<PAGE>   1
                                    FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

     For the fiscal year ended December 28, 1996

                                       OR

/ /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from        to

                         Commission file number 1-12740

                             NEW WEST EYEWORKS, INC.
             (Exact Name of Registrant as Specified in Its Charter)

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<S>                                         <C>       
         Delaware                                    34-1589514
(State of Incorporation)                    (I.R.S. Employer Identification No.)

2104 West Southern Avenue, Tempe, Arizona                  85282
 (Address of Principal Executive Offices)                (Zip Code)
</TABLE>

Registrant's telephone number, including area code:  (602) 438-1330

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

      Title of each class             Name of each exchange on which registered
 Common Stock, $0.01 par value               The Pacific Stock Exchange

           Securities registered pursuant to section 12(g) of the Act:
                          Common Stock, $0.01 par value
                                (Title of Class)

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

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

            State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing.

Common Stock, $0.01 par value: $17,893,563  (as of March 21, 1997)

            Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.

Common Stock, $0.01 par value: 4,868,436 (as of March 21, 1997)

            Portions of the Company's definitive Proxy Statement for the 1997
Annual Meeting of Stockholders are incorporated by reference into Part III of
this Form 10-K.
<PAGE>   2
                             NEW WEST EYEWORKS, INC.

                           Annual Report on Form 10-K
                      For the Year Ended December 28, 1996

                                Table of Contents


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                                                                                          Page
                                                                                          ----

                                     PART I

<S>         <C>                                                                            <C>
Item 1.     Business.....................................................................   3
Item 2.     Properties...................................................................  15
Item 3.     Legal Proceedings............................................................  15
Item 4.     Submission of Matters to a Vote of Security Holders..........................  15


                                     PART II

Item 5.     Market for Registrant's Common Equity
                        and Related Stockholder Matters..................................  16
Item 6.     Selected Financial Data......................................................  16
Item 7.     Management's Discussion and Analysis of
                        Financial Condition and Results of Operations....................  19
Item 8.     Financial Statements and Supplementary Data..................................  28
Item 9.     Changes In and Disagreements With Accountants
            on Accounting and Financial Disclosure.......................................  28


                                    PART III

Item 10.    Directors and Executive Officers of the Registrant...........................  29
Item 11.    Executive Compensation.......................................................  29
Item 12.    Security Ownership of Certain Beneficial
            Owners and Management........................................................  29
Item 13.    Certain Relationships and Related Transactions...............................  29


                                     PART IV

Item 14.    Exhibits, Financial Statement Schedules,
            and Reports on Form 8-K......................................................  30
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<PAGE>   3
                                     PART I

ITEM 1.  BUSINESS

GENERAL

            New West Eyeworks, Inc. (the "Company") is a leading specialty
retailer of eyewear, operating under the trade names "Lee Optical" and "Vista
Optical." In the Western and Midwestern United States, the Company operates 149
value-priced optical stores located in malls, strip shopping centers and Fred
Meyer, Inc. ("Fred Meyer") host stores. The Company's everyday value-pricing
strategy features its "signature" $59 price point for a wide selection of
quality, brand name eyeglasses offered at attractive, convenient locations with
professional service. The Company's stores also sell brand name contact lenses
and non-prescription sunglasses and offer customers on-site eye examinations by
independent optometrists. The Company operates optical laboratory and
distribution facilities in Tempe, Arizona and near Portland, Oregon.

            The Company's value-pricing strategy differentiates it from
competitors. The Company believes that the economies of scale achieved by
operating centralized laboratory and distribution facilities enable it to
produce eyewear at a lower per unit cost and to maintain lower capital and
inventory investment per sales dollar than optical superstores which operate
individual in-store laboratories to offer "one-hour" service to customers.
Therefore, the Company believes that chains with in-store laboratories are
unable to implement an everyday value-pricing strategy. While certain discount
chains have positioned themselves as low-priced eyewear retailers, the Company
believes that such chains cannot match the combination of product quality,
selection, professional service and mall and strip shopping center locations
offered by the Company. In addition, the Company believes independent retail
outlets, which lack economies of scale, cannot match the Company's everyday
value-pricing, wide selection and number of locations. The Company also believes
that its value-pricing strategy has appeal to today's price-conscious consumer,
especially given the current trend toward cost containment in the health care
industry.

            In early 1997, the Company completed a secondary public offering of
1,505,400 shares of its common stock, $0.01 par value per share, including
shares sold upon the exercise of the underwriters' over allotment option (the
"Offering"). Net proceeds to the Company from the Offering were $5.6 million. Of
the shares sold, 400,000 shares were sold by selling stockholders. The Company
did not receive any proceeds from the sale of shares by the selling
stockholders. See "Management's Discussion and Analysis of Financial Condition
and Results of Operation -- Recent Events."

            In 1988, New West, Inc., a Delaware corporation, was formed to
acquire the capital stock of Western States Optical, Inc., an Arizona
corporation, from MEDIQ Incorporated ("MEDIQ"). In 1992, the name Western States
Optical, Inc. was changed to New West Eyeworks, Inc. In a parent-subsidiary
merger in 1993, New West Eyeworks, Inc. was merged with and into New West, Inc.,
and concurrently, New West, Inc. changed its name to New West Eyeworks, Inc. The
Company's principal executive offices are located at 2104 West Southern Avenue,
Tempe, Arizona 85282, and its telephone number is (602) 438-1330.


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<PAGE>   4
EXPANSION STRATEGY

            The Company's expansion plan is to open new mall and strip shopping
center stores where it can market its value-pricing strategy under the "Lee
Optical" and "Vista Optical" tradenames. Since completing its initial public
offering in December 1993, the Company has embarked on its growth program under
which it has opened 43 new stores, 34 of which are located in malls and strip
shopping centers. In addition, during this period, the Company has relocated and
remodeled 18 of its stores, eight of which are located in malls and strip
shopping centers. To further improve the Company's operating performance and
place increased emphasis on its mall and strip shopping center locations, the
Company has closed 28 underperforming stores in the same period, 19 of which
were located in Fred Meyer and Smitty's Super Valu, Inc. ("Smitty's") host
stores.

            With the proceeds of the Offering, the Company plans to accelerate
its store opening program with the addition of 20 to 25 new stores in 1997,
substantially all of which will be located in malls and strip shopping centers.
Assuming the Company opens 25 new stores in 1997, including 24 new stores in
malls and strip shopping centers and one new store within a Fred Meyer host
store, the Company expects that the costs of these new stores, including
furniture, fixtures, leasehold improvements, inventory and optometric equipment,
will be approximately $3.0 million. Actual costs will vary based upon, among
other factors, geographic location, the size of the store and the extent of the
build-out required at the selected site. In addition to opening new stores, the
Company may relocate stores within a mall or strip shopping center if sites
become available with better traffic patterns and better merchandising
opportunities. In 1997, the Company plans to remodel five of its mall and strip
shopping center stores at an estimated cost of approximately $500,000.

            The Company will use its modular store construction design in all of
its new, relocated or remodeled stores. The Company believes that its use of
modular store construction reduces store opening and operating costs and
substantially shortens the time required to construct new stores or remodel
existing ones.

            The Company's strategy is to improve its market share in existing
markets and to expand into new markets by clustering stores in a particular
metropolitan area or in smaller adjacent markets. For example, since 1993, the
Company has entered new markets in Colorado and Iowa where it has established
itself as a leading eyewear retailer. The Company believes that by clustering
stores it can obtain economies of scale with respect to advertising,
distribution and management costs as well as attract additional managed care
business. As incremental sales occur, the Company anticipates that these
economies, as well as its optical laboratory fixed cost structure, will enable
it to enhance its operating margins. In its new markets, the Company expects
that all of its stores will be operated under the trade name "Vista Optical."

            The Company will consider opportunistic acquisitions of small retail
optical chains or independent retail optical outlets if such acquisitions enable
the Company to improve its market share in existing markets or expand into new
markets. There can be no assurance that any definitive acquisition agreements
will be reached or, if entered into, that any acquisitions will be successful.
The Company has no outstanding commitments or agreements regarding any
acquisitions.


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<PAGE>   5
            To evaluate the suitability of potential markets, the Company
performs a demographic and competitive analysis. Potential store site selection
criteria include market demographics, traffic count, the retail mix of a mall or
strip shopping center, location within the mall or center, overall retail
activity of the area and proposed lease terms.

            The Company intends to lease all new store locations under
multi-year leases. The time required to open a store after signing a lease
depends primarily upon the landlord's ability to deliver the premises to the
Company. Upon acceptance of the premises from the landlord, the Company expects,
with the use of its modular construction store design, to be able to open a
store generally within three to five weeks. See "Operations--Store Locations and
Layout."

MERCHANDISING AND MARKETING

            The Company's merchandising and marketing strategy focuses on the
following key concepts: (1) selling quality, brand name eyewear at everyday
value prices; (2) offering a wide selection of eyewear products in each of its
stores; (3) using a variety of media, such as television, direct mail, newspaper
and yellow page advertising, to differentiate it from competitors and to create
general consumer awareness and traffic in its retail stores; and (4) providing
knowledgeable and personalized customer service.

            Value-Pricing. The Company's merchandising focuses on offering
quality, brand name eyewear at everyday value prices. Beginning in September
1991, the Company set a $59 price point for single vision, plastic lens
eyeglasses (including both the frame and lenses), enabling consumers to
comparison price shop. "Single vision" eyewear refers to a non-bifocal
prescription. Additional pairs of single vision, plastic lens eyeglasses
purchased on the same store visit with the same prescription are sold for $49.
The Company also features similar value pricing for contact lenses with daily
wear, soft lenses at $22 a pair. The Company expects to maintain its $59
eyeglass price point for the foreseeable future.

            Wide Selection of Eyewear Products. Each store carries a selection
of 650 to 1,200 frames, depending on the size and type of store. The Company
continually analyzes sales of its frames to keep its stores stocked with a wide
selection of the latest in eyewear fashion and a proper assortment of styles,
colors, and sizes. Approximately 65% of each store's inventory consists of
frames that are sold at the $59 price point, and in 1996, approximately 80% of
the Company's eyeglass unit sales were at the $59 price point. The balance of
each store's inventory is distributed among higher-priced frames, including
recognized designer brand names that are sold at price points ranging from $79
to $149 complete with single vision, plastic lenses. The result is that the
Company's customers are offered a broad selection at the $59 price point with
the opportunity to purchase higher-priced designer frames, many of which the
Company believes are sold at lower prices than at chains offering "one-hour"
service to customers. The Company also believes that its value pricing is
conducive to multiple sales.

            At its $59 price point, the Company carries recognizable brand name
eyewear, such as REM, St. Moritz, Zimco and Limited Editions. Designer frames
carried by the Company include Nautica, Liz Claiborne, Stetson, Safilo,
Converse, Perry Ellis and Sophia Loren. The Company sells gas permeable and soft
contact lenses, including daily wear, flexible wear and disposable lenses
manufactured by such nationally-recognized eyewear companies as Bausch & 


                                        5
<PAGE>   6
Lomb, Inc., Ciba-Vision Corporation, Johnson & Johnson and Wesley-Jessen. The
Company does not buy close-out or discontinued inventory.

            The Company also offers several different types of eyeglass lenses,
such as, progressive, transition, bi-focal, polycarbonate and hi-index lenses,
as well as other eyeglass options, including fashion tints, ultraviolet
protection, anti-reflective coatings and scratch resistance. In keeping with its
value-pricing strategy, the Company offers these options at prices ranging from
$15 for options, such as tints or scratch resistance, to $80 for transition
lenses. For multiple pair purchases, the customer is offered a package of three
options on all additional pairs for free.

            Advertising. The Company uses a variety of media, such as
television, direct mail, newspaper and yellow page advertising, to differentiate
it from competitors and to create general consumer awareness and traffic in its
retail stores. The primary emphasis of the Company's advertising is to inform
consumers that they can spend less and still receive quality, brand name
eyewear.

            The Company has developed management information systems to quickly
evaluate the effectiveness of advertising and target its advertising expenses
accordingly. Historically, the Company has concentrated its advertising
expenditures in its peak selling seasons of March and April, and again in August
and September. However, the Company has increased its advertising expenditures
during its off-peak seasons and in its existing and new markets where sufficient
stores are clustered to support additional advertising. There is no assurance
that the Company's advertising will be effective.

            Customer Service. The Company believes that providing knowledgeable
and personalized customer service is essential to its success. The Company has
employee training programs designed to continually upgrade the technical optical
skills and retail selling techniques of its sales associates. See
"Operations--Personnel and Training." Stores are open during hours that are
convenient for customers, generally from 10 a.m. to 9 p.m. All stores are open
on Saturdays and most are open on Sundays.

            The Company's return policy and its service agreement program are
also designed to ensure customer satisfaction. Within 30 days, if a customer is
dissatisfied with a choice of eyeglasses, the Company will exchange them for a
new pair of comparable value, at no additional charge. Historically, the
Company's merchandise return rate has not been significant. As an additional
option to its customers, the Company offers an eyeglass service agreement that
can be purchased for $20. Under the service agreement, all frames or eyeglass
lenses that break within one year are replaced free of charge. In addition, the
customer is entitled to a $10 discount on any pair of eyeglasses purchased
during the service agreement year. For customers who need eyewear quickly, the
Company offers for $10 a guaranteed express service that delivers eyewear within
48 hours.

MANAGED CARE

            Managed care is a substantial and rapidly growing area of the retail
optical business. Under the tradename "Alexis Vision Plan," formerly American
Vision Plan, the Company uses its stores as a managed care network. The Company
markets Alexis Vision Plan to managed 


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<PAGE>   7
care administrators at health maintenance organizations ("HMO's") and health
insurance plans and to local and state governments and mid-sized to large
companies that offer eyecare benefits to their employees. When the Company
provides benefits to members of an HMO, beneficiaries of a health care insurer
or employees of a government or company, the covered participants may use their
eyecare benefits at the Company's stores, generally at a small discount from the
Company's everyday value prices. Because of the Company's value pricing,
participants will typically be eligible for greater eyecare benefits at the
Company's stores than at other eyecare providers participating in managed care
programs. The Company believes that the additional customer traffic generated
under the Alexis Vision Plan, including family members of the covered
participants, and purchases by covered participants beyond their eyecare
benefits, more than offset the reduced gross margins generated under the Alexis
Vision Plan.

            In 1996, sales generated under the Alexis Vision Plan were $11.4
million (or 26.1% of net sales), a 23.2% increase over 1995. In 1996, the
Company continued to enter into new managed care agreements in its existing and
new markets.

            The Company believes that its value-pricing strategy and convenient
store locations are key factors in attracting managed care business. As the
Company increases its presence within existing markets and expands into new
markets, it believes it will be more attractive to managed care administrators
because of its additional store locations. The Company also believes that Alexis
Vision Plan will further benefit from the trend in the health care industry
toward managed care as a means to better manage health care costs. However,
there is no assurance that sales generated under the Alexis Vision Plan will
continue to grow, or that the Company will be able to negotiate satisfactory
agreements with additional managed care providers or maintain its current
agreements with managed care providers.

OPERATIONS

            Store Locations and Layout. The Company's stores are located in
regional malls, strip shopping centers and leased departments within Fred Meyer
host stores. In Arizona and Utah, the Company's stores are operated under the
tradename "Lee Optical" and in other states as "Vista Optical." In its new
markets, the Company expects that all of its stores will be operated under the
tradename "Vista Optical."


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<PAGE>   8
            The following table sets forth the Company's stores by location and
type as of March 21, 1997:

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<CAPTION>
LOCATION                          NUMBER                   TYPE
--------                          ------                   ----

<S>                                 <C>                  <C>                                 <C>
Washington                           39                  Regional Malls                       77
Oregon                               31                  Fred Meyer Host Stores               51
Arizona                              28                  Strip Shopping Centers               21
Colorado                             14                                                      ---
Idaho                                11
Alaska                                9
Iowa                                  8
Montana                               3
New Mexico                            2
Wyoming                               2
Illinois                              1
Utah                                  1
                                    ---
  Total                             149                  Total                               149
                                    ===                                                      ===
</TABLE>

            The Company's typical mall location ranges from 700 to 1,500 square
feet, and the typical Company store in a strip shopping center ranges from 700
to 1,200 square feet. The ideal size for the Company's modular design store is
approximately 1,000 square feet. The Fred Meyer host store locations range from
400 to 800 square feet, with the ideal size for the host store modular design
being 700 square feet. The Company believes that its use of modular store
construction reduces store opening and operating costs and substantially
shortens the time required to construct new stores or remodel existing ones. The
Company will use its modular store design in all of its new, relocated or
remodeled stores.

            Each of the Company's stores has separate areas for merchandise
display, customer service and an independent optometrist to perform eye
examinations. The Company continuously enhances its store design to optimize
customer appeal. In 1997, the Company introduced a new store design in its new
and remodeled stores, including new store colors, improved lighting, enhanced
eyeglass frame displays and wood floors, as well as other improvements in store
fixtures and furniture.

            Manufacturing and Distribution. To produce prescription eyeglasses
and to distribute eyeglasses, contact lenses and other products to the Company's
stores, the Company operates two optical laboratory and distribution facilities
located in Tempe, Arizona and Clackamas, Oregon, which is near Portland. The
laboratories provide grinding, polishing, cutting, edging, tempering, tinting
and coating for prescription lenses that are custom fitted to eyeglass frames in
the size and style selected by the customer. The two facilities produce
approximately the same number of eyeglasses. The Company believes that having
two facilities provides it with the operational flexibility and additional
capacity for expansion and facilitates the efficient and timely delivery of
eyewear products and customer service.


                                        8
<PAGE>   9




            The Company has made substantial investments in information systems,
including a manufacturing and distribution system and a fully integrated
inventory control, merchandising, and general ledger software system, which
provide management with detailed retail sales, manufacturing, financial and
administrative data on a timely basis. The Company believes that these systems
should help maintain stable margins and sound fiscal controls as the Company
expands its network of retail stores and Alexis Vision Plan business.

            The Company continually seeks to shorten the turnaround time
necessary to deliver completed eyeglasses and contact lenses to its customers.
The Company's stores submit orders daily to the laboratories, which stock many
frames in the Company's stay-in-stock program, thereby minimizing turnaround
time. For frames not in stock at the laboratories, independent couriers make
daily deliveries from the stores. These couriers also make outbound deliveries
from the laboratories to the stores to replenish store inventories and deliver
completed prescription eyeglasses and contact lenses. Generally, delivery of
prescription eyeglasses takes four to six business days. For customers who need
eyewear quickly, the Company offers its guaranteed express service that delivers
eyewear within 48 hours.

            Inventory and Suppliers. Inventory control is a major focus for the
Company. The Company has established systems to increase inventory turns and
eliminate overages and shortages.

            The Company has not experienced any difficulty in obtaining
satisfactory sources of supply in the past and believes that it has excellent
relations with each of its principal vendors. In addition, the Company believes
that it will be able to obtain greater purchasing leverage as it expands. The
Company is not dependent on any single supplier and has purchase agreements with
several of its suppliers which the Company believes enable it to purchase
ophthalmic lenses and various other supplies on favorable payment terms. In
addition, although the Company has not customarily been able to take advantage
of available trade discounts because it has not had sufficient funds, the
Company may take advantage of such discounts in the future. A material change in
the Company's current purchase terms could have a material adverse effect on the
Company's financial condition or results of operations.

            Personnel and Training. Each of the Company's stores is staffed by a
manager and one to six sales associates. In certain states, in conformity with
applicable regulations, each store is staffed with a licensed optician. See
"Government Regulation." Each store employee receives a basic wage, plus
incentive compensation based on sales performance. Each store is supported by a
district administrative staff. Each of 12 District Managers has general
supervisory authority over nine to 21 stores. The District Managers report
directly to either the Senior Vice President or the Division Manager of the
Company.

            The Company emphasizes employee training. The Company operates a
comprehensive training program led by the Senior Vice President and the National
Sales Training Manager, who supervise two support trainers, each of whom trains
personnel on a regional basis. Training programs have been developed for
employees from entry level to senior management. These programs teach the
Company's sales associates technical information about skills particular to the
optical business, Company policies and procedures and retail sales techniques,
including 


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<PAGE>   10
skills that enable the sales associates to educate consumers about eyewear
options offered by the Company.

            The Company developed and operates Vision In Excellence Workshops
("VIEW" Training) to provide advanced skills to both store managers and store
employees in the critical areas of communication and customer service. In
addition, the Company uses vendor product training seminars that provide the
Company's sales associates with specific product knowledge enabling them to
match customer needs with the eyewear. The Company believes its training
programs have assisted in increasing revenue, as well as reducing employee
turnover.

RELATIONSHIP WITH HOST STORES

            Fred Meyer. The Company operates 51 stores in Fred Meyer host stores
in the states of Oregon, Washington, Idaho and Alaska. Fred Meyer has 116 stores
located primarily in the Pacific Northwest. Generally, the Fred Meyer stores are
"one-stop" department stores of approximately 140,000 square feet that offer
groceries, soft goods, home improvement items and various other merchandise. Not
all of the Fred Meyer stores have eyewear departments.

            The Company's optical store is generally located near the main
checkout counter in the front of the Fred Meyer host store, offering excellent
exposure to customer traffic. In 1996, the Company opened one new store and
closed one store in Fred Meyer locations. The Company expects to open one new
store within Fred Meyer in 1997. From time to time, Fred Meyer remodels a store
and the Company may remodel its store at that location. In addition, when Fred
Meyer closes a store, the Company's store closes.

            The Company has a master lease agreement with Fred Meyer due to
expire in April 1998, that grants the Company the right of first refusal to open
an optical store in any new Fred Meyer store in which Fred Meyer decides to
place an eyewear department. However, Fred Meyer is not required under the
master lease agreement to open any future stores, or when new stores are opened,
to place an eyewear department in the store. Each optical store is covered by
its own separate lease, subject to the guideline provisions of the master lease.
Generally, the term of each store lease is for a period of five years, with an
option to extend the lease term for one renewal term of five years.

            The Company is generally prohibited under the terms of each
individual store lease from operating an optical store within a one mile radius
of the Fred Meyer store in which the Company has a store, unless otherwise
approved by Fred Meyer. Additionally, the Company is required under each lease
to pay rent that is generally the greater of the minimum base rent, which varies
according to the Company's store size, or 13% of all merchandise sales. During
the renewal period, the minimum base rent generally increases annually at a rate
of 5% per year.


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OPTICAL PROFESSIONALS

            Optometrists. Each Company store offers customers on-site eye
examinations performed by independent licensed optometrists. These optometrists
are not employed by, and receive no compensation from, the Company. The Company
does not share in the fees which are set and received by the independent
optometrists.

            Generally, the Company subleases at nominal rates approximately 125
square feet in each store to an independent optometrist who is, in certain
instances, permitted to re-sublet the space to another optometrist to handle
increased patient loads. Customers of on-site optometrists are not required to
have prescriptions filled in the Company's stores, and the Company may fill any
eyewear prescription whether or not it was written by an on-site optometrist.
The leased space, which is usually developed and equipped by the Company,
includes optometric examination and diagnostic equipment. The cost to fully
equip a store with such optical equipment is approximately $25,000.

            The Company operates a formal program of continuing professional
education that provides optometrists with a convenient method of meeting state
continuing education requirements and helps ensure that the Company's customers
receive high quality optical care. The Company offers this continuing education
to all optometrists in certain states, regardless of whether or not they occupy
one of the Company's stores. This program has been useful in recruiting new
doctors. The Company has formed an internal peer review committee to
periodically review the performance of its independent optometrists who provide
services to Alexis Vision Plan customers. In addition, the Company has initiated
a series of regional optometrist meetings to facilitate communication among the
independent optometrists. The Company believes that its stores offer excellent
practice opportunities for independent optometrists and that relations with its
optometrists are excellent.

            Opticians. Certain states require that the Company staff its stores
with one or more opticians licensed by state authorities to fit and dispense
eyeglasses and contact lenses prescribed by optometrists or ophthalmologists.
See "Government Regulation." However, not all the Company's sales associates are
opticians. To assist its opticians in maintaining their licenses, the Company
has implemented a formal training and education program. The Company has not
experienced any difficulty in recruiting and employing opticians. Opticians are
not licensed to prescribe corrective lenses.

COMPETITION

            The retail eyecare industry is fragmented and highly competitive and
historically has been subject to severe price competition. According to 20/20, a
leading optical industry trade journal, total sales in the U.S. retail optical
market were $11.4 billion in 1990, and grew to $13.8 billion in 1995. The
Company's competitors include large optical store chains, such as LensCrafters
and Pearle Vision Centers, many of which offer "one-hour" service to customers,
and numerous independent retail outlets, opticians, optometrists and
ophthalmologists. In addition, the increase in the number of optical units in
department store chains (including Sears, Roebuck & Co. and Wal-Mart Stores,
Inc.) and warehouse clubs (including Wholesale Club Inc. and Price/Costco Inc.)
and the emergence of mail order contact lens replacement services have further
increased


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<PAGE>   12
the Company's competition. The Company believes it is able to compete in the
retail marketplace based on its value-pricing strategy, the wide selection of
frames offered at the Company's $59 price point, the quality of its products and
services, its attractive stores and its convenient store locations. However,
many of the Company's competitors are larger than the Company and have financial
and other resources substantially greater than those of the Company.

            The Company's value-pricing strategy differentiates it from
competitors. The Company believes that the economies of scale achieved by
operating centralized laboratory and distribution facilities enable it to
produce eyewear at a lower per unit cost and to maintain lower capital and
inventory investment per sales dollar than optical superstores which operate
individual in-store laboratories to offer "one-hour" service to customers.
Therefore, the Company believes chains with in-store laboratories are unable to
implement an everyday value-pricing strategy. These chains may offer special
price promotions or limited value-priced sections, but the Company believes that
these chains do not compete with the Company's everyday value prices. While
certain discount chains have positioned themselves as low-priced eyewear
retailers, the Company believes that such chains cannot match the combination of
product quality, selection, professional service and mall and strip shopping
center locations offered by the Company. In addition, the Company believes
independent retail outlets, which lack economies of scale, cannot match the
Company's everyday value-pricing, wide selection and number of locations. The
Company also believes that its value-pricing strategy has appeal to today's
price-conscious consumer, especially given the current trends toward cost
containment in the health care industry.

            Although the retail eyewear industry is highly competitive,
demographic trends are expected to increase demand for prescription eyewear.
According to 20/20, the percentage of the U.S. population wearing prescription
eyewear increases from over 62% between ages 25 and 44 to almost 95% at age 45
and older. The number of Americans aged 45 and over is expected to increase from
85.8 million in 1995 to approximately 96.0 million in 2000. The aging population
is a major factor in the projected growth of U.S. retail optical sales from
$13.8 billion in 1995 to $18.0 billion in 2000.

GOVERNMENT REGULATION

            The retail optical industry is subject to a variety of federal,
state and local laws, regulations and ordinances, including those regarding
advertising, location and design of stores, products sold, qualifications and
practices of opticians, such as those employed by the Company, and relations
between independent optometrists and optical retailers, such as the Company. The
state and local legal requirements vary widely among jurisdictions and are
subject to frequent change. In addition, the Federal Trade Commission has issued
regulations affecting certain aspects of the optical industry, including a
requirement that optometrists deliver a copy of optical prescriptions for
eyeglasses to patients so that they may select optical dispensers of their
choice. Certain products sold by the Company, specifically ophthalmic lenses,
contact lenses and contact lens solutions, must comply with quality control
standards set by the United States Food and Drug Administration.


                                       12
<PAGE>   13
            In certain states, the Company is required to staff retail optical
stores with one or more licensed opticians, who fit and dispense eyeglasses or
contact lenses. The extent of these requirements varies from state to state.

            State and local regulations also govern the relations between
independent optometrists and optical retail stores. For example, some states and
municipalities restrict the location of optometric offices in relation to
optical stores, such as the Company's stores, and other commercial or mercantile
establishments, such as Fred Meyer host stores. The Company configures its
stores and adjusts the terms and conditions of its arrangements with independent
optometrists to comply with these varying state and local requirements. The
Company believes it is in substantial compliance with all material laws and
regulations applicable to its operations.

            In addition, numerous health care related proposals have been made
in recent years in the United States Congress and various state legislatures.
The potential impact of these proposals with respect to the Company and its
managed optical care business is uncertain. There is no assurance that the
proposals, if adopted, would not have a material adverse impact on the Company.

EXECUTIVE OFFICERS

            The executive officers and significant employees of the Company and
their respective ages and positions held with the Company, are as follows:

<TABLE>
<CAPTION>
      NAME               AGE                    POSITION

<S>                      <C>         <C>                                   
Ronald E. Weinberg       55          Chairman of the Board and Treasurer
Barry J. Feld            40          Chief Executive Officer, President and Director
James W. Swanson         50          Senior Vice President
Darius J. DiTallo        39          Vice President-Finance and Administration
Annette C. Feld          34          Vice President-Marketing and Merchandising
Glenn K. Ozawa           39          Vice President-Manufacturing
Roger W. Deason          53          Vice President-Managed Care
</TABLE>

            Ronald E. Weinberg has served as chairman of the Board and Treasurer
since the acquisition of the Company in August 1988. Mr. Weinberg served as
acting President of the Company from January 1991 until May 1991 as the Company
recruited a new management team. In 1986, Mr. Weinberg led an investor group in
the acquisition of SunMedia Corp., which publishes a chain of weekly newspapers
in the Cleveland and Milwaukee markets and operates a direct mail business, and
Mr. Weinberg has served as Chairman of the Board of the company since that date.
Since 1989, Mr. Weinberg has been Vice-Chairman of the Board of Hawk Corporation
("Hawk"), which manufactures friction products and powdered metal components
primarily for aerospace, industrial and specialty applications.


                                       13
<PAGE>   14
            Barry J. Feld has served as President and a member of the Board of
Directors since joining the Company in May 1991, and as Chief Executive Officer
since February 1994. Previously, Mr. Feld was President of Frame-n-Lens Optical,
Inc., which is the largest chain of retail optical stores in California. Mr.
Feld joined Frame-n-Lens Optical, Inc. in 1987 and served as Executive Vice
President and Chief Operating Officer until January 1990 when he became
President. Prior to that, Mr. Feld spent 10 years with Pearle Health Services,
Inc., one of the largest retail optical chains in the United States, serving in
various senior management capacities during his tenure, including Retail
Operations Director of Texas State Optical, Inc., then one of the largest retail
optical subsidiaries of Pearle Health Services, Inc., from 1985 until 1987.

            James W. Swanson has served as Senior Vice President since May 1996,
and Vice President-Human Resources and Optometric Relations since April 1992.
Mr. Swanson joined the Company in July 1991 as Vice President-Training and
Optometric Relations.

            Darius J. DiTallo joined the Company in December 1996 and serves as
Vice President Finance and Administration. Previously, Mr. DiTallo held senior
financial management positions including serving as Chief Financial Officer with
Image Choice, Inc., a Phoenix based document imaging solution provider, from
December 1993 to December 1996. During this period, Mr. DiTallo also served as
Chief Financial Officer of TransEquatorial Holdings, Inc., which sells
electronic components and held a substantial investment in Image Choice, Inc.
Prior to that, he served as a financial consultant to various entities from
January 1993 to December 1993, and held senior financial management positions at
the Arizona facility of Courtaulds Performance Films, Inc., from 1990 to January
1993. Mr. DiTallo is a certified public accountant.

            Annette C. Feld has served as Vice President-Marketing and
Merchandising since December 1992. Ms. Feld joined the Company in May 1991 as
Director of Marketing and Merchandising. Ms. Feld is the wife of Barry Feld.

            Glenn K. Ozawa has served as Vice President-Manufacturing since
March 1995. Mr. Ozawa joined the Company in January 1992 as Director of
Manufacturing.

            Roger W. Deason has served as Vice President-Managed Care since
October 1995. Previously, Mr. Deason was Vice President-National Marketing &
Sales of The Eye Health Network, Inc., a large Denver based managed eye care
organization, from February 1994 to October 1995. Prior to that, Mr. Deason was
in senior management positions with Sierra Health Services, Inc., a Nevada based
multi-state health maintenance organization, from September 1991 to January
1994.

EMPLOYEES

            As of December 28, 1996, the Company employed 619 persons, 511 on a
full-time basis and 108 on a part-time basis. Approximately 438 of the Company's
employees work in retail sales or retail sales supervision, 95 in the Company's
optical laboratory and distribution facilities, eight in managed care and 78 in
management and administration. None of the 


                                       14
<PAGE>   15
Company's employees are covered under any collective bargaining agreement. The
Company has experienced no strikes and believes its relations with its employees
to be excellent.

TRADEMARKS

            "Vista Optical" and "Lee Optical" are federally registered
trademarks of the Company. In addition, the Company has a pending application
with the United States Patent and Trademarks Office to register "Alexis Vision
Plan" as a trademark of the Company. The Company also relies on common law,
including the law of unfair competition to protect its trademarks and services.
The Company is not aware of any pending claims of infringement or other
challenges to the Company's right to use its trademarks.

ITEM 2.  PROPERTIES

            The Company's stores are located in regional malls, strip shopping
centers, and host stores. Each of the stores located in a mall or strip center
operates under a retail lease agreement which provides for certain base rents
plus, in many circumstances, additional rent based on sales. The host store
sites are leased under a master lease agreement with Fred Meyer and each
individual site has a separate lease under the master agreement. See
"Business--Operations--Store Locations and Layout" and "Relationship with Host
Stores."

            The Company's Clackamas, Oregon, laboratory and distribution
facility which is near Portland is located in approximately 6,430 square feet of
leased space. The lease provides for annual payments of $40,000 through August
31, 2001. The Company's executive offices and laboratory and distribution
facility in Tempe, Arizona, are located in a 24,000 square foot building that is
owned by Alexis Holdings, Inc. ("Alexis"), a wholly-owned subsidiary of the
Company. Alexis' sole purpose is ownership of the Tempe building. This building
secures the Company's revolving line of credit. See "Management Discussion and
analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."

ITEM 3.  LEGAL PROCEEDINGS

            From time to time, the Company is also involved in legal matters
which are incidental to its operations. In the opinion of management, the
ultimate resolution of these matters is not anticipated to have a material
adverse effect on the Company's financial condition or results of operations.

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

            No matters were submitted to a vote of security holders during the
last quarter of fiscal 1996.


                                       15
<PAGE>   16
                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
             STOCKHOLDER MATTERS

            The Company's common stock, $0.01 par value per share (the "Common
Stock"), is quoted on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") System under the symbol "NEWI" and is listed on The Pacific
Stock Exchange under the symbol "NWE." The following table sets forth the high
and low closing price of the Company's Common Stock in the NASDAQ Systems for
each full quarter in fiscal 1996 and 1995.


<TABLE>
<CAPTION>
                                                                        1996                     1995
                                                                        ----                     ----

                                                                   HIGH       LOW           HIGH         LOW

<S>                                                             <C>           <C>         <C>         <C>    
First Quarter .............................................     $ 5 3/4      $4           $ 5 1/2     $ 3 1/4

Second Quarter.............................................       6           5             5 3/4       4 1/8

Third Quarter .............................................       6 3/4       5 1/4         5 1/2       3 1/2

Fourth Quarter ............................................       7 1/2       6             5           3 7/8 
</TABLE>


            As of March 21, 1997 there were approximately 32 stockholders of
record of the Common Stock of the Company representing approximately 785
beneficial owners of the Common Stock.


            The Company has never paid cash dividends on its Common Stock. The
Company intends to retain earnings, if any, to finance the growth and
development of its business and does not anticipate paying any cash dividends in
the foreseeable future. Any future dividends will depend on the earnings,
capital requirements and financial condition of the Company, and on such other
factors as the Company's Board of Directors may consider relevant. In addition,
the Company's current revolving line of credit prohibits, and any new financing
agreements entered into by the Company may limit or prohibit, the payment of
cash dividends on Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Liquidity and Capital
Resources."

ITEM 6.  SELECTED FINANCIAL DATA

            The selected financial data presented below under the captions
"Statement of Operations Data", "Balance Sheet Data" and "Statistical Data" are
derived from the Company's annual audited Consolidated Financial Statements and
other historical operating information. The following data should be read in
conjunction with, and are qualified in their entirety by, the Consolidated
Financial Statements and related notes, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the other financial
information included elsewhere herein.


                                       16
<PAGE>   17
<TABLE>
<CAPTION>
                                                                                 FISCAL YEAR ENDED(1)
                                                     ---------------------------------------------------------------------------- 
                                                      DEC. 28,        DEC. 30,         DEC. 31,         DEC. 25,         DEC. 26,
                                                       1996             1995             1994             1993             1992
                                                     --------         --------         --------         --------         -------- 
                                                                  (IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<S>                                                  <C>              <C>              <C>              <C>              <C>     
STATEMENT OF OPERATIONS DATA:
  Net sales ...................................      $ 43,940         $ 40,033         $ 37,367         $ 32,964         $ 28,383
  Gross profit ................................        22,221           19,681           17,692           15,708           13,642
  Operating income (loss) .....................         1,048           (1,986)          (1,286)            (569)          (1,312)
  Income (loss) before income taxes,
    extraordinary gain and cumulative
    effect of change in accounting
    principle .................................           832           (2,025)          (1,288)          (1,279)          (1,846)
  Income tax expense (benefit) ................            30               --               --             (469)              --
  Extraordinary gain (2) ......................            --               --               --            1,674               --
  Cumulative effect of change in
    accounting principle (3) ..................            --               --               --              374               --
                                                     --------         --------         --------         --------         -------- 
  Net income (loss) ...........................           802           (2,025)          (1,288)           1,238           (1,846)
  Dividends accrued on preferred stock
  and redeemable preferred stock ..............          (328)            (329)            (328)            (396)            (431)
                                                     --------         --------         --------         --------         --------
  Net income (loss) applicable
    to holders of common stock ................      $    474         $ (2,354)        $ (1,616)        $    842         $ (2,277)
                                                     ========         ========         ========         ========         ========
INCOME (LOSS) PER COMMON
  AND COMMON EQUIVALENT SHARE (4):
  Income (loss) before extraordinary
    gain and cumulative effect of
    change in accounting principal ............      $   0.13         $  (0.63)        $  (0.43)        $  (0.57)        $  (1.67)
  Extraordinary gain (2) ......................            --               --               --             0.79               --
  Cumulative effect of change in
    accounting principal (3) ..................            --               --               --             0.18               --
                                                     --------         --------         --------         --------         --------
  Net income (loss) ...........................      $   0.13         $  (0.63)        $  (0.43)        $   0.40         $  (1.67)
                                                     ========         ========         ========         ========         ========
BALANCE SHEET DATA:
  Total assets ................................      $ 13,127         $ 11,734         $ 11,721         $  9,846         $  8,372
  Notes payable and
    capital lease obligations .................         3,162              556              259              406               --
  Redeemable preferred stock ..................            --               --               --            1,752            7,403
  Convertible preferred stock .................         5,460            5,460            5,460               --               --
STATISTICAL DATA:
  Net sales growth ............................           9.8%             7.1%            13.4%            16.1%          15.5%
  Increase in comparable store
     sales (5) ................................           8.8%             5.9%             6.7%            15.0%          19.5%
  Stores open at period beginning .............           139              150              134              129              128
  Stores opened during period .................            10                9               21                8                3
  Stores closed during period .................            (3)             (20)              (5)              (3)              (2)
                                                     --------         --------         --------         --------         --------
  Stores open at period end ...................           146              139              150              134              129
                                                     ========         ========         ========         ========         ========
  Types of stores at period end:
    Host stores ...............................            51               51               65               61               58
    Malls and strip shopping centers ..........            95               88               85               73               71
</TABLE>

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

(Footnotes on following page)


                                       17
<PAGE>   18
(1)  The Company's fiscal year consists of 52 or 53 weeks ending the last
     Saturday of the calendar year. The year ended December 31, 1994 consists of
     53 weeks, all other years presented consist of 52 weeks.

(2)  Net income for the year ended December 25, 1993 includes an extraordinary
     gain of $1,674,000 or $0.79 per share, that was realized by the Company as
     a result of the retirement in full of its senior bank debt.

(3)  In 1993, the Company recorded a cumulative effect adjustment of $374,000,
     or $0.18 per share resulting from a change in its method of accounting
     for income taxes.

(4)  See "Income (loss) per common and common equivalent share" in Note 2 of
     Notes to Consolidated Financial Statements.

(5)  A store becomes comparable after it has been open at least 52 weeks. Stores
     that are relocated are not included in the comparable store base.


                                       18
<PAGE>   19
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

            Unless otherwise stated, references in this report to the years
1996, 1995, and 1994 relate to the fiscal years ended December 28, 1996,
December 30, 1995, and December 31, 1994. Fiscal years 1996 and 1995 had 52
weeks, while 1994 had 53 weeks.

OVERVIEW

            The Company's everyday value-pricing strategy features its
"signature" $59 price point for a wide selection of quality, brand name
eyeglasses (including frame and lenses) offered at attractive, convenient
locations with professional service. The Company focuses on opening new stores,
primarily in malls and strip shopping centers, entering new geographic markets,
improving its operating efficiency, expanding its managed optical care business
and establishing the informational and operational infrastructure necessary for
further expansion. Consistent with this strategy, the Company closed its
underperforming stores which were located primarily in host stores, including
eight stores located in Fred Meyer host stores that were negatively impacted by
the 1994 strike by Fred Meyer employees. None of the Company's employees were
involved in the Fred Meyer labor dispute and none participated in the Fred Meyer
strike.

            The Company believes that the success of its value-pricing strategy
is demonstrated by (1) its 20 consecutive quarters of positive comparable store
sales growth, including an 8.8% increase in 1996 compared to 1995 and a 10.7%
increase in its mall and strip shopping center locations over the same periods,
and (2) the increasing number of repeat customers and referral business.
Currently, the Company operates 149 stores in 12 western and midwestern states.

            In 1996, the Company opened 10 stores, nine of which are located in
malls or strip shopping centers and one of which is located in a Fred Meyer host
store. Evidencing the Company's strategy to expand into new geographic markets,
six of the 10 new stores opened in 1996 were located in the Iowa market,
representing the Company's first entry into the midwestern United States. In
addition, the Company remodeled or relocated eight stores and closed three
stores during this period. With additional capital from the Offering, the
Company plans to accelerate its store opening program with the addition of 20 to
25 stores in 1997, substantially all of which will be in malls and strip
shopping centers. Opening new stores in markets already served by the Company
may adversely impact existing store profitability and reduce comparable store
sales, although the Company believes that such new stores will increase its
total sales and profitability in such markets.

            The Company's managed optical care business, Alexis Vision Plan, is
an increasingly important component of its overall business. In 1996, sales
generated by the Alexis Vision Plan were $11.4 million (or approximately 26.1%
of net sales), a 23.2% increase over 1995. Alexis Vision Plan sales have a
negative impact on the Company's gross profit margin because they are generally
at a small discount from the Company's everyday value prices, and the Company
expects this negative impact to continue. There is no assurance that sales
generated under the Alexis Vision Plan will continue to increase at all or at
the rate of increase of 1995 and 1996.


                                       19
<PAGE>   20
            In 1996, the Company reported its first full year of operating
income since implementing its value-pricing strategy. The Company believes that
as incremental sales occur, from both existing stores and new stores, the
operating leverage provided by its optical laboratory fixed cost structure will
enhance operating margins. However, because it is the Company's accounting
policy to expense pre-opening costs as they are incurred, the Company expects
that, in the short-term, its operating margins may be adversely affected by
increased operating costs associated with new store openings.

RECENT EVENTS

            As of December 28, 1996, the Company was not in compliance with
certain financial covenants, including covenants with respect to the Company's
tangible net worth, capital ratio and working capital, contained in the
revolving line of credit agreement with U.S. Bank of Washington, National
Association. Accordingly, the credit agreement was amended effective January 14,
1997, and the Company has received waivers with respect to such covenants from
the bank for periods up to and including December 28, 1996. There can be no
assurance that the Company will not require additional waivers in the future or,
if required, that the lender will grant them.

            In early 1997, the Company completed the Offering. Net proceeds to
the Company from the Offering were $5.6 million. With a portion of the proceeds,
the Company reduced the amount outstanding on the revolving line of credit by
approximately $1.9 million. Presently, there is no outstanding balance of the
revolving line of credit. In addition, the Company retired its $350,000 bridge
loan from the Second National Bank of Warren (Ohio). See "Liquidity and Capital
Resources." Of the shares sold in the Offering, 400,000 shares were sold by
selling stockholders. The Company did not receive any proceeds from the sale of
the shares by the selling stockholders.


                                       20
<PAGE>   21
RESULTS OF OPERATIONS

            The following table sets forth for each of the years 1996, 1995, and
1994, certain selected statement of operations data expressed as a percentage of
net sales:

<TABLE>
<CAPTION>
                                                                      FISCAL YEAR ENDED
                                                              -------------------------------------
                                                              DEC. 28,      DEC. 30,       DEC. 31,
                                                               1996           1995           1994
                                                              ------         ------         ------
<S>                                                            <C>           <C>            <C>    
STATEMENT OF OPERATIONS DATA:
  Net sales ...........................................        100.0%        100.0 %        100.0 %
                                                              ======         ======         ======
  Gross profit ........................................         50.6           49.2           47.3
  Selling, general, and administrative
    expenses ..........................................         48.2           54.2           50.8
                                                              ------         ------         ------
  Operating income (loss) .............................          2.4           (5.0)          (3.5)
  Interest income .....................................           --             --            0.1
  Interest expense ....................................          0.5            0.1            0.1
                                                              ------         ------         ------
  Income (loss) before income tax
    expense ...........................................          1.9           (5.1)          (3.5)
  Income tax expense ..................................          0.1             --             --
                                                              ------         ------         ------
  Net income (loss) ...................................          1.8           (5.1)          (3.5)
  Preferred stock dividends ...........................         (0.7)          (0.8)          (0.8)
                                                              ------         ------         ------
  Net income (loss) applicable to holders
     of common stock ..................................          1.1%          (5.9)%         (4.3)%
                                                              ======         ======         ======
</TABLE>



1996 COMPARED TO 1995

            Net sales increased $3.9 million or 9.8% to $43.9 million in 1996
from $40.0 million in 1995. Revenues during 1995 include $1.0 million in sales
from unprofitable or underperforming host stores which were closed during 1995.
If such sales from these closed retail outlets were excluded from 1995 revenues,
the Company would have posted a 12.6% improvement in net sales ($43.9 million
compared to $ 39.0 million). The net sales increase was primarily attributable
to an increase of 8.8% in comparable store sales, which was partially offset by
reduced sales in December 1996 as a result of severe winter weather in the
Northwestern United States. The increase in comparable store sales was primarily
due to increases in eyeglass and contact lens units sold and sales generated
under the Alexis Vision Plan. The comparable store increase at malls and strip
shopping centers was partially offset by a lower rate of comparable store sales
growth in the Company's host stores, consistent with the Company's historical
experience.

            Gross profit increased $2.5 million to $22.2 million in 1996, a
12.7% increase over gross profit of $19.7 million in 1995. The gross profit
margin as a percentage of sales increased to 50.6% in 1996 compared to 49.2% in
1995, primarily due to increased sales volume which covered more of the fixed
cost components of cost of goods sold, and partially offset by 


                                       21
<PAGE>   22
increased sales under the Alexis Vision Plan. Consistent with the Company's
practice, the Alexis Vision Plan sales are generally at a small discount from
the Company's everyday value prices.

            Selling, general and administrative expenses decreased $500,000 to
$21.2 million in 1996 from $21.7 million in 1995. As a percentage of sales,
these expenses decreased to 48.2% in 1996, from 54.2% in 1995. This decrease is
primarily due to an increase in the Company's sales, and to a lesser extent,
reduced advertising expenditures resulting from the Company's switch to a new
advertising agency in the fourth quarter of 1995.

            Interest expense increased by $165,000 to $216,000 in 1996 from
$51,000 in 1995 as a result of increased capital lease obligations, interest
payments on two bridge loans from Mesirow Capital Partners VI, a common and
preferred stockholder, and Ronald E. Weinberg, Chairman of the Board, and
interest on the revolving line of credit.

            Income tax expense increased to $30,000 in 1996 compared to no
income tax expense in 1995 as a result of increased pre-tax income. The income
tax expense for the Company is lower than what the Company would have to pay if
it did not have significant net operating loss carryforwards.

            As a result of the foregoing, net income increased by $2.8 million
to $802,000 in 1996 compared to a net loss of $2.0 million in 1995.

            Dividends were accrued and paid on the Company's convertible 6%
cumulative preferred stock, Series A, par value $1,000 per share, and the
Company's junior convertible 6% cumulative preferred stock, Series B, par value
$1,000 per share, in the aggregate amount of $328,000 in 1996 compared to
$329,000 in 1995.

  1995 COMPARED TO 1994

            Net sales increased $2.6 million or 7.1% to $40.0 million in 1995
from $37.4 million in 1994. The net sales increase was primarily attributable to
an increase of 5.4% in comparable store sales, which increase was primarily due
to increases in units sold and sales generated under the Alexis Vision Plan. The
comparable store increase at malls and strip shopping centers was partially
offset by a lower rate of comparable store sales growth in the Company's host
stores. This lower host store growth rate is consistent with the Company's
historical experience, but in 1995, the Company experienced even lower host
store growth because of the lingering effects from the 12 week long strike
involving Fred Meyer in 1994 that negatively impacted the Company's stores in
Fred Meyer locations in Oregon and Washington.

            Gross profit increased $2.0 million to $19.7 million in 1995, an
11.2% increase over gross profit of $17.7 million in 1994. The gross profit
margin as a percentage of sales increased to 49.2% in 1995 compared to 47.3% in
1994 as a result of improved lab efficiencies due to increased volume, and
decreased depreciation expense in 1995. The depreciation expense decreased as a
result of the original asset base from the 1988 acquisition becoming fully
depreciated in 1994.


                                       22
<PAGE>   23
            Selling, general and administrative expenses increased $2.7 million
to $21.7 million in 1995 from $19.0 million in 1994. As a percentage of sales,
these expenses increased to 54.2% in 1995, from 50.8% in 1994. This increase is
primarily due to increased advertising expenses during off-peak seasons and
increased administrative and advertising expenses in the effort to revive the
strike- impacted Fred Meyer stores, and to a lesser extent, the cost of closing
eight of these unprofitable locations.

            A provision for income taxes was not required in 1995 or in 1994 due
to the net loss experienced for the year.

            The Company had a net loss of $2.0 million for 1995 compared to a
net loss of $1.3 million in 1994, a $700,000 increase. The increased net loss is
primarily due to the poor performance of the Fred Meyer host stores in 1995.
Despite additional administrative, training and advertising resources, the
Company was unable to achieve pre-strike sales levels at these locations. As a
result, the Company redirected this portion of the business in late 1995 to
include administrative reductions, advertising reductions, and the closing of
eight unprofitable Fred Meyer locations. To a lesser extent, the increased net
loss in 1995 was the result of the incomplete and ineffective advertising
campaign delivered by the Company's new advertising agency during the second
selling season of 1995.

            Dividends were accrued and paid on the Company's convertible 6%
cumulative preferred stock, Series A, par value $1,000 per share, and the
Company's junior convertible 6% cumulative preferred stock, Series B, par value
$1,000 per share, in the aggregate amount of $329,000 in 1995 compared to
$328,000 in 1994.

LIQUIDITY AND CAPITAL RESOURCES

            The Company requires liquidity and working capital primarily for
operations and the opening of new stores, and, to a lesser extent, management
information systems and optical laboratory equipment to support store growth and
improve operating efficiencies. The Company's primary sources of funds are cash
flow from operations, lease financing of equipment, vendor trade credit,
shareholder loans, and bank loans.

            In early 1996, to fund the Company's expansion and advertising
needs, the Company entered into two bridge loans with Mesirow Capital Partners
VI and Mr. Weinberg, totaling $700,000. The loans bore interest at an annual
rate of 15% and were secured by a deed of trust on the Company's executive
office building and optical laboratory facility in Tempe, Arizona. William P.
Sutter, Jr. is an officer of the corporate general partner of Mesirow Capital
Partners VI and a director of the Company. The bridge loans were retired with
the proceeds of a $2.0 million bank revolving line of credit in June 1996. The
revolving line of credit matures on May 31, 1997, and is secured by
substantially all of the Company's assets, including the Company's executive
office building and optical laboratory in Tempe, Arizona, but excluding
furniture, fixtures, and equipment. The line of credit borrowings bear interest
at the lending bank's prime rate plus 2.0% per annum, and interest is due and
payable monthly. Presently, there is no outstanding balance on the line of
credit. The line of credit is also secured by guarantees from Mesirow 


                                       23
<PAGE>   24
Capital Partners V, a common and preferred stockholder, Mesirow Capital Partners
VI and Mr. Weinberg. Barry J. Feld, President and Chief Executive Officer,
agreed to share in the obligations of the guarantors.

            In exchange for the guarantee of the Company's obligations under its
revolving line of credit by such officers and shareholders, the Company issued
warrants to them to purchase, in the aggregate, 50,000 shares of the Common
Stock at a price per share of $6.11, subject to customary anti-dilution
adjustments. The value of the warrants, which was determined by independent
valuation to be $0.57 per share, is reflected on the December 28, 1996 balance
sheet in other assets and paid-in capital and will be amortized over the life of
the revolving line of credit.

            As of December 28, 1996, the Company was not in compliance with
certain financial covenants, including covenants with respect to the Company's
tangible net worth, capital ratio and working capital, contained in the
revolving line of credit agreement with U.S. Bank of Washington, National
Association. Accordingly, the credit agreement was amended effective January 14,
1997, and the Company has received waivers with respect to such covenants from
the bank for periods up to and including December 28, 1996. There can be no
assurance that the Company will not require additional waivers in the future or,
if required, that the lender will grant them.

            In December 1996, to fund the Company's store expansion plans, the
Company entered into a bridge loan for $350,000 with The Second National Bank of
Warren (Ohio). The loan was scheduled to mature on June 2, 1997 and bore
interest at a rate equal to the lending bank's prime rate plus 1.5% per annum,
payable upon maturity. The loan was guaranteed by Mr. Weinberg and Mr. Feld
agreed to share in the guaranty. The Company paid Mr. Weinberg and Mr. Feld a
total of $7,500 in exchange for their guaranty of the loan. The Company repaid
the loan in full with the proceeds of the Offering. Norman C. Harbert, a
director of the Company, is also a director of Second Bancorp Inc., the parent
holding company of The Second National Bank of Warren (Ohio).

            Short-term trade credit represents a significant source of financing
for inventory. Trade credit arises from the willingness of the Company's vendors
to grant payment terms for inventory purchases. Although the Company has
negotiated what it believes to be favorable payment terms from its primary
vendors, there is no assurance that the Company will obtain such terms in the
future. In addition, although the Company has not customarily been able to take
advantage of available vendor trade discounts because it has not had sufficient
funds, the Company may take advantage of such discounts in the future.

            The Company leases all of its retail space and its optical
laboratory and distribution facility near Portland, Oregon. Certain retail store
leases require payment of base rent and property taxes, expenses for utilities,
common area maintenance, and insurance, plus, in many circumstances, additional
rent based on sales. Total rent expenses for the Company's retail space and its
facility near Portland, Oregon were $5.5 million, $5.0 million, and $5.0 million
for the periods ending December 28, 1996, December 30, 1995, and December 31,
1994, respectively, including $1.0 million, $889,000, and $930,000,
respectively, for additional rent based on sales. The Company owns its executive
offices and optical laboratory and distribution 


                                       24
<PAGE>   25
facility in Tempe, Arizona, subject to a deed of trust under the Company's
revolving line of credit.

            Net cash used in operating activities was $280,000 in 1996 compared
to net cash from operating activities of $722,000 in 1995. This fluctuation is
primarily attributable to an increase in net income of $2.8 million to $802,000
in 1996 from a net loss of $2.0 million in 1995 and a decrease in accounts
payable and accrued expenses of $363,000 and $1.2 million in 1996 compared to
increases of $1.7 million and $603,000 in 1995, respectively.

            Cash flows used in investing activities, primarily for store
expansion, renovation and relocation, were $1.5 million in 1996 and in 1995.

            Cash flows from financing activities were $1.8 million in 1996
compared to $51,000 in 1995. Cash flows from financing activities in 1996
reflect the establishment of the revolving line of credit, proceeds from bridge
loans totaling $1,050,000 from related parties, partially offset by debt
payments.

            The Company anticipates opening 20 to 25 new stores in 1997.
Assuming the Company opens 25 new stores in 1997, including 24 new stores in
malls and strip shopping centers and one new store within a Fred Meyer host
store, the Company expects that the costs of these new stores, including
furniture, fixtures, leasehold improvements, inventory and optometric equipment,
will be approximately $3.0 million. Actual costs will vary based upon, among
other factors geographic location, the size of the store and the extent of the
build-out required at the selected site. In addition to opening new stores, the
Company may relocate stores within a mall or strip shopping center if sites
become available with better traffic patterns and better merchandising
opportunities. In 1997, the Company plans to remodel five of its mall and strip
shopping center stores at an estimated cost of approximately $500,000.

            The Company anticipates renegotiating the revolving line of credit
prior to its expiration on May 31, 1997, or obtaining other comparable
financing. There can be no assurance that the Company will be able to
renegotiate the revolving line of credit on terms acceptable to the Company, or
that the Company will be able to obtain other financing. However, the Company
does not believe that extending the revolving line of credit or obtaining other
financing is necessary for its current expansion plans and immediate working
capital needs. The Company believes that the proceeds from the Offering, cash
flow from operations and existing capital lease financing will be sufficient to
fund its working capital needs and store expansion and renovation program for at
least the next 12 months.

NET OPERATING LOSS CARRYFORWARDS

            As of December 28, 1996, the Company had net operating loss
carryforwards of $7.1 million and $6.3 million for regular tax and alternative
minimum tax purposes, respectively, which begin to expire in 2006. The initial
public offering completed in 1993 caused the Company to experience an ownership
change as defined by Section 382(g) of the Internal Revenue Code. As a result,
there will be an annual limitation of approximately $1.0 million on the amount
of net operating loss carryforwards generated prior to the ownership change
which can be utilized to offset the Company's future taxable income. The
Offering did not cause the 


                                       25
<PAGE>   26
Company to experience a further ownership change; however, future transactions
involving the Company's stock (or rights to acquire such stock) could result in
additional restrictions on the Company's ability to utilize its net operating
loss carryforwards after the date of such ownership change.

            In assessing the realizability of its deferred tax assets, the
Company considers whether it is more likely than not that some or all of such
assets will be realized. The ultimate realization of the Company's deferred tax
assets is dependent upon generation of future taxable income. The Company has
established a valuation allowance to fully reserve its deferred tax asset. The
Company will consider reducing or eliminating the valuation allowance once
profitable operations have been sustained.

SEASONALITY AND QUARTERLY RESULTS

            Historically, the Company's operations have been seasonal, with the
highest sales in any year occurring first in February, March and April and then
in August, September and, to a lesser extent, in October. The Company has
historically incurred and may continue to incur net losses and lower net sales
during the Company's fourth quarter because of reduced demand for eyewear during
the holiday season.

            The Company's results of operations may also fluctuate from quarter
to quarter as a result of the amount and timing of sales contributed by new
stores and the integration of new stores into the operations of the Company, as
well as other factors, including bad weather, such as the winter storms that
occurred in the Northwest in December 1996. The addition of a large number of
new stores can therefore significantly affect quarterly results of operations.

            The following table presents certain unaudited financial data for
each quarter of 1996 and 1995. The quarterly results set forth below are not
necessarily indicative of results for any future period. The Company believes
that all necessary and normal recurring adjustments have been included in the
amounts stated below in order to present fairly and in accordance with generally
accepted accounting principles the following selected quarterly information when
read in conjunction with the Company's Consolidated Financial Statements
included herein.


                                       26
<PAGE>   27
<TABLE>
<CAPTION>
                                                        1996
                                   -------------------------------------------------
                                    First         Second        Third        Fourth
                                   Quarter       Quarter       Quarter       Quarter
                                   -------       -------       -------       -------
                                     (In thousands, except per share and store data)
<S>                                <C>           <C>           <C>           <C>    
Net sales ..................       $11,504       $10,865       $11,674       $ 9,897
Gross profit ...............         5,704         5,436         6,056         5,025
Operating income (loss) ....           583           220           416          (171)
Net income (loss) ..........           443           152           307          (100)
Net income (loss) applicable
 to holders of common stock        $   362       $    71       $   224       $  (183)
                                   =======       =======       =======       =======
Income (loss) per common
 and common equivalent
 share .....................       $  0.10       $  0.02       $  0.06       $ (0.05)
                                   =======       =======       =======       =======
Stores open at period end ..           141           145           146           146
</TABLE>

<TABLE>
<CAPTION>
                                                          1995
                                   -----------------------------------------------------
                                    First         Second          Third          Fourth
                                   Quarter        Quarter        Quarter         Quarter
                                   -------       --------        --------        -------
                                     (In thousands, except per share and store data)
<S>                                <C>           <C>             <C>             <C>    
Net sales ..................       $10,815       $ 10,127        $ 10,088        $ 9,003
Gross profit ...............         5,551          5,153           4,834          4,143
Operating income (loss) ....           466           (114)           (790)        (1,548)
Net income (loss) ..........           329            (65)           (715)        (1,574)
Net income (loss) applicable
 to holders of common stock        $   248       $   (148)       $   (796)       $(1,658)
                                   =======       ========        ========        =======
Income (loss) per common
 and common equivalent
 share .....................       $  0.07       $  (0.04)       $  (0.21)       $ (0.45)
                                   =======       ========        ========        =======
Stores open at period end ..           151            144             145            139
</TABLE>

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


                                       27
<PAGE>   28
INFLATION

            The Company believes that the relatively moderate rate of inflation
over the past few years has not had a significant effect on its results of
operation.

FORWARD-LOOKING STATEMENTS

            Statements that are not historical facts, including statements about
the Company's confidence in its prospects and strategies and its expectations
about expansion into new markets, growth in existing markets, comparable store
sales and the Company's ability to attract new sources of financing, are
forward-looking statements that involve risks and uncertainties. These risks and
uncertainties include, but are not limited to, (1) market acceptance risks,
including whether or not the Company will be able to successfully implement its
value-pricing concept in new geographic markets, most of which markets include
competitors of the Company that have financial and other resources substantially
greater than that of the Company, and whether or not the Company will be able to
conduct a successful advertising campaign in new and existing markets against
better-financed competitors; (2) laboratory capacity and supply constraints,
including whether or not as the Company expands into new geographic markets
whether it will be able to successfully integrate its new markets into its
existing eyewear laboratory manufacturing and distribution system; (3) a
slowdown in the growth of managed care in the eyewear industry or in the
Company's share of such business, including whether or not federal or state
health-care legislation will have an adverse impact on managed care; (4) the
Company's ability to attract and retain qualified optometrists; (5) the ability
of the Company to renegotiate the revolving line of credit prior to its
expiration on May 31, 1997 or obtain other comparable financing; (6) the ability
of the Company to restore sales and comparable store sales increases in its
locations in Fred Meyer host stores to levels comparable to those prior to the
1994 strike against Fred Meyer; (7) leasing risks, including whether or not the
Company will be able to lease prime mall and strip shopping center locations at
attractive rates for its expansion into new markets and to fill out its store
locations in the Company's existing markets; and (8) the impact of government
regulations on the opticians employed by the Company and on the Company's
advertising, locations and design of stores, and products sold, which
regulations are subject to frequent change and vary widely throughout the states
in which the Company operates. These risks and others that are detailed in this
Annual Report on Form 10-K must be considered by any investor or potential
investor in the Company.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

            Attached hereto and filed as a part of this report are the
consolidated financial statements and financial statement schedule required by
Regulation S-X.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

            None.


                                       28
<PAGE>   29
PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

            For information with respect to the executive officers of the
Registrant, see "Business-- Executive Officers" in Part I of this Form 10-K. The
Company will file with the Securities and Exchange Commission a definitive Proxy
Statement relating to its 1997 Annual Meeting of Stockholders no later than 120
days after the close of its fiscal year ended December 28, 1996 (the "Proxy
Statement"). The information with respect to the Directors of the Registrant
required by this Item is incorporated hereby reference to the Proxy Statement.

ITEM 11.  EXECUTIVE COMPENSATION

            The section entitled "Executive Compensation and Other Information"
in the Proxy Statement is hereby incorporated by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

            The section entitled "Principal Stockholders" in the Proxy Statement
is hereby incorporated by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

            The section entitled "Certain Relationships And Related
Transactions" in the Proxy Statement is hereby incorporated by reference.


                                       29
<PAGE>   30
PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  The Consolidated Financial Statements and Schedules of the Company's Annual
     Report are filed as part of this Form 10-K and are included in Item 8:

<TABLE>
<CAPTION>
     1.  FINANCIAL STATEMENTS                                                                      PAGE
                                                                                                   ----

<S>                                                                                                 <C>
         Report of Independent Accountants........................................................  37

         Consolidated Balance Sheet at December 28, 1996 and December 30, 1995....................  38

         Consolidated Statement of Operations for each of the three years in the
         period ended December 28, 1996...........................................................  39

         Consolidated Statement of Stockholders' Equity for each of the three
         years in the period ended December 28, 1996..............................................  40

         Consolidated Statement of Cash Flows for each of the three years in the
         period ended  December 28, 1996..........................................................  41

         Notes to Consolidated Financial Statements...............................................  42

    2.   FINANCIAL STATEMENT SCHEDULES

         Schedule II -- Valuation and Qualifying Accounts.........................................  53
</TABLE>

            All other accounting schedules for which provision is made in the
applicable accounting regulations of the SEC are not required under the related
instructions or are not applicable, and therefore have been omitted.


                                       30
<PAGE>   31
            3.  EXHIBITS

            The following exhibits are filed herewith or incorporated by
reference including the management contracts listed below at Exhibits 10.1 and
10.2:

   Exhibit                          Description
   -------                          -----------

     3.1       Company's Amended and Restated Certificate of Incorporation
               (Incorporated by reference to the Company's S-1 Registration
               Statement as filed with the Securities and Exchange Commission
               (File No. 33-71330))

     3.2       Company's Amended and Restated Bylaws (Incorporated by reference
               to the Company's S-1 Registration Statement as filed with the
               Securities and Exchange Commission (File No. 33-71330))

     4.1       Specimen Common Stock Certificate (Incorporated by reference to
               the Company's S-1 Registration Statement as filed with the
               Securities and Exchange Commission (File No. 33-71330))

     4.2       Representative's Warrants and Warrant Agreement (Incorporated by
               reference to the Company's S-1 Registration Statement as filed
               with the Securities and Exchange Commission (File No. 33-71330))

     4.3       Registration Rights Agreement between Registrant and MEDIQ ISI
               and amendments thereto (Incorporated by reference to the
               Company's S-1 Registration Statement as filed with the Securities
               and Exchange Commission (File No. 33-71330))

     4.4       Registration Rights Agreement among Registrant, the Mesirow Group
               and certain other stockholders and amendments thereto
               (Incorporated by reference to the Company's S-1 Registration
               Statement as filed with the Securities and Exchange Commission
               (File No. 33-71330))

     4.5       MEDIQ Registration Rights Letter Agreement and amendments thereto
               (Incorporated by reference to the Company's S-1 Registration
               Statement as filed with the Securities and Exchange Commission
               (File No. 33-71330))

     4.6       Amendment No. 2 dated November 2, 1993 to the Registration Rights
               Agreement dated August 5, 1988 by and between the Registrant and
               MEDIQ ISI (Incorporated by reference to the Company's 10-K for
               the fiscal year ended 1993)


                                       31
<PAGE>   32
     4.7       Amended and Restated Registration Rights Agreement by and between
               the Company and MEDIQ ISI dated April 21, 1995 (Incorporated by
               reference to the Company's 10-Q for the quarterly period ended
               September 30, 1995)

     4.8       Warrant to Purchase Common Stock of the Registrant issued on June
               10, 1996 (Incorporated by reference to the Form 8-K filed by the
               Company on June 17, 1996)

     4.9       Letter to Ronald E. Weinberg containing First Amendment to
               Warrant to Purchase Common Stock of the Registrant, dated
               December 19, 1996 (Incorporated by reference to the Company's S-2
               Registration Statement as filed with the Securities and Exchange
               Commission (File No. 333-18709))

     4.10      Form of Letter containing First Amendment to Representative's
               Warrant, dated December 19, 1996 (Incorporated by reference to
               the Company's S-2 Registration Statement as filed with the
               Securities and Exchange Commission (File No. 333-18709))

     4.11      Form of Representative's Warrant Agreement between the Registrant
               and Fahnestock & Co. Inc. (Incorporated by reference to the
               Company's S-2 Registration Statement as filed with the Securities
               and Exchange Commission (File No. 333-18709))

     4.12      Form of Letter containing an amendment to the 1993
               Representative's Warrant Agreement, dated February 6, 1997
               (Incorporated by reference to the Company's S-2 Registration
               Statement as filed with the Securities and Exchange Commission
               (File No. 333-18709))

     10.1      Employment Agreement, effective as of August 1, 1993, between the
               Registrant and Barry Feld (Incorporated by reference to the
               Company's S-1 Registration Statement as filed with the Securities
               and Exchange Commission (File No. 33-71330))

     10.2      Employment Agreement, effective as of August 1, 1993, between the
               Registrant and Ronald E. Weinberg (Incorporated by reference to
               the Company's S-1 Registration Statement as filed with the
               Securities and Exchange Commission (File No. 33-71330))

     10.3      Master Lease Agreement dated April 26, 1983 between Fred Meyer,
               Inc. and Western States Optical, Inc. (predecessor in interest of
               Registrant) and amendments thereto (Incorporated by reference to
               the Company's S-1 Registration Statement as filed with the
               Securities and Exchange Commission (File No. 33-71330))


                                       32
<PAGE>   33
     10.4      Agreement dated August 4, 1988 among Fred Meyer, Inc., MEDIQ
               Incorporated and Registrant (Incorporated by reference to the
               Company's S-1 Registration Statement as filed with the Securities
               and Exchange Commission (File No. 33-71330))

     10.5      Industrial Lease dated July 22, 1991, between O.W.N. Properties,
               Inc. and Western States Optical, Inc. (predecessor in interest of
               Registrant) and amendments thereto (Incorporated by reference to
               the Company's S-1 Registration Statement as filed with the
               Securities and Exchange Commission (File No. 33-71330))

     10.6      Form Optometrists' Sublease (Incorporated by reference to the
               Company's S- 1 Registration Statement as filed with the
               Securities and Exchange Commission (File No. 33-71330))

     10.7      Notice of Registration Letter to MEDIQ and MEDIQ ISI dated
               November 2, 1993, as amended (including Exhibit B only, other
               exhibits included elsewhere) (Incorporated by reference to the
               Company's S-1 Registration Statement as filed with the Securities
               and Exchange Commission (File No. 33-71330))

     10.8      Notice of Registration Letter to the Mesirow Group dated November
               2, 1993, as amended (including Exhibit B only, other exhibits
               included elsewhere) (Incorporated by reference to the Company's
               S-1 Registration Statement as filed with the Securities and
               Exchange Commission (File No. 33-71330))

     10.9      Open-End Promissory Note, dated January 16, 1996, from Mesirow
               Capital Partners VI (Incorporated by reference to the Company's
               Form 10-Q for the quarterly period ended March 30, 1996)

     10.10     Open-End Promissory Note, dated January 16, 1996, from Ronald E.
               Weinberg (Incorporated by reference to the Company's Form 10-Q
               for the quarterly period ended March 30, 1996)

     10.11     Note, dated June 10, 1996, executed by the Registrant in favor of
               U.S. Bank of Washington, National Association (Incorporated by
               reference to the Company's S-2 Registration Statement as filed
               with the Securities and Exchange Commission (File No. 333-18709))

     10.12     Deed of Trust, dated May 31, 1996, executed by Alexis Holding
               Company, Inc. in favor of U.S. Bank of Washington, National
               Association (Incorporated by reference to the Company's S-2
               Registration Statement as filed with the Securities and Exchange
               Commission (File No. 333-18709))


                                       33
<PAGE>   34
     10.13     Guaranty, Contribution and Indemnification Agreement, dated June
               10, 1996 among the Registrant, Ronald E. Weinberg, Barry Feld,
               Mesirow Capital Partners V and Mesirow Capital Partners VI
               (Incorporated by reference to the Form 8-K filed by the Company
               on June 17, 1996)

     10.14     Credit Agreement between U.S. Bank of Washington, National
               Association, dated June 10, 1996 (Incorporated by reference to
               the Form 8-K filed by the Company on June 17, 1996)

     10.15     First Amendment to Credit Agreement between U.S. Bank of
               Washington, National Association and the Registrant, dated
               September 16, 1996 (Incorporated by reference to the Company's
               S-2 Registration Statement as filed with the Securities and
               Exchange Commission (File No. 333-18709))

     10.16     Second Amendment to Credit Agreement between U.S. Bank of
               Washington, National Association and the Registrant, dated
               October 24, 1996 (Incorporated by reference to the Company's S-2
               Registration Statement as filed with the Securities and Exchange
               Commission (File No. 333-18709))

     10.17     New West Eyeworks, Inc. Amended & Restated Stock Option Plan,
               dated February 16, 1996 (Incorporated by reference to the
               Company's S-8 filed on June 26, 1996)

     10.18     Letter to FLAG Partners from the Registrant, dated December 19,
               1996 (Incorporated by reference to the Company's S-2 Registration
               Statement as filed with the Securities and Exchange Commission
               (File No. 333-18709))

     10.19     Letter to Barry Feld from the Registrant, dated December 19, 1996
               (Incorporated by reference to the Company's S-2 Registration
               Statement as filed with the Securities and Exchange Commission
               (File No. 333-18709))

     10.20     Letter to Donald M. Gleklen from the Registrant, dated December
               19, 1996 (Incorporated by reference to the Company's S-2
               Registration Statement as filed with the Securities and Exchange
               Commission (File No. 333-18709))

     10.21     Letter to Mesirow Capital Partners II, III, IV, V, and VI from
               the Registrant, dated December 19, 1996 (Incorporated by
               reference to the Company's S-2 Registration Statement as filed
               with the Securities and Exchange Commission (File No. 333-18709))


                                       34
<PAGE>   35
     10.22     Security Agreement executed by the Registrant for the benefit of
               U.S. Bank of Washington, National Association, dated June 10,
               1996 (Incorporated by reference to the Company's S-2 Registration
               Statement as filed with the Securities and Exchange Commission
               (File No. 333-18709))

     10.23     Third Amendment to Credit Agreement between U.S. Bank of
               Washington, National Association, dated January 14, 1997
               (Incorporated by reference to the Company's S-2 Registration
               Statement as filed with the Securities and Exchange Commission
               (File No. 333-18709))

     10.24     Loan Agreement between The Second National Bank of Warren (Ohio)
               and the Registrant, dated December 24, 1996 (Incorporated by
               reference to the Company's S-2 Registration Statement as filed
               with the Securities and Exchange Commission (File No. 333-18709))

     10.25     Letter to Ronald E. Weinberg from the Registrant, dated January
               17, 1997 (Incorporated by reference to the Company's S-2
               Registration Statement as filed with the Securities and Exchange
               Commission (File No. 333-18709))

     10.26     Amendment to Employment Agreement between Ronald E. Weinberg and
               the Registrant, dated January 1, 1997 (Incorporated by reference
               to the Company's S-2 Registration Statement as filed with the
               Securities and Exchange Commission (File No. 333-18709))

     10.27     Amendment to Employment Agreement between Barry J. Feld and the
               Registrant, dated January 1, 1997 (Incorporated by reference to
               the Company's S-2 Registration Statement as filed with the
               Securities and Exchange Commission (File No. 333-18709))

     21.1      Subsidiaries of the Registrant (Incorporated by reference to the
               Company's S- 1 Registration Statement as filed with the
               Securities and Exchange Commission (File No. 33-71330))

     23.1      Consent of Price Waterhouse LLP

     24.1      Reference is made to the Signatures section of this Report for
               the Power of Attorney contained therein.


                                       35
<PAGE>   36
                                   SIGNATURES

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

NEW WEST EYEWORKS, INC.


By: /s/ Ronald E. Weinberg                              Dated:  March 27, 1997
    --------------------------------------------
      Ronald E. Weinberg, Chairman of the Board

POWER OF ATTORNEY

            KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Ronald E. Weinberg and Byron S.
Krantz his true and lawful attorneys-in-fact, each acting alone, with full
powers of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments to this report,
and to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact or their substitutes, each acting
alone, may lawfully do or cause to be done by virtue hereof.

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


<TABLE>
<S>                                                                                <C>
/s/ Ronald E. Weinberg                                                             Dated:  March 27, 1997
----------------------------------------------------------------------------
Ronald E. Weinberg, Chairman of the Board, Treasurer and Director


/s/ Barry Feld                                                                     Dated:  March 27, 1997
----------------------------------------------------------------------------
Barry Feld, Chief Executive Officer, President and Director
(principal executive officer)


/s/ Darius J. DiTallo                                                              Dated:   March 27, 1997
----------------------------------------------------------------------------
Darius J. DiTallo, Vice President - Finance & Administration
(principal financial and accounting officer)


/s/ Byron S. Krantz                                                                Dated:  March 27, 1997
----------------------------------------------------------------------------
Byron S. Krantz, Secretary and Director


/s/ Donald M. Gleklen                                                              Dated:  March 27, 1997
----------------------------------------------------------------------------
Donald M. Gleklen, Director


/s/ Larry I. Pollock                                                               Dated:  March 27, 1997
----------------------------------------------------------------------------
Larry I. Pollock, Director


/s/ William P. Sutter, Jr.                                                         Dated:  March 27, 1997
----------------------------------------------------------------------------
William P. Sutter, Jr., Director

/s/ Norman C. Harbert                                                              Dated:   March 27, 1997
----------------------------------------------------------------------------
Norman C. Harbert, Director
</TABLE>


                                       36
<PAGE>   37
                        Report of Independent Accountants





To the Board of Directors and Shareholders
of New West Eyeworks, Inc.

In our opinion, the consolidated financial statements and schedules listed in
the index appearing under Item 14(a) 1 and 2 present fairly, in all material
respects, the financial position of New West Eyeworks, Inc. and its subsidiary
at December 28, 1996 and December 30, 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
28, 1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.




PRICE WATERHOUSE LLP
Phoenix, Arizona
March 7, 1997


                                       37
<PAGE>   38
                             NEW WEST EYEWORKS, INC.

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


                           CONSOLIDATED BALANCE SHEET


                                     ASSETS

<TABLE>
<CAPTION>
                                                                       December 28,        December 30,
                                                                           1996                1995
                                                                       ------------        ------------

<S>                                                                    <C>                 <C>         
Current Assets:
  Cash and cash equivalents                                            $    256,000        $    241,000
  Accounts receivable, net                                                1,304,000             999,000
  Inventory                                                               3,190,000           3,132,000
  Other current assets                                                      309,000              78,000
                                                                       ------------        ------------

         Total current assets                                             5,059,000           4,450,000

Property and equipment, net                                               7,518,000           6,656,000
Goodwill                                                                    506,000             596,000
Other assets                                                                 44,000              32,000
                                                                       ------------        ------------

         Total assets                                                  $ 13,127,000        $ 11,734,000
                                                                       ============        ============


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
   Accounts payable                                                    $  5,392,000        $  5,755,000
   Accrued expenses                                                       1,868,000           3,096,000
   Line of credit                                                         1,968,000
   Deferred warranty revenues                                               279,000             348,000
   Notes payable and capital lease obligations, current portion             320,000             235,000
   Notes payable to related party                                           358,000
                                                                       ------------        ------------

         Total current liabilities                                       10,185,000           9,434,000

Liability for closed store leases                                                                57,000
Notes payable and capital lease obligations                                 516,000             321,000
                                                                       ------------        ------------

         Total liabilities                                               10,701,000           9,812,000
                                                                       ------------        ------------


Stockholders' Equity:
   Series A 6% Cumulative Convertible Preferred Stock, $1,000
      par value, 3,960 shares authorized, issued and outstanding          3,960,000           3,960,000
   Series B 6% Cumulative Convertible Preferred Stock, $1,000
      par value, 1,500 shares authorized, issued and outstanding          1,500,000           1,500,000
   Common stock, $0.01 par value, 5,000,000 shares authorized,
      3,763,036 shares issued and outstanding                                38,000              38,000
   Paid-in capital                                                       10,100,000          10,070,000
   Accumulated deficit                                                  (13,172,000)        (13,646,000)
                                                                       ------------        ------------

         Total stockholders' equity                                       2,426,000           1,922,000
                                                                       ------------        ------------

         Total liabilities and stockholders' equity                    $ 13,127,000        $ 11,734,000
                                                                       ============        ============
</TABLE>

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


                                       38
<PAGE>   39
                             NEW WEST EYEWORKS, INC.

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


                      CONSOLIDATED STATEMENT OF OPERATIONS



<TABLE>
<CAPTION>
                                                                              Fiscal Year Ended
                                                              ----------------------------------------------------
                                                              December 28,        December 30,        December 31,
                                                                  1996                1995                1994
                                                              ------------        ------------        ------------

<S>                                                           <C>                 <C>                 <C>         
Net Sales                                                     $ 43,940,000        $ 40,033,000        $ 37,367,000
Cost of sales                                                   21,719,000          20,352,000          19,675,000
                                                              ------------        ------------        ------------

   Gross profit                                                 22,221,000          19,681,000          17,692,000

Selling, general and administrative expenses                    21,173,000          21,667,000          18,978,000
                                                              ------------        ------------        ------------

Operating income (loss)                                          1,048,000          (1,986,000)         (1,286,000)
Interest income                                                                         12,000              53,000
Interest expense                                                   216,000              51,000              55,000
                                                              ------------        ------------        ------------

Income (loss) before income tax expense                            832,000          (2,025,000)         (1,288,000)

Income tax expense                                                  30,000
                                                              ------------        ------------        ------------

Net income (loss)                                                  802,000          (2,025,000)         (1,288,000)

Preferred stock dividends                                         (328,000)           (329,000)           (328,000)
                                                              ------------        ------------        ------------

Net income (loss) applicable to holders of common stock       $    474,000        $ (2,354,000)       $ (1,616,000)
                                                              ============        ============        ============ 

Income (loss) per common and common equivalent share          $       0.13        $      (0.63)       $      (0.43)
                                                              ============        ============        ============ 

Weighted average number of common and common
   equivalent shares outstanding                                 3,775,000           3,763,000           3,736,000
</TABLE>


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


                                       39
<PAGE>   40
                             NEW WEST EYEWORKS, INC.

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


                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY



<TABLE>
<CAPTION>
                                           Shares                                        Amounts
                                  ----------------------     ---------------------------------------------------------------------
                                                                                         Paid-in       Accumulated
                                  Preferred      Common      Preferred      Common        Capital        Deficit          Total
                                  ---------    ---------     ----------    ----------   -----------    ------------    -----------

<S>                                 <C>        <C>           <C>           <C>          <C>            <C>             <C>         
BALANCES AT DECEMBER 25, 1993       5,460      2,264,286     $5,460,000    $   22,000   $ 1,502,000    $ (9,676,000)   $(2,692,000)

Common stock issued                            1,498,750                       16,000     8,568,000                      8,584,000

Preferred stock dividends                                                                                  (328,000)      (328,000)

Net loss                                                                                                 (1,288,000)    (1,288,000)
                                    -----      ---------     ----------    ----------   -----------    ------------    -----------


BALANCES AT DECEMBER 31, 1994       5,460      3,763,036      5,460,000        38,000    10,070,000     (11,292,000)     4,276,000

Preferred stock dividends                                                                                  (329,000)      (329,000)

Net loss                                                                                                 (2,025,000)    (2,025,000)
                                    -----      ---------     ----------    ----------   -----------    ------------    -----------


BALANCES AT DECEMBER 30, 1995       5,460      3,763,036      5,460,000        38,000    10,070,000     (13,646,000)     1,922,000

Issuance of warrants                                                                         30,000                         30,000

Preferred stock dividends                                                                                  (328,000)      (328,000)

Net income                                                                                                  802,000        802,000
                                    -----      ---------     ----------    ----------   -----------    ------------    -----------


BALANCES AT DECEMBER 28, 1996       5,460      3,763,036     $5,460,000    $   38,000   $10,100,000    $(13,172,000)   $ 2,426,000
                                    =====      =========     ==========    ==========   ===========    ============    ===========
</TABLE>

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


                                       40
<PAGE>   41
                             NEW WEST EYEWORKS, INC.

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


                      CONSOLIDATED STATEMENT OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                                                Fiscal Year Ended
                                                                               --------------------------------------------------
                                                                               December 28,        December 30,       December 31,
                                                                                   1996               1995               1994
                                                                               ------------        -----------        -----------
<S>                  <C>                                                       <C>                 <C>                <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
   Net income (loss)                                                           $    802,000        $(2,025,000)      $(1,288,000)
   Adjustments to reconcile net income (loss) to net cash from (used in)
      operating activities:
      Depreciation and amortization                                               1,229,000          1,048,000         1,614,000
      Loss on disposal of fixed assets                                                                  65,000           133,000
   Changes in assets and liabilities:
      Accounts receivable, net                                                     (305,000)          (124,000)          (48,000)
      Inventory                                                                     (58,000)          (281,000)         (515,000)
      Other current assets                                                         (231,000)            52,000           (34,000)
      Accounts payable                                                             (363,000)         1,696,000          (680,000)
      Accrued expenses                                                           (1,228,000)           603,000           522,000
      Deferred warranty revenues                                                    (69,000)          (240,000)           94,000
      Other assets and liabilities                                                  (57,000)           (72,000)          935,000
                                                                               ------------        -----------        ----------

      Net cash from (used in) operating activities                                 (280,000)           722,000           733,000
                                                                               ------------        -----------        ----------

CASH FLOWS USED IN INVESTING ACTIVITIES:
   Purchase of property and equipment                                            (1,459,000)        (1,532,000)       (3,178,000)
                                                                               ------------        -----------        ----------


CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
   Proceeds from the revolving line of credit                                    24,050,000
   Payments on the revolving line of credit                                     (22,082,000)
   Proceeds from the bridge loan                                                  1,050,000
   Payment of bridge loan                                                          (700,000)
   Proceeds from capital leases                                                                        505,000
   Payment of capital leases                                                       (236,000)          (208,000)       (3,222,000)
   Payment of preferred stock dividends                                            (328,000)          (246,000)         (328,000)
   Net proceeds from issuance of common stock                                                                          8,584,000
   Redemption of redeemable preferred stock                                                                           (1,752,000)
                                                                               ------------        -----------        ----------

   Net cash from financing activities                                             1,754,000             51,000         3,282,000
                                                                               ------------        -----------        ----------

NET INCREASE (DECREASE) IN CASH and CASH EQUIVALENTS                                 15,000           (759,000)          837,000

CASH and CASH EQUIVALENTS, beginning of period                                      241,000          1,000,000           163,000
                                                                               ------------        -----------        ----------

CASH and CASH EQUIVALENTS, end of period                                       $    256,000        $   241,000        $1,000,000
                                                                               ============        ===========        ==========

SUPPLEMENTAL CASH FLOW INFORMATION:
   Interest paid                                                               $    208,000        $    51,000        $   66,000
   Income taxes paid                                                                 30,000                               65,000
   Assets purchased under capital lease obligations                                 524,000
</TABLE>


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


                                       41
<PAGE>   42
                             NEW WEST EYEWORKS, INC.

                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

NOTE 1 - THE COMPANY:

New West Eyeworks, Inc. (the Company) is a leading specialty retailer of
eyewear, operating under the trade names "Lee Optical" and "Vista Optical." In
the western and midwestern United States, the Company operates 149 value-priced
optical stores located in malls, strip shopping centers and Fred Meyer host
stores. The Company operates optical laboratory and distribution facilities in
Tempe, Arizona and near Portland, Oregon.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:

USE OF ESTIMATES

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

PRINCIPLES OF CONSOLIDATION

The accompanying financial statements include the accounts of the Company and
its wholly-owned subsidiary, Alexis Holdings, Inc. All significant intercompany
accounts and transactions have been eliminated.

FISCAL YEAR

The Company's fiscal year ends on the last Saturday of the calendar year. Fiscal
years 1996 and 1995 reflect periods of 52 weeks while fiscal year 1994 reflects
a period of 53 weeks.

REVENUE RECOGNITION

Revenues are recognized at the time of customer order. Revenues from separately
priced warranty contracts are deferred and recognized on a pro rata basis over
the contract period.

The Company receives certain vendor rebates and allowances which are reflected
in operations based on the terms of the underlying agreements. Such amounts are
classified as reductions of either selling, general and administrative costs or
cost of sales as appropriate.

STORE OPENING COSTS

The Company expenses store opening costs as incurred.


                                       42
<PAGE>   43
                             NEW WEST EYEWORKS, INC.

                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

ADVERTISING COSTS

Effective January 1, 1995, the Company adopted American Institute of Certified
Public Accountants Statement of Position No. 93-7, Reporting on Advertising
Costs (the "Statement"). In accordance with the Statement, the Company expenses
advertising production costs in the period in which the related advertisement
first takes place. Advertising communication costs such as television air time
and newspaper advertising space are expensed as the related services are
received. All other costs are expensed as incurred. The adoption of the
Statement during 1995 did not have a material impact on the Company's financial
condition or results of operations. Advertising expenses totaled $3,576,000,
$4,136,000, and $3,392,000 for the years 1996, 1995, and 1994, respectively.

CASH AND CASH EQUIVALENTS

The Company considers liquid investments with an original maturity of three
months or less to be cash equivalents.

ACCOUNTS RECEIVABLE

Accounts receivable are primarily comprised of amounts due from insurance
carriers on sales where the Company has accepted an assignment of insurance
benefits from the customer. The reported balances are net of an allowance for
doubtful accounts of $139,000 and $160,000 at December 28, 1996, and December
30, 1995, respectively.

INVENTORY AND COST OF SALES

Inventory primarily consists of the direct material cost of eyeglass frames,
contact lenses, ophthalmic lenses and optical laboratory supplies and is stated
at the lower of cost or market. Cost is determined using the first-in, 
first-out method.

Cost of sales includes the cost of merchandise sold during the period, optical
laboratory costs directly related to manufacturing eyeglasses, store occupancy
expenses, and depreciation expense relating to store and optical laboratory
fixtures and equipment.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets which range from five to ten years. Major
improvements are capitalized while repairs which do not extend the useful life
of the asset are expensed.


                                       43
<PAGE>   44
                             NEW WEST EYEWORKS, INC.

                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

GOODWILL

Goodwill relating to the 1988 acquisition of Western States Optical is being
amortized for financial statement purposes on a straight-line basis over a
period of fifteen years. The reported balance is net of accumulated amortization
of $759,000 and $669,000 at December 28, 1996, and December 30, 1995
respectively. The Company evaluates the possibility of goodwill impairment when
events or changes in economic circumstances indicate that the related carrying
amount may not be recoverable.

ACCOUNTS PAYABLE

Accounts payable includes $644,000 at December 28, 1996 and $1.2 million at
December 30, 1995 relating to the reclassification of book overdrafts.

STOCK COMPENSATION

The Company measures compensation costs related to employee stock options using
the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock issued to Employees."

INCOME TAXES

The Company provides for the determination of deferred tax assets and
liabilities at the end of each period based on the difference between the
financial statement and tax basis of assets and liabilities using presently
enacted tax rates.

INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE

Income (loss) per common and common equivalent share is computed using the
weighted average number of common and common equivalent shares outstanding
during the period. Common equivalent shares consist of warrants and options
using the treasury stock method. Common equivalent shares are excluded from the
computation if their effect is anti-dilutive.


                                       44
<PAGE>   45
                             NEW WEST EYEWORKS, INC.

                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

NOTE 3 - PROPERTY, EQUIPMENT AND LEASES:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                              December 28,          December 30,
                                                 1996                 1995
                                              ------------         ------------

<S>                                           <C>                  <C>         
Store fixtures and equipment                  $ 11,549,000         $ 10,385,000
Laboratory fixtures and equipment                2,100,000            1,843,000
Other fixtures and equipment                     2,558,000            1,971,000
Building and improvements                          641,000              638,000
Construction in progress                                                 28,000
                                              ------------         ------------
                                                16,848,000           14,865,000
Less:  accumulated depreciation                 (9,330,000)          (8,209,000)
                                              ------------         ------------
                                              $  7,518,000         $  6,656,000
                                              ============         ============
</TABLE>



The Company leases substantially all of its store facilities under operating
leases which expire at various dates through 2002. Certain leases require
payment of property taxes, utilities, common area maintenance and insurance as
well as additional rent if sales exceed specified amounts. Total rent expense
incurred during 1996, 1995 and 1994 approximated $5,493,000, $5,000,000 and
$5,000,000, respectively, including additional rent expense of $1,045,000,
$889,000 and $930,000, respectively. At December 28, 1996, future minimum annual
rental commitments under noncancelable operating leases were as follows:


<TABLE>
<S>                                            <C>        
               1997                            $ 3,208,000
               1998                              3,023,000
               1999                              2,396,000
               2000                              1,684,000
               2001                              1,233,000
               Thereafter                        2,216,000
                                               -----------
                                               $13,760,000
                                               ===========
</TABLE>


                                       45
<PAGE>   46
                             NEW WEST EYEWORKS, INC.

                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

NOTE 4 - LINE OF CREDIT:

The Company entered into a $2.0 million revolving line of credit with a bank in
June 1996. The revolving line of credit matures on May 31, 1997, and is secured
by substantially all of the Company's assets, including the Company's executive
office building and optical laboratory in Tempe, Arizona, but excluding
furniture, fixtures, and equipment. The line of credit borrowings bear interest
at the lending bank's prime rate plus 2.0% per annum, and interest is due and
payable monthly. The line of credit is also secured by guarantees from Mesirow
Capital Partners V, a common and preferred stockholder, Mesirow Capital Partners
VI, and Ron E. Weinberg, Chairman of the Board. Barry J. Feld, President and
Chief Executive Officer, agreed to share in the obligations of the guarantors.

In exchange for the guarantee of the Company's obligations under its line of
credit by such officers and shareholders, the Company issued warrants to them to
purchase, in the aggregate, 50,000 shares of the Company's common stock at a
price per share of $6.11, subject to customary anti-dilution adjustments. The
value of the warrants, which was determined by independent valuation to be $0.57
per share, is reflected on the December 28, 1996 balance sheet in other assets
and paid-in capital and is being amortized over the life of the loan.

As of December 28, 1996, the Company was not in compliance with certain
financial covenants, contained in the revolving line of credit agreement with
the bank. Accordingly, the credit agreement was amended effective January 14,
1997, and the Company received waivers with respect to such covenants from the
bank for periods up to and including December 28, 1996. There can be no
assurance that the Company will not require additional waivers in the future or,
if required, that the lender will grant them.

The line of credit borrowings were repaid in full with the proceeds from the
secondary offering in early 1997, (the Offering) (See Note 11 -- Subsequent
Event).


                                       46
<PAGE>   47
                             NEW WEST EYEWORKS, INC.

                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

NOTE 5 - NOTES PAYABLE:

Notes payable consist of the following:

<TABLE>
<CAPTION>
                                                           December 28,    December 30,
                                                               1996            1995
                                                           ------------    ------------

<S>                                                         <C>              <C>     
Capital lease obligations                                   $  836,000       $505,000

Notes payable - related party                                  358,000

Mortgage note payable, interest at 10.75%, interest
   and principal payments of $7,000 due monthly until
   maturity on August 1, 1996, secured by executive
   office building and optical laboratory facilities                           51,000
                                                            ----------       --------

Total debt                                                   1,194,000        556,000

Less:  current portion                                         678,000        235,000
                                                            ----------       --------

Total long-term debt                                        $  516,000       $321,000
                                                            ==========       ========
</TABLE>


In August 1995, the Company sold certain equipment for an aggregate sales price
of $505,000 and simultaneously leased the equipment back over a term of three
years with monthly payments of $16,000. The sale was recorded as a financing
transaction with no associated gain or loss recognized. The equipment includes
modular fixtures, optical equipment and manufacturing equipment purchased by the
Company in late 1994 and early 1995.

In early 1996, to fund the Company's expansion and advertising needs, the
Company entered into two bridge loans with Mesirow Capital Partners VI, a common
and preferred stockholder, and Ronald E. Weinberg, totaling $700,000. The loans
bore interest at an annual rate of 15% and were secured by a deed of trust on
the Company's executive office building and optical laboratory facility in
Tempe, Arizona. The bridge loans were retired with the proceeds of the revolving
line of credit described in Note 4.

In December 1996, the Company entered into a bridge loan for $350,000 with The
Second National Bank of Warren (Ohio). The loan was scheduled to mature on June
2, 1997 and bore interest at a rate equal to the lending bank's prime rate plus
1.5% per annum, payable upon maturity. The loan was guaranteed by Mr. Weinberg
and Mr. Feld agreed to share in the guaranty. The Company paid Mr. Weinberg and
Mr. Feld a total of $7,500 in exchange for their guaranty of the loan. Norman C.
Harbert, a director of the Company, is also a director


                                       47
<PAGE>   48
                             NEW WEST EYEWORKS, INC.

                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


NOTE 5 - NOTES PAYABLE: (CONTINUED)

of Second Bancorp Inc., the parent holding company of the Second National Bank
of Warren (Ohio). The bridge loan was retired with the proceeds from the
Offering.

NOTE 6 - STOCKHOLDERS' EQUITY AND COMMON STOCK OPTIONS AND WARRANTS:

        In December 1993, the Company issued 3,960 shares of Series A and 1,500
shares of Series B $1,000 par value 6% Cumulative Convertible Preferred Stock
(the "Preferred Stock"). The Preferred Stock is redeemable by the Company at
par value plus accrued but unpaid dividends; however, Series B shares cannot be
redeemed while any Series A shares are outstanding. The number of common shares
issuable upon conversion is determined by dividing the par value of outstanding
Preferred Stock by $8.40, subject to customary adjustments. Dividends on the
Preferred Stock are payable quarterly, at an annual rate of $60 per share.

In October 1993, the Company established the New West Eyeworks Stock Option Plan
under which certain eligible employees and directors of the Company may receive
awards in the form of stock options. Certain stock options become exercisable on
the date the Company achieves annual primary earnings per share targets while
others become exercisable during a three-year period with the options vesting
ratably during that period. The exercise price is generally equal to the fair
market price of the Company's common stock on the date of the grant. The stock
option exercise period may not exceed ten years from the date of grant.

A summary of the status of the Company's Stock Option Plan as of December 28,
1996 and December 30, 1995 and changes during the years ended is presented
below:


<TABLE>
<CAPTION>
                                              1996                                1995
                                      ----------------------         -----------------------------
                                                    Weighted                              Weighted
                                                     Average                              Average
                                                    Exercise                              Exercise
                                      Shares         Price              Shares             Price
                                    ------------------------         -----------------------------

<S>                                <C>                <C>             <C>            <C>     
Options outstanding at
    beginning of year                131,500                           108,500

   Granted                            53,000          $ 4.25            99,500       $   4.10

   Exercised                              --                                --             

   Forfeited                         (34,000)         $ 5.15           (76,500)      $   4.99
                                    --------                          --------

Options outstanding at
   end of year                       150,500                           131,500
                                    ========                          ========


Options exercisable at end            77,000                            58,000
   of year


Weighted-average fair
value of options granted
during the year                     $   2.12                          $   2.17
</TABLE>


                                       48
<PAGE>   49
                             NEW WEST EYEWORKS, INC.

                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


NOTE 6 - STOCKHOLDERS' EQUITY AND COMMON STOCK OPTIONS AND WARRANTS: (CONTINUED)

The following table summarizes information about the stock options granted
during 1996, 1995, and 1994 which are outstanding at December 28, 1996:

<TABLE>
<CAPTION>
                                              Weighted
                                               Average           Weighted                       Weighted
   Year        Range of                       Remaining          Average                        Average
 Options       Exercise         Options        Contract          Exercise         Options       Exercise
 Granted        Prices        Outstanding        Life             Price         Exercisable      Price
-----------------------------------------------------------------------------  -------------------------

<S>          <C>                  <C>         <C>                  <C>              <C>           <C>   
    1996     $      4.25          53,000      9.2 years            $4.25

    1995     $3.44-$4.63          23,500      8.3 years            $3.95             3,000        $ 4.63

    1994     $      7.00          74,000        7 years            $7.00            74,000        $ 7.00
</TABLE>


For purposes of determining the weighted average fair market value of the
options granted during the year, the Company used the Black-Scholes
option-pricing model with the following weighted average assumptions:

<TABLE>
<CAPTION>
                                                                   1996                1995
                                                                   ------------------------
<S>                                                               <C>                <C>
                      Expected dividend yield                      0%                 0%
                      EXpected Stock Price Volatility              50%                50%
                      Risk free interest rate                      5.30%              7.1%
                      Expected option life                         5 years            5 years
</TABLE>

The pro-forma disclosures of earnings and earnings per share required by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", for 1996 and 1995 have not been presented as the effect of such
pro-forma adjustments is not material.

In connection with the initial public offering in December 1993, the Company
sold warrants to its primary underwriter and two individuals at a nominal price
(1993 Warrants). The 1993 Warrants, which are exercisable for a four-year period
commencing December 23, 1994, entitle the holders to purchase a total of 106,563
shares of the Company's common stock at an exercise price of 125% of the initial
public offering price of $7.00 per share ($8.75 per share). In conjunction with
the Offering in early 1997 (See Note 11 -- Subsequent Event), the Company
reduced the exercise price of the 1993 Warrants from $8.75 to $8.00 per share.


                                       49
<PAGE>   50
                             NEW WEST EYEWORKS, INC.

                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

NOTE 6 - STOCKHOLDERS' EQUITY AND COMMON STOCK OPTIONS AND WARRANTS: (CONTINUED)

In connection with the Offering (See Note 11 -- Subsequent Event), the Company
granted to its primary underwriter and certain individuals warrants (1997
Warrants) to purchase a number of shares of common stock equal to the number of
shares of common stock that remain issuable and unexercised under the 1993
Warrants upon their termination. The 1997 Warrants are exercisable beginning on
December 23, 1998, the termination date of the 1993 Warrants, for a period of
three years terminating on December 23, 2001. The initial exercise price for the
1997 Warrants will equal the exercise price under the 1993 Warrants upon their
termination, which price is currently $8.00.

The Company also issued warrants to purchase 50,000 shares of the Company's
common stock at a price per share of $6.11 in exchange for the guaranty of the
Company's obligations under its line of credit by certain officers and
stockholders of the Company. The warrants terminate on June 10, 2006 (See Note 4
- Line of Credit).

NOTE 7 - INCOME TAXES:

The Company's deferred tax assets consist of the following:

<TABLE>
<CAPTION>
                                               December 28,        December 30,
                                                   1996                 1995
                                               -----------          -----------

<S>                                            <C>                  <C>        
  Net operating loss carryforwards             $ 2,407,000          $ 2,611,000

    Salaries and benefits                          125,000              120,000
    Property and equipment                         124,000              363,000
    Deferred warranty revenues                      95,000              118,000
    Other                                          243,000              240,000
                                               -----------          -----------

  Deferred tax assets                            2,994,000            3,452,000

  Less:  valuation allowance                    (2,994,000)          (3,452,000)
                                               -----------          -----------

    Net deferred tax assets                    $        --          $        --
                                               ===========          ===========
</TABLE>


As a result of historical operating losses, the Company has reserved its net
deferred tax assets as of December 28, 1996, and December 30, 1995.

In assessing the realizability of its deferred tax assets, the Company considers
whether it is more likely than not that some or all of such assets will be
realized. The ultimate realization of the Company's deferred tax assets is
dependent upon generation of future taxable income.


                                       50
<PAGE>   51
                             NEW WEST EYEWORKS, INC.

                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

NOTE 7 - INCOME TAXES: (CONTINUED)

The Company has established a valuation allowance to fully reserve its deferred
tax assets and will consider reducing or eliminating the valuation allowance
once profitable operations have been sustained.

As of December 28, 1996, the Company had net operating loss carryforwards of
$7.1 million and $6.3 million for regular tax and alternative minimum tax
purposes, respectively, which begin to expire in 2006. The Company's initial
public offering in 1993 caused the Company to experience an ownership change as
defined by Section 382(g) of the Internal Revenue Code. As a result, there will
be an annual limitation of approximately $1.0 million on the amount of net
operating loss carryforwards generated prior to the ownership change which can
be utilized to offset the Company's future taxable income. The Offering (See
Note 11 -- Subsequent Event) did not cause the Company to experience an
ownership change; however, future transactions involving the Company's stock (or
rights to acquire such stock) could also cause an ownership change resulting in
additional restrictions on the Company's ability to utilize its net operating
loss carryforwards after the date of such ownership change.

NOTE 8 - EMPLOYEE BENEFIT PLAN:

The Company established the New West Eyeworks, Inc. Profit Sharing and 401(k)
Savings Plan (the Plan) for the benefit of employees (participants) who meet
certain age and eligibility requirements. The Plan provides for discretionary
profit sharing contributions as well as employer matching contributions on
participants' pre-tax savings deferrals. A profit sharing contribution was not
made in 1996, 1995, or 1994; however, employer matching contributions
approximated $90,000, $97,000, and $71,000 in 1996, 1995 and 1994, respectively.

NOTE 9 - RELATED PARTY TRANSACTIONS:

The Company is a party to an expense sharing arrangement whereby it pays an
entity owned by an officer of the Company for certain services provided by such
entity for the Company and as reimbursement for certain expenses incurred
directly on behalf of the Company. The aggregate amount of the payments by the
Company to such entity, including expenses incurred directly on behalf of the
Company, were approximately $109,000, $136,000, and $140,000 in 1996, 1995 and
1994, respectively.

A director of the Company is a partner in a law firm which provides legal
services to the Company.


                                       51
<PAGE>   52
                             NEW WEST EYEWORKS, INC.

                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


NOTE 10 - COMMITMENTS AND CONTINGENCIES:

The Chairman of the Board and the President have received a total of $7,500 from
the Company in connection with providing a guarantee for the bridge loan
negotiated in December 1996 (See Note 5 -- Notes Payable).

From time to time, the Company is involved in legal matters which are incidental
to its operations. In the opinion of management, the ultimate resolution of
these matters is not anticipated to have a material adverse effect on the
Company's financial condition or results of operations.

NOTE 11 - SUBSEQUENT EVENT:

In early 1997, the Company completed a secondary public offering of 1,505,400
shares of its common stock, $0.01 par value per share, including shares sold
upon the exercise of the underwriters' over allotment option. Net proceeds to
the Company from the Offering were $5.6 million. Of the shares sold, 400,000
shares were sold by selling stockholders. The Company did not receive any
proceeds from the sale of shares by the selling stockholders.


                                       52
<PAGE>   53
                             NEW WEST EYEWORKS, INC.

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

VALUATION AND QUALIFYING ACCOUNTS

                                                                     SCHEDULE II

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

<TABLE>
<CAPTION>
                                        Balance at      Charged to                        Balance
                                        beginning        costs and                       at end of
        Description                     of period        expenses     Deductions          period
----------------------------------      ----------      ----------    -----------        ----------

<S>                                     <C>              <C>            <C>              <C>       
Fiscal 1994

 Allowance for doubtful accounts        $  236,000       $ 56,000       $(106,000)       $  186,000

 Deferred tax valuation allowance       $2,308,000       $396,000       $                $2,704,000

Fiscal 1995

 Allowance for doubtful accounts        $  186,000       $143,000       $(169,000)       $  160,000

 Deferred tax valuation allowance       $2,704,000       $748,000       $                $3,452,000

Fiscal 1996

 Allowance for doubtful accounts        $  160,000       $ 65,000       $ (86,000)       $  139,000

 Deferred tax valuation allowance       $3,452,000       $              $(458,000)       $2,994,000
</TABLE>


                                       53
<PAGE>   54
                             NEW WEST EYEWORKS, INC.



                                  EXHIBIT INDEX


<TABLE>
<CAPTION>                                                                                     Sequential
Exhibit             Description                                                               Page Number
-------             -----------                                                               -----------

<S>             <C>                                                                              <C>
23.1            Consent of Price Waterhouse LLP.................................................  55

24.1            Reference is made to the Signatures section of this Report for the
                Power of Attorney contained therein.............................................  36

27              Financial Data Schedule.........................................................  56
</TABLE>


                                       54