FORM 10-KSB/A

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(Mark One)

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

For the fiscal year ended          December 31, 1996
                          --------------------------

                                       OR

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

For the transition period from

Commission File Number  000-18448

                    AMERICAN CONSOLIDATED LABORATORIES, INC.
             (Exact name of registrant as specified in its charter)

               FLORIDA                                  59-2624130
  (State of other jurisdiction
of incorporation or organization)         (I. R. S. Employer Identification No.)


                             1640 NORTH MARKET DRIVE
                          RALEIGH, NORTH CAROLINA 27609
           (Address of principal executive office, including zip code)

Registrant's telephone number, including area code (919) 872-0744

Securities registered under section 12 (b) of the Exchange Act:

    Title of each class                  Name of exchange on which registered
Common Stock, $.05 par value                         Not Applicable

Securities registered under section 12(g) of the Exchange Act: None

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.

Yes  [ X ]           No  [  ]

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

     Issuer's revenues for the year ended December 31, 1996 were $7,858,315

     The aggregate market value of the voting stock of the registrant held by
nonaffiliates as of April 25, 1997 was $671,259.

     The number of shares of the registrant's common stock outstanding on April
25, 1997 was 3,978,081.


                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None


<PAGE>

                               1996 FORM 10-KSB/A

                                TABLE OF CONTENTS


                                     PART I
                                                                        PAGE NO.

Item  1.   Description of Business                                             3

Item 2.    Description of Properties                                           7

Item 3.    Legal Proceedings                                                   8

Item 4.    Submission of Matters to a vote of Security Holders                 8


                                     PART II

Item 5.    Market for Common Equity and Related Stockholders Matters           9

Item 6.    Management's Discussion and Analysis                                9

Item 7.    Financial Statements                                               11

Item 8.    Changes In and Disagreements with Accountants on Accounting and    30
           Financial Disclosure

                                    PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons;
          Compliance with Section 16 (a) of the Exchange Act                  30

Item 10. Executive Compensation                                               32

Item 11. Security Ownership of Certain Beneficial Owners and Management       35

Item 12. Certain Relationships and Related Transactions                       36

Item 13. Exhibits and Reports on Form 8-K                                     38



                                       2
<PAGE>


                                     PART I

ITEM  1.   BUSINESS

GENERAL

American Consolidated Laboratories, Inc. (the "Company", or "ACL") is a leading
manufacturer of custom contact lenses and is a distributor of commodity lenses.
The Company is headquartered in Raleigh, North Carolina with manufacturing and
distribution operations in Sarasota, Florida and Raleigh, and a sales office in
Philadelphia, Pennsylvania.

ACL is a Florida corporation formed in 1985 under the name Salvatori
Ophthalmics. The name was changed in 1994 to better reflect the Company's
announced acquisition strategy within the contact lens laboratory and
distributor industry segment. ACL is traded over-the- counter under the symbol
EYES.

In December 1994, the Company acquired all the stock of Carolina Contact Lens,
Inc. ("CCL"). CCL is a manufacturer of custom contact lenses and distributor of
commodity lenses for all the major manufacturers. CCL's customers are primarily
located in the Mid-Atlantic States. Subsequently the Company moved its
headquarters from Sarasota to Raleigh. In May 1995, the Company acquired certain
assets of Philcon Laboratories, Inc. ("Philcon"). Philcon was a manufacturer of
custom contact lenses and distributor of commodity lenses for all the major
manufacturers. Philcon customers are primarily located in the greater
Philadelphia area.

The contact lens industry today can be divided into two principal segments:
commodity lenses, which are soft lenses mass-produced to industry standard
parameters, and custom lenses, which are custom-made to individual
specifications from primarily Rigid Gas Permeable ("RGP") or soft materials.

ACL manufactures custom lenses in simple to complex lens designs from both RGP
and soft materials. The Company's expertise is in the more complex lens designs
for more difficult to fit eye care situations such as: presbyopia, keratoconus,
post-keratoplasty, radical keratotomy, pediatric aphakia, and high degrees of
myopia, hyperopia, and astigmatism. The Company also distributes a full line of
disposable and non-disposable commodity lenses produced by all the major
manufacturers.

PRINCIPAL PRODUCTS

CUSTOM LENSES The Company manufactures a full line of daily and extended wear
custom lenses in the most technologically advanced designs from over 15
different Food and Drug Administration ("FDA") approved base materials (buttons)
purchased from various suppliers or from proprietary materials. Custom lenses
are made to individual patient specifications. Lens designs range from simple
spheres to complex toric, bi-toric, bifocal, and multifocal lenses. The company
manufactures custom lenses from cylindrical buttons on state-of-the-art
automated lathing equipment.


                                       3
<PAGE>



The Company purchases the raw material buttons from two primary suppliers,
Polymer Technologies Corp., a subsidiary of Bausch & Lomb, and Paragon Vision
Sciences. The Company has no difficulty in obtaining an adequate supply of raw
material buttons. The Company produces methafilcon A from generally available
chemicals, under a license agreement with Kontour Kontact Lens, Inc. which is
the raw material used in the production of soft lenses. The Company purchases
polymacon from a supplier in Sarasota, however there are alternative suppliers
available if needed.

The Company utilizes two FDA approved manufacturing facilities located in
Raleigh and Sarasota. The Sarasota site manufactures both soft and rigid lenses,
while the Raleigh facility produces only RGP lenses. The Sarasota facility has
been approved by the FDA for all of the Company's soft custom lens products for
"Rapid Release". This allows for next day shipment of custom soft lenses and is
a significant service advantage in the market place.

All custom lenses are warranted to be free of defects in workmanship, and the
raw material is warranted by each manufacturer.

COMMODITY LENSES The Company distributes virtually every brand of daily wear,
extended wear, disposable, and specialty soft lenses of any consequence
available in the United States. The Company's Raleigh facility includes a
distribution center for commodity lenses manufactured by the principal commodity
lens manufacturers, Bausch & Lomb, Wesley-Jessen, Ciba-Geigy and Johnson &
Johnson. All commodity products are covered by warranties from each
manufacturer.

LENS CARE PRODUCTS The Company distributes the Boston line of RGP lens care
products from Polymer Technology Corp., along with certain other brands.

DISTRIBUTION METHODS

The Company's primary means of distributing its products is regular mail or
overnight service on a daily basis. The method of distribution is determined
based on the customer's preference. To a lesser extent, products are distributed
next day service at the customer's request or in special circumstances. The cost
of distribution is billed to the customer directly on the invoice as a separate
item along with the product and applicable sales tax, if any.

NEW PRODUCTS

MAXIMEYES RGP PLANNED REPLACEMENT PROGRAM In 1997, the Company will introduce
the "MaximEyes" RGP Planned Replacement Program from Paragon Vision Science
featuring the new FluoroPerm 151 material. This program is intended to address
the growing consumer trend towards convenience which has propelled the
significant growth in the disposable segment of the commodity lens market at the
expense of the non-disposable segment of the commodity lenses market. With the
"MaximEyes" Program, the lenses are replaced at regular intervals, which
provides for better vision, corneal health, and comfort.



                                       4
<PAGE>



The FluoroPerm 151 material has one of the highest oxygen permeablilities
available in the U.S. today. It promotes optimal corneal health with
approximately four times the oxygen transmission of soft lenses. This makes it
ideal for extended and flexible wear schedules, thick lens profiles, specialty
applications and planned replacements. FluroPerm 151 achieves a balance between
visual acuity, corneal health, and comfort. A lens made of this material offers
safe, extended wear up to 7 days.

CORNEAL MAPPING During 1996 the Company installed the three leading corneal
mapping software systems to enhance its consultant fitting services. This
software permits a real-time transmission to the Company's consultants of a
picture of the patient's cornea. This sophisticated system greatly simplifies
the fitting process by allowing the consultant to assess directly the patient's
corneal shape when working with the eye care professional. Corneal mapping is
the latest technology available and results in a higher initial success rate and
a more cost efficient practice for the eye care professional.

MARKETING

The Company's products are marketed directly to eye care professionals,
ophthalmologists, optometrists and opticians. These eye care professionals are
in individual or group practices, associated with chain stores, or members of
buying groups.

The Company's marketing emphasis is on high margin custom lenses which are more
difficult to fit, such as multifocal, keratoconus, post-keratoplasty, radical
keratotomy, pediatric aphakia, and lenses for high degrees of myopia, hyperopia,
and astigmatisms.

The Company's marketing efforts are focused on Tele-marketing directly to the
eye care professional, print advertising in trade publications, trade show
participation, professional seminars, direct mail pieces and incentive programs
based on volume purchased.

Sales and marketing efforts are further supported by highly experienced
consultants that work directly with the eye care professional to fit the lenses.
New sophisticated corneal mapping technology allows the consultant to more
precisely evaluate and offer guidance to the eye care professional resulting in
a better fit for the patient on the first visit, which increases the efficiency
of the eye care professionals practice.

The Company did business in 45 states in 1996. Sales are primarily concentrated
in the Mid-Atlantic States, the Midwest, and the Northeast.

COMPETITION

CUSTOM LENSES In the custom lens segment of the market; ACL is already one of
the 5 largest manufacturers. This segment is highly fragmented, and is currently
comprised of approximately 200 small independent companies. ACL is a dominant
force in its primary markets on the East Coast. ACL penetration in its primary
markets has been based on a combination of outstanding customer service and
price. Outside of its primary markets along the East Coast, the Company does
experience competition from other labs on a regional basis.


                                       5
<PAGE>

There is little competitive threat to the Company from the major manufacturers
because the job-shop production process of custom lenses is not compatible with
the continuous flow, low cost processes required to compete in the commodity
contact lens business.

COMMODITY LENSES The commodity lens segment of the market has two components,
disposable and non-disposable lenses, and is dominated by the four major, well
capitalized manufacturers. The production of commodity lenses requires
sophisticated technology and significant capital investment to allow for large,
low cost production runs. Due to the intense competition in the commodity lens
segment, prices and margins have been declining over the past several years,
especially with respect to disposable lenses.

Disposable commodity lenses are the fastest growing lens type in the contact
lens industry today. In an effort to maintain profit margins, the major
manufacturers are making it more economical for the eye care professional to go
direct to the manufacturer to purchase their disposable commodity lenses. As a
result, the major manufacturers represent more of a competitive threat for sales
of this lens type than do other distributors.

The non-disposable lens business is also competitive. The major competitors for
this lens type are the other authorized distributors and the manufacturers. The
authorized distributors are the Company's direct competition on a daily basis.
The major manufacturers compete with the Company indirectly, as they spend
significant advertising dollars to influence the eye care professional and the
end consumer to the merits of disposable products. This is rapidly shifting
consumers to disposable products from non-disposable. The non-disposable lens
market is quickly becoming a replacement market and should continue to decline.
The growth, if any, in this segment of the business will come as financially
weaker distributors cease doing business.

SIGNIFICANT CUSTOMER

The Company had a multi-year contract with one customer that expired August 31,
1996. The contract was not renewed when it expired. Sales to this customer in
1996 and 1995 were approximately $460,000, or 5.9%, of total sales and $761,000,
or 8.5%, of total sales, respectively. The expiration of this contract has not
had a significant adverse effect on the Company. The Company has no other single
customer, which accounts for more than 2.0% of total sales.

PATENTS, TRADEMARKS AND LICENSE

The Company has seven registered U.S. Trademarks, one of which is also
registered in Canada. The registered trademarks currently being used by the
Company are "Allvue", "BiVue", "Consta-Vu", "Sof-form", and "Accuform". The
Company occasionally uses the marks "Comfort Control" and "The Tailors of
Contact Lenses". ACL does not own any patents.

The Company holds three manufacturing licenses. A nonexclusive license, expiring
in 2006, is held from the estate of David Volk, M.D., to manufacture certain
aspheric RGP lenses and a soft multifocal lens sold under the trademark
"Allvue". The Company holds an on going license from Kontour Kontact Lens to
produce Methafilcon A and contact lenses from that material. In addition, the
Company has licenses with Polymer Technology Corp.; a division of Bausch & Lomb,
and Paragon Vision Sciences to produce RGP lenses from each individual company's
various polymers. Polymer and Paragon are the industry leaders, however the
Company also has license agreements with every U.S. polymer manufacturer. This
is a competitive advantage, which allows ACL to manufacture in any material the
eye care professional prefers.


                                       6
<PAGE>



FDA AND ENVIRONMENTAL REGULATION

Virtually all of the products manufactured or distributed by the Company are
classified as medical devices and are therefore regulated by the U.S. Food and
Drug Administration. FDA regulations govern the Company's products,
manufacturing procedures, and facilities.

All new medical devices must be submitted to the FDA along with supporting
microbiological, toxicoligical, and clinical trial results to obtain approval
for a Pre-Market Application ("PMA"), which must be obtained before the device
can be marketed. The approval process can take several years and be very
expensive. The Company does not currently have any submission with the FDA for
approval.

ACL is an FDA approved alternative manufacturer for virtually every RGP polymer
under each supplier's PMA.

The Company is subject to various environmental laws. Most of these regulations
apply to the proper handling, storage, and disposal of chemicals used in the
manufacturing process. The cost of complying with applicable laws is not
significant to the Company's operation. The Company generates very little
hazardous waste in its manufacturing process. The Company contracts with a
licensed company to properly dispose of any waste generated. The Company is not
aware of any violations of environmental regulations. The Company is not aware
of any pending regulations or legislation that would have an impact on the
Company's business.

RESEARCH AND DEVELOPMENT

The Company's research and development activities are primarily devoted to
developing and enhancing lens designs and qualifying as an FDA approved
alternative manufacturing site for new RGP materials and designs. Total
expenditures in this area have been less than $60,000 per year in both 1996 and
1995. All of the Company's research and development expenditures are funded
internally. No funds are received for research and development from suppliers or
customers.

EMPLOYEES

At December 31, 1996, the Company employed 63 individuals, of which 59 were
full-time employees. The Company is not party to any collective bargaining
agreements and believes that its relations with its employees are good.


ITEM  2.  PROPERTIES

The Company leases its facilities in Raleigh, North Carolina, Sarasota, Florida
and Philadelphia, Pennsylvania. The Company owns a facility in Lincoln,
Nebraska, which was closed on November 15, 1996. On March 3, 1997 the Company
executed an agreement to sell this facility.

In Raleigh, the Company leases a single purpose, one-story building of
approximately 6,000 square feet from the former owner of CCL who is also an
officer of ACL. The Company manufactures custom RGP lenses and distributes
commodity lenses in this facility. The term of the lease is five years
commencing in December 1994, and provides for monthly rent of $5,000. This
facility is fully utilized at present with no opportunity for expansion. On
November 1, 1995 the Company leased approximately 1,360 square feet of
administrative space in a building adjacent to the manufacturing and
distribution building for a term of five years. This space



                                       7
<PAGE>

accommodates the Company's corporate administration functions. The monthly rent
is $963 for the first three years of the lease and $1,020 in the fourth and
fifth years.

In Sarasota, the Company leases approximately 12,000 square feet in a single
story concrete block building. The Company manufactures both custom RGP and Soft
lenses in this facility. The term of the lease is ten years, and terminates on
January 31, 2001, and provides for monthly rent of approximately $8,500 in 1996,
with 3% increases each year of the lease. During 1996, the Company subleased
approximately half of the 12,000 square foot space to one tenant and is
collecting rent under the sublease agreement.

In Philadelphia, the Company leases 2,000 square feet of administrative space in
a multi-purpose facility. The Company operates a sales office out of this
facility. The term of the lease is five years commencing on January 1, 1996, and
provides for monthly rental payments of $2,275, with annual increases of
approximately 3%.

The Company owns two connected buildings comprising approximately 10,800 square
feet in Lincoln from which it operated a custom lens manufacturing facility
until it was closed on November 15, 1996. These two one-story buildings, one of
which is of steel construction and the other of which is brick masonry, are
about 35 years old and are in good condition. The Company has a mortgage loan
from Cornhusker Bank, secured by the property and the buildings. On March 3,
1997, the Company executed an agreement to sell the land and building at a price
in excess of its current carrying value.

The Company's tangible property consists primarily of production equipment and
computer hardware, which is either owned or leased. The leased equipment is
subject to liens held by a variety of financing companies, none of which is
material.

ITEM  3.  LEGAL PROCEEDINGS

None.


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

On February 12, 1997 the Company held a Special Meeting of Shareholders at the
Company's offices in Raleigh. The purpose of the meeting was to vote on a
proposal to amend the Company's Articles of Incorporation that would increase
the authorized number of shares of capital stock of the Company by creating a
class of 5,000,000 shares of Preferred Stock with no par value. The proposal was
approved by unanimous vote of the shareholders attending.


                                       8
<PAGE>
                                     PART II

ITEM  5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

The common stock of the Company is reported by The National Association of
Securities Dealers through the NASD OTC Bulletin Board, its automated system for
reporting NON-NASDAQ quotes and National Quotation Bureau's Pink Sheets. The
prices shown are the high and low bid prices for each quarter and do not include
retail markup, markdowns or commissions.


                   1996                     1995
                   High         Low         High         Low
                -------------------------------------------------
First Quarter        1          1/4         2 1/8        1/2
Second Quarter     1 3/4        1/2           5         1 1/2
Third Quarter      1 5/8         1          4 3/8       1 1/2
Fourth Quarter       1          7/16        2 1/2        3/8


As of March 21, 1997, the Company had approximately 231 shareholders of record
of its common stock.

No cash dividends have been declared or paid on the Company's common stock.
Various loan agreements prohibit the Company from paying dividends. Further, the
Company has no plans for payment of cash dividends on stock until operations
generate funds in excess of those required to provide for the growth needs of
the Company.


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

YEAR ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995

GENERAL

During April of 1996, the Board of Directors of the Company strengthened the
Company's management team by bringing in two seasoned executives to replace the
previous management

On June 28, 1996, the Company closed on an asset-based loan facility with
Fidelity Funding Group that has allowed the Company to repay certain debt and
reopen credit lines with its vendors. This financing allowed the Company to
increase its inventory levels in order to achieve higher customer fill rates and
overall customer satisfaction.

RESULTS OF OPERATIONS

Net sales for the year ended December 31, 1996 ("1996"), totaled $7,858,314, a
decrease of $1,144,915, or 13.7% from the ended December 31, 1995 ("1995"). This
decrease is due to the problems encountered with the



                                       9
<PAGE>


change to a new fully integrated computer software package in August of 1995,
which resulted in the erosion of sales through December of 1995. Monthly sales
increased steadily in 1996 from the low in December of 1995.

The Company incurred an operating loss, excluding the impact of restructuring
expenses and the write-down of intangible assets, of $1,354,263 in 1996 compared
to $1,775,159, in 1995, an improvement of $420,896. The Company attributes the
loss to decisions and actions taken in 1995 by the previous management team and
the residual implications of those decisions and actions which carried over into
1996. Significant progress was made in the third and fourth quarters to increase
sales and reduce the monthly level of expenses built up by the previous
management team.

Sales of all products were lower for 1996 compared to 1995. This is primarily
the result of the effects of the computer software installation problems
encountered in August 1995, which adversely affected customer service levels,
and the change in philosophy by the major manufacturers to compete directly with
the distributors for the commodity disposable products.

The gross profit for 1996 was $2,469,673, or 31.4%, of net sales compared to
$2,762,654, or 30.7%, of net sales for 1995. This represents the effect of
continued pricing pressures on the commodity disposable products from the major
manufacturers. Management believes pressure on pricing will continue for this
product line as the Company competes with the manufacturers for these sales.

Total operating costs and expenses for 1996, excluding the impact of the
one-time restructuring expenses, were $713,877, or 18.7%, lower than 1995. All
of the reduction of $713,877 was achieved in the third and fourth quarters.
Total operating costs and expenses for 1996, excluding the restructuring
expenses and the write-down of intangible assets, were $3,823,936 compared to
$4,537,813 for 1995. This is the result of the following actions: 1) reduction
in work force on 10/1/96; 2) closure of the Lincoln facility on 11/15/96; 3)
renegotiating with various vendors that provide services to the Company. In the
first quarter of 1996, monthly operating expenses, averaged approximately
$342,000, compared to December 1996 operating expenses, excluding restructuring
expenses and the write-down of intangible assets, of $274,679. Operating
expenses in the first two months of 1997 have averaged less than $250,000 per
month.

Selling expenses are down in 1996 compared to 1995 due to the elimination of the
"National Sales Force", which was established by the previous management team in
1995. This industry does not typically operate with a sales force, but rather
through Tele-marketing and other more cost-effective methods. Consequently all
but three members of the sales force were terminated in early 1996. The
remaining three sales representatives either resigned or were terminated in the
fourth quarter of 1996.

Marketing activities had been curtailed during 1996 as a result of cash flow
constraints. However, with the closing of the Fidelity credit line in June, the
Company did increase spending for marketing activities in the second half of the
year, including the hiring, late in the year, of a Tele-marketer as it begins to
focus on telemarketing.

The Company recorded restructuring expenses of $483,774 in 1996 related to the
closing of the Lincoln facility. The restructuring expenses include the cost to
close the facility, the severance costs related to the layoff of the workforce,
and the write-off of the remaining goodwill associated with the acquisition of
the Lincoln facility. These costs are non-recurring and will not impact future
periods. The Company is already realizing the positive benefits from closing the
Lincoln facility and consolidating it into Sarasota and Raleigh. The Company has
successfully retained a large portion of the Lincoln business while absorbing
the production without increasing



                                       10
<PAGE>

costs in either facility. Thus, the Company has realized a substantial benefit
from the costs eliminated by closing the facility.

The Company recorded a write-down of intangible assets in the amount of $883,369
in the fourth quarter of 1996. Given the uncertainty of the Company's financial
condition at December 31, 1996 and the losses incurred in 1996 and 1995 the
Company believes the value of its intangible assets have been impaired.

Interest expense for 1996 totaled $713,248 compared to $214,536 for 1995. The
increase is the result of the additional funds borrowed to support the 1996
loss, and the recognition of $312,000 in interest expense associated with
warrants, issued in connection with certain financing arrangements in 1996, to
purchase the Company's common stock.

FINANCIAL CONDITION

At December 31, 1996 the Company had a cash overdraft of $16,834, which is
included in accounts payable, compared to cash on hand at December 31, 1995, of
$37,772. Net cash used in operating activities for the year ended December 31,
1996, was $786,142 compared to $456,559 used in operating activities in 1995.
The cash used in operating activities was provided from an asset-based loan with
Fidelity Funding and additional loans from the Company's primary stockholder,
Tullis-Dickerson Capital Focus, L.P.

The Company had a working capital deficit of $3,111,842 compared to a working
capital deficit of $890,227 at December 31, 1995.

Management is working to achieve positive cash flow from operations by reviewing
and adjusting sales prices to provide acceptable profit margins, rescheduling
its current obligations and significantly cutting costs. Management continues to
aggressively pursue obtaining debt or equity financing, as well as acquisitions
in order to improve liquidity and enhance shareholder value. No assurances can
be given that additional financing can be obtained, or that acquisitions will be
consummated. If management is not successful in generating positive cash flow
from operations or raising additional financing the Company may not have
adequate cash to meet its current obligations. The Company's continuation as a
going concern is dependent upon its ability to generate sufficient cash flow to
meet its obligations on a timely basis and attain profitable operations and
positive cash flow.

ITEM    7      FINANCIAL STATEMENTS

               Independent Auditors' Report

               Consolidated Balance Sheets as of December 31, 1996 and 1995

               Consolidated Statements of Operations for the years ended
               December 31, 1996 and 1995

               Consolidated Statements of Stockholders' Equity for the years
               ended December 31, 1996 and 1995

               Consolidated Statements of Cash Flows for the years ended
               December 31, 1996 and 1995

               Notes to Consolidated Financial Statements



                                       11
<PAGE>


INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders of
American Consolidated Laboratories, Inc.
Raleigh, North Carolina

We have audited the accompanying consolidated balance sheets of American
Consolidated Laboratories, Inc. and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our 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, such consolidated financial statements present fairly, in all
material respects, the financial position of American Consolidated Laboratories,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years then ended in conformity
with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company's loss from operations, negative
operating cash flows and working capital deficiency raise substantial doubt
about its ability to continue as a going concern. Management's plans concerning
these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.





March 28, 1997
(May 15, 1997 as to paragraphs three and four of Note 13)




                                       12
<PAGE>


                    AMERICAN CONSOLIDATED LABORATORIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                                     ASSETS

<TABLE>
<CAPTION>


                                                                          DECEMBER            DECEMBER
                                                                          31, 1996            31, 1995
                                                                        ------------       -------------
CURRENT ASSETS:
<S>                                                                             <C>            <C>     
   Cash                                                                         $ -            $ 37,772
   Accounts receivable, less allowance
         for doubtful accounts (note 3)                                     644,157             635,032
    Inventories, at lower of cost (first in,
         first out) or market (note 4)                                      708,152           1,094,743
    Other current assets                                                    115,408               5,181
                                                                        ------------       -------------

                                   Total current assets                   1,467,717           1,772,728
                                                                        ------------       -------------

PROPERTY AND EQUIPMENT AT COST:
     Laboratory equipment                                                   871,167           1,114,567
     Office Equipment                                                       216,990             320,607
     Leasehold improvements                                                  56,024              60,150
     Assets being held for disposition                                      255,000             255,000
                                                                        ------------       -------------

                                   Total property and equipment           1,399,181           1,750,324

     Less accumulated depreciation                                          915,942           1,128,838
                                                                        ------------       -------------

                                   Property plant and equipment, net        483,239             621,486
                                                                        ------------       -------------

OTHER ASSETS:
     Costs in excess of  fair value of assets
           acquired                                                               -             828,419
     Other intangible assets                                                      -             938,815
     Miscellaneous                                                                -              91,945
                                                                        ------------       -------------

                                                                                  -           1,859,179

     Less accumulated amortization                                                -             411,835
                                                                        ------------       -------------

                                   Total other assets, net                        -           1,447,344
                                                                        ------------       -------------

TOTAL ASSETS                                                            $ 1,950,956         $ 3,841,558
                                                                        ============       =============
</TABLE>


See notes to consolidated financial statements


                                       13
<PAGE>



                    AMERICAN CONSOLIDATED LABORATORIES, INC.
                     CONSOLIDATED BALANCE SHEETS (Continued)
                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)


<TABLE>
<CAPTION>

                                                                               DECEMBER           DECEMBER
                                                                               31, 1996           31, 1995
                                                                             -------------     --------------

CURRENT LIABILITIES:
<S>                                                                           <C>                <C>        
   Accounts payable                                                           $ 1,433,469        $ 1,796,484
   Accrued expenses (note 5)                                                      742,766            260,097
   Current maturities of long-term debt (note 7)                                2,012,733            606,374
   Revolving credit line (note 6)                                                 390,591                  -
                                                                             -------------     --------------


                                   Total current liabilities                    4,579,559          2,662,955
                                                                             -------------     --------------

LONG - TERM DEBT (note 7):                                                        395,171          1,050,639

DEFERRED RENT                                                                      52,597             58,238

COMMITMENTS AND CONTINGENCIES (Note 1)

STOCKHOLDERS' EQUITY (DEFICIT) (note 8)
   Common stock, $.05 par value, 20,000,000 shares
       authorized; 4,621,623 issued and 4,005,623 shares
       outstanding at December 31, 1996, and 4,436,927
       issued and outstanding at December 31, 1995                                231,082            221,847
   Capital in excess of par value                                               6,220,273          5,887,834
   Receivable for shares issued as collateral                                           -           (225,000)
   Treasury Stock                                                                (328,000)                 -
   Deficit                                                                     (9,199,726)        (5,814,955)
                                                                             -------------     --------------

                                   Total stockholders' equity (deficit)        (3,076,371)            69,726
                                                                             -------------     --------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                          $ 1,950,956        $ 3,841,558
                                                                             =============     ==============
</TABLE>


See notes to consolidated financial statements

                                       14
<PAGE>




                    AMERICAN CONSOLIDATED LABORATORIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995



                                                    1996                1995    
                                               -------------       -------------

NET SALES                                       $ 7,858,314         $ 9,003,229

COST OF SALES                                     5,388,641           6,240,575
                                               -------------       -------------

          Gross profit                            2,469,673           2,762,654
                                               -------------       -------------

OPERATING COSTS AND EXPENSES:
    Selling expenses                                979,878           1,059,294
    Marketing expenses                              107,448             153,616
    Research and development                         54,099              56,435
    General and administrative expenses           2,682,511           3,268,468
    Restructuring expenses (note 9)                 483,774                   -
    Write-down of intangibles (note 10)             883,369
                                               -------------       -------------

          Total operating costs and expenses      5,191,079           4,537,813
                                               -------------       -------------

          Operating loss                         (2,721,406)         (1,775,159)

OTHER INCOME (EXPENSES):
    Interest expense (note 8)                      (713,248)           (214,536)
    Other income (expense)                           49,883            (104,751)
                                               -------------       -------------

Loss before income taxes                         (3,384,771)         (2,094,446)

INCOME TAXES (note 11)                                    -                   -
                                               -------------       -------------

NET LOSS                                       $ (3,384,771)       $ (2,094,446)
                                               =============       =============


Loss per common share (note 1)                       ($0.81)          ($0.51)
                                               =============       =============

Weighted average shares outstanding (note 1)      4,158,141           4,091,549
                                               =============       =============

See notes to consolidated financial statements


                                       15
<PAGE>


                    AMERICAN CONSOLIDATED LABORATORIES, INC.
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995



                                                                              
<TABLE>
<CAPTION>
                                                      CAPITAL IN   RECEIVABLE       
                                    COMMON STOCK      EXCESS OF    FOR SHARES          
                                --------------------     PAR       ISSUED AS                    TREASURY
                                  SHARES     AMOUNT     VALUE      COLLATERAL       DEFICIT       STOCK           TOTAL
                                -------------------------------------------------------------------------------------------

<S>                             <C>          <C>       <C>         <C>            <C>           <C>             <C>      
Balances, January 1, 1995       3,823,048    191,153   5,282,708           0      (3,720,509)          0        1,753,352

Issuances of common stock         613,879     30,694     605,126    (225,000)              -           0          410,820

Net loss                                -          -           -           0      (2,094,446)          0       (2,094,446)

                                ------------------------------------------------------------------------------------------
Balances, December 31, 1995     4,436,927    221,847   5,887,834    (225,000)     (5,814,955)          -           69,726

Issuances of common stock        (431,304)     9,235    (131,917)    225,000                    (328,000)        (225,682)

Issuance of stock warrants                               464,356                                                  464,356

Net loss                                                                          (3,384,771)                  (3,384,771)

                                ===========================================================================================
Balances, December 31, 1996     4,005,623    231,082   6,220,273        -         (9,199,726)    (328,000)     (3,076,371)
                                ===========================================================================================

</TABLE>

See notes to consolidated financial statements.


                                       16
<PAGE>


                    AMERICAN CONSOLIDATED LABORATORIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  FOR THE YEARS ENDED DECEMBER 31,1996 AND 1995



<TABLE>
<CAPTION>
                                                              1996             1995
                                                         -------------   --------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                      <C>              <C>          
 Net loss                                                $ (3,384,771)    $ (2,094,446)
 Adjustments to reconcile net loss to net cash
     used in operating activities:
     Depreciation                                             151,316          134,959
     Amortization                                             268,244          321,663
     Write-off of Intangibles                               1,179,099
     Debt extension expense                                         -            8,125
     Interest expense related to issuance of warrants         311,508
     Loss on disposal              of assets                    7,066                -
     Management fee expense                                         -           18,000
     (Increase) decrease in accounts receivable                (9,125)         438,875
     (increase) decrease in inventories                       386,591         (290,884)
     (Increase) decrease in other current assets             (110,227)          87,307
     (Decrease) increase in accounts payable                 (160,188)         893,484
     Increase in accrued expenses                             579,986           29,167
     (Decrease) in deferred rent                               (5,641)          (2,808)
                                                           -----------   --------------

Net cash used in operating activities                        (786,142)        (456,558)
                                                           -----------   --------------

Cash flows from investing activities:
     Additions to property and equipment                      (20,135)         (84,220)
     Deferred acqusition costs                                      -          (36,117)
     Purchase of Philcon Laboratories, Inc.                         -          (95,000)
                                                           -----------   --------------

Net cash used in investing activities                         (20,135)        (215,337)
                                                           -----------   --------------

Cash flows from financing activities:
     Net proceeds from asset based loan                       455,915                -
     Proceeds from borrowings                                 885,833          592,000
     Principal payments on long - term debt                  (560,480)        (242,975)
     Principal payments under capital leases                  (34,563)               -
     Issuance of common stock                                   4,966           39,695
                                                           -----------   --------------

Net cash provided by financing activities                     751,671          388,720
                                                           -----------   --------------


Net decrease in cash                                          (54,606)        (283,175)

Cash beginning of period                                       37,772          320,948
                                                           -----------   --------------

Cash (overdraft) end of period                              $ (16,834)        $ 37,773
                                                           ===========   ==============

</TABLE>

See notes to consolidated financial statements


                                       17
<PAGE>

                         CONSOLIDATED LABORATORIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1996 AND 1995

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

       SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

THE FOLLOWING ACTIVITIES ARE APPLICABLE TO THE YEAR ENDED DECEMBER 31, 1996:

The Company purchased a total of 600,000 shares of common stock from two former
officers pursuant to the Share Purchase and Stockholder Agreement dated August
15, 1994, between the Company and the former officers. Under the terms of the
agreement the Company purchased these shares at $0.50 per share, or $150,000
payable to each in twenty equal quarterly installments, along with interest at
5.53% on one note and 6.21% on the other note. These shares are being held in
Treasury.

In May the Company issued 40,000 shares of common stock to one of its vendors,
as payment of $40,000 owed that vendor.

The Company converted $36,000 in management fees owed to Tullis-Dickerson & Co.
into common stock in June 1996. The Company issued 53,327 shares as payment for
the amount owed.

Tullis-Dickerson Capital Focus Limited Partnership ("TDCFLP") exercised warrants
at various times between May and August of 1996 in accordance with the
provisions of the loan agreement for advances made to the Company in late 1995
and in 1996. A total of 199,503 shares were issued at an exercise price of $.10
per share. A portion of the interest owed by the Company to TDCFLP was used to
offset the $19,950 cost of exercising the warrants by TDCFLP.

During 1996 the Company issued warrants to purchase common stock in connection
with certain financing arrangements and recorded a discount of $253,440.

THE FOLLOWING ACTIVITIES ARE APPLICABLE TO THE YEAR ENDED DECEMBER 31, 1995:

The issuance of a note payable in the amount of $125,000 to a shareholder of
Philcon Laboratories in conjunction with the purchase of certain assets of
Philcon Laboratories.

The issuance of 8,117 shares of common stock valued at $20,000 in conjunction
with the purchase of certain assets of Philcon Laboratories.

The issuance of 166,666 shares of common stock for the conversion of notes
payable to three employees in the aggregate amount of $250,000.

The issuance of 100,000 shares of common stock valued at $75,000 for the
conversion of a $55,000 note payable to a stockholder of the Company and
forgiveness of $20,000 of accrued interest payable.

The issuance of 150,000 shares of common stock valued at $225,000 and recording
of a receivable for $225,000 as collateral for a $150,000 term loan.



                                       18
<PAGE>

                    AMERICAN CONSOLIDATED LABORATORIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995


1.   BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

         NATURE OF BUSINESS

         American Consolidated Laboratories, Inc. ("the Company") or ("ACL") is
in the business of manufacturing and distribution of contact lenses. The Company
is headquartered in Raleigh, North Carolina with operations in Sarasota, Florida
and Philadelphia, Pennsylvania. The accompanying consolidated financial
statements have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The consolidated financial statements do not include any
adjustments relating to the recoverability and reclassification of assets and
liabilities that might be necessary should the Company be unable to continue as
a going concern.

         The Company has made significant progress since December 31, 1995.
Management successfully closed on a revolving line of credit with Fidelity
Funding during the second quarter of 1996. This line of credit provided the
funds to allow the Company to meet its current obligations. Management has
significantly reduced operating expenses, especially during the second half of
1996. The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a timely
basis and attain profitable operations and positive cash flow.

         Management continues to aggressively pursue securing additional debt or
equity financing, as well as an acquisition of a profitable entity.
Accomplishment of any of the foregoing could provide the resources to allow the
Company to continue as a going concern.

         BASIS OF PRESENTATION

         The consolidated financial statements include the accounts of the
Company and its subsidiaries, Salvatori Ophthalmic Manufacturing Corporation
("SOMC"), S-O Nebraska, Inc. ("Lincoln"), and Carolina Contact Lens, Inc.
("CCL").

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         This summary of significant accounting policies is presented to assist
the reader in understanding and evaluating the accompanying financial
statements. These policies are in conformity with generally accepted accounting
principles and have been consistently applied unless otherwise noted.



                                       19
<PAGE>

         USE OF ESTIMATES

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

         PRINCIPLES OF CONSOLIDATION

         All significant intercompany accounts and transactions have been
eliminated in consolidation.

         REVENUE RECOGNITION

         Revenues are recognized when product is shipped. Net sales include
returns and allowances in accordance with Company policies. The Company grants
credit terms to its customers consistent with normal industry practices.

         INVENTORIES

         Inventories are stated at lower of cost, determined by the first-in,
first-out method, or market. Consideration is given to deterioration,
obsolescence and other factors in determining market value.

         PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment are recorded at cost. Depreciation is
determined using the straight-line method for both financial statement and
income tax purposes. Cost in excess of the fair value of assets is being
amortized on the straight-line method over five to ten years.

         INTANGIBLE ASSETS

         In accordance with Financial Accounting Standards Board Statement No.
121, "Accounting for the Impairment of Long-lived Assets", the Company assesses
the recoverability of the excess of cost over fair market value of net assets
acquired and other intangible assets based on management's estimates of future
cash flows.

         INCOME TAXES

         The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", (SFAS
#109) which is an asset and liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized for the
tax consequences of temporary differences by applying statutory rates to
differences between financial statement carrying amounts and the tax basis of
existing assets and liabilities.



                                       20
<PAGE>

         ACCOUNTS PAYABLE

         The accounts payable balance at December 31, 1996 includes a cash
overdraft in the amount of $16,834.

         LOSS PER SHARE

         Loss per share was computed based upon the weighted average number of
shares outstanding during the period. Loss per share is presented on a primary
basis only, since on a fully diluted basis it would be anti-dilutive.

         RECLASSIFICATIONS

         Certain amounts for 1995 have been reclassified to conform to the 1996
presentation.

3.   ACCOUNTS RECEIVABLE

         Accounts receivable consists of the following at December 31, 1996 and
1995:

                                               1996                1995
                                               ----                ----
Trade receivables                           $ 976,693           $ 1,127,537
Less allowances:
         Doubtful accounts                    156,780               215,728
         Sales returns                        175,756               276,778
                                              -------               -------
Net receivables                             $ 644,157          $    635,032
                                              -------               -------

4.    INVENTORIES

         Inventories consist of the following at December 31, 1996 and 1995:

                                               1996                1995
                                               ----                ----

Raw materials                               $ 171,738         $   180,913
Work in process                                21,562              29,154
Finished goods                                514,852             884,676
                                              -------             -------

         Total                              $ 708,152          $1,094,743
                                              -------           ---------


                                       21
<PAGE>


5.    ACCRUED EXPENSES

         Accrued expenses consist of the following at December 31, 1996 and
1995:

                                1996                         1995
                                ----                         ----

Interest                      $ 364,829                 $   99,975
Restructuring costs              90,684                          -
Royalties                        72,451                     15,029
Payroll                          57,032                     86,756
Vacation pay                     24,787                     47,570
Other                           132,983                     10,767
                                -------                   --------

         Total                $ 742,766                  $ 260,097
                                -------                    -------

6.   REVOLVING CREDIT LINE

         On June 28, 1996 the Company closed on a $2,000,000 revolving line of
credit with Fidelity Funding of California, Inc. The line of credit is secured
by the first positions in the Company's accounts receivable and inventory. The
interest rate on the loan is 1.5% over the prime rate. The line of credit is for
a term of three years and has prepayment penalties. The proceeds from the loan
were used for working capital purposes. The Company is prohibited from paying
dividends without Fidelity's consent. In connection with this line of credit,
Fidelity also received 150,000 warrants to purchase the Company's common stock,
which is discussed in detail in note 8. The balance at December 31, 1996 is net
of unamortized discount of $65,324.



                                       22
<PAGE>

7.    LONG-TERM DEBT

         Long-term debt consists of the following at December 31, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                  1996               1995
                                                                  ----               ----
<S>                                                           <C>                  <C>      
Notes payable to Tullis-Dickerson Capital Focus,
    L.P., net of unamortized discount of $87,524              $ 1,065,309          $ 272,000
Secured Convertible Term Promissory Note payable
    to Tullis-Dickerson Capital Focus L.P.                        800,000            800,000
Note payable to The Oncologic Foundation, Inc.                      7,500             22,500
Obligation under capital lease, payable to IBM Credit                   -             27,762
Note payable to David Dougherty                                         -             55,000
Note payable to Joe Kelly                                         104,809            125,000
Note payable to SouthTrust                                              -             25,400
Note payable to Cornhusker                                        167,786            172,550
Note payable to The Caribou Bridge Fund                                 -            150,000
Note payable to Grady Deal                                        120,000                  -
Note payable to Estate of Wayne Smith                             142,500                  -
Long-term debt, other                                                   -              6,801
                                                              -----------        -----------
         Total debt                                             2,407,904          1,657,013
Less current maturities                                         2,012,733            606,374
                                                              -----------        -----------
                                                                $ 395,171         $1,050,639
                                                              -----------        -----------
</TABLE>

         In November and December 1995 Tullis-Dickerson Capital Focus L.P.
(TDCFLP) provided financing to the Company in the amount of $267,000. TDCFLP
continued to advance funds in 1996 under the same terms and conditions. Each
advance has a maturity date six months from the date of the advance. Interest is
payable until maturity at 13.5%, and at 19.5% after maturity. On the last
$550,000 of advances, TDCFLP received 550,000 warrants to purchase the Company's
common stock which is discussed in detail in note 8.

         In order to complete the CCL acquisition, TDCFLP loaned the Company
$800,000 in the form of a bridge loan. The secured Convertible Term Promissory
Note is due September 30, 1997. Interest is payable quarterly at a rate of 25%.
The loan was amended effective February 15, 1996, to allow TDCFLP to convert the
note into common stock of the Company at the conversion price of one dollar
($1.00) per share of Common Stock and after the Maturity Date shall be Fifty
Cents ($0.50) per share of Common Stock.

         All the TDCFLP debt is secured by the accounts receivable, inventory
and property and equipment. In addition the Company is prohibited from paying
any dividends under the terms of the TDCFLP loan agreements.


                                       23
<PAGE>

         At December 31, 1996 and 1995 interest owed and unpaid to TDCFLP was
$363,714 and $85,000, respectively.

         In accordance with Grady Deal and Wayne Smith's, (former officers of
the Company) termination agreements dated April 18, 1996, and July 10, 1996,
respectively, they each exercised their option to put to the Company 300,000
shares each of common stock. Pursuant to the Share Purchase and Stockholder
Agreement dated August 15, 1994 the Company had to purchase these shares at
$0.50 per share, or $150,000 payable to each in twenty equal quarterly
installments, along with interest at 5.53% on the Deal note and 6.21% on the
Smith note.

8.   STOCKHOLDERS' EQUITY (DEFICIT)

         COMMON STOCK

         The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $0.05 per share. There are 4,621,623 shares issued of
which 4,005,623 are outstanding at December 31, 1996. There are 616,000 shares
held in Treasury at December 31, 1996.

         As part of the Deal and Smith termination agreements, discussed in note
7, the Company purchased a total of 600,000 shares of common stock from these
individuals. These shares are being held in Treasury.

         In May the Company issued 40,000 shares of common stock to one of its
vendors, as payment of amounts owed that vendor.

         The Company converted $36,000 in management fees owed to
Tullis-Dickerson & Co. into common stock in June 1996. The Company issued 53,327
shares as payment for the amount owed.

         The Caribou Bridge Fund (Caribou) exercised a warrant to purchase
20,000 shares of common stock at $.10 per share in May 1996. In accordance with
the loan agreement with Caribou, these shares if not registered by the Company
by June 1996, provided for additional shares to be issued each month for which
they remained unregistered. The Company negotiated the repurchase of these
shares. To date, four payments have been made with the final payment to be made
in 1997. The shares repurchased, 16,000 to date are being held in Treasury. The
150,000 shares held as collateral by Caribou were returned to the Company in
1996.

         In December, the Company issued 10,000 shares of stock to a former
employee in payment for services provided to the Company, as an outside
consultant capacity.

         The Company issued 11,866 shares to employees who exercised options in
accordance with the Company's Stock Option Plan.



                                       24
<PAGE>

         WARRANTS

         During 1996, TDCFLP was granted certain warrants to purchase common
stock of the Company at an exercise price of $.10 per share in accordance with
the provisions of the Convertible Promissory note dated February 15, 1996. The
Company recorded the issuance of such warrants based on the fair value of the
warrants. The fair value was determined based on the market price of the
Company's stock at the exercise date. The total value of the warrants, $210,916
was charged to interest expense during 1996 as the terms of the related advances
had expired. A total of 199,503 shares were issued at an exercise price of $.10
per share. A portion of the interest owed by the Company to TDCFLP was used to
offset the cost of exercising the warrants by TDCFLP.

         TDCFLP received 550,000 warrants to purchase the Company's common stock
at $.25 per share with an expiration date in 2001, in connection with TDCFLP's
most recent loan advances to the Company in 1996. The warrants were valued using
the Black-Scholes pricing model. The value of the warrants was approximately
$175,047 and is being amortized to expense over the term of the loan.

         Fidelity Funding received 150,000 warrants to purchase the Company's
common stock at $.50 per share with an expiration date in 2001, in connection
with an asset-based loan to the Company in June of 1996. The warrants were
valued using the Black-Scholes pricing model. The value of the warrants was
approximately $77,762 and is being amortized to expense over the term of the
loan.

         STOCK OPTIONS

         As permitted, the Company applies "Accounting Principles Board Opinion
25" and related interpretations in accounting for its stock-based compensation
plan. Stock options are primarily granted at fair market value of the common
stock at the grant date. Accordingly no compensation expense has been recognized
for stock option awards. Had compensation cost for the Company's stock-based
compensation plan been determined based on the fair value at the grant dates for
awards under the plan consistent with the alternative method of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", (SFAS 123) the effect on the Company's net loss for the periods
ended December 31, 1996 is estimated to have increased the Company's net loss by
approximately $186,000. The estimated impact of the fair value of the options
awarded in 1996 on compensation expense of approximately $186,000 is calculated
using the Black-Scholes option-pricing model with the following assumptions
applied individually to each option award:

  Market price of stock equaled exercise price of option award at date of grant
  Expected life in years                         2 to 5 years
  Annualized volatility                          115%
  Annual rate of quarterly dividends             $0.00
  Discount rate - Bond Equivalent Yield          5.00%



                                       25
<PAGE>


The Pro-Forma impact on the Net Loss and Earnings Per Share in 1996 using the
fair value method of SFAS 123 is detailed in the table below. The Pro-forma
impact in 1995 is not material.

                  Net loss                              1996
                                                        ----
                     As reported                     $3,384,771
                     Pro-Forma                       $3,570,771

                  Loss per share
                    As reported                        $0.81
                    Pro-Forma                          $0.86

         The Company has, over the years, granted to certain officers,
directors, employees and advisors stock options for the purchase of the
Company's common stock. The options granted have expiration dates of five or ten
years after date of grant. In some instances the option vests over a period of
years. At December 31, 1996, there are no options outstanding that vest over a
period in excess of four years. The weighted average price of the options
outstanding at December 31, 1996 was $0.62 per share, and the weighted average
life of the options was 8.5 years.

The table below summarizes stock options granted and outstanding for the years
ended December 31, 1996 and 1995:

                                             Number                 Price
                                           of Shares              Per Share

Outstanding, December 31, 1994              685,000           $0.125 to $3.00
         Granted                                  0
         Exercised                          109,390           $0.125 to $0.50
         Expired                                  0
                                            -------
Outstanding, December 31, 1995              575,610           $0.125 to $3.00
         Granted                            913,010           $0.25   to $0.76
         Exercised                           31,866           $0.10   to $0.50
         Expired                            499,410           $0.50   to $3.00
                                            -------
Outstanding, December 31.1996               957,344           $0.125 to $1.125
                                            -------

         Of the 913,010 options granted in 1996, 765,000 were granted to the
three members of the new management team and 148,010 were issued to employees.
In February all the employees received varying numbers of stock options, based
on compensation levels, under the Company's 1994 Incentive and Non-Statutory
Stock Option Plan ("the Plan"). Under the Plan there are 810,000 shares
registered. The Company is proposing to make substantial modifications to the
Plan. The proposed modifications will be put to a vote of the shareholders at
the next annual meeting.


                                       26
<PAGE>


9. RESTRUCTURING EXPENSES

         On November 15, 1996 the Company closed its Lincoln, Nebraska facility
and consolidated that production and customer base into its Raleigh and Sarasota
manufacturing facilities. The Company incurred costs in 1996 associated with the
closure and accrued for the remaining expenses. Of the $483,774 in expenses
charged against income in 1996, $188,043 relate to the expenses incurred to
close the facility and $295,731 relate to the write-off of the remaining book
value of the goodwill and intangibles recorded for the Lincoln facility.

10.   WRITE-DOWN OF INTANGIBLES

         Given the uncertainty of the Company's financial condition at December
31, 1996 and the operating losses incurred in 1996 and 1995, the Company
believes the value of its intangible assets have been impaired. Accordingly, the
Company has taken a write-down for the net book value of the intangible assets
at December 31, 1996.

11.   INCOME TAXES

         The Company files a consolidated Federal income tax return. Due to its
net loss position, the Company recorded no provision for income taxes in 1996
and 1995.

         The Federal net operating loss carryforward ("NOL") at December 31,
1996 is approximately $6,200,000. The Company had an ownership change in 1990 as
defined by the Internal Revenue Code Section 382. The Company has, to date, not
been able to utilize approximately $670,000 of the pre-ownership change NOL
subject to annual limitations. The NOL of approximately $5,536,000 generated
after the ownership change is not subject to any annual limitation. The NOL
carryforwards expire between 2003 and 2011.

         As of December 31, 1996, state NOL carryforwards totaled approximately
$4,900,000 and are also subject to various Section 382 limitations.

         The components of the net deferred tax assets under SFAS 109 consist of
the following at December 31, 1996 and 1995:

                                                1996               1995
                                                ----               ----
         Federal net operating loss         $ 2,110,174        $ 1,712,174
         State net operating loss               216,826            134,583
         Other                                  394,127            128,677
                                            -----------        -----------

         Total deferred tax assets          $ 2,721,127        $ 1,975,434
         Less: valuation allowance           (2,721,127)        (1,975,434)
                                            -----------        -----------

         Net deferred tax assets            $         0        $         0
                                            -----------        -----------

                                       27
<PAGE>


         These net deferred tax assets are subject to a valuation allowance, as
the realization of the deferred tax asset is uncertain, given the Company's
current financial condition. The Company has established a valuation allowance
equal to the deferred tax asset.

12.   COMMITMENTS AND CONTINGENCIES

         LEASES

         The Company has executed operating leases for manufacturing and or
office space related to each of its three locations. Future minimum lease
payments under non-cancelable operating leases at December 31, 1996 are as
follows:

                    Year
                  Ending                                        Amount
                  ------                                        ------
                  1997                                        $ 241,403
                  1998                                           223,210
                  1999                                           198,294
                  2000                                           142,844
                  2001                                                 0
                                                              ----------
                                    Total                      $ 805,751
                                                              ----------

         Operating lease expense for these leases approximated $238,000 in 1996
and $185,000 in 1995.

         During the third quarter of 1996 the Company entered into a sub-lease
arrangement for a portion of the space in its Sarasota facility. The Company
will receive approximately $54,000 annually under the sub-lease arrangement. The
payments received from the sub-lease tenant are being recorded as other income.
The above listing of future minimum lease payments reflects the gross amount of
rental the Company is obligated to pay the landlord and has not been reduced by
the sub-lease contractual obligation.

         The Company leases its North Carolina manufacturing facility from the
former owner of Carolina Contact Lens and the current President of the Company.
The lease calls for monthly rental payments of $5,000 through December 14, 1999.
The real property taxes and insurance are the responsibility of the Lessor.

         LITIGATION

         The Company is not a party to any litigation, and has no knowledge of
any threatened or pending litigation.



                                       28
<PAGE>

13.  SUBSEQUENT EVENTS

         On February 12, 1997 the Company held a Special Meeting of Shareholders
at the Company's offices in Raleigh. The purpose of the meeting was to vote on a
proposal to amend the Company's Articles of Incorporation that would increase
the authorized number of shares of capital stock of the Company by creating a
class of 5,000,000 shares of Preferred Stock with no par value. The proposal was
approved by unanimous vote.

         Due to the current financial condition of the Company it was necessary
for management to approach its vendors to avoid serious cash flow constraints in
the second quarter of 1997. In March 1997, the Company executed notes with
various suppliers to defer payment of existing trade payable obligations. These
notes vary in term and provide for interest at rates no higher than 10.25%.

         In May 1997, the Company consummated the acquisition of NovaVision,
Inc. for stock through a subsidiary merger. An aggregate of 3,561,906 shares of
the Company's common stock and 2,808,175 shares of the Company's Series A
Redeemable Preferred Stock were issued in the Transaction. In addition, options
to purchase NovaVision stock at a nominal price were converted into options to
purchase 412,700 shares of the Company's common stock. In connection with this
transaction, the Company and its subsidiaries entered into a loan agreement with
Sirrom Capital Corporation, pursuant to which the Company borrowed $1,575,000. A
portion of the proceeds from this financing were used to completely repay the
Company's debt to Fidelity Funding. The remainder of the funds will be used for
general corporate purposes. The Company believes that the acquisition of
NovaVision and the Sirrom Capital Corporation loan will assist it in becoming
cash flow positive.

         On May 15, 1997, the Company decided for strategic reasons to
discontinue the distribution of commodity soft lenses produced by the major
manufacturers, Bausch & Lomb, Wesley-Jessen, Ciba-Geigy and Johnson & Johnson.
The profit margins had declined to a point the Company could no longer
distribute these products at acceptable profit margins. All inventories on hand
are being returned to the various vendors for credit.


                                       29
<PAGE>


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

                None

                                    PART III


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

         Certain information concerning the Company's directors is set forth
below. Each director shall serve until the next Annual Meeting of the Company's
shareholders or until his successor is duly elected and qualified.

<TABLE>
<CAPTION>
------------------------------- --------------------------------------------------------------- --------------------
                                Position with the Company; Principal Occupation
Name, Age                       for past five years; Other directorships                           Director Since
------------------------------- --------------------------------------------------------------- --------------------
<S>                             <C>                                                             <C>         
Joseph A. Arena                 Chief Executive Officer (1993-1994, 1996-present); Chairman         1993-94, 96
49                              of the Board of Directors (1993-1994); Director of Finance
                                (1991-1993); Chief Operating Officer and Chief Financial
                                Officer, Quantum Solutions, Inc., Austin, Texas, (1994-1996)
                                (training and education)
------------------------------- --------------------------------------------------------------- --------------------
Thomas P. Dickerson             Chairman of the Board of Directors (1996-present); General             1990
47                              Partner, Tullis-Dickerson Partners, the general partner of
                                Tullis-Dickerson Capital Focus, L.P. (1986-present) (venture
                                capital); President, Tullis-Dickerson & Co., Inc. (health
                                care investment firm) (1990-present)
------------------------------- --------------------------------------------------------------- --------------------
James L.L. Tullis               General Partner, Tullis-Dickerson Partners, the general                1990
50                              partner of Tullis-Dickerson Capital Focus, L.P.
                                (1986-present) (venture capital); Chairman of the Board and
                                Chief Executive Officer, Tullis-Dickerson & Co., Inc. (health
                                care investment firm) (1990-present); Director, Acme -
                                United, Inc.; Director, Physician Sales & Service, Inc.
------------------------------- --------------------------------------------------------------- --------------------


                                       30
<PAGE>


                                General Partner, Tullis-Dickerson Partners, the general
Joan P. Neuscheler              partner of Tullis-Dickerson Capital Focus, L.P.                        1993
38                              (1992-present) (venture capital); Chief Financial Officer,
                                Tullis-Dickerson & Co., Inc. (health care investment firm)
                                (1989-present); Director, QuadraMed, Inc.
------------------------------- --------------------------------------------------------------- --------------------

Timothy Buono                   Senior Vice President, Health Partners, Inc. (1996-present);           1997
41                              Vice President - Development, Health Partners, Inc.
                                (1994-1996); Director - Business Development - Occupational
                                Health Resources (1993); Associate, Tullis-Dickerson & Co.,
                                Inc. (1990-1993)
------------------------------- --------------------------------------------------------------- --------------------
</TABLE>


                               EXECUTIVE OFFICERS

     The current executive officers of the Company are as follows:

NAME                                        POSITION WITH THE COMPANY

Thomas P. Dickerson                 Chairman of the Board
Joseph A. Arena                     Chief Executive Officer
Jimmy Gray O'Neal                   President and Chief Operating Officer
Kenneth C. Kirkham                  Chief Financial Officer

         JIMMY GRAY O'NEAL. Mr. O'Neal has served as President and Chief
Operating Officer of the Company since April 1996. He was the founder of
Carolina Contact Lens, Inc. ("CCL") and has been its President since its
establishment in 1973. CCL was purchased by the Company in December 1994 and is
now a wholly-owned subsidiary of the Company. Mr. O'Neal is 52 years old.

         KENNETH C. KIRKHAM. Mr. Kirkham has been the Chief Financial Officer of
the Company since April 1996. From 1994 to 1996, he was the Chief Financial
Officer of Bono's Bar-B-Q & Grill, a chain of 33 restaurants. From 1992 to 1994
he was Senior Vice President-Finance for Ford Consumer Finance. Mr. Kirkham is
39 years old.

     Information about the other executive officers is given above.


                                       31
<PAGE>



                            SECTION 16(A) BENEFICIAL
                         OWNERSHIP REPORTING COMPLIANCE

     Under federal securities laws, the Company's directors, its executive
officers, and any persons holding more than 10 percent of the Company's stock
are required to report their ownership of the Company's stock, as well any
changes in that ownership, to the Securities and Exchange Commission. Specific
due dates for these reports have been established, and the Company is required
to report herein any failure during fiscal year 1996 to file such reports in a
timely fashion. All of these filing requirements were satisfied by its
directors, officers and 10 percent shareholders. In making this statement, the
Company has relied on the written representations of its directors, officers and
10 percent shareholders.

ITEM 10. EXECUTIVE COMPENSATION

     The following table sets forth annual compensation amounts for each of the
last three fiscal years, as indicated by the applicable table headings, for both
individuals who served as Chief Executive Officer of the Company during fiscal
1996 (the "Named Executive Officers"). Wayne Upham Smith served as Chief
Executive Officer of the Company until April 11, 1996 when Joseph A. Arena was
named to the position. Annual Compensation, columns (c), (d) and (e), includes
base salary and bonus earned during the year covered and, if applicable, other
annual compensation not properly categorized as salary or bonus. No executive
officer of the Company received compensation for the year ended December 31,
1996 in excess of $100,000.

Summary Compensation Table


<TABLE>
<CAPTION>
                                                                     --------------------------------- 
                                                                          Long Term Compensation
                               ------------------------------------- ---------------------------------
                                         Annual Compensation                 Awards           Payouts
                               ------------------------------------- ------------------------ -------- --------------
                                                          Other      Restricted   Securities                All
                                                         Annual         Stock     Under-lying  LTIP        Other
      Name and        Fiscal    Salary      Bonus     Compensation    Award(s)     Options/   Payouts  Compen-sation
 Principal Position    Year       ($)        ($)           ($)         ($) (3)       SARs       ($)         ($)
                                                                                     (#)
--------------------- -------- ---------- ----------- -------------- ------------ ----------- -------- --------------
<S>                   <C>      <C>        <C>         <C>            <C>          <C>         <C>      <C>
Joseph A. Arena,      1996     78,151     0           0              0            340,000     0        0
Chief Executive       1995     0          0           0              0            0           0        0
Officer               1994     0          0           0              0            0           0        0
--------------------- -------- ---------- ----------- -------------- ------------ ----------- -------- --------------
Wayne Upham Smith,    1996     18,269     28,334 (1)  0              0            0           0        8,333 (2)
Former Chief          1995     87,212     14,166 (1)  0              0            55,000      0        0
Executive Officer     1994     34,327     0           0              0            0           0        0
--------------------- -------- ---------- ----------- -------------- ------------ ----------- -------- --------------
</TABLE>


                                       32
<PAGE>


(1)  A bonus in the amount of $42,500 was awarded in 1995, of which $14,166 was
     paid in 1995 and $28,334 was paid in 1996.

(2)  Paid as part of a severance package upon the termination of Mr. Smith's
     employment with the Company on April 11, 1996.

Stock Options

          The following table shows stock options granted to the Named Executive
Officers during fiscal 1996.

                      Option Grants in Last Fiscal Year (1)


<TABLE>
<CAPTION>
                                               Percent of Total
                                               Options Granted to
                                               Employees in
Name                   Options Granted (#)     Fiscal Year          Exercise Price ($/sh)   Expiration Date
----                   -------------------     ------------------   ---------------------   ---------------
<S>                    <C>                     <C>                  <C>                     <C>    
Joseph A. Arena        15,000                  1.6%                 $.25                    May 1, 2006
                       75,000                  8.2%                 (2)                     May 1, 2006
                       250,000                 27.4%                $.75                    May 1, 2006
</TABLE>

(1) Options granted under the Company's 1994 Incentive and Non-Statutory Stock
Option Plan. (2) The price of these options is to be negotiated between Mr.
Arena and the Company at the time of exercise.

         The following table shows the number of shares subject to unexercised
options held by the Named Executive Officers as of fiscal year-end. The table
divides such unexercised options into those that were exercisable as of fiscal
year-end and those that were not. On December 31, 1996, the end of the fiscal
year, the closing sales price of the Company's Common Stock was $1.00 per share.

                 Aggregate Option Exercises in Last Fiscal Year
                       and Fiscal Year-End Option Values


<TABLE>
<CAPTION>
                                                                   Number of Unexercised      Value of Unexercised
                          Shares Acquired                          Options at Fiscal          in-the-money Options
Name                      on Exercise (#)    Value Realized ($)    Year-End (#)               at Fiscal Year-End ($)
----                      ---------------    ------------------    -------------------------  -------------------------
                                                                   Exercisable/Unexercisable  Exercisable/Unexercisable
                                                                   -------------------------- -----------------------
<S>                        <C>                <C>                  <C>                        <C>              
Joseph A. Arena           -0-                -0-                   90,000/250,000             11,250/62,500 (1)
</TABLE>

(1) The value of the 75,000 share option with an exercise price to be negotiated
at the time of exercise as described above under the heading "Option Grants in
Last Fiscal Year" is not included inasmuch as the value of such option is not
determinable.

Employment Agreements and Termination of Employment Arrangements

         On August 15, 1994, the Company entered into a three-year employment
agreement with


                                       33
<PAGE>


Wayne Upham Smith. The agreement provided for an initial base salary of $85,000
per year with annual bonuses of up to 50% of his base salary based in part on
the trading price of the Company's Common Stock and in part on performance, as
determined by the Compensation Committee of the Company's Board of Directors.
Mr. Smith's employment with the Company was terminated on April 11, 1996. Upon
the termination of Mr. Smith's employment, the Company agreed to pay
approximately $36,000 for bonus amounts due, accrued vacation and unpaid wages,
and in addition, the Company agreed to purchase from Mr. Smith 300,000 shares of
the Company's Common Stock for $150,000, such payment to be made in twenty
quarterly installments of $7,500.

         On April 11, 1996, the Company entered into a one-year employment
agreement with Joseph A. Arena, such agreement to be automatically renewed on
each anniversary of the agreement thereafter unless either party gives notice of
its intent to terminate the agreement at least 90 days prior to such anniversary
date. The agreement provides that Mr. Arena is to serve as the Chief Executive
Officer and as a director of the Company. Pursuant to the agreement, he is to
receive an annual salary payable at the annual rate of $125,000, may receive a
bonus of up to 33.33% of his salary based on both his individual performance and
the Company's performance and may participate in those benefit plans of the
Company available to other executives. In addition, Mr. Arena was granted
options to purchase 250,000 shares of the Company's Common Stock, such options
to vest in 25% increments on each successive anniversary date of the agreement.
The agreement also contains a covenant not to compete and a term defining the
Company's property rights. The agreement may be terminated by the Company with
or without cause or upon Mr. Arena's death or disability or voluntarily by
either party upon 90 days notice. If Mr. Arena is terminated without cause,
which shall include termination because of death or disability, then he is
entitled to his base salary for the six-month period immediately following such
termination. In addition, whether terminated with or without cause, Mr. Arena
shall forfeit all unvested options granted under the agreement, shall have
ninety days after such termination to exercise all vested options and shall
cease to be a member of the Board of Directors of the Company.

Directors' Compensation

         Directors, whether or not employees of the Company, are not compensated
for any services provided as a director, for serving on any committee of the
Board of Directors or for special assignments. Directors that must travel to
attend board meetings are reimbursed for their expenses incurred to do so.


                                       34
<PAGE>


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

         The following table sets forth certain information regarding those
persons known by management to hold beneficially at least 5% of the outstanding
shares of Common Stock.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF                               AMOUNT AND NATURE
BENEFICIAL OWNER                              OF BENEFICIAL OWNERSHIP     PERCENTAGE

<S>                                                 <C>                      <C>  
Tullis-Dickerson Capital Focus, L.P.                3,730,395  (a)           81.7%
    One Greenwich Plaza, Greenwich, CT 06830
James L.L. Tullis                                              (b)            (b)
    One Greenwich Plaza, Greenwich, CT 06830
Thomas P. Dickerson                                            (b)            (b)
    One Greenwich Plaza, Greenwich, CT 06830
Joan Neuscheler                                                (b)            (b)
    One Greenwich Plaza, Greenwich, CT 06830
</TABLE>

                   (a) Includes 3,038,730 shares owned by Tullis-Dickerson
                   Capital Focus, L.P., warrants to purchase 586,670 shares,
                   35,714 shares held by Tullis-Dickerson & Co., Inc., 40,251
                   shares held by James L.L. Tullis, 20,126 shares held by
                   Thomas P. Dickerson and 8,904 shares held by Joan Neuscheler,
                   each of whom may be deemed an affiliate of Tullis-Dickerson
                   Capital Focus, L.P.

                   (b) See footnote (a) above. Mr. Tullis, Mr. Dickerson and Ms.
                   Neuscheler are general partners of Tullis-Dickerson Partners,
                   the general partner of Tullis-Dickerson Capital Focus, L.P.,
                   and each may be deemed an affiliate of Tullis-Dickerson
                   Capital Focus, L.P.



                                       35
<PAGE>

                    SECURITY OWNERSHIP OF DIRECTORS, NOMINEES
                    FOR DIRECTOR AND CHIEF EXECUTIVE OFFICER

          The following table sets forth certain information as of April 30,
1997 with respect to the beneficial ownership of the Company's Common Stock by
its directors, nominees for director, and the individuals who served as the
Company's chief executive officer during any part of the fiscal year ended
December 31, 1996.

NAME OF                                   AMOUNT AND NATURE
BENEFICIAL OWNER                       OF BENEFICIAL OWNERSHIP        PERCENTAGE
----------------                       -----------------------        ----------
Joseph A. Arena                             172,500   (a)                4.2%
Thomas P. Dickerson                         3,730,395 (b)               81.7%
James L.L. Tullis                           3,730,395 (b)               81.7%
Joan P. Neuscheler                          3,730,395 (b)               81.7%
Timothy Buono                                    -0-                       0%
Wayne Upham Smith                                -0-                       0%
All executive officers
and directors as a group (7 persons)        3,969,561 (c)               83.6%

                   (a)      Includes currently exercisable options to purchase
                            152,500 shares

                   (b)      Includes 3,038,730 shares owned by Tullis-Dickerson
                            Capital Focus L.P., warrants to purchase 586,670
                            shares, 35,714 shares held by Tullis-Dickerson &
                            Co., Inc., 40,251 shares held by James L.L. Tullis,
                            20,126 shares held by Thomas P. Dickerson and 8,904
                            shares held by Joan Neuscheler, each of whom may be
                            deemed an affiliate of Tullis-Dickerson Capital
                            Focus L.P.

                   (c)      Includes currently exercisable options to purchase
                            152,500 shares and warrants to purchase 586,670
                            shares



ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Thomas P. Dickerson, Chairman of the Board of the Company, and James
L.L. Tullis and Joan P. Neuscheler, directors of the Company, are general
partners in Tullis-Dickerson Partners, the general partner of Tullis-Dickerson
Capital Focus, L.P. ("TD Capital"), an entity to which the Company was indebted
in the amount of $60,000 as of January 1, 1995 as a result of various loans and
other transactions between the two parties. In connection with a loan made by TD
Capital to the Company in September 1991, TD Capital received a warrant to
acquire 100,000 shares of the Company's Common Stock at a price of $.75 per
share, which warrant was exercised on March 31, 1995, with the exercise price
paid by a $55,000 reduction of the outstanding indebtedness and forgiveness of
$20,000 of accrued and unpaid interest. Accordingly, on December 31, 1995, the
outstanding principal balance of TD Capital's original loan to the Company was
$5,000. This loan was repaid in full on June 28, 1996.



                                       36
<PAGE>

          In December 1994, TD Capital made a loan to the Company, separate and
distinct from that discussed above, in the amount of $800,000 with interest
payable quarterly at 15.25% and repayment of the principal due on September 30,
1997. Because the principal and interest remained unpaid after June 15, 1995, TD
Capital has the option to convert the Note into shares of the Company's Common
Stock of the Company at the rate of one share for each $1.00 of principal and
interest unpaid until maturity, and one share for each $.50 of principal and
interest unpaid thereafter.

         The Company received additional financing from TD Capital during
November and December 1995 and January and February 1996 in the amounts of
$167,000, $100,000, $395,000 and $50,000, respectively. Such additional funds
were consolidated into a single note payable in installments in varying amounts
beginning on June 30, 1996 and concluding on August 5, 1996. Interest on the
consolidated note is payable at 13.5% until maturity and 19.5% thereafter. Such
consolidated note has not yet been paid. In connection with the consolidated
note, TD Capital received and subsequently exercised warrants to purchase
199,503 shares of Common Stock at a price of $.10 per share. A portion of the
interest owed by the Company to TD Capital was used to offset the cost to TD
Capital of exercising the warrants.

         During 1996, TD Capital continued to advance funds to the Company on
the same terms and conditions as the note discussed above. TD Capital advanced
$490,833 under these terms and conditions from June through December 31, 1996.
For these additional advances, TD Capital received a warrant to purchase 550,000
shares of the Company's common stock at $.25 per share, such warrant to expire
at 2001. As of December 31, 1996, the Company owed TD Capital an aggregate
amount of $2,298,196, comprised of principal indebtedness of $1,865,309, accrued
interest of $363,714 and $69,173 in reimbursable expenses.

         All of Company's indebtedness to TD Capital is secured by substantially
all inventories and property and equipment, though TD Capital did subordinate
its entire security interest to Fidelity Funding on June 28, 1996. In addition,
the Company's agreements with TD Capital prohibit it from paying any dividends.

         The Company and Tullis-Dickerson & Co., Inc. ("TD & Co.") entered into
an agreement dated August 15, 1994, whereby the Company pays to TD & Co. a
financial advisory fee of $3,000 per month, plus $9,000 per quarter for any
quarter that the Company exceeds its internal cumulative cash flow projections
for that calendar quarter. TD & Co. terminated these fees effective November 30,
1996. Prior to such termination, the Company paid such fees in the amount of
$33,000 in 1996 and $36,000 in 1995. In May 1995, the Company issued 15,954
shares of the Company's common stock to James L.L. Tullis and Thomas P.
Dickerson, as assignees of TD & Co., in satisfaction of outstanding invoices for
consulting services rendered during 1994 and 1995, including ongoing assistance
with the Company's operations, the development of strategy, the hiring of
personnel, the streamlining of operations, the coordination between facilities
of the Company, and the development of management reporting systems. At the time
of the issuance of the stock in payment for such


                                       37
<PAGE>


services, the bid price for the Company's stock was $1.13 for a value of
$18,000. In July 1996, the Company issued 29,615 shares of the Company's common
stock to James L.L. Tullis, 14,808 shares to Thomas P. Dickerson and 8,904
shares to Joan E. Neuscheler, as assignees of TD & Co., in satisfaction of
outstanding invoices for consulting services rendered during 1995 and 1996, such
services being similar to those described above. At the time of the issuance of
the stock in payment for such services, the bid price for the Company's stock
was $1.625 for a value of $86,656. Messrs. Tullis and Dickerson and Ms.
Neuscheler are the sole shareholders, directors and principal officers of TD &
Co.

         The Company leases from Jimmy Gray O'Neal, President and Chief
Operating Officer of the Company, an approximately 6,000 square foot building
located in Raleigh, North Carolina from which originates the Company's
manufacturing and distribution operations. The lease agreement between the
Company and Mr. O'Neal provides for (i) a term of five years commencing in
December 1994 and (ii) monthly payments of $5,000.


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

            (a) The Exhibits filed herewith are listed on accompanying Index to
Exhibits.

            (b)    Reports on Form 8-K

                   The registrant did not file any reports on Form 8-K during
                   1996.


                                       38
<PAGE>

                                   SIGNATURES


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

                                      AMERICAN CONSOLIDATED LABORATORIES, INC.

Date:  April 30, 1997                 By:    /s/ Joseph A. Arena
                                             Joseph A. Arena
                                             Chief Executive Officer

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

Signature                  Title                                  Date

/s/ Joseph A. Arena        Chief Executive Officer                April 30, 1997
---------------------------
Joseph A. Arena

/s/ Thomas P. Dickerson    Chairman of the Board                  April 30, 1997
---------------------------
Thomas P. Dickerson

/s/ Kenneth C. Kirkham     Chief Financial Officer                April 30, 1997
Kenneth C. Kirkham         (Principal Accounting Officer)

/s/ James L.L. Tullis      Director                               April 30, 1997
---------------------------
James L.L. Tullis

/s/ Joan P. Neuscheler     Director                               April 30, 1997
---------------------------
Joan P. Neuscheler

/s/ Timothy M. Buono       Director                               April 30, 1997
---------------------------
Timothy M. Buono




                                       39
<PAGE>

ITEM 13 (a) INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number            Description                        Incorporated by reference
--------------------------------------------------------------------------------------------
<S>      <C>                                  <C>                             
4.1      Term Note between Registrant         Exhibit 10.2 to quarterly Report on Form
         10-Q for and TDCFLP, September 16,   quarter ended September 30, 1991
         1991

4.2      Secured Convertible Term             Exhibit 6 to Current Report on Form 8-K, dated
         Promissory Note between              December 29, 1994
         Registrant and TDCFLP
         December 15, 1994; and
         Stock Purchase and Term
         Loan Agreement between
         Registrant and TDCFLP,
         dated August 15, 1994

4.3      Secured Convertible Term             Exhibit 10.11 to Form 10-KSB for the year ended
         Promissory Note dated as of          December 31, 1995
         December 14, 1994, (as
         amended and restated as of
         June 15, 1995) between
         the Company and TDCFLP
         and amendment of
         Promissory Note dated February
         15, 1996

4.4      Amended and Restated                 Exhibit 10.11 to Form 10-KSB for the year ended
         Convertible Promissory               December 31, 1995
         Note dated February 15,
         1996 from the Company to
         TDCFLP and related
         Warrants

4.5      Loan and Security agreement
         between Carolina Contact Lens,
         Inc. and Fidelity Funding of
         California, dated as of June 25,
         1996


                                       40
<PAGE>

4.6      Loan and Security agreement
         between Salvatori Ophthalmic
         Manufacturing Corporation and
         Fidelity Funding of California,
         Inc. dated as of June 25,
         1996

4.7      Warrant for Purchase of
         securities of American
         Consolidated Laboratories,
         Inc. issued to Fidelity Funding
         of California, Inc. in conjunction
         with the Loan in Exhibits 10.9
         and 10.10 for 150,000 shares

4.8      Warrant for Purchase of
         securities of American
         Consolidated Laboratories,
         Inc. issued to TDCFLP
         in conjunction with Loan
         advances in 1996 for
         550,000 shares

10.1     Employment Contract between             Exhibit 10(a) to Form 10-QSB for the
         quarter ended Joseph A. Arena and the   September 31, 1996 Company dated
         April 11, 1996

10.2     Employment Contract between             Exhibit 10(a) to Form 10-QSB for the quarter ended

         Kenneth C. Kirkham and the              September 31, 1996
         Company dated April 11, 1996

10.3     Financing Agreement between             Exhibit 10.1 to Quarterly Report on Form 10-Q for the
         the Company, S-O Nebraska,              quarter ended September 30, 1991
         Inc. and TDCFLP, dated Sep-
         tember 13, 1991

10.4     1994 Incentive and Non-                 Exhibit 4.1 to Form 10-KSB for the Fiscal year ended
         Statutory Stock Option Plan             December 31, 1994

21       Listing of Subsidiaries

27       Financial Data Schedule
</TABLE>


                                       41