gain of $231,260.  Subsequent to the fiscal year ended
September 30, 1996, the Company completed agreements with trade creditors such
that (i) $378,000 of trade payables were converted to stock at the rate $1.52
per share; (ii) $100,000 was forgiven; and (iii) $162,000 was converted to a 24
month promissory note.

     With regard to the restructuring of certain notes payable, $292,500 was
converted to shares of the Company's common stock at a rate of $.25 per share
(the same pro rata price per share as sold in the Company's private placement)
during the fourth quarter of fiscal 1996.  See Notes 4 and 5 to the Financial
Statements included herein.

     Management believes that with: (i) the completion of the above mentioned
restructuring of its debt; (ii) the equity infusion that it has received
subsequent to the Company's fiscal year end September 30, 1996; (iii) the
increase in trade credit which the Company has received upon the aforementioned
debt restructuring; and (iv) the expansion of the Company's marketing efforts
and sales territory expansion the Company will be able to achieve sales
increases by reducing the limiting effects that the Company's lack of working
capital have had on marketing and the ability to obtain products necessary to
accept and fill customer orders on a timely basis, and allow the Company to
refinance outstanding debt when it comes due in fiscal 1997.  The increases in
sales should ultimately allow the Company to return to profitability and
generate positive cash flows.

     There can be no assurance that the Company will be able to increase sales
levels to achieve profitability which could force the Company to significantly
reduce its operations in order to reduce expenses or take other actions to
resolve liquidity constraints that may arise.


                                      F-11

<PAGE>

                    FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

     3.   NOTES PAYABLE - BANK

     The Company's principal credit facility is a revolving credit facility with
Silicon.  The line of credit, which is secured by essentially all of the
Company's assets, initially provided for borrowings of up to $4,000,000, limited
to (i) 80% of the amount of eligible accounts receivable; and (ii) the lesser of
$1,500,000 or 50% of the book value of eligible inventories, reduced by trade
accounts payable.  The line of credit provided for the payment of interest
monthly at the rate of 1% over the bank's prime rate for borrowings
collateralized by accounts receivable and 3% over the bank's prime rate for
borrowings collateralized by inventory.  The line of credit was scheduled to
mature on February 5, 1995.

     In January 1994, Silicon extended the Company a supplemental $1,000,000
revolving line of credit facility, $750,000 of which was to be used solely for
the acquisition of POI, with the remaining $250,000 for the use in the future
acquisition of a separate distributorship.  Silicon also agreed to increase the
limit on inventory borrowings to the lesser of $2,000,000 or 50% of the book
value of eligible inventories, net of trade accounts payable, upon the Company's
repayment of the supplemental line of credit.  The supplemental line of credit
was repaid in August 1994.  In March 1994, in connection with the Company's
acquisition of MOI, Silicon increased the overall limit on the line of credit to
$5,500,000.

     In connection with the increase in the line of credit and the extension of
a supplemental credit facility, the Company paid loan origination fees of $2,500
and issued to Silicon warrants to purchase an aggregate of 40,000 shares of
common stock at an exercise price of $5.00 per share exercisable through March
31, 1999.  In October 1994, the Company reduced the exercise price of the
warrant to purchase 40,000 shares of common stock and that of the warrant to
purchase 4,119 shares of common stock issued to Silicon in April 1992, to $1.30
per share for exercises before January 31, 1995.  In November 1994, the exercise
price was further reduced to $1.00 per share for exercises before February 28,
1995.

     During fiscal 1995, the balance outstanding under the line of credit
exceeded the amount available under the borrowing formula and the Company was
otherwise in default with respect to certain provisions of the line of credit
agreement.  On April 1, 1995, Silicon agreed to extend the terms of the
Company's line of credit, as generally in effect in the original agreement,
through February 6, 1996 (subsequently extended to April 15, 1996), and agreed
to forbear in the exercise of its rights resulting from the Company's past
defaults or defaults in the future compliance with the financial covenants, and
to advance the Company an additional $500,000 (the "flat rate loan"),
conditioned upon the Company's agreement to make certain scheduled reductions in
both: (a) the amount of the total borrowings outstanding; and (b) the amount by
which total borrowings exceeded the amount available under the collateral
formula.  Under the extended agreement all borrowings bear interest, payable
monthly, at the annual rate of 3% above Silicon's prime rate, subject to
reduction as the amount  of the Company's over formula borrowing decreases.  In
addition, the Company agreed to modify the terms of warrants to purchase 44,119
shares of common stock to provide for exercise at a price of $.50 per share
through March 31, 2000.

     Throughout fiscal 1996, the Company continued to be in default of the
provisions in the credit agreement with Silicon.  At September 30, 1996,
principal of $4,375,304 and accrued interest of $443,394 were outstanding under
the line of credit.

      In September 1996, the Company reached an agreement with Silicon on an
Amended and Restated Loan and Security Agreement ("Amended Agreement") such that
Silicon agreed to convert approximately $3 million of amounts owed to it by the
Company under its Line of Credit into shares of the Company's common stock at
the rate of $1.52 per share.  As a result of the conversion, Silicon further


                                      F-12
<PAGE>

                    FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

agreed to extend the maturity date with respect to the remaining $1.8 million
under the Line of Credit to July 1997.  The agreement was conditioned on,
amongst other things, the Company's receipt of at least $1 million in cash and
the personal guarantees (for an amount not to exceed $200,000 in the aggregate)
of certain officers of the Company.

     In November 1996, in connection with a private placement of equity, the
Company exceeded the $1,000,000 receipt of capital requirement and its officers
executed personal guarantees.  As a result of the conversion of $3,160,327, the
amount owed to Silicon less the $1.8 million facility, the Company will record
an extraordinary gain of $2,495,412 during the first quarter of fiscal 1997.
See Note 11.

     The Amended Agreement provides for the Company to receive advances against
the line of credit for the lower of $1.8 million or the amounts supported by a
formula derived borrowing base.  The borrowing base is equal to (i) 80% of the
amount of eligible accounts receivable and (ii) 50% of eligible inventories or
$1,000,000.  The lending rate on the Amended Agreement is 2% over Silicon's
prime rate and is payable on a monthly basis.


     4.   SHORT TERM DEBT - RELATED PARTY

     In September 1995, Michael J. Carroll and James J. Urban, the Company's
President/Chief Executive Officer and Senior Vice President/Chief Operating
Officer, respectively, loaned an aggregate of $100,000 to the Company in
exchange for 90-day promissory notes.  In addition, Linda Zimdars, a member of
the Company's Board of Directors, loaned $100,000 to the Company in exchange for
90-day promissory notes. The notes to Ms. Zimdars were personally guaranteed by
Messrs. M. Carroll and Urban.  The notes bear interest at 15% per annum.  In
December 1995, a payment of $10,000 was made on the note to Messrs. Carroll and
Urban and a payment of $10,000 was made on the note to Ms. Zimdars.  In April
1996, the notes were amended to extend their maturity to July 1, 1996, and in
September 1996, the notes were converted to common stock in the Company at the
conversion rate of $.25 per share.

     In December 1995, the Company borrowed an additional $280,000 under 60-day
promissory notes bearing interest at 6% per annum and note origination fees of
$17,000 (6%).  Of the aggregate of $280,000:  (i) $50,000 was borrowed from each
of Michael Carroll and James Urban; (ii) $80,000 was borrowed from Ms. Zimdars;
and (iii) $100,000 was borrowed from Tiger Eye Capital, L.L.C. ("Tiger Eye").
The notes were repaid in February 1996.  Tiger Eye has consulting agreements
with the Company which provide for the issuance of 600,000 shares of common
stock in connection with the rendering of investor and public relations
services.  (see Note 6).

     In February 1996, the Company borrowed $150,000 from Messrs. M. Carroll and
Urban, and Ms. Zimdars under 24-day promissory notes bearing interest at the
rate of 1% per annum above the prime lending rate in effect from time to time.
A loan origination fee of 6% was also paid.  Of the aggregate of $150,000,
$50,000 was borrowed from each of Messrs. M. Carroll and Urban, and Ms. Zimdars.
In March 1996, a payment of $12,500 was made to each of Messrs. M. Carroll and
Urban, and in May 1996, the balance of the notes to Messrs. M. Carroll and Urban
were repaid.  The note to Ms. Zimdars was also repaid in May 1996.

     During August 1996, the Company borrowed $215,000 from an individual under
a 30 day promissory note bearing interest at 10% per annum and a note
origination fee of $6,450.  In October, the note was converted to 860,000 shares
of common stock in the Company as participation in the Company's Private
Placement offering which commenced on October 1, 1996.  In addition, warrants
exercisable for $1.00 were also issued as part of the participation in the
aforementioned Private Placement offering.


                                      F-13
<PAGE>

                    FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

     5.   LONG-TERM DEBT

     Long-term debt consists of the following:
<TABLE>
<CAPTION>

                                                                                    September 30,
                                                                                    -------------
                                                                               1995           1996
                                                                               ----           ----
<S>                                                                         <C>             <C>
Notes payable collateralized by automobiles and trucks,
   with interest rates between 4.8% and 9.3%, principal
   and interest payable monthly, due on or before February 1998             $  30,288       $ 16,161

9% notes payable, due on July 1, 1996                                         137,500         25,000

5% convertible notes payable                                                   25,000              -

6.3% trade creditor promissory note payable monthly
     through November 1998                                                    510,000        540,000

10% trade creditor promissory note payable monthly
   from December 1996 through November 1998
   of which $13,326 represents amounts for deferred interest                        -         79,956
                                                                            ---------       --------

Total long-term debt                                                          702,788        661,117

Less current portion                                                          324,660        567,395
                                                                            ---------       --------

Long-term debt, less current portion                                        $ 378,128       $ 93,722
                                                                            ---------       --------
                                                                            ---------       --------
</TABLE>


     The aggregate amounts of long term debt mature as follows:

     Year ending September 30,                               Amount
     -------------------------                               ------

          1997                                              $567,395
          1998                                                90,947
          1999                                                 2,775
          ----                                              --------
          Total                                             $661,117
                                                            --------
                                                            --------

     During 1994, the Company issued $1,150,000 in principal amount of 5%
convertible promissory notes (the "5% Notes") and 9% promissory notes (the "9%
Notes").  The net proceeds were used to fund the cash consideration paid in
connection with the Company's acquisition of MOI.

     The outstanding principal of the 5% Notes was convertible into shares of
Common Stock at the rate of $3.00 per share, or $2.50 per share if the holder
elected to extend the maturity date of a note past December 31, 1995, on an all
or none basis, by notice of conversion to the Company after June 30, 1995 and up
to the maturity date, or at any time within thirty days of issuance of a notice
of prepayment by the Company.  In the event that the closing bid price per share
of common stock equaled or exceeded $8.00 for five consecutive trading days,
then, at the Company's election and immediately upon the issuance of a notice by
the Company, the outstanding principal and interest under each 5% Note would be
converted into shares of common stock at the rate of $3.00 per share.


                                      F-14

<PAGE>

                    FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

     During fiscal 1995, the Company on three occasions elected to reduce the
conversion rate applicable to the 5% Notes, first in October 1994 to $1.50 per
share, then in December 1994 to $1.00 per share, and then in April 1995 (and to
extend the maturity date of the 5% Notes) to $.50 per share.  During the third
quarter of fiscal 1995, the holders of an aggregate of $987,500 of the 5% Notes
elected conversion at $.50 per share and were issued an aggregate of 1,975,000
shares of common stock.

     Officers or directors of the Company were purchasers of an aggregate of
$362,500 of 5% Notes (which were subsequently converted into 725,000 shares of
common stock in connection with the third quarter fiscal 1995 conversion
described above) and $62,500 of 9% Notes.

     In September 1996, in connection with the Company's debt restructuring, the
Company elected to provide a conversion rate on the 9% Notes such that the
amounts outstanding under the 9% Notes could be converted at the rate of $.25
per share (the rate at which the Company commenced a Private Placement of Equity
in the Company on October 1, 1996).

     During August 1996, the Company reached agreement with a trade creditor in
which of the $222,104 owed, $66,631 would be converted to a 24 month promissory
note with simple interest at 10%, and the balance, $155,473, would be converted
into 102,285 shares of the Company's common stock (a conversion rate of $1.52
per share).

     The Company believes that the interest rates on its long-term debt are
generally below the rates that would currently be available for similar debt
instruments issued by similar borrowers, and that as a result, the market value
of the Company's long-term debt is less than the carrying amount.  However, a
determination of the specific market value of the Company's long-term debt would
involve excessive costs.



     6.   STOCKHOLDERS' EQUITY (DEFICIT)

     (A)  COMMON STOCK AND COMMON STOCK WARRANT TRANSACTIONS (THE "SECURITIES
          TRANSACTIONS")

     In addition to the Securities Transactions described in Notes 3, 4 and 5
above, the following occurred during fiscal 1995 and 1996:

     In connection with the Company's July 1994 acquisition of MOI, the Company
entered into an agreement with MOI's owners, who are now the Company's chief 
executive officer and chief operating officer (Michael J. Carroll and James 
J. Urban, respectively), to issue common stock with an aggregate value of 
$800,000, ($400,000 in July 1995 and $400,000 in July 1996) at the then 
market prices.  The agreement was amended in April, 1995 to provide for 
immediate settlement, and the Company satisfied the total obligation by 
issuing 1,600,000 shares of common stock at a value of $.50 per share, which 
reflected the current market price.

     The issuance of 210,526 of such shares at a value of $800,000 had been
reflected in the financial statements at the time of the acquisition, and in 
the third quarter of 1995 the Company recorded the issuance of the 1,389,474 
shares.


                                      F-15

<PAGE>

                    FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

     The MOI acquisition also resulted in the issuance of a $300,000 note
payable, due $150,000 in July, 1995 and $150,000 July, 1996.  During the third
quarter of 1995 the holders of note (Michael J. Carroll and James J. Urban),
agreed to convert the note into common stock at the rate of $.50 per share,
resulting in the issuance of 600,000 shares.

     In April 1995, the Company issued an aggregate of 250,000 shares of Common
Stock to Michael Carroll and James Urban for cash proceeds of $125,000.

     In June 1995, the Company entered into a consulting agreement and a finders
agreement with Tiger Eye, which agreements contemplated the issuance of an
aggregate of 500,000 shares of common stock by the Company in exchange for the
services to be provided by Tiger Eye thereunder.  In April 1996, such agreements
were amended to provide for performance thereunder at such time as the Company
became current in its public reporting under the Securities Exchange Act of 1934
(the "Exchange Act").

     In December 1995, the Company entered into a consulting agreement with
Tiger Eye which provides for the rendering of investor and public relations
services.  Pursuant to such agreement, Tiger Eye was entitled to receive 300,000
shares of common stock: 100,000 of which were issuable upon execution of the
agreement and 33,333 of which were issuable each month through June 1996.  The
initial term of the agreement commenced January 1, 1996.  Such agreement was
amended to provide for performance thereunder at such time as the Company became
current in its public reporting under the Exchange Act.

     In July, pursuant to the terms of the aforementioned agreements, as
amended, between the Company and Tiger Eye, the Company issued 600,000 shares of
the Company's common stock to Tiger Eye.  As a result of the above, the Company
recorded an expense of $300,000 during the fourth quarter of fiscal 1996.


     (B)  OUTSTANDING STOCK PURCHASE WARRANTS

     The following sets forth the common stock purchase warrants outstanding
which were exercisable as of September 30, 1996:

     Shares Obtainable        Per Share           Exercisable
     on Exercise              Exercise Price      Through
     -----------              --------------      -------

     44,119                   $.50                March 2000

     25,000                   $1.00               December 1997

     2,187,500                $5.00               July 1998

     In addition, the underwriters of the Company's initial public offering
received a warrant to purchase 125,000 units, exercisable at $6.40 per unit
through July 1998.  Each unit consists of one share of common stock and one
warrant exercisable at $5.00 per share through July 1998.


                                      F-16

<PAGE>

                    FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

     (C)  STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

     In February 1993, the Company adopted the Franklin Ophthalmic Instruments
Co., Inc. 1993 Stock Option and Appreciation Rights Plan (the "1993 Plan") which
provides for the grant of options to officers, directors, employees and
consultants to purchase not more than an aggregate of 200,000 shares of common
stock.  The 1993 Plan provides for the grant of options intended to qualify as
"incentive stock options" under Section 422 of the Internal Revenue Code, as
amended, as well as options which do not so qualify.

     With respect to qualified options, no option may be granted more than ten
years after the effective date of the 1993 Plan or exercised more than ten years
after the date of grant (five years if the optionee owns more than ten percent
of the common stock of the Company).  The option price may not be less than 100
percent of the fair market value of the common stock on the date of the grant
(110 percent if the optionee owns more than ten percent of the common stock of
the Company).  Subject to certain limited exceptions, options may not be
exercised unless, at the time of exercise, the optionee is in the service of the
Company.  The options to be granted under the 1993 Plan included options to
purchase shares of common stock pursuant to a formula by which each non-employee
director is granted non-qualified options to purchase 15,000 shares of common
stock each year.

     The 1993 Plan was subsequently amended in December 1993 and January 1994 to
ensure compliance with federal and state securities laws, and to permit an
option holder to arrange for a "cashless exercise" wherein an option may be
exercised and the common stock sold on the same day with a portion of the
proceeds from the sale delivered to the Company to pay the exercise price of the
option.  These amendments were approved by the shareholders at the annual
shareholders' meeting held on March 11, 1994.

     In December 1993, the Company's Board of Directors adopted (subject to
shareholder approval which was subsequently obtained) the Franklin Ophthalmic
Instruments Co., Inc., 1994 Combined Stock Option and Appreciation Rights Plan
(the "1994 Plan").  The 1994 Plan was also amended to conform with state
securities laws.  The shareholders approved the adoption of the 1994 Plan and
its amendments at the annual shareholders' meeting held on March 11, 1994.

     The terms and conditions of the 1994 Plan are substantially identical to
those of the 1993 Plan with the following two significant differences: (i) the
number of shares of common stock available to purchase through the grant of
options and rights under the 1994 Plan aggregates 330,000; and (ii) directors
who are not also employees are not eligible to participate in the 1994 Plan.

     The following sets forth the activity for the 1993 Plan and the 1994 Plan
for fiscal 1995 and 1996:
<TABLE>
<CAPTION>

                                                  1993 Plan                           1994 Plan
                                                  ----------                          ----------
                                             Shares      Exercise Price          Shares       Exercise Price
                                             -------     --------------          ------       --------------
<S>                                          <C>         <C>                     <C>          <C>
Outstanding at September 30, 1994            120,000     $ 4.00-5.625            249,000      $2.625-3.19
Fiscal 1995
  Granted                                     30,000     $        .75                  -                -
  Forfeited                                  (60,000)    $4.625-5.625           (153,000)     $2.625-3.19
                                             -------      -----------           --------       ----------
Outstanding at September 30, 1995             90,000     $ .75 -4.625             96,000      $2.625-3.19

Fiscal 1996
  Granted                                     30,000     $        .50                  -                -
  Forfeited                                        -                -            (28,500)     $2.625-3.19
                                             ------------------------           -------------------------
Outstanding at September 30, 1996            120,000     $  50- 4.625             67,500      $2.625-3.19
</TABLE>


     All outstanding options reflected above are currently exercisable.


                                      F-17

<PAGE>

                    FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

     7.   INCOME TAXES

     The following sets forth the deferred tax assets and liabilities resulting
from temporary differences between the financial reporting and tax bases of
assets and liabilities:

                                                           September 30,
                                                           -------------
                                                        1995          1996
                                                        ----          ----
     Deductible temporary differences
     Net operating loss carryforwards               $ 3,000,000    $3,700,000
     Allowance for doubtful accounts                    140,000        16,000
     Valuation reserve for inventory obsolescence        60,000        40,000
     Valuation allowance for deferred tax assets     (3,200,000)   (3,756,000)
                                                    -----------    ----------
          Net deferred tax asset                    $         -    $        -
                                                    -----------    ----------

     Due to the uncertainty of realizing the deferred tax asset in the future,
the Company has recorded a valuation allowance equaling the deferred tax asset.

     As of September 30, 1996, the Company has net operating loss carryforwards
of approximately $9,300,000 which may be used to reduce taxable income and
income taxes in future years.  The availability of certain operating loss
carryforwards to offset future years' taxable income is subject to certain
limitations due to changes in the Company's ownership during the year ended
September 30, 1993.  The carryforwards expire from fiscal 2006 to fiscal 2011.

     8.   COMMITMENTS AND CAPITAL LEASE OBLIGATIONS

     The Company leases office, warehouse and service facilities under operating
leases through 2001.  Rent expense (net of sublease income) was $143,523 for the
year ended September 30, 1995 and $157,411 for the year ended September 30,
1996.

     Future obligations under the noncancellable operating leases with initial
remaining terms in excess of one year at September 30, 1996 are as follows:


     Year Ending         Minimum             Minimum
     September 30,       Rental Payments     Sublease Income           Net
     -------------       ---------------     ---------------           ---

     1997                $188,100               $54,015             $134,085
     1998                 188,100                55,464              132,636
     1999                 182,665                56,907              125,758
     2000                 122,880                     -              122,880
     2001                  71,680                     -               71,680
                         --------              --------             --------

     Total               $753,425              $166,386             $587,039
                         --------              --------             --------
                         --------              --------             --------


     The Company leases equipment under capital lease financing arrangements.
Amortization expense associated with the equipment leases for the years ended
September 30, 1995 and 1996 was $25,964 and $15,974 respectively.


                                      F-18
<PAGE>

                    FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

     Future minimum capital lease payments are as follows:

          Year Ending September 30,                   Amount
          -------------------------                   ------
               1997                                  $21,079
               1998                                   21,079
               1999                                   15,994
               2000                                      205
                                                     -------
          Total before interest deduction             58,357
          Less amount representing interest            9,729
                                                     -------
          Capital lease obligations                  $48,628
                                                     -------
                                                     -------

     9.   STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                        FOR THE YEAR
                                                                     ENDED SEPTEMBER 30,
                                                                     -------------------
                                                                     1995           1996
                                                                     ----           ----
<S>                                                             <C>            <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for
     Interest                                                   $   607,840    $   400,846
                                                                -----------    -----------
                                                                -----------    -----------
     Income taxes                                               $         -    $     3,000
                                                                -----------    -----------
                                                                -----------    -----------

Supplemental schedule of non-cash investing and
     financing activities:

     Contribution to capital (forgiveness of debt)              $   200,000        $     -
     Note payable issued to vendor for trade debt from
          inventory purchases                                       510,000         66,631
     Common stock issued for software rights                         45,000              -
     Common stock issued in connection with the
          conversion of debt                                      1,287,500        318,071
     Common stock issued for services                                     -        312,374
                                                                -----------    -----------

     Total non-cash investing and financing activities          $ 2,042,500    $   697,076
                                                                -----------    -----------
                                                                -----------    -----------
</TABLE>

     10.  RELATED PARTY TRANSACTIONS

     The Company has an agreement with a sole proprietorship, owned by Linda S.
Zimdars, a member of the Board of Directors, to provide consulting services.
Fees paid to this sole proprietorship during fiscal 1995 and 1996 were $15,750
and $21,000, respectively.


                                      F-19

<PAGE>

                    FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

     11.  SUBSEQUENT EVENTS (UNAUDITED)

     During the first quarter of fiscal 1997, the Company raised $1,200,250 of
capital through the sale of 2,400,500 Units which were sold pursuant to a
private placement of Units (each Unit consisting of two shares of common stock
and one common stock purchase warrant).  The sale of the 2,400,500 Units
exceeded the minimum of 2,000,000 Units required pursuant to the terms of the
private placement, which is being conducted by the Company on a "best efforts"
basis and provides for the sale and offer of up to a maximum of 3,200,000 Units.
With the amount raised in the aforementioned private placement, the Company met
the $1 million capital-raising requirement that was conditioned in its agreement
with Silicon, and together with the effectiveness of personal guarantees by
Messrs. M. Carroll, J. Urban and B. Carroll, the Company has met all remaining
conditions necessary for the execution of the Company's agreement with Silicon.
In addition, the Company has completed agreements with trade creditors during
November and December 1996 such that: (i) $378,000 of trade-debt would be
converted to common stock at a price of $1.52 per share; (ii) $162,000 would be
converted to a 24 month promissory note commencing November 15, 1996; and (iii)
$100,000 would be forgiven.

     Supplementary earnings per share data to reflect the impact of these
transactions during the year ended September 30, 1996 are as follows:

     Supplementary Loss Before Extraordinary Item                $1,826,485
                                                                 ----------
                                                                 ----------

     Supplementary Net Loss                                      $1,595,325
                                                                 ----------
                                                                 ----------

     Supplementary Loss Before Extraordinary Item Per Share             .12
                                                                 ----------
                                                                 ----------

     Supplementary Net Loss Per Share                                   .11
                                                                 ----------
                                                                 ----------

     Supplementary Weighted Average Shares Outstanding           14,983,240
                                                                 ----------
                                                                 ----------


                                      F-20
<PAGE>

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

     On November 27, 1995, the Company's Board of Directors dismissed the firm
of Marinelli & Scott as the Company's independent public accountants.  Effective
as of the same date, the Company retained BDO Seidman LLP to serve as its
independent public accountants.  The forgoing events were reported and are more
fully described in the Amended and Restated Current Report on Form 8-K/A #1,
dated November 27, 1995, which was filed by the Company with the Securities and
Exchange Commission (the "Commission") on December 6, 1995 (File No. 0-21852)
and is herein incorporated by reference.

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

Name                     Age       Position with the Company
----                     ---       -------------------------

Michael J. Carroll       57        President, Chief Executive Officer and
                                   Director

James J. Urban           59        Senior Vice President, Chief Operating
                                   Officer and Director

Brian M. Carroll         33        Vice-President and Chief Financial Officer

Philip G. Winters        47        Director

Linda S. Zimdars         34        Secretary and Director


MANAGEMENT BIOGRAPHIES

     MICHAEL J. CARROLL was appointed President of the Company effective January
1, 1995.  In April 1995, Mr. Carroll was also appointed Chief Executive Officer
and a director of the Company upon the resignation of Robert A. Davis, the
Company's previous President and Chief Executive Officer.  Prior to joining the
Company, Mr. Carroll, along with James J. Urban, was a stockholder/founder of
MOI, until July 1994 when all of the outstanding capital stock of MOI was
acquired by the Company.  Mr. Carroll was Vice President and Sales Manager of
MOI.  Prior to the organization of MOI in 1982, Mr. Carroll held various
executive positions in ophthalmic instrument and optical firms including Vice
President of House of Vision, Inc. (a firm in the business of manufacturing
optical products and the distribution of ophthalmic instruments with over 150
locations and approximately 1,100 employees).

     JAMES J. URBAN was appointed Executive Vice President effective January 1,
1995 and Chairman of the Board of Directors upon the resignation of Dallas
Talley on April 1, 1995.  Prior to joining the Company, Mr. Urban, along with
Mr. Carroll was stockholder/founder of MOI, until July 1994 when all of the
outstanding capital stock of MOI was acquired by the Company.  Mr. Urban served
as President of MOI from its incorporation in 1982.  Prior to the inception of
MOI, Mr. Urban held various executive positions with several ophthalmic
instrument distribution companies.

     BRIAN M. CARROLL was appointed Vice President and Chief Financial Officer
effective April 1, 1995.  Mr. Carroll was co-founder of MOI's digital imaging
division and Doctors Financial Services, Inc. ("DFS").  DFS was a
finance/leasing company concentrating in the ophthalmic industry.  Mr. Carroll
holds a B.A. degree in finance from Loyola University of Chicago, an M.B.A.
degree in accounting from DePaul University and a J.D. degree from The John
Marshall Law School.  Brian M. Carroll is the son of Michael J. Carroll.


                                       13

<PAGE>


     PHILIP G. WINTERS has been a Director of the Company since October 1992.
Dr. Winters is a dentist and has owned and operated his own general dentistry
practice in San Mateo, California since 1976.

     LINDA S. ZIMDARS has been a Director and Secretary of the Company since
June 1992.  Ms. Zimdars currently serves as a consultant to the Company.  See
"Consulting and Other Arrangements" below.  Prior to 1995, Ms. Zimdars was Vice
President and Branch Manager of Redwood Bank, with whom the Company had a
banking relationship from 1984 until approximately April 1995.


CLASSIFICATION OF THE BOARD OF DIRECTORS

     The Board of Directors is classified into three classes:  Class I, Class
II, and Class III.  Each member of the Board of Directors serves for a term of
three years or until a successor has been elected and qualified.  The structure
of the Board of Directors contemplates that the members of one class thereof
would be elected at each annual meeting of stockholders.  Class II were expected
to stand for re-election in 1996.  Class I directors were expected to stand for
re-election at the annual meeting of shareholders in 1995.  Each member of the
Board of Directors the elected will serve a term of three years or until a
successor has been elected and qualified.  The classification of the Board of
Directors, with staggered terms of office, was implemented for the purpose of
maintaining continuity of management and of the Board of Directors.

     The Board of Directors has designated the following persons to serve in the
respective classes as noted:  Class I - Michael J. Carroll; Class II - James J.
Urban; and Class III - Linda S. Zimdars and Philip G. Winters.  Messrs. Carroll
and Urban succeeded to such classes upon the respective resignations of Messrs.
Davis and Talley.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

     Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of their capacity or status as directors and officers
provided that this provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) arising
under Section 174 of the Delaware general Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit.  The
Delaware General Corporation Law provides further that the indemnification
permitted thereunder shall not be deemed exclusive of any other rights to which
the directors and officers may be entitled under the corporation's by-laws, any
agreement, vote of shareholders or otherwise.  The Company's Certificate of
Incorporation eliminates the personal liability of directors to the fullest
extent permitted by Section 102(b)(7) of the Delaware General Corporation Law.

     The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.

     Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.

COMMITTEES OF THE BOARD OF DIRECTORS

     The Board of Directors has established an Audit Committee, an Executive
Compensation Committee and a Stock Option Committee.  Mr. Winters and Ms.
Zimdars are the only members of the above referenced Committees.  The Audit
Committee recommends to the Board of Directors' independent public accountants
for the Company and reviews related matters.  The Executive Compensation
Committee reviews and recommends

                                       14

<PAGE>

the compensation of executive officers and key employees.  The Stock Option
Committee administers the Company's stock option plans.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OF 1934

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

     Based solely upon a review of Forms 3, Forms 4 and Forms 5 furnished to the
Company pursuant to Rule 16a-3 under the Exchange Act, it is the Company's
belief that, other than as set forth below, any such forms required to be filed
pursuant to Section 16(a) of the Exchange Act were filed, as necessary, by the
officers, directors and securityholders required to file the same.

ITEM 10.  EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

     The following sets forth the aggregate compensation paid to the Company's
Chief Executive Officer  for services rendered to the Company during the fiscal
years indicated.  None of the Company's executive officers who served as such at
the end of the last fiscal year earned in excess of $100,000 during the fiscal
years ended September 30, 1995 and 1996.

<TABLE>
<CAPTION>

                            Annual Compensation            Long  Term Compensation

Name and Position    Year   Salary   Bonus  Compensation   Awards   SARS (#)   Compensation
-----------------
<S>                  <C>    <C>      <C>    <C>            <C>      <C>        <C>
Michael J. Carroll   1996   $66,000    -       $6,000         -        -             -
President & Chief    1995   $78,445    -       $6,000         -        -             -
Executive Officer

</TABLE>

STOCK OPTION PLANS

     The Company currently has two stock option plans:  (i) the Franklin
Ophthalmic Instruments, Co., Inc. 1993 Stock Option and Appreciation Rights Plan
(the "1993 Stock Option Plan"); and (ii) the Franklin Ophthalmic Instruments
Co., Inc. 1994 Stock Option and Appreciation Rights Plan (the "1994 Stock Option
Plan").

     The 1993 Stock Option Plan provides for the grant of options to officers,
directors (including employee and non-employee directors), employees and
consultants to purchase not more than an aggregate of 200,000 shares of common
stock of the Company.  The 1994 Stock Option Plan is substantially similar to
the 1993 Stock Option Plan except that it provides for the grant of options to
officers, directors (who are also employees), employees and consultants to
purchase not more than an aggregate of 330,000 shares of common stock.  The 1993
Stock Option Plan and the 1994 Stock Option Plan (collectively the "Stock Option
Plans" ) provide for: (i) the grant of options intended to qualify as "incentive
stock options" under Section 422 of the Internal Revenue Code of 1986, as
amended; and (ii) the grant of options which do not so qualify. As of the date
hereof, there are two employee directors (Messrs. M. Carroll and J. Urban), two
non-employee directors (Dr. Winters and Ms. Zimdars) and 2 additional employees
that are eligible participants in the 1994 Stock Option Plan.  In addition,
stock appreciation rights may be granted in conjunction with the grant of
options under the Stock Option Plans.

     Subject to Rule 16b-3 under the Exchange Act, each Stock Option Plan shall
be administered by: (i) the Board of Directors, if each member of the Board of
Directors is a "disinterested person" (as defined under Rule 16b-3); or (ii) a
committee (the "Committee") of not less than two members of the Board of
Directors, each of

                                       15

<PAGE>

whom is a "disinterested person."  The Board of Directors or the Committee
generally has the authority, subject to the provisions of the Stock Option
Plans, to determine the individuals to whom and the date on which discretionary
options and rights are to be granted, the number of shares to be subject to
options and rights, the exercise price of shares subject to options and rights,
the terms of any vesting forfeiture schedule and the other terms and provisions
of options and rights.  The 1993 Stock Option Plan and the 1994 Stock Option
Plan are separately administered by the Committee comprised of Linda S. Zimdars
and Philip G. Winters.

     While the price at which shares of common stock subject to an option may be
purchased shall be determined by the Board of Directors or the Committee, as
applicable, pursuant to the provisions of the Stock Options Plans, the purchase
price of shares of common stock issuable upon exercise of an incentive option
must not be less than 100% of the fair market value of such shares on the date
such incentive option is granted and the exercise price of a non-qualified
option shall not be less than 85% of the fair market value of the common stock
on the date of grant thereof.

     The 1993 Stock Option Plan includes a formula granting (on a non-
discretionary basis) each director in office, who is not also an employee, on
the third Monday in June of each year in which the 1993 Stock Option Plan is in
effect, non-qualified options to purchase 15,000 shares of common stock at price
per share determined by a formula set forth in the provisions of the 1993 Stock
Option Plan based on the trading price of the common stock on the date of grant
of such options.  The 1994 Stock Option Plan does not provide a formula for non-
discretionary grants of options.

     Pursuant to the formula contained in the 1993 Stock Option Plan, non-
qualified options to purchase an aggregate of 120,000 shares of common stock had
been issued as of June 1995 to two non-employee directors (Dr. Winters and Ms.
Zimdars) at exercise prices of $4.00, $4.625, $.75 per share, and $.50 per
share.  Options previously issued to Messrs. Davis and Talley expired
unexercised during fiscal 1995.  Except as set forth above, no other options or
rights were granted during fiscal 1995 or fiscal 1996 under the Stock Option
Plans.

     The Board of Directors or the Committee, as applicable, may require as a
condition to the grant of any option or right, that the grantee enter into a
stock option agreement which shall require, among other things, that with
respect to any options granted to directors or officers, at least six months
must elapse from the date such options are granted to the date on which any
share of common stock underlying such options are sold or any right associated
with such option is exercised, unless the Board of Directors or the Committee,
as applicable, otherwise consents in writing.  No options may be granted under
the Stock Option Plans more than ten years after the date of approval of the
Stock Option Plans by the stockholders.  Options granted under the Stock Option
Plans are not transferable except upon death.  Except for options granted to
non-employee directors under the non-discretionary formula, options may be
exercised only while the option holder is employed by the Company, or in some
cases, within three months of termination of employment.

OPTIONS/SARA GRANTS IN LAST FISCAL YEAR

     None.

AGGREGATE OPTION/SARA EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SARA VALUES

     None.

EMPLOYMENT AGREEMENTS

     In connection with the purchase of MOI, , the Company entered into
employment agreements with Michael J. Carroll, currently President, Chief
Executive Officer and Director of the Company, James J. Urban, currently Senior
Vice President and Chief Operating Officer, and Brian M. Carroll, currently Vice
President and Chief Financial Officer.  Pursuant to the terms thereof, each such
employment agreement provides for an initial term of three years ending June 29,
1997, subject to automatic extension for a period of two years, unless earlier
terminated by the Company.  Thereafter, each employment agreement provides for
extension on a year to year basis.  Such agreements provided that Michael
Carroll and James Urban were to receive salaries of $78,000 per year and Brian
Carroll was to receive a salary of $60,000.  Michael Carroll and James Urban
voluntarily reduced

                                       16

<PAGE>

their salary in fiscal 1995 such that each now receives an annual salary of
$66,000.  Each of the employment agreements provides for bonuses at the
discretion of the Company and reimbursement of business expenses and each such
agreement contains a non-compete and confidentiality provision.  Such agreements
may be terminated by the Company for "Just Cause" (as such term is defined in
the employment agreements  including, without limitation, violations of the
Company's policies and indictment or conviction for criminal acts) or at the
Company's sole discretion (in which case severance payments must be made by the
Company equal to nine months of salary under the terminated agreement).

CONSULTING AND OTHER ARRANGEMENTS

     In December 1994, the Company entered into a one year consulting agreement
with Marketing and Acquisition Concepts pursuant to which such company will
receive consulting fees in exchange for marketing services rendered to the
Company.  During fiscal years ended September 30, 1995 and 1996, Linda S.
Zimdars, a director of the Company, received consulting fees plus expenses in
connection with rendering consulting services relating to investor relations and
other financial matters.  Ms. Zimdars received consulting fees, under the above
mentioned agreements of $15,750 for the fiscal year ended September 30, 1995 and
$21,000 for the fiscal year ended September 30, 1996. Pursuant to the terms of
the consulting agreement, such agreement is automatically renewed for one year
periods unless terminated by the Company.

REMUNERATION OF DIRECTORS

     Until March 31, 1995, directors who are not employees of the Company
received compensation of $750 per meeting attended.  Since April 1, 1995, all
meetings attended by non-employee directors have not been compensated except for
expenses incurred.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

     The following table sets forth as of the date hereof, certain information
with respect to stock ownership of (i) all persons known by the Company to be
beneficial owners of five percent or more of its outstanding Common Stock, (ii)
each of the Company's directors and executive officers, and (iii) all directors
and executive officers as a group (5 persons).  Unless otherwise indicated, the
beneficial owners have sole voting and investment power over the shares of
Common Stock listed below.

                                                      % of Outstanding Shares of
Name and Address              Number of Shares         Common Stock Beneficially
of Beneficial Owner(1)        Beneficially Owned(2)              Owned
-------------------           ------------------                 -----

Michael J. Carroll (3)             1,561,711 (4)                 16.34%

James J. Urban (3)                 1,561,710 (5)                 16.34%

Brian M. Carroll                      22,105  (6)                  .23%

Philip G. Winters                    660,000 (7)                  6.87%

Linda S. Zimdars                     670,000 (8)                  6.98%

All Executive Officers
& Directors as a Group
(5 Persons)                        4,474,526                     46.76%

(1)  Michael J. Carroll, James J. Urban, Brian M. Carroll and Linda S. Zimdars
may be contacted at 1265 Naperville Drive, Romeoville, Illinois 60446.  Philip
G. Winters may be contacted at 324 North San Mateo Drive, San Mateo, California
94401.

(2)  Unless otherwise noted, the Company believes that all of such shares are
owned of record by each individual named as beneficial owner and that such
individual has sole voting and dispositive power with respect to the shares of
common stock owned by each of them.  Such person's percentage ownership is
determined by assuming that the options or convertible securities that are held
by such person which are exercisable within 60 days from the date hereof have
been exercised or converted, as the case may be.  Does not give effect to the

                                       17

<PAGE>

exercise of: (i) an outstanding option granted to the underwriter of IPO (or the
securities underlying the same); (ii) outstanding Class A Warrants; or (iii)
other outstanding options and warrants, including those previously issued by the
Company to the Bank.

(3)  The named securityholder is an officer and director of the Company.

(4)  Includes:   (a) 71,711 shares of common stock issued by the Company in
connection with the acquisition of MOI; (b) 125,000 shares of common stock
issued by the Company in connection with the Company's execution of a
forbearance agreement with the Bank;  (c) 1,100,000 shares of common stock
issued upon conversion of $550,000 in debt owed to the noted stockholder in
connection with the Company's acquisition of MOI; (d) 255,000 shares of common
stock issued to the noted stockholder in connection with the conversion of
certain  promissory notes; and (e) 10,000 shares of common stock issuable upon
exercise of stock options.

(5)  Includes:   (a) 71,710 shares of common stock issued by the Company in
connection with the acquisition of MOI; (b) 125,000 shares of common stock
issued by the Company in connection with the Company's execution of a
forbearance agreement with the Bank;  (c) 1,100,000 shares of common stock
issued upon conversion of $550,000 in debt owed to the noted stockholder in
connection with the Company's acquisition of MOI; (d) 255,000 shares of common
stock issued to the noted stockholder in connection with the conversion of
certain  promissory notes; and (e) 10,000 shares of common stock issuable upon
exercise of stock options.

(6)  Includes (a) 17,105 shares of common stock issued to the noted stockholder
in connection with the acquisition of MOI; and (b) 5,000 shares of common stock
issuable upon exercise of stock options.

(7)  Includes (a) 60,000 shares of common stock issuable upon exercise of stock
options held by Dr. Winters; and (b) 600,000 shares of common stock issued to
Dr. Winters in connection with the conversion of a certain convertible
promissory note.

(8)  Includes (a) 585,000 shares issued to Ms. Zimdars in connection with the
conversion of certain promissory notes; (b) 60,000 shares of common stock
issuable upon exercise of stock options, and (c) 25,000 shares of common stock
issuable upon exercise of certain warrants held by Ms. Zimdars.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Michael Carroll and James Urban (each an officer and director of the
Company) along with Linda Zimdars (a director) and Dr. Philip Winters (a
director), acquired promissory notes in connection with a private debt offering
commenced by the Company in April 1994. In connection therewith, Messrs. Carroll
and Urban each purchased a 5% Convertible Note in the amount of $12,500 and each
purchased a 9% Non-Convertible Note, in the amount of $12,500.  In addition, Ms.
Zimdars purchased a 5% Convertible Note and a 9% Convertible Note, each in the
amount of $37,500.  Dr. Winters purchased a 5% Convertible Note in the principal
amount of $300,000.

     In December 1994, the Company issued a warrant exercisable to purchase
25,000 shares of Common Stock to Linda Zimdars, secretary and a director of the
Company.  Such warrant is exercisable for a period of three years at an exercise
price of $1.00 per share.

     In April 1995, Robert A. Davis, formerly an officer and director of the
Company, entered into a Separation Agreement with the Company pursuant to which
Mr. Davis resigned his position with the Company, surrendered shares of Common
Stock to the Company and forgave $200,000 in debt owed to him by the Company.
The terms of such agreements are described: (i) elsewhere in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"; and
(ii) in the Current Report on Form 8-K, dated April 1, 1995, which was filed
with the Commission on May 3, 1995 (File No. 0-21852) and is incorporated herein
by reference in its entirety, along with the exhibits thereto.

                                       18

<PAGE>

     Also in April 1995, the Company issued an aggregate of 250,000 shares of
Common Stock to Michael Carroll and James Urban for cash proceeds of $125,000.
See Note 8 to the Financial Statements set forth elsewhere herein.

     During September 1995, Michael Carroll and James Urban loaned an aggregate
of $100,000 to the Company in exchange for a demand promissory note. In
addition, Linda Zimdars loaned an aggregate of $100,000 to the Company in
exchange for a demand promissory note.  The promissory note to Linda Zimdars was
personally guaranteed by Michael Carroll and James Urban, and during September
of 1996 the balance due of $90,000 was converted to shares of the Company's
Common Stock at the rate of $.25 per share. In addition, during September of
1996, the balance due of $90,000 to Messrs. Carroll and Urban was converted to
Common Stock in the Company at the rate of $.25 per share (the same price per
share as offered in the Company's Private Placement of Equity that was commenced
on October 1, 1996).  Each of the above conversions to Messrs. Carroll and
Urban, and Ms. Zimdars provided for piggyback registration rights.

     In December 1995, in order to allow the Company to fill a large order,
promissory notes were issued by the Company in exchange for loans to the Company
by :  (a) Tiger Eye for $100,000; (b) Michael Carroll for $50,000; (c) James
Urban for $50,000; and (d) Linda Zimdars for $85,000.  The promissory notes were
for a period of 60 days and interest accrued at the rate of 6% per annum (with a
loan origination fee of 6%).  See Note 6 to the Financial Statements included
elsewhere herein.

     The Company will not permit loans or other transactions between the Company
and the officers, directors, principal shareholders, or affiliates for other
than bona fide business purposes or on terms less favorable than could be
obtained from third parties, unless approved by a majority of the disinterested
directors and the independent directors, if any, of the Company.

     For a discussion of the employment and consulting agreements to which the
Company is a party and payments of consulting and other fees to executive
officers of the Company, see "Item 10: Executive Compensation" and Notes 4(B)
and 12 to the Consolidated Financial Statements.

                                       19

<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS

     EXHIBIT
     NUMBER         TITLE OF EXHIBIT

     2.1            Asset Purchase Agreement, dated January 27, 1994, by and
                    between Franklin Ophthalmic Instruments Co., Inc. and
                    Progressive Ophthalmic Instruments, Inc. filed with the
                    Securities and Exchange Commission (the "Commission") on
                    February 14, 1994 (File No. 0-21852) as an exhibit to the
                    Company's Current Report on Form 8-K, dated January 27,
                    1994, and incorporated herein by reference.

     2.2            Stock Purchase Agreement, dated June 24, 1994, by and among
                    Franklin Ophthalmic Instruments Co., Inc., Midwest
                    Ophthalmic Instruments, Inc., Michael J. Carroll and James
                    J. Urban filed with the Securities and Exchange Commission
                    as an exhibit to the Company's Current Report on 8-K, dated
                    July 1, 1994 (File No. 0-21852), and incorporated herein by
                    reference.

     2.3            Letter Agreement, dated June 29, 1994, by and among Franklin
                    Ophthalmic Instruments Co, Inc., Midwest
                    Ophthalmic Instruments, Inc., Michael J. Carroll and James
                    J. Urban filed with the Securities and Exchange Commission
                    on July 15, 1994 as Exhibit 2.02 to the Company's Current
                    Report on Form 8-K (File No. 0-21852) and incorporated
                    herein by reference.

     3.1            Articles of Incorporation of Franklin Ophthalmic Instruments
                    Co., Inc., Delaware (Registrant) filed with the Securities
                    and Exchange Commission on March 10, 1993 as an exhibit to
                    the Company's Registration Statement on Form SB-2 (File No.
                    33-59340) and incorporated herein by reference.

     3.2            Articles of Incorporation of Franklin Ophthalmic Instruments
                    Co, Inc. (California) filed with the Securities and Exchange
                    Commission on March 10, 1993 as an exhibit to the Company's
                    Registration Statement on Form SB-2 (File No. 33-59340) and
                    incorporated herein by reference.

     3.3            Agreement and Plan of Merger Certificate between Franklin
                    Ophthalmic Instruments Co., Inc. (Delaware) and Franklin
                    Ophthalmic Instruments Co., Inc. (California) filed with the
                    Securities and Exchange Commission on March 10, 1993 as an
                    exhibit to the Company's Registration Statement on Form SB-2
                    (File No. 33-59340) and incorporated herein by reference.

     3.4            Bylaws of Franklin Ophthalmic Instruments Co., Inc.
                    (Registrant) filed with the Securities and Exchange
                    Commission on March 10, 1993 as an exhibit to the Company's
                    Registration Statement on Form SB-2 (File No. 33-59340) and
                    incorporated herein by reference.

     3.5            Certificate of Stock Designation, Franklin Ophthalmic
                    Instruments Co., Inc. (Delaware) filed with the Securities
                    and Exchange Commission on March 10, 1993 as an exhibit to
                    the Company's Registration Statement on Form SB-2 (File No.
                    33-59340) and incorporated herein by reference.

                                       20

<PAGE>

     EXHIBIT
     NUMBER         TITLE OF EXHIBIT


     4.1            Specimen Common Stock Certificate filed with the Securities
                    and Exchange Commission on June 16, 1993 as an exhibit to
                    the Company's Registration Statement on Form SB-2 (File No.
                    33-59340) and incorporated herein by reference.

     4.2            Form of Class A Warrant filed with the Securities and
                    Exchange Commission on June 16, 1993 as an exhibit to the
                    Company's Registration Statement on Form SB-2 (File No. 33-
                    59340) and incorporated herein by reference.

     4.3            Form of Unit Purchase Option Certificate filed with the
                    Securities and Exchange on March 10, 1993 as an exhibit to
                    the Company's Registration Statement on Form SB-2 (File No.
                    33-59340) and incorporated herein by reference.

     4.4            Form of Bridge Lenders' Unit Purchase Warrant filed with the
                    Securities and Exchange Commission on March 10, 1993 as an
                    exhibit to the Company's Registration Statement on Form SB-2
                    (File No. 33-59340) and incorporated by reference.

     4.5            Form of Warrant Agreement among the Company, J. Gregory and
                    Company, Inc. and Continental Stock Transfer and Trust
                    Company filed with the Securities and Exchange Commission on
                    June 16, 1993 as an exhibit to the Company's Registration
                    Statement on Form SB-2 (File No. 33-59340) and incorporated.

     4.6            Warrant issued by the Company, to Silicon Valley Bank, filed
                    with the Securities and Exchange Commission on May 10, 1993
                    as an exhibit to the Company's Registration Statement on
                    Form SB-2 (File No. 33-59340) and incorporated herein by
                    reference.

     4.7            Warrant, dated January 21, 1994, issued by the Company to
                    Silicon Valley Bank, filed with the Securities and Exchange
                    Commission as Exhibit 10.02 to the Company's Current Report
                    on Form 8-K, dated January 27, 1994 (File No. 0-21852), and
                    incorporated herein by reference.

     4.8            Warrant, dated March 31, 1994, issued by the Company to
                    Silicon Valley Bank, and corresponding Registration Rights
                    Agreement, filed with the Securities and Exchange Commission
                    as an exhibit to the Company's Current Report on Form 8-K,
                    dated July 1, 1994 (File No. 0-21852), and incorporated
                    herein by reference.

     4.9            Franklin Ophthalmic Instruments Co, Inc. 1994 Stock Option
                    and Appreciation Rights Plan, filed with the Securities and
                    Exchange Commission as an exhibit to the Company's
                    Registration Statement on Form S-8 (File No. 0-21852) and
                    incorporated herein by reference.

     4.10           Franklin Ophthalmic Instruments Co., Inc. 1993 Stock Option
                    and Appreciation Rights Plan filed with the Securities and
                    Exchange Commission on March 10, 1993 as Exhibit 10.14 to
                    the Company's Registration Statement on Form SB-2 (File No.
                    33-59340) and incorporated herein by reference.

                                       21

<PAGE>

     EXHIBIT
     NUMBER         EXHIBIT

     4.11           Promissory Note, dated January 20, 1994, executed by
                    Franklin Ophthalmic Instruments Co., Inc. in favor of
                    Silicon Valley Bank filed with the Securities and Exchange
                    Commission on February 14, 1994 (File No. 0-21852) as
                    Exhibit 10.01 to the Company's Current Report on Form 8-K,
                    dated January 27, 1994, and incorporated herein by
                    reference.

     4.12           Warrant to Purchase Common Stock, dated January 21, 1994,
                    issued by Franklin Ophthalmic Instruments, Inc. to Silicon
                    Valley Bank and corresponding Antidilution Agreement and
                    Registration Rights Agreement, filed with the Securities and
                    Exchange Commission on February 14, 1994 (File No. 0-21852)
                    as Exhibit 10.02 to the Company's Current Report on Form 8-
                    K, dated January 27, 1994, and incorporated herein by
                    reference.

     4.13           Form of Non-Negotiable 5% Convertible Promissory Note filed
                    with the Securities and Exchange Commission on August 12,
                    1994 as Exhibit 10.21 to the Company's Post-Effective
                    Amendment No. 1 to the Registration Statement on Form SB-2
                    (File No. 33-59340) and incorporated herein by reference.

     4.14           Form of Non-Negotiable 9% Promissory Note filed with the
                    Securities and Exchange Commission on August 12, 1994 as
                    Exhibit 10.22 to the Company's Post-Effective Amendment No.
                    1 to the Registration Statement on Form SB-2 (File No. 33-
                    59340) and incorporated herein by reference.

     4.15           Common Stock Purchase Warrants issued by Franklin Ophthalmic
                    Instruments Co., Inc. in December 1994 to each of Linda S.
                    Zimdars, an officer and director of the Company, and Dwayne
                    Podgurski, an employee of the Company filed with the
                    Securities and Exchange Commission as Exhibit 4.15 to the
                    Company's Annual Report on Form 10-KSB for the fiscal year
                    ended September 30, 1994 (File No. 0-21852) and incorporated
                    herein by reference.

     10.1           Loan documents evidencing loans and/or lines of credit
                    extended to the Company by Silicon Valley Bank, filed with
                    the Securities and Exchange Commission on March 10, 1993 as
                    an exhibit to the Company's Registration Statement on Form
                    SB-2 (File No. 33-59340) and incorporated herein by
                    reference.

     10.2           Loan Modification Agreement, dated January 20, 1994, between
                    Franklin Ophthalmic Instruments Co., Inc. and Silicon Valley
                    Bank filed as Exhibit 10.03 to the Company's Current Report
                    on Form 8-K, dated January 27, 1994, filed with
                    the Commission on February 14, 1994 (File No. 0-21852) and
                    incorporated herein by reference.

     10.3           Loan Modification Agreement, dated March 31, 1994 between
                    Franklin Ophthalmic Instruments Co., Inc. and Silicon Valley
                    Bank filed with the Securities and Exchange Commission on
                    July 15, 1994 as Exhibit 10.01 to the Company's Form 8-K
                    (File No. 0-21852) and incorporated herein by reference.

                                       22

<PAGE>


     EXHIBIT
     NUMBER         EXHIBIT

     10.4           Form of Employment between Franklin Ophthalmic Instruments
                    Co., Inc. and each of Michael J. Carroll and James J. Urban
                    included as an exhibit to the Stock Purchase Agreement
                    identified in Exhibit to the Stock Purchase Agreement
                    identified in Exhibit 2.2 above which was filed with the
                    Securities and Exchange Commission as an exhibit to the
                    Company's Current Report on Form 8-K, dated July 1, 1994
                    (File No. 0-21852), and incorporated herein by reference.

     10.5           Consulting Agreement, dated December 1, 1994, between
                    Franklin Ophthalmic Instruments, Co., Inc. and Marketing and
                    Acquisition Concepts, a Wisconsin sole proprietorship of
                    which Linda S. Zimdars, an officer and director of the
                    Company, is the sole proprietor, filed with the Securities
                    and Exchange Commission as Exhibit 10.5 to the Company's
                    Annual Report on Form 10-KSB for the fiscal year ended
                    September 30, 1994 (File No. 0-21852) and incorporated
                    herein by reference.

     10.6           Separation Agreement, dated April 1, 1995, by and among the
                    Company, Robert A. Davis, certain partnerships in which Mr.
                    Davis is a partner, Michael J. Carroll, and James J. Urban,
                    filed as an exhibit to the Company's Current Report on Form
                    8-K (File No. 0-21852) which was filed with the Securities
                    and Exchange Commission on May 3, 1995 and incorporated
                    herein by reference of its entirety.

     10.7           Forms of Letters of Notice to Securityholders relating to
                    modification of the terms of certain of the Company's
                    securities, filed as an exhibit to the Company's Current
                    Report on Form 8-K (File No. 0-21852) which was filed with
                    the Securities and Exchange Commission on May 3, 1995 and
                    incorporated herein by reference in its entirety.

     10.8           Amended Loan and Forbearance Agreement, dated April 1, 1995,
                    between the Company and Silicon Valley Bank, filed as an
                    exhibit to the Company's Current Report on Form 8-K (File
                    No. 0-21852) which was filed with the Securities and
                    Exchange Commission on May 3, 1995 and incorporated herein
                    by reference in its entirety.

     10.9           Agreement, dated April 20, 1995, by and among the Company,
                    Michael J. Carroll and James J. Urban, filed as an exhibit
                    to the Company's Current Report on Form 8-K (File No. 0-
                    21852) which was filed with the Securities and Exchange
                    Commission on May 3, 1995 and incorporated herein by
                    reference in its entirety.

     10.10          Letter of Intent, dated April 27, 1995, between the Company
                    and Diversified Ophthalmics, Inc., filed as an exhibit to
                    the Company's Current Report on Form 8-K (File No. 0-21852)
                    which was filed with the Securities and Exchange Commission
                    on May 3, 1995 and incorporated herein by reference in its
                    entirety.

                                       23

<PAGE>

     EXHIBIT
     NUMBER         TITLE OF EXHIBIT

     10.11          Forms of notice dismissing the firm of Marinelli and Scott
                    as the Company's independent public accountants and
                    Company's retaining the firm of BDO Seidman, LLP to serve as
                    its independent public accountants, filed as an exhibit to
                    the Company's Amended and Restated Current Report on Form 8-
                    K/A #1, dated November 27, 1995, which was filed by the
                    Company with the Securities and Exchange Commission on
                    December 6, 1995 (File No. 0-21852) and is incorporated
                    herein by reference in its entirety.

     10.12          Form of notice dated September 4, 1996 relating to agreement
                    between the Company and Silicon Valley Bank, filed as an
                    exhibit to the Company's Current Report on Form 8-K (File
                    No. 0-21852) which was filed with the Securities and
                    Exchange Commission on September 6, 1996 and incorporated
                    herein by reference in its entirety.

     10.13          Form of notice dated September 4, 1996 relating to
                    agreements between the Company and certain trade vendors,
                    filed as an exhibit to the Company's Current Report on Form
                    8-K (File No. 0-21852) which was filed with the Securities
                    and Exchange Commission on October 1, 1996
                    and incorporated herein by reference in its entirety.

     10.14*         Agreement, dated August 20, 1996, between the Company and
                    Silicon Valley Bank.

*Filed herewith.


(b)  REPORTS ON FORM 8-K.

     During the fourth quarter of the fiscal year ended September 30, 1996, the
Company filed the following reports on Form 8-K:(1) a Current Report on Form 8-K
filed on September 6, 1996 relating to an agreement between the Company and
Silicon Valley Bank (Item 5); and (2) a Current Report on Form 8-K filed on
October 1, 1996 relating to agreements between the Company and certain
trade vendors (Item 5).

                                       24

<PAGE>

SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on January 14, 1997.


                                       Franklin Ophthalmic Instruments Co., Inc.


                                       By:/s/ Michael J. Carroll
                                          ----------------------
                                          Michael J. Carroll, President and
                                          Chief Executive Officer

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

SIGNATURE                     TITLE                              DATE


/s/ Michael J. Carroll        President, Chief Executive    January 14, 1997 ---
----------------------------  Officer and Director
Michael J. Carroll



/s/ James J. Urban            Executive Vice President,     January 14, 1997 ---
----------------------------  Chief Operating Officer
James J. Urban                and Director



/s/ Brian M. Carroll          Vice President and            January 14, 1997
----------------------------  Chief Financial Officer
Brian M. Carroll


/s/ Philip G. Winters         Director                      January 14, 1997
----------------------------
Philip G. Winters


/s/ Linda S. Zimdars          Secretary and Director        January 14, 1997
----------------------------
Linda S. Zimdars