SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-K

              Annual report pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                    For the fiscal year ended March 31, 2001

                         Commission File Number 0-14841

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

                         FRANKLIN ELECTRONIC PUBLISHERS,
                                  INCORPORATED
           (Exact name of the registrant as specified in its charter)

          Pennsylvania                                            22-2476703
(State or other jurisdiction of                                (I.R.S. Employer
 incorporation or organization)                              Identification No.)

              One Franklin Plaza, Burlington, New Jersey 08016-4907
                    (Address of principal executive offices)

                                 (609) 386-2500
                         (Registrant's telephone number)

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


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

                                      None


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

                           Common Stock, no par value

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

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 |_|  No |_|

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

As of June 21, 2001, approximately 7,949,000 shares of common stock of the
registrant were outstanding and the aggregate market value of common stock held
by non-affiliates was approximately $17,100,000.

The registrant's Proxy Statement for its 2001 annual meeting of shareholders is
hereby incorporated by reference into Part III of this Form 10-K.

       =================================================================



                  FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED

                 INDEX TO ANNUAL REPORT ON FORM 10-K FILED WITH
                     THE SECURITIES AND EXCHANGE COMMISSION
                            YEAR ENDED MARCH 31, 2001

                               ITEMS IN FORM 10-K




                                                                                                           PAGE
                                                                                                           ----
                                                                                                           
PART I.........................................................................................................1

ITEM 1.        BUSINESS........................................................................................1

ITEM 2.        PROPERTIES.....................................................................................12

ITEM 3.        LEGAL PROCEEDINGS..............................................................................12

ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................12

PART II.......................................................................................................12

ITEM 5.        MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..........................12

ITEM 6.        SELECTED FINANCIAL DATA........................................................................14

ITEM 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........15

ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................................................21

ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...........40

PART III......................................................................................................40

ITEM 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............................................40

ITEM 11.       EXECUTIVE COMPENSATION.........................................................................41

ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS  AND MANAGEMENT................................41

ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................41

PART IV.......................................................................................................42

   ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K....................................42

Signatures....................................................................................................43



                                       i


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Except for the historical information contained herein, the matters discussed
throughout this report, including, but not limited to, those that are stated as
Franklin's belief or expectation or preceded by the word "should" are forward
looking statements that involve risks to and uncertainties in Franklin's
business, including, among other things, the timely availability and acceptance
of new electronic books, organizers, and other electronic products, changes in
technology, the impact of competitive electronic products, the management of
inventories, Franklin's dependence on third party component suppliers and
manufacturers, including those that provide Franklin-specific parts, and other
risks and uncertainties that may be detailed from time to time in Franklin's
reports filed with the Securities and Exchange Commission.
--------------------------------------------------------------------------------

                                     PART I

ITEM 1. BUSINESS

      Franklin Electronic Publishers, Incorporated ("Franklin" or the "Company")
designs and develops hand-held electronic information products, such as
electronic books (sometimes known as eBooks) and electronic organizers.

      The Company believes it is the world's largest designer, developer and
publisher of hand-held electronic books, having sold more than twenty-five
million units since 1986. The Company's electronic books are battery-powered
devices that incorporate the text of a reference work, general literature or
databases and permit the user to read selected portions on a display screen. The
Company owns or has licenses to publish in electronic format more than two
hundred titles, including monolingual and bilingual dictionaries (such as
Merriam-Webster's Tenth Collegiate Dictionary), the Bible, encyclopedias (such
as the Concise Columbia Encyclopedia), entertainment-oriented publications,
educational publications and medical publications (such as the Physicians' Desk
Reference(R)).

      The Company marketed its first electronic book, the Spelling Ace(R), in
1986. The Company believes that the Spelling Ace was one of the first electronic
books marketed in the United States. Beginning in 1987, Franklin began marketing
increasingly sophisticated electronic versions of thesauruses and dictionaries
and, in 1989, the Holy Bible.

      In 1996, the Company acquired certain assets of the ROLODEX(R) Electronics
product line and the associated trademark license. Under the license, the
Company acquired the right to build and market databanks and organizers under
the ROLODEX(R) Electronics mark.

      In 1999, the Company introduced at retail an eBook produced by a third
party for downloading content from the Internet. The product introduction
initiated the Company's strategy of providing content for downloading from the
Internet for hand-held products. In 2001, the Company introduced at retail its
eBookMan product, a handheld electronic multimedia eBook device ("eBookMan") for
downloading multimedia content from the Internet.

      The Company was incorporated in 1983 in the Commonwealth of Pennsylvania
as the successor to a business commenced in 1981. The Company's principal
executive offices are located at One Franklin Plaza, Burlington, New Jersey
08016-4907, and its telephone number is (609) 386-2500.


                                       1


COMPETITIVE ADVANTAGES

      The Company believes that it has the following competitive advantages:

      o Efficient and Cost-Effective Manufacturing Process. Franklin controls
the entire manufacturing process of its products, from design to sale, but does
not own actual manufacturing facilities. This "virtual manufacturing" model
enables the Company to produce its products in the most cost-effective manner by
allowing the Company to outsource the manufacturing and assembly functions to
third parties which meet the Company's cost and quality specifications. In this
way, the Company maintains a high degree of flexibility and adaptability in its
product sourcing operations.

      o Strong Share in Electronic Books. Franklin is the preeminent company in
the hand-held electronic reference market, with leading positions in the United
States and certain markets internationally. The Company believes it has dominant
market share in North America, Europe and Australia, as well as a major presence
in the Middle East. Over the past fourteen years, Franklin has sold twenty-five
million units worldwide and currently markets over 200 eBooks globally.

      o Breadth and Strength of Distribution. The Company distributes its
products through 45,000 retail outlets in more than fifty countries. The Company
also uses direct channels to serve multiple markets, such as the professional,
educational and customized application markets. In the professional market,
Franklin has achieved considerable success with its electronic format medical
publications. In the educational market, the Company's electronic books are used
in schools throughout the United States. Due to the success of its electronic
Bible, the Company has also achieved substantial sales in the religious market,
with Franklin products currently distributed through Christian-affiliated
bookstores.

      o Technological Leadership in eBooks. Franklin has significant expertise
in providing high quality content and functionality through cost-effective
hardware designs of electronic information products. The Company designs and has
manufactured for its use proprietary microprocessors. The Company's products
combine sophisticated technology with a user-friendly interface designed for
convenient and rapid retrieval of data. Franklin's ability to compress data and
to design systems that permit quick and intelligent information retrieval
enables it to offer compact products with high functionality. For example, the
Company stores the almost three thousand page Physicians' Desk Reference, which
fills up twenty megabytes of memory space, into the memory space of only five
megabytes which also includes sophisticated search and retrieval functionality.
The Company has been able to manufacture higher performance products at lower
cost due in part to declining prices of ROM chips. The Company's vertically
integrated research and development effort, devoted to developing both the
hardware and software for its products, also enables it quickly to utilize
cost-minimizing technologies. As a result, the cost of Franklin's products to
consumers has decreased over the years to prices approaching those of print
versions of reference publications, offering consumers added value at attractive
price points.

      o Long-standing Relationships and Licenses with Many Top Publishers. The
Company has electronic rights to over 200 titles, including several versions of
English and bilingual dictionaries, Bibles, and the Physicians' Desk Reference.
The Company obtains its licenses from a variety of well-established publishers
such as Merriam-Webster, Harper/Collins, Vivendi Universal and Bertelsmann.
While many of these licenses are exclusive, all are supported by long-standing
relationships with the publishers, providing Franklin with a significant
competitive advantage.

BUSINESS STRATEGIES

      Franklin was the first, and strives to be the best, in electronic books.
The Company's strategy to fulfill that mission is to leverage its leading market
position by exploiting the following opportunities:


                                       2


      o Use of the Internet to Distribute Content to Handhelds. The Company
publishes certain reference works on its web page (franklin.com) in electronic
form for downloading to multiple handheld platforms, including to those using
the Palm OS operating system and Microsoft Pocket PC/Windows CE operating system
as well as to the Company's own handheld electronic books. In this way, the
Company expects to leverage its expertise in refining reference data with its
competitive advantages in developing and distributing hand-held products to
reach a broader installed base. The Company has developed an Internet-enabled
hardware platform to provide for portable use of content delivered from the
Company's website.

      o Consumer Driven Product Development and Marketing. While the Company has
built strong distribution for its major products, it believes that further
opportunities lie in its ability to take a more marketing driven approach to
product development. The Company believes a better understanding of its
customers will allow it to boost sales, lower costs, accelerate throughput at
retail and lead to successful new product introductions. The Company is
investigating ways to better market its products for children and, as a
consequence, to expand its offerings in this area.

      o Continuing Upgrade of Core Products. The Company's core product line
continues to represent the major portion of its revenue. Dictionaries, spell
correctors and Bibles have been the Company's mainstream consumer electronics
products. From time to time, the Company has developed upgraded and enhanced
versions of its core products. The Company intends to continue to upgrade and
enhance its core products.

      o Investment in Marketing. The Company believes that a major opportunity
lies in broadening consumer awareness of the hand-held eBook category in order
to generate mass market interest in the Company's products. To date, the Company
has engaged in limited advertising on the national or local levels. The Company
has, however, enjoyed success with its limited advertising campaigns.

      o Growth in Selected International Markets. The Company has had success in
selling its products directly through wholly-owned, local subsidiaries in
selected international markets, and through distributors in other markets.
Because of the slowed growth in some international markets over the past two
fiscal years, the Company is concentrating its sales efforts in key markets. The
Company anticipates that its international sales will continue to provide a
significant portion of its revenues.

      o Exploitation of OEM and Licensing Opportunities. OEM (or "Original
Equipment Manufacturer") opportunities are business agreements pursuant to which
the Company develops products for resale by its partners. The Company has such
agreements in the medical publishing and international markets and will seek to
broaden its activities to other vertical markets. The Company believes its OEM
business can be expanded as the Company upgrades existing and develops new open
system platforms, such as its eBookMan product line. The Company licenses its
technology to preeminent companies such as Adobe Systems, Inc. and Palm, Inc.
The Company believes that it is the largest supplier of Springboard modules for
the Visor line of handheld products utilizing the Palm OS operating system that
is sold by Handspring, Inc.

RISK FACTORS

The Company believes that the most significant risks to its business involve
those set forth below.

      o Significant demand for eBookMan products must develop. The Company has
expended significant resources in connection with the development and
introduction of its new eBookMan product line, which commenced shipping in the
fourth quarter of fiscal 2001. To date, consumer demand for eBookMan products
has been adversely affected by late deliveries to retailers, coupled with the
recent decline in consumer demand for all hand-held electronic products. If
significant consumer demand for


                                       3


eBookMan products does not develop, the Company might be required to liquidate
inventory and, to the extent the technology used in eBookMan is not usable in
the Company's other products, might be required to take a charge for a portion
of the capitalized research and development costs relating to the eBookMan
product line. As of March 31, 2001, the Company had inventory of eBookMan
products of approximately $7.2 million and had capitalized a net aggregate of
approximately $2 million of research and development costs relating to the
eBookMan product line. There can be no assurance that significant demand for
eBookMan products will develop, or that if such demand does develop, that it can
be sustained.

      o Dependence on New Products and Titles. The Company depends to a certain
extent on the introduction of successful new products and titles to generate
sales growth and replace declining revenues from certain older products and
titles. The Company currently has several new products and titles under
development; however, significant development efforts for a number of the
Company's proposed new products and titles will be required prior to their
commercialization. A significant delay in the introduction of a new product or
title could have a material adverse effect on the ultimate success of the
product or title. In addition, if revenues from new products and titles fail to
replace declining revenues from certain existing products and titles, the
Company's operating results and growth could be adversely affected. There can be
no assurance that new products and titles currently under development will be
introduced on schedule, that they will generate significant revenues, or that
the Company will be able to introduce additional new products and titles in the
future.

      o Inventory Management. The Company's lead times are necessarily long
because of the custom nature of certain components and because most of its
components are manufactured, and its platforms are assembled, in Asia.
Accordingly, production and procurement planning are critically related to the
Company's anticipated sales volume. Any significant deviation from projected
future sales could result in material shortages or surpluses of inventory.
Shortages could cause the Company's distribution base to shrink as customers
turn to the Company's competitors. Inventory surpluses could cause cash flow and
other financial problems, which might cause the Company to liquidate inventory.
There can be no assurance that the Company's forecasts of demand for its
products will be accurate. Inaccurate forecasts, or unsuccessful efforts by the
Company to cope with surpluses or shortages, could have a material adverse
effect on the Company's business.

      o Changes in Technology. In general, the computer industry, both with
respect to software and hardware, is subject to rapidly changing technology.
Accordingly, the technology underlying the Company's products may similarly be
subject to change. The introduction of products embodying new technologies and
the emergence of new industry standards could exert price pressure on the
Company's existing products or render such products unmarketable or obsolete.
The Company's ability to anticipate changes in technology and industry standards
and to develop and introduce new and enhanced products, as well as additional
applications for existing products, in each case on a timely and cost-effective
basis, will be a critical factor in the Company's ability to grow and remain
competitive. There can be no assurance that technological changes will not
materially adversely affect the Company's business.

      o Competition. The consumer electronics and handheld product markets are
highly competitive and characterized by rapid technological advances and the
regular introduction of new products or enhancements of existing products. The
Company believes it faces various degrees of competition at different price
points in these markets. Competitive factors include product quality and
reliability, price, performance, marketing and distribution capability, service
and reputation. There can be no assurance that companies currently in the
consumer electronics or handheld product markets will not enter the markets in
which the Company currently markets its products. There can be no assurance that
other companies, currently in the consumer electronics industry, will not enter
the electronic book market. Many of such companies have greater capital,
research and development, marketing and distribution


                                       4


resources than the Company. If new competitors emerge or the existing market
becomes more competitive, the Company could experience significant pressure on
prices and margins.

      o Dependence on Key Suppliers. Certain integrated circuits essential to
the functioning of the Company's products are manufactured by a relatively small
number of overseas suppliers. Missed, late or erratic deliveries of custom
IC-ROMs and other parts could materially adversely impact the timing of new
product deliveries as well as the Company's ability to meet demand for existing
products. If any one of the integrated circuit suppliers were unable to meet its
commitments to the Company on a timely basis, such failure could have a material
adverse effect on the Company's business.

      o Intellectual Property Rights. The Company owns utility and design
patents in the United States and elsewhere on its electronic books. There can be
no assurance (i) that the claims allowed under any patents will be sufficiently
broad to protect the Company's technology, (ii) that the patents issued to the
Company will not be challenged, invalidated or circumvented or (iii) as to the
degree or adequacy of protection any patents or patent applications will afford.
The Company also claims proprietary rights in various technologies, know-how,
trade secrets and trademarks which relate to its principal products and
operations, none of which rights is the subject of patents or patent
applications in any jurisdiction. There can be no assurance as to the degree of
protection these rights may or will afford the Company.

      o International Sales and Currency Fluctuations. The Company expects that
international sales will constitute a material portion of the Company's
business. The Company's international business is subject to various risks
common to international activities, including political and economic instability
and the need to comply with export laws, tariff regulations and regulatory
requirements. There can be no assurance that political or economic instability
in any given country or countries will not have an adverse impact on the
Company's overall operations. Because approximately 30% of the Company's sales
are made in currencies other than the U.S. dollar, the Company is subject to the
risk of fluctuation in currency values from period to period. The risk
associated with fluctuations in currency values can be expected to increase to
the extent the Company expands its international operations.

PRODUCTS

Electronic Books

      Franklin currently markets more than 200 electronic books in various
categories, including thesauruses, dictionaries, bilingual dictionaries, the
Bible, and educational and medical publications. Different versions of the
Company's electronic reference products use different databases and provide
various levels of functionality.

Dictionaries

      Franklin's electronic spelling products (the "Spelling Ace(R)" line)
operate as phonetic spelling error detectors and correctors, puzzle solvers,
word list builders and word finders. These products permit the user to obtain
the correct spelling of a word that the user does not know how to spell
correctly. For example, if the user phonetically types in "krokodyl," the book
will display a list of seven words including, as the first choice, "crocodile."
The Company markets various versions in the Spelling Ace line incorporating
different databases. The most popular version is based on a list of over 80,000
American English words licensed to the Company by Merriam-Webster.

      The Company's top-of-the-line electronic dictionary is Merriam-Webster's
Collegiate Dictionary which is sold for use in the BOOKMAN and eBookMan lines of
products and which contains over 195,000 words and their definitions, parts of
speech, hyphenation points and different word forms


                                       5


(inflections). All of the Company's electronic dictionaries provide phonetic
spelling correction and many provide thesaurus features as well. For example, if
a user enters the word "baffled," the thesaurus will display eleven different
synonyms, including "frustrated," "disappointed" and "foiled."

      The Company markets versions of its dictionaries that include speech
synthesis circuitry (based on text to speech technology in which algorithms are
used to convert text into sound) which allows the Company's products to
pronounce, in computer generated speech, relevant words contained in the various
databases. The Company also has developed and sold audible products that use
digitally recorded and compressed speech, which sounds more like a human voice.

      The Company's line of products also includes bilingual dictionaries. Each
contains more than 200,000 words in both English and either Spanish, French,
German, Arabic or Hebrew, and each provides complete translations, definitions,
verb conjugations and a gender guide, and plays a variety of language learning
games to help teach the language. The Spanish/English dictionary is marketed in
versions with and without speech synthesis for both Spanish and English words.
Each of the other bilingual dictionaries is equipped with speech synthesis for
the English words. The Company currently markets a French/German dictionary and
bilingual dictionaries for several other languages, including other language
pairs that do not include English, such as German/Italian and French/Spanish.

      Franklin has a speaking dictionary designed to facilitate use by blind,
visually impaired or learning disabled individuals, as well as others with
special needs. This dictionary incorporates speech technology which pronounces
every word at user adjustable volumes and speeds. In addition, this dictionary
is equipped with full audio feedback, which allows every key on the keyboard to
speak its letter or function. Other features include a keyboard with
high-contrast lettering and raised locator dots, a large high-contrast screen
with adjustable fonts and headphones.

Children's Products

      Since 1990, the Company has successfully sold children's versions of its
reference products, such as a children's dictionary based on the word list from
Webster's Elementary Dictionary. In 1997, the Company introduced a new line of
children's products which includes the Homework Wiz electronic dictionary with a
text-to-speech voice synthesizer enabling the product to speak words and
definitions.

The Bible

      Franklin's electronic Holy Bible is a hand-held edition of the entire text
of the Bible, which allows for retrieval of text by searches based on single
words, word groups or synonyms. For example, a search for the words "valley" and
"shadow" will retrieve the Twenty-third Psalm. Because of its built-in ability
to conduct full-text word searches, the Franklin Bible is a fully automated
concordance. The Company sells the Bible on its BOOKMAN platform and on cards
designed for use with its BOOKMAN platform. The Company sells both the King
James and the New International versions of the Bible, as well as a children's
version of the Bible, and markets a Bible question-and-answer card. The Company
also sells a speaking version of its King James Bible.

Medical Publications

      The Company develops and markets a broad range of titles for health care
professionals for use on a variety of handheld platforms.


                                       6


      The Pocket PDR(TM) Medical Book System comes with two card slots and a
broad range of titles. The platform uses Franklin's proprietary microprocessor
and has an 8-line screen which is particularly useful when accessing and viewing
drug information monographs. Available book cards for the Pocket PDR(TM) Medical
Book System include the Physicians' Desk Reference, The Merck Manual, The
Washington Manual of Medical Therapeutics, The Medical Letter Handbook of
Adverse Drug Interactions, Harrison's Prinicples of Internal Medicine Companion
Handbook, Stedman's Medical Dictionary and Griffith's Five-Minute Clinical
Consult.

      In the 2001 fiscal year, the Company launched an eBookMan device targeted
towards the healthcare community which is bundled with two leading drug
references on multimedia memory cards (MMC): the 2001 Physicians' Desk Reference
for physicians distributed by Medical Economics, a division of Thomson
Healthcare, and the 2001 American Hospital Formulary Service distributed by the
American Society of Health-System Pharmacists to hospital-based pharmacists.

      The Company's development of certain medical titles for use in a variety
of handheld platforms continued during the 2001 fiscal year. Most titles
available for the Medical Book System were developed for the Palm OS operating
system, both as downloads and as Springboard modules for the Visor platform, as
well as for the Microsoft Windows CE operating systems. The titles are available
for download at franklin.com.

Entertainment Titles

      The Company sells a Crossword Puzzle Solver electronic book which provides
correct spelling for over 250,000 words and phrases from Merriam-Webster's
Official Crossword Puzzle Dictionary for use by word puzzle enthusiasts. The
Company is investigating making certain entertainment titles available for
downloading from its website into a variety of handheld platforms and currently
offers a series of downloadable crossword puzzles for Palm OS compatible
devices.

International Titles

      The Company has developed and produced British English versions of its
American English electronic reference products for international markets,
particularly the United Kingdom and Australia. The Company has monolingual
electronic reference products for the French market and eBook products for the
German-speaking market. The Company has omnibus agreements for publishing
electronic reference products with two major European publishers, Bertelsmann
and Vivendi Universal, under which Franklin has developed titles in hand-held
electronic platforms and ROM cards. Vivendi Universal publishes dictionaries,
thesauruses, encyclopedias and other works under the following well known French
trademarks: Le Robert, Larousse, Nathan, Dalloz, Masson and Bouquins.

      Through a Company subsidiary, Proximity Technology, Inc., the Company
designs linguistic software that performs spelling error detection and
correction, thesaurus and dictionary functions in conjunction with databases of
words in 20 languages and dialects. The Company licenses this software for use
in computers of all sizes, as well as on the Internet.

Electronic Organizers

      In 1997, the Company began to sell a line of organizers and databanks
under the ROLODEX(R) trademark which had been licensed by the Company late in
1996. Since acquiring the ROLODEX(R) Electronics product line, the Company has
updated and improved both low priced databanks, that allow users to store and
retrieve names and telephone numbers, and higher priced and more advanced
personal organizers, that can interface with desktop PCs.


                                       7


Internet Enabled Content and Devices

      The Company offers versions of certain reference works, including the
Physicians' Desk Reference and the Bible, from its website, franklin.com, for
downloading to handheld devices using the Palm OS operating system and Microsoft
Windows CE operating system. The three eBookMan models--EBM-900 (8MB), EBM-901
(8MB with backlit display) and EBM-911 (16MB with backlit display)--feature
large 240x200 pixel displays that display 87% more information than today's most
popular handhelds. Users can adjust the font size or switch the display to
landscape mode for easy reading. All three models use natural handwriting
recognition and include a Franklin eBook Reader, an audio book player, an MP3
compatible music player, an address book, a date book, a to-do book and a memo
book. Available for $129.95, $179.95 and $229.95 respectively, each eBookMan
model is equipped with a USB port for connection to a PC (an optional serial
connection is also available) and features optional memory expansion through
industry standard multimedia memory cards.

      Winner of the inaugural Technology Award from the International eBook
Award Foundation, eBookMan synchronizes with Microsoft Outlook using Intellisync
software from PUMATECH and plays thousands of audio books available from
Audible.com. Users of other popular desktop PIMS, such as Lotus Organizer 5.0
and ACT! 2000, will be able to download optional Intellisync connectors from
franklin.com.

      eBookMan features Franklin's ground-breaking "open but secure"
architecture that protects valuable application programs and digital content.
Developers and publishers now have the world's first open platform to create new
applications and content in an environment protective of both copyright and
revenue.

      A large number of software developers have signed up for Franklin's
Software Developers Kit to take advantage of the secure platform to produce and
distribute games, productivity solutions and other applications. Third party
eBookMan applications are currently available at franklin.com. Book and
periodical publishers are also working with Franklin to leverage eBookMan
technology to distribute their valuable copyright-protected digital content.

RESEARCH AND DEVELOPMENT AND CONTENT ACQUISITION

      The Company has a group of approximately forty-five persons that perform
research and development relating to new electronic products as well as
improvements to existing products. The Company focuses its hardware development
efforts on creating new platforms.

      The Company maintains a full-time internal development group of hardware
and software engineers dedicated to the critical function of developing
proprietary microprocessors and VLSIs that integrate the Company's proprietary
microprocessor or general purpose microprocessors and custom design circuits for
electronic products. Through this extensive effort, the Company is able to
reduce the cost of components for its platforms and cards on an ongoing basis.
The Company regularly engages in programs to redesign its platforms and to
develop new VLSIs for its products. The Company has also contracted for software
development work in Russia, India and the Far East.

MANUFACTURING

      The Company arranges for the assembly of its products by placing purchase
orders with established third-party manufacturers in China, Malaysia and
Thailand. The Company believes that it could locate alternate manufacturers for
its products if any of its current manufacturers is unable, for any reason, to
meet the Company's needs.


                                       8


      The Company designs certain custom integrated circuits, which are
manufactured by third parties for use in the Company's products. Franklin also
creates the mechanical, electronic and product design for its hardware platforms
and designs and owns the tools used in the manufacture of its products. The
Company's electronic products are based on the Company's proprietary
microprocessor or general purpose microprocessors and custom-designed ROM chips
and general purpose static random access memory chips. The Company designs VLSIs
that integrate its proprietary or general purpose microprocessors and
custom-designed circuits in order to reduce the cost of the components in its
platform. In order to minimize the effect of any supplier failing to meet the
Company's needs, the Company generally attempts to source these parts from
multiple manufacturers. In those cases where the Company chooses to use a single
source for economic reasons, alternative suppliers are generally available.

      The Company utilizes its office in Hong Kong to facilitate component
procurement and manufacturing. On-site quality control inspection of electronic
products is conducted by its employees in China, Malaysia and Thailand. The
Company's products are generally shipped at the Company's expense to its
facility in New Jersey, where the Company maintains inspection, quality control,
packaging, warehousing and repair operations for distribution in the United
States, and to similar facilities in Europe and elsewhere for its foreign
operations.

SALES AND MARKETING

      Franklin's products are marketed domestically through the Company's own
sales and marketing force and through independent sales representative
organizations, which are supervised by the Company's internal sales department.

Consumer Sales

      Franklin's products are sold in over 30,000 retail establishments in the
United States. These are comprised of mass market retailers, discount chains,
bookstores, independent electronic stores, department stores and catalog
companies such as The Sharper Image. Consumers can also order products directly
from Franklin by calling 1-800-BOOKMAN or by visiting the Company's website at
franklin.com. The Company sells through several large retail chains, including
Radio Shack, Staples, Office Depot, Target and Best Buy.

      Franklin commonly participates in and provides financial assistance for
its retailers' promotional efforts, such as in-store displays, catalog and
general newspaper advertisements. The Company promotes its products with
advertisements in magazines and newspapers. The Company also promotes its
products at trade shows, including the Consumer Electronics Show, and advertises
in trade magazines.

International Sales

      The Company sells its products worldwide through its wholly-owned, local
subsidiaries and a network of independent distributors. Franklin has
subsidiaries in the United Kingdom, France, Canada, Germany, the Benelux
countries, Mexico and Australia, that market and distribute the Company's
products, including those specifically developed for these markets.

OEM Markets

      The Company produces custom products for third parties. The Company has
developed custom products including the Larousse Copiloto for a Spanish print
encyclopedia publisher as well as a speaking


                                       9


version of the alMawrid, an Arabic-English bilingual dictionary for sale in the
Middle East. The Company continues to pursue opportunities for custom versions
of its products.

PATENTS, TRADEMARKS AND COPYRIGHTS

      The Company owns more than twenty United States utility and design patents
on its electronic reference products and a number of international patents on
its products. The Company actively pursues the acquisition and enforcement of
patent rights and, in furtherance thereof, maintains an ongoing program to apply
for and prosecute patent applications and to enforce its rights in patents that
issue therefrom.

      Franklin owns certain trademark rights, including "Franklin(R)",
"BOOKMAN(R)", "eBookMan", "Spelling Ace(R)", "Wordmaster(R)", "Next Century(R)"
and "Language Master" and has an exclusive license for the mark ROLODEX(R)
Electronics in the United States and various foreign countries.

      Copyrights to certain word lists incorporated in the Company's electronic
books are the property of the Company's licensors. The Company owns copyrights
in certain programs and algorithms used in, as well as the compilations of, its
electronic books.

COMPETITION

      The Company is the market leader for hand-held electronic books. The
Company's main domestic competitor in the electronic book category is Seiko
Instruments USA Inc. ("Seiko"), which markets spelling correctors, thesauruses
and dictionaries. The Company faces various degrees of competition at different
price points in the consumer market. The Company's major competitor, Seiko,
focuses primarily on the modestly-priced end of the market. The Company's main
international competitors are Lexibook, which markets French monolingual
spelling correctors, thesauruses and dictionaries in France, and Hexaglot, which
markets German-centric bilinguals and translators in Germany.

      Competitive factors for electronic reference products are product quality
and reliability, functionality, price, performance, speed of retrieval, quality
of underlying databases, quality of spelling correction, portability, marketing
and distribution capability, service and corporate reputation. The Company
believes it is the leader in respect of each such factor.

      The Company's reference products enjoy a reputation for quality resulting
from their content, hardware design and easy-to-use applications. The Company's
reference products are characterized by their capacity to permit the user to
define the kind of information being sought and to provide information
responsive to the user's request.

      Sharp Electronics, Casio, and Royal are the Company's primary competitors
in electronic organizers. Competitive factors for electronic organizers and
personal computer companion products are size, product quality and reliability,
functionality, price, performance, marketing and distribution capability and
corporate reputation. The Company believes that it competes effectively in the
electronic organizer market in respect of each of these factors.

      A number of prominent electronics manufacturers, including Palm Inc.,
Handspring, Inc., 3Com, Sharp Electronics Corporation, Casio, Royal, Psion, LG
Electronics, Gemstar TV Guide International Group and Hewlett-Packard Company,
market palmtop personal organizer products, personal digital assistants,
electronic books, computer peripherals, or general usage personal computers that
offer varying degrees of electronic reference capabilities and personal
information management functions. Many competitors in this market have greater
capital, research and development, marketing and distribution


                                       10


resources than the Company and there can be no assurance that the Company can
successfully compete in this market.

EMPLOYEES

      As of June 19, 2001, the Company employed approximately 175 persons in the
United States, approximately 25 persons in Asia, and approximately 70 persons in
international sales and marketing subsidiaries. None of the Company's employees
is represented by a union. The Company believes its relations with its employees
are satisfactory.

EXECUTIVE OFFICERS OF THE REGISTRANT

      See Item 10 for information regarding the Company's executive officers.

                                      * * *

      Merriam-Webster's is a trademark of Merriam-Webster, Inc.; Physicians'
Desk Reference and Pocket PDR are trademarks of Medical Economics Data, a
division of Medical Economics Company, Inc.; Palm is a trademark of Palm Inc.;
Windows is a trademark of Microsoft Corporation; Handspring and Visor are
trademarks of Handspring, Inc; and ROLODEX(R) is a registered trademark of Berol
Corporation, a division of Newell Rubbermaid Inc.


                                       11


ITEM 2. PROPERTIES

      The Company owns a 90,000 square foot corporate headquarters in
Burlington, New Jersey. The Company believes this facility will satisfy its
foreseeable needs for office, laboratory and warehousing space.

ITEM 3. LEGAL PROCEEDINGS

      The Company is subject to litigation from time to time arising in the
ordinary course of its business. The Company does not believe that any such
litigation is likely, individually or in the aggregate, to have a material
adverse effect on the financial condition of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE

                                     PART II

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

      The Company's common stock is traded on the American Stock Exchange under
the symbol "FEP." Prior to June 18, 2001, the Company's common stock was traded
on the New York Stock Exchange (the "NYSE"). The following table sets forth the
range of the high and low closing sales prices as reported by the NYSE for the
last two fiscal years:


                                                                     Sales
                                                                     -----
Quarter Ended                                                    High       Low
-------------                                                    ----       ---
June 30, 1999..............................................     7.125     3.1875
September 30, 1999.........................................      6.25       1.25
December 31, 1999..........................................      6.25      2.875
March 31, 2000.............................................      8.25     5.0625

June 30, 2000..............................................       9.5     5.3125
September 30, 2000.........................................    12.375        7.5
December 31, 2000..........................................    11.875       4.25
March 31, 2001.............................................  7.140625       3.00

      As of March 31, 2001, Dr. James H. Simons, the Company's Chairman of the
Board, subscribed for 3,500 shares of the Company's Series A 10% Convertible
Preferred Stock ("Convertible Preferred Stock") in consideration for the payment
of $3,500,000. No placement agent was used in connection with this transaction.
Each share of the Convertible Preferred Stock has a stated value ("Stated
Value") of $1,000.

      The Convertible Preferred Stock may be converted at any time at the
election of the holder thereof. Each share of Convertible Preferred Stock is
initially convertible into that number of shares of common stock as is
determined by dividing the Stated Value by $5 (the "Conversion Price"). At the
current time, the outstanding shares of Convertible Preferred Stock are
convertible into 700,000 shares of common stock. Dr. Simons has agreed not to
convert any shares of the Convertible Preferred Stock unless and until the
Company's shareholders ratify the issuance of the Convertible Preferred Stock as
more fully disclosed in the Company's 2001 Proxy Statement.

      If at any time while the Convertible Preferred Stock is outstanding the
Company sells publicly or privately (i) shares of its common stock (other than
any shares of common stock that may be issued


                                       12


pursuant to the Company's Restricted Stock Plan or any successor thereto or upon
the exercise of any options issued to employees, directors or consultants
theretofore or thereafter granted by the Company), (ii) securities convertible
into shares of its common stock, or (iii) options or warrants (other than
options issued to employees, directors or consultants) to purchase shares of its
common stock or securities convertible into shares of its common stock at a
sale, conversion or exercise price per share, as the case may be, less than the
Conversion Price then in effect, the Conversion Price shall be reset to the
sale, conversion or exercise price per share, as the case may be.

      The approximate number of holders of record of the common stock as of June
8, 2001 was 992.

      The Company has not declared cash dividends on the common stock and does
not have any plans to pay any cash dividends on the common stock in the
foreseeable future. The Board of Directors of the Company anticipates that any
earnings that might be available to pay dividends on the common stock will be
retained to finance the business of the Company and its subsidiaries.


                                       13


ITEM 6. SELECTED FINANCIAL DATA

      The following tables should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto and the "Management's
Discussion and Analysis of Financial Condition and Results of Operation" section
appearing elsewhere herein.



                                                                        Year Ended March 31,
                                           --------------------------------------------------------------------------------
                                               2001            2000            1999             1998              1997
                                           ------------  ---------------  --------------  ----------------   --------------
                                                                                              
STATEMENTS OF OPERATIONS DATA
Sales                                      $     79,966           97,078  $      104,435  $        100,747   $       89,097
Cost of Sales                                    45,568           61,223          81,209            56,866           46,074
                                           ------------  ---------------  --------------  ----------------   --------------

Gross Margin                                     34,398           35,855          23,226            43,881           43,023
                                           ------------  ---------------  --------------  ----------------   --------------

Expenses:
  Sales and marketing                            17,668           21,397          29,570            22,810           18,068
  Research and development                        3,973            4,215           5,740             5,537            5,472
  General and administrative                      9,752           11,746          20,283            12,912            8,534
                                             ----------  ---------------     -----------      ------------      -----------
      Total operating expenses                   31,393           37,358          55,593            41,259           32,074
                                           ------------  ---------------  --------------  ----------------   --------------

Operating Income (Loss)                           3,005           (1,503)        (32,367)            2,622           10,949

  Interest expense                               (1,712)          (3,086)         (3,554)           (3,385)            (775)
  Interest and investment income                    217              355             674             1,883              560
  Other, net                                       (596)          (1,162)           (656)             (590)               -
  Gain on Sale of REX                                -             8,072              -                 -                 -
                                             ----------  ---------------     -----------      ------------      -----------
Income (Loss) Before Income Taxes                   914            2,676         (35,903)              530           10,734
Income Tax  (Benefit) Provision                      -                -           (5,712)             (899)           4,079
                                           ------------  ---------------  --------------  ----------------   --------------

Net Income (Loss)                          $        914            2,676   $     (30,191)  $         1,429   $        6,655
                                           ============  ===============  ==============  ================   ==============

Net Income (Loss) Per Share:
  Basic                                    $       0.12             0.34  $      (3.81)   $           0.18   $         0.83
                                           ============  ===============  ==============  ================   ==============
  Diluted                                  $       0.11             0.34  $      (3.81)   $           0.18   $         0.82
                                           ============  ===============  ==============  ================   ==============

Weighted Average Shares:
  Basic                                           7,922            7,861           7,923             8,069            8,006
                                           ============  ===============  ==============  ================   ==============
  Diluted                                         8,217            7,931           7,923             8,156            8,123
                                           ============  ===============  ==============  ================   ==============




                                                                            At March 31,
                                           --------------------------------------------------------------------------------
                                              2001             2000           1999             1998              1997
                                           ------------  ---------------  --------------  ----------------   --------------
BALANCE SHEET DATA
                                                                                              
Working Capital                            $     26,871   $       20,777  $        4,142  $         74,783   $       77,796
Total Assets                                     80,028           70,060         107,320           136,188          131,055
Long-term Liabilities                            13,947           11,690           1,541            45,089           44,518
Shareholders' Equity                             50,278           46,138          43,045            74,746           73,603



                                       14


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

      Net income for the year ended March 31, 2001 was $.9 million, or $0.12 per
share, compared with net income of $2.7 million, or $.34 per share, in the prior
year. Results for the current year were negatively affected, in part, by a $2.6
million decrease in technology licensing revenue, a $5.4 million decline in
sales of ROLODEX Electronics organizer products, and a $2.2 million decrease in
sales of reference products in the United Kingdom.

      Net income for the year ended March 31, 2000 was $2.7 million, or $0.34
per share, compared with a loss of $30.2 million, or $3.81 per share, in the
prior year. Net income for the year ended March 31, 2000 includes a gain of $8.1
million from the divestiture of the REX product line in September 1999. Results
for the year were negatively affected by first quarter charges of $2.6 million
for price protection and inventory writedowns in connection with the Company's
sale of a third party product, the Rocket eBook, costs of $2.3 million involved
with the transition to new upgraded product lines and a restructuring charge of
$1.1 million which included severance related to a 15% reduction in personnel.


                                       15


RESULTS OF OPERATIONS

The following table summarizes the Company's historical results of operations as
a percentage of sales for fiscal 2001, 2000 and 1999:



                                                                                      Year Ended March 31,
                                                               -----------------------------------------------------------
                                                                        2001                 2000                1999
                                                                   ---------------    -----------------    ----------------
                                                                                                       
Sales:
     Domestic Sales.....................................                  $50,374           $64,075             $ 68,874
     International Sales................................                   29,592            33,003               35,561
                                                                   ---------------    -----------------    ----------------
     Total Sales........................................                  $79,966           $97,078             $104,435
                                                                   ===============    =================    ================

As a Percentage of Total Sales:
     Domestic Sales.....................................                  63.0%                 66.0%               65.9%
     International Sales................................                  37.0                  34.0                 34.1
                                                                   ---------------    -----------------    ----------------
     Sales..............................................                 100.0%                100.0%               100.0%
     Cost of Sales......................................                  57.0                  63.1                 77.8
     Gross Margin.......................................                  43.0                  36.9                 22.2

Expenses:
     Sales and marketing................................                  22.1                  22.0                 28.3
     Research and development...........................                   5.0                   4.3                  5.5
     General and administrative.........................                  12.2                  12.1                 19.4
                                                                   ---------------    -----------------    ----------------
          Total operating expenses......................                  39.3                  38.5                 53.2
                                                                   ---------------    -----------------    ----------------

Operating Income (Loss).................................                   3.8                  (1.5)               (31.0)

     Interest expense...................................                  (2.1)                 (3.2)                (3.4)
     Interest and investment income.....................                   0.3                   0.4                  0.6
     Other, net.........................................                  (0.7)                 (1.2)                (0.6)
     Gain on sale of REX................................                   --                    8.3                  --
                                                                   ---------------    -----------------    ----------------
Income (Loss) Before Income Taxes.......................                   1.1                   2.8                (34.4)
Income Tax (Benefit) Provision..........................                   --                    --                  (5.5)
                                                                   ---------------    -----------------    ----------------

Net Income (Loss).......................................                   1.1%                  2.8%               (28.9)%
                                                                   ===============    =================    ================



                                       16


Year Ended March 31, 2001 Compared With Year ended March 31, 2000

      Sales for the year ended March 31, 2001 were $80 million compared with
sales of $97.1 million in the prior year. During the year ended March 31, 2000
the Company sold its REX product line and discontinued its Rocket eBook product
line, which accounted for sales of $6.1 million and $1.8 million, respectively,
in the year ended March 31, 2000. The decrease in sales from the prior year is
also attributable to a $2.6 million decrease in technology licensing revenue, a
$5.4 million decline in sales of ROLODEX Electronics organizer products, a $2.2
million decrease in sales of reference products in the United Kingdom and a $.7
million decrease in sales by Voice Powered Technology International, Inc.
("VPTI"), the Company's 82% owned subsidiary. In addition, the continuing
weakness in foreign currencies against the US dollar accounted for an
approximately $3.0 million reduction in sales. These decreases were partially
offset by $5.2 million of sales of the eBookMan product line which was
introduced in the fiscal year ended March 31, 2001.

      Gross margin for the year ended March 31, 2001 was $34.4 million, or 43%,
compared with $35.9 million, or 37% in the prior year. The primary reasons for
the gross margin percentage increase for the year ended March 31, 2001 were the
inclusion in the prior year of an inventory writedown and price protection of
$2.6 million in connection with the discontinued Rocket eBook product line and
the incurrence in the prior year of costs associated with the transition to new
upgraded reference and ROLODEX Electronics product lines. In addition, during
the year ended March 31, 2001, lower margin ROLODEX Electronic products
represented 16% of sales compared with 19% of sales in the prior period.

      Total operating expenses decreased from $37.4 million in the year ended
March 31, 2000 to $31.4 million in the year ended March 31, 2001. Sales and
marketing expense decreased by $3.7 million, or 17%, to $17.7 million. The
decrease in sales and marketing expense resulted primarily from a $1.4 million
reduction in expenses that vary directly with sales such as commissions,
allowances and freight, a $1 million reduction in expenses related to
development of the Company's website, and lower personnel expenses of $.7
million.

      Research and development expense in the year ended March 31, 2001
decreased to $4.0 million from $4.2 million in the prior year as a $1.1 million
increase in personnel costs and a $.5 million increase in outside development
costs were offset by the capitalization of $3.0 million (including $2.2 of
capitalized costs relating to the new eBookMan platform) of software development
costs in the year needed March 31, 2001 compared with $1.5 million in the prior
year.

      General and administrative expense decreased by $2 million, or 17%, to
$9.7 million for the year ended March 31, 2001. The reduction in general and
administrative expense was primarily due to a $.9 million decrease in
amortization of deferred computer software and patents, a $.4 million decrease
in accounts receivable provisions and a $.5 million reduction in expenses
incurred by VPTI.

      Interest expense declined from $3.1 million in the year ended March 31,
2000 to $1.7 million for the year ended March 31, 2001 due to lower debt levels
during the 2001 fiscal year. Other, net consists of transaction gains and losses
that arise from exchange rate fluctuations on transactions denominated in a
currency other than the US dollar.

      Because of net operating loss carryforwards, income taxes have been offset
by a reduction in the income tax valuation allowance. (See Note 12).


                                       17


Year Ended March 31, 2000 Compared With Year ended March 31, 1999

      Sales for the year ended March 31, 2000 were $97.1 million compared with
sales of $104.4 million in the prior year. During the year ended March 31, 2000
the Company sold its REX product line, which accounted for sales of $6.1 million
and $15.7 million in the years ended March 31, 2000 and 1999 respectively.
Excluding sales of the REX product from both years, sales increased
approximately $2.2 million, or 2.5% over the prior year. That increase results
from an increase of $4.6 million, or 33%, in sales of ROLODEX Electronics
organizer products and sales of $1.8 million from the Rocket eBook which was
introduced and discontinued in the fiscal year ended March 31, 2000.

      These increases were partially offset by sales decreases of $3.0 million,
or 4%, in reference products and $1.2 million, or 56%, by VPTI.

      Gross margin for the year ended March 31, 2000 was $35.9 million, or 37%,
compared with $23.2 million, or 22% in the prior year. Gross margin in the prior
year was reduced by provisions for inventory obsolescence of $13.5 million.
Excluding the effect of these provisions, fiscal 1999 gross margin was $36.1
million, or 35%.

      Total operating expenses decreased from $55.6 million in the twelve months
ended March 31, 1999 to $37.4 million in the year ended March 31, 2000. Sales
and marketing expense decreased by $8.2 million, or 28%, to $21.4 million. The
decrease was primarily the result of lower advertising expenditures, which fell
from $12.3 million in the 1999 fiscal year to $6.4 million in the 2000 fiscal
year. The higher advertising expenditures in the prior year were primarily
related to the support of the REX product line.

      Research and development expense declined $1.5 million, or 27%, to $4.2
million for the year ended March 31, 2000. The reduction in expense was mainly
the result of reduced staffing levels which resulted from the Company-wide
personnel reduction implemented in the June 1999 quarter.

      General and administrative expense decreased by $8.5 million, or 42%, to
$11.7 million for the year ended March 31, 2000. The prior year's results
included restructuring charges of $2.4 million and an accounts receivable
writedown of $2.3 million. Excluding the effect of these charges, general and
administrative expense declined $3.8 million primarily due to a $1.8 million
reduction in employment related costs as a result of the June 1999 staff
reductions and a $0.5 million reduction in expenses incurred by VPTI.

      Interest expense declined from $3.6 million in the year ended March 31,
1999 to $3.1 million for the twelve months ended March 31, 2000 due to lower
debt levels during the 2000 fiscal year. Other, net consists of transaction
gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the US dollar.

      Because of net operating loss carryforwards, income taxes have been offset
by a reduction in the income tax valuation allowance. (See Note 12).


                                       18


INFLATION AND CURRENCY TRANSACTIONS

      Inflation has had no significant effect on the operations of the Company
for the three years ended March 31, 2001. However, competitive pressures and
market conditions in the future may limit the Company's ability to increase
prices to compensate for general inflation or increases in prices charged by
suppliers.

      The Company's operating results may be affected by fluctuations in
currency exchange rates. The Company did not enter into any hedge transactions
during the year ended March 31, 2000. In the year ended March 31, 2001, the
Company entered into several foreign exchange forward contracts with financial
institutions to limit its exposure to currency fluctuation loss on sales made by
its European subsidiaries.

SEASONALITY

      The Christmas selling season (October, November and December) and the
"back to school" season (mid-August to mid-September) are the strongest selling
periods for the Company's products. The timing of the publication of new books
may also significantly affect revenues and cause quarterly revenues and earnings
fluctuations.

      The following table sets forth unaudited net sales for each of the
Company's last twelve fiscal quarters:



                                              Quarter Ended        Quarter Ended       Quarter Ended      Quarter Ended
                                                 June 30           September 30         December 31          March 31
                                                 -------           ------------         -----------          --------
                                                                        (dollars in thousands)
                                                                                                  
Fiscal 2001...........................            $17,052              $20,511             $22,434            $19,969
Fiscal 2000...........................             19,936               30,445              31,397             15,300
Fiscal 1999...........................             21,174               32,252              34,711             16,298



FUTURE INCOME TAX BENEFITS

      The Company has future income tax benefits of $9.2 million which can be
utilized against future earnings. Further, as a result of the VPTI acquisition,
the Company has additional future income tax benefits of $9.3 million which can
be utilized against future earnings of VPTI. The Company has provided an income
tax valuation allowance of $12.8 million against these tax assets. The remaining
$5.7 million balance represents the amount that the Company believes that it can
reasonably expect to utilize in the foreseeable future.

LIQUIDITY AND CAPITAL RESOURCES

      The Company had cash, cash equivalents and short-term investments of $2.8
million at March 31, 2001 compared with $6.9 million at March 31, 2000. The
decrease of $4.1 million was primarily attributable to the Company's investment
of approximately $18 million in its new eBookMan platform and the repayment of
$2 million of principal of its Senior Notes, partially offset by cash of $12
million generated by its core business and $4.1 million of borrowings under its
secured financing credit facility.

      As of March 31, 2001 the Company had a balance of $10.3 million
outstanding under its Senior Notes. A principal payment of $2.0 million is due
to the noteholders on March 31, 2002.


                                       19


      As of March 31, 2001, Dr. James H. Simons, the Company's Chairman of the
Board, subscribed for 3,500 shares of the Company's Series A 10% Convertible
Preferred Stock ("Convertible Preferred Stock") in consideration for the payment
of $3,500,000. No placement agent was used in connection with this transaction.
Each share of the Convertible Preferred Stock has a stated value ("Stated
Value") of $1,000.

      The Convertible Preferred Stock may be converted at any time at the
election of the holder thereof. Each share of Convertible Preferred Stock is
initially convertible into that number of shares of common stock as is
determined by dividing the Stated Value by $5 (the "Conversion Price"). At the
current time, the outstanding shares of Convertible Preferred Stock are
convertible into 700,000 shares of common stock. Dr. Simons has agreed not to
convert any shares of the Convertible Preferred Stock unless and until the
Company's shareholders ratify the issuance of the Convertible Preferred Stock as
more fully disclosed in the Company's 2001 Proxy Statement.

      If at any time while the Convertible Preferred Stock is outstanding the
Company sells publicly or privately (i) shares of its common stock (other than
any shares of common stock that may be issued pursuant to the Company's
Restricted Stock Plan or any successor thereto or upon the exercise of any
options theretofore or thereafter granted by the Company to employees, directors
or consultants), (ii) securities convertible into shares of its common stock, or
(iii) options or warrants (other than options issued to employees, directors or
consultants) to purchase shares of its common stock or securities convertible
into shares of its common stock at a sale, conversion or exercise price per
share, as the case may be, less than the Conversion Price then in effect, the
Conversion Price shall be reset to the sale, conversion or exercise price per
share, as the case may be.

      In December 1999, the Company entered into a $25 million secured financing
facility which expires on December 7, 2002. Borrowings under the facility bear
interest at the bank's prime rate plus 3/8% and are subject to certain financial
covenants and restrictions on indebtedness, dividend payments, business
combinations, and other related items. As of March 31 2001, the Company had $4.1
million of borrowings under this facility.

      Management believes that cash flow from operations and the secured
financing facility will be adequate to provide for the Company's liquidity and
capital needs for the foreseeable future.

      The Company has no material commitments for capital expenditures in the
next twenty-four months.


                                       20


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          FRANKLIN ELECTRONIC PUBLISHERS, INCPORORATED AND SUBSIDIARIES

                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----
INDEPENDENT AUDITOR'S REPORT..................................................22
CONSOLIDATED STATEMENTS OF OPERATIONS
  Years ended March 31, 2001, 2000 and 1999...................................23
CONSOLIDATED BALANCE SHEETS
  March 31, 2001 and 2000.....................................................24
CONSOLIDATED STATEMENTS OF CASH FLOWS
  Years ended March 31, 2001, 2000 and 1999...................................25
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
  Years ended March 31, 2001, 2000 and 1999...................................26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Years ended March 31, 2001, 2000 and 1999...................................27


                                       21


                          INDEPENDENT AUDITORS' REPORT

Shareholders and Directors of
Franklin Electronic Publishers, Incorporated
Burlington, New Jersey 08016

      We have audited the accompanying balance sheets of Franklin Electronic
Publishers, Incorporated and subsidiaries as of March 31, 2001 and March 31,
2000 and the related consolidated statements of operations, shareholders' equity
and cash flows for each of the three years ended March 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Franklin Electronic
Publishers, Incorporated and subsidiaries as of March 31, 2001 and March 31,
2000, and the results of its operations and cash flows for each of the three
years ended March 31, 2001 in conformity with accounting principles generally
accepted in the United States.


                                       RADIN, GLASS & CO., LLP
                                       Certified Public Accountants

New York, New York
May 15, 2001


                                       22


                  FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                    (in thousands, except for per share data)

                                              Year Ended March 31,
                                     -----------------------------------
                                       2001         2000          1999
                                     --------     --------     ---------

SALES                                $ 79,966     $ 97,078     $ 104,435
COST OF SALES                          45,568       61,223        81,209
                                     --------     --------     ---------

GROSS MARGIN                           34,398       35,855        23,226
                                     --------     --------     ---------

EXPENSES:
   Sales and marketing                 17,668       21,397        29,570
   Research and development             3,973        4,215         5,740
   General and administrative           9,752       11,746        20,283
                                     --------     --------     ---------
      Total operating expenses         31,393       37,358        55,593
                                     --------     --------     ---------

OPERATING INCOME (LOSS)                 3,005       (1,503)      (32,367)

   Interest expense                    (1,712)      (3,086)       (3,554)
   Interest and investment income         355          674           217
   Other, net                            (596)      (1,162)         (656)
   Gain on Sale of REX                     --        8,072            --
                                     --------     --------     ---------
INCOME (LOSS) BEFORE INCOME TAXES         914        2,676       (35,903)
INCOME TAX  (BENEFIT) PROVISION            --           --        (5,712)
                                     --------     --------     ---------
NET INCOME (LOSS)                    $    914     $  2,676     $ (30,191)
                                     ========     ========     =========
NET INCOME (LOSS) PER SHARE:
   Basic                             $   0.12     $   0.34     $   (3.81)
                                     ========     ========     =========
   Diluted                           $   0.11     $   0.34     $   (3.81)
                                     ========     ========     =========
WEIGHTED AVERAGE SHARES:
   Basic                                7,922        7,861         7,923
                                     ========     ========     =========
   Diluted                              8,217        7,931         7,923
                                     ========     ========     =========


                See notes to consolidated financial statements.


                                       23


                  FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)


                                                                                                         March 31,
                                                                                                   ---------------------
                                                                                                     2001         2000
                                                                                                   --------     --------
                                                                                                          
                                             ASSETS
CURRENT ASSETS:
                 Cash and cash equivalents (Note 3)                                                $  2,835     $  6,899
                 Accounts receivable, less allowance for doubtful accounts of $1,161 and $850        12,094       10,889
                 Preferred stock subscriptions receivable                                             3,500           --
                 Inventories (Note 4)                                                                20,879       13,735
                 Income tax receivable                                                                  568          568
                 Prepaids and other assets                                                            2,798          918
                                                                                                   --------     --------
                 TOTAL CURRENT ASSETS                                                                42,674       33,009
                                                                                                   --------     --------

PROPERTY AND EQUIPMENT (Note 5)                                                                       7,651        7,797
                                                                                                   --------     --------

OTHER ASSETS:

                 Deferred income tax asset (Note 13)                                                  5,700        5,700
                 Trademark, less accumulated amortization of $1,749 and $1,360 (Note 9)              13,798       14,187
                 Advance royalties and licenses                                                       1,341        1,266
                 Software development costs                                                           5,878        4,482
                 Other assets                                                                         2,986        3,619
                                                                                                   --------     --------
                 TOTAL OTHER ASSETS                                                                  29,703       29,254
                                                                                                   --------     --------

                 TOTAL ASSETS                                                                      $ 80,028     $ 70,060
                                                                                                   ========     ========

                              LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
                 Accounts payable and accrued expenses (Note 6)                                    $ 13,647     $ 10,076
                 Notes payable (Note 7)                                                               2,000        2,000
                 Current portion of long-term liabilities - Other                                       156          156
                                                                                                   --------     --------
                 TOTAL CURRENT LIABILITIES                                                           15,803       12,232
                                                                                                   --------     --------

LONG-TERM LIABILITIES (Note 7):
                 Notes payable                                                                        8,329       10,150
                 Revolving credit facility                                                            4,064           --
                 Other liabilities                                                                    1,554        1,540
                                                                                                   --------     --------
                 TOTAL LONG-TERM LIABILITIES                                                         13,947       11,690
                                                                                                   --------     --------

SHAREHOLDERS' EQUITY (Note 11):
                 Preferred stock, $2.50 par value, authorized 10,000,000 shares, none issued or         --            --
                 outstanding
               - Preferred stock subscribed                                                           3,500           --
                 Common stock, no par value, authorized 50,000,000 shares, issued and                49,658       49,138
                 outstanding, 7,952,882 and 7,914,940 shares
                 Retained earnings (deficit)                                                         (1,352)      (2,266)
                 Foreign currency translation adjustment (Note 12)                                   (1,528)        (734)
                                                                                                                --------
                 TOTAL SHAREHOLDERS' EQUITY                                                          50,278       46,138
                                                                                                   --------     --------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                         $ 80,028     $ 70,060
                                                                                                   ========     ========


                See notes to consolidated financial statements.


                                       24


                  FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
                                AND SUBSIDIARIES
                       CONSOLIDATED STATEMENT OF CASH FLOW
                                 (in thousands)



                                                                                                 Year Ended March 31,
                                                                                          ----------------------------------
                                                                                            2001         2000         1999
                                                                                          --------     --------     --------
                                                                                                           
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS)                                                                         $    914     $  2,676     $(30,191)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
                 Depreciation and amortization                                               5,228        6,092        5,704
                 Non-cash interest expense                                                     180          150           --
                 Provision for losses on accounts receivable                                   201          739        2,481
                 Provision for inventory revaluation                                            --        2,350       13,490
                 Write-down of carrying value of royalties & other assets                                    --        6,159
                 Loss on disposal of property and equipment                                      5           60          299
                 Stock issued for services                                                     255           75          306
                 Gain on sale of REX                                                            --       (8,072)          --
                 Deferred income taxes                                                          --           --       (1,280)
                 Source (use) of cash from change in operating assets and liabilities:
                  Accounts receivable                                                       (1,407)       5,597       (3,138)
                  Inventories                                                               (7,145)       3,074       (2,731)
                  Prepaids and other assets                                                 (1,806)       4,694       (1,439)
                  Accounts payable and accrued expenses                                      3,572       (8,012)       3,184
                 Other, net                                                                     (4)         678          (45)
                                                                                          --------     --------     --------
                 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                            (7)      10,101       (7,201)

CASH FLOWS FROM INVESTING ACTIVITIES:
                 Purchase of property and equipment                                         (1,735)      (1,203)      (1,458)
                 Proceeds from sale of property and equipment                                   --           33          107
                 Software development costs                                                 (3,052)      (1,500)      (1,925)
                 Proceeds from sale of REX line                                                 --       12,619           --
                 Investments in limited partnerships                                            --           --       (6,000)
                 Redemption of investments in limited partnerships                              --        6,045           --
                 Change in other assets                                                       (798)        (842)      (2,360)
                                                                                          --------     --------     --------
                 NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                        (5,585)      15,152      (11,636)

CASH FLOWS FROM FINANCING ACTIVITIES:
                 Principal payments of mortgage                                                 --       (3,479)        (284)
                 Principal payments of Senior Notes                                         (2,000)     (28,000)          --
                 Proceeds from revolving credit facility                                     4,064
                 Proceeds from issuance of common shares                                       244          154          274
                 Purchase of common shares                                                      --           --       (2,332)
                 Other liabilities                                                              14           38          (69)
                                                                                          --------     --------     --------
                 NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                         2,322      (31,287)      (2,411)
EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                       (794)          63          195
                                                                                          --------     --------     --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                            (4,064)      (5,971)     (21,053)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                             6,899       12,870       33,923
                                                                                          --------     --------     --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                $  2,835     $  6,899     $ 12,870
                                                                                          ========     ========     ========

SUPPLEMENTAL DATA:
                 Cash paid during the year:
                  Income taxes                                                            $     20     $ (3,077)    $ (2,100)
                  Interest                                                                $  1,532     $  2,674     $  3,429


                See notes to consolidated financial statements.


                                       25


                  FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                      (in thousands, except for share data)



                                                                                                   Accumulated
                                          Common Stock         Preferred Stock                       Other         Total
                                     ---------------------   -------------------       Retained  Comprehensive Shareholders'
                                     Shares         Amount   Shares       Amount       Earnings      Income*       Equity
                                     ------         ------   ------       ------       --------      -------       ------
                                                                                          
BALANCE - MARCH 31, 1998             8,072,026     $ 50,489                          $ 25,249     $   (992)    $ 74,746
 Issuance of common shares under
 employee stock option plan             29,877          274                                --           --          274
 Issuance of shares and
 amortization of deferred                5,052           47                                                          47
 compensation expense for shares
 issued for services (unearned
 portion $8)                                                                               --           --           47
 Value of stock options granted                         306                                --           --          306
 Purchase and retirement of
 common shares.                       (274,000)      (2,332)                               --           --       (2,332)
 Loss for the period                        --           --                           (30,191)          --      (30,191)
 Foreign currency translation
 adjustment                                 --           --                                --          195          195
                                    ----------     --------     -----    --------    --------     --------     --------
BALANCE - MARCH 31, 1999
                                     7,832,955       48,784        --          --      (4,942)        (797)      43,045
                                    ==========     ========     =====    ========    ========     ========     ========
 Issuance of common shares under
 employee stock option plan             40,259          153                                --           --          153
 Issuance of shares and
 amortization of deferred
 compensation expense for shares
 issued for services (unearned
 portion $47)                           19,250           16                                --           --           16
 Value of stock options granted             --           75                                --           --           75
 Shares issued under banked
 vacation stock plan                    22,476          110                                --           --          110
 Income for the period                      --           --                             2,676           --        2,676
 Foreign currency translation
 adjustment                                 --           --                                --           63           63
                                    ----------     --------     -----    --------    --------     --------     --------
BALANCE - MARCH 31, 2000
                                     7,914,940       49,138        --          --      (2,266)        (734)      46,138
                                    ==========     ========     =====    ========    ========     ========     ========
 Issuance of common shares under
 employee stock option plan             37,942          244                                --           --          244
 Issuance of shares and
 amortization of deferred                   --           21                                --           --           21
 compensation expense for shares
 issued for services (unearned
 portion $26)
 Value of stock options granted             --          255                                --           --          255
 Preferred stock subscribed                                     3,500       3,500                                 3.500
 Income for the period                      --           --                               914           --          914
 Foreign currency translation
 adjustment                                 --           --                                --         (794)        (794)
                                    ----------     --------     -----    --------    --------     --------     --------
BALANCE - MARCH 31, 2001             7,952,882     $ 49,658     3,500    $  3,500    $ (1,352)    $ (1,528)    $ 50,278
                                    ==========     ========     =====    ========    ========     ========     ========



*     Comprehensive income, i.e., net income (loss), plus, or less, other
      comprehensive income, totaled $120 in 2001, $2,739 in 2000, and $(29,996)
      in 1999.


                See notes to consolidated financial statements.


                                       26

          FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (In thousands, except share and per share data)

1. LINE OF BUSINESS

      Franklin Electronic Publishers, Incorporated and its wholly-owned
subsidiaries (the "Company") design, develop, publish, and distribute handheld
electronic information products, such as electronic books (sometimes known as
eBooks), organizer products and related software. Other activities represent
less than 10% of sales, operating income and identifiable assets.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

      The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, after elimination of intercompany accounts
and transactions. 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 amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Inventories

      Inventories are valued at the lower of cost or market determined by the
first-in, first-out method of accounting.

Property and Equipment

      Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets, ranging from
three to five years for furniture, equipment, tooling and computer software
purchased and 40 years for building and improvements.

      Leasehold improvements are amortized over the term of the lease or the
estimated life of the improvement, whichever is shorter. When assets are sold or
retired, their cost and related accumulated depreciation are removed from the
appropriate accounts. Any gains or losses on dispositions are recorded in
current operations. Maintenance and minor repairs are charged to operations as
incurred.

Trademark and Goodwill

      Trademark and Goodwill are recorded at cost. The ROLODEX Electronics
trademark is being amortized over a 40-year period. Goodwill of purchased
businesses is being amortized over a 10 to 30-year period.


                                       27


          FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued

Right of Return and Refurbishing Costs

      The Company provides an allowance for estimated returns on sales in
accordance with Statement of Financial Accounting Standard (SFAS) No. 48,
"Revenue Recognition when Right of Return Exists." The Company's sales are made
with the right of exchange for defective products within one year from the
original retail purchase. The Company provides for the cost of refurbishing such
products.

Price Protection

      The Company maintains a policy of providing price protection to its
dealers under which the Company issues credits in the event it reduces its
prices. These credits are generally computed by multiplying either the number of
units purchased within ninety days prior to the price reduction or the number of
units on hand at retail at the time of the price reduction by the dollar amount
of the price reduction. A provision for the related reduction in sales is made
at such time as the Company determines that a price reduction will be effective
or is reasonably anticipated.

Software Development Costs

      The capitalization of such costs and the related amortization is in
accordance with SFAS No. 86. "Accounting for the Costs of Computer Software to
Be Sold, Leased, or Otherwise Marketed." Software costs, which are capitalized
after technological feasibility is established, totaled $3,052, $1,500 and
$1,925 for the fiscal years ended March 31, 2001, 2000, and 1999, respectively.

      Amortization included in the accompanying Consolidated Statement of
Operations for fiscal years ended March 31, 2001, 2000, and 1999, was $2,025,
$1,989 and $1,947, respectively.

Advertising Costs

      Advertising costs are expensed as incurred except for direct response
advertising, the costs of which are deferred and amortized over the period the
related sales are recorded.

Fair Value of Financial Instruments

      The carrying amounts reported in the balance sheet for cash, trade
receivables, accounts payable and accrued expenses approximate fair value based
on the short-term maturity of these instruments. The carrying amount of the
Company's borrowings under the Senior Notes approximates fair value.

Foreign Currency Translation

      Unrealized gains and losses resulting from translating foreign
subsidiaries' assets and liabilities into U.S. dollars are deferred in an equity
account on the balance sheet until such time as the subsidiary is sold or
liquidated.


                                       28


          FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued

      As of March 31, 2001 the Company had three outstanding foreign exchange
contracts entered into with financial institutions to limit its exposure to
loss, resulting from fluctuations in the value of the Euro. The market value of
these contracts was $74 on March 31, 2001 and a gain for the same amount was
included in net income for the period. The duration of these contracts does not
exceed one year. As of March 31, 2000 the Company had no outstanding foreign
exchange contracts.

Accounting for Long-Lived Assets

      In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company
reviews long-lived assets, certain identifiable assets and any goodwill related
to those assets for impairment whenever circumstances and situations change such
that there is an indication that the carrying amounts may not be recoverable. At
March 31, 2001, the Company believes that there has been no impairment of its
long-lived assets.

Income Taxes

      The Company utilizes the liability method of accounting for income taxes
as set forth in SFAS No. 109, "Accounting for Income Taxes". Under the liability
method, deferred taxes are determined based on the difference between the
financial statement and tax basis of assets and liabilities using tax rates in
effect in the years in which the differences are expected to reverse.

Earnings (Loss) Per Share

      In accordance with SFAS No. 128, "Earnings per Share," earnings per common
share are computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding during the period. The
earnings per common share, assuming dilution, computation gives effect to all
dilutive potential common shares during the period. The computation assumes that
the outstanding stock options and warrants were exercised and that the proceeds
were used to purchase common shares of the Company.

Stock Based Compensation:

      The Company accounts for stock transactions in accordance with APB Opinion
No. 25, "Accounting For Stock Issued To Employees." Accordingly, no compensation
is recorded on the issuance of employee stock options at fair market value.

Reclassifications

      Certain reclassifications have been made to the prior years' financial
statements to conform to the current year presentation. These reclassifications
had no effect on previously reported results of operations or retained earnings.


                                       29


          FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

3. CASH AND CASH EQUIVALENTS

      The Company classifies as cash equivalents highly liquid investments with
maturities of less than ninety days totaling $2,133 and $5,472 at March 31, 2001
and 2000, respectively.

4. INVENTORIES

      Inventories consist of the following:



                                                                                       March 31,
                                                                         --------------------------------------
                                                                               2001                 2000
                                                                         -----------------    -----------------
                                                                                             
Finished products                                                            $16,033               $10,432
Component parts                                                                4,846                 3,303
                                                                         -----------------    -----------------
                                                                             $20,879               $13,735
                                                                         =================    =================


5. PROPERTY AND EQUIPMENT

      Property and equipment consist of the following:



                                                                                       March 31,
                                                                         --------------------------------------
                                                                              2001                  2000
                                                                         ----------------     -----------------
                                                                                            
Land                                                                          $   843             $    843
Building and improvements                                                       5,599                5,661
Furniture and equipment                                                         7,040                6,472
Tooling                                                                         5,766                5,352
Computer software purchased                                                     2,366                2,249
                                                                         ----------------     -----------------
                                                                               21,614               20,577
Accumulated depreciation and amortization                                      13,963               12,780
                                                                         ----------------     -----------------
                                                                              $ 7,651             $  7,797
                                                                         ================     =================


6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

      Accounts payable and accrued expenses consist of the following:



                                                                                       March 31,
                                                                         --------------------------------------
                                                                               2001                 2000
                                                                         -----------------    -----------------
                                                                                               
Trade accounts payable                                                         $ 7,125               $  4,330
Accrued payroll, bonus, payroll benefits and taxes                               1,811                  1,866
Accrued restructuring costs                                                         37                    143
Accrued sales allowances                                                         1,553                  1,797
Accrued royalties                                                                  555                    536
Accrued expenses - other                                                         2,566                  1,404
                                                                         -----------------    -----------------
                                                                               $13,647                $10,076
                                                                         =================    =================



                                       30


          FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

7. LONG-TERM LIABILITIES

      Long-term liabilities consist of the following:



                                                                                       March 31,
                                                                         --------------------------------------
                                                                               2001                 2000
                                                                         -----------------    -----------------
                                                                                                 
    Senior Notes payable                                                          $10,329              $12,150
    Revolving credit facility                                                       4,064                   --
    Other                                                                           1,710                1,696
                                                                         -----------------    -----------------
                                                                                   16,103               13,846
    Less current portion                                                            2,156                2,156
                                                                         -----------------    -----------------
                                                                                  $13,947              $11,690
                                                                         =================    =================


      During the year ended March 31, 1997, the Company sold $40,000 of 10-year
promissory notes (the "Senior Notes") to institutional investors. The Senior
Note agreement contains normal financial covenants, including a restriction on
dividends and other restricted payments, subject to adjustments for earnings and
sales of common stock. The Senior Note agreement also contains a prepayment
penalty and a provision for repurchase should there be a change of control.

      Because of a default in certain of the financial covenants, the Senior
Note agreement was restructured in December 1999 to allow the Company to
continue to operate under the agreement without default. Under the amended
agreement, the Senior Notes carry an interest rate of 11% per annum and
additional interest (the payment in kind portion) at a rate of 1.5% per annum
payable in cash, or in lieu of cash and at the Company's option, through the
issuance of additional notes. Principal payments of $2,000 and $28,000 were made
on the Senior Notes during the years ended March 31, 2001 and 2000,
respectively. As of March 31, 2001 the outstanding balance was $10,329, which
includes $329 of additional notes issued in lieu of cash for a portion of the
interest due under the amended agreement. Principal payments of $2,000 are due
on March 31 of each of the years 2002 through 2005 with the balance of $2,329
due March 31, 2006.

      During the year ended March 31, 1997, the Company obtained a $4,260
mortgage on its facility in Burlington, New Jersey. The entire balance of this
mortgage was repaid during the year ended March 31, 2000.

      In December 1999, the Company entered into a $25,000 secured financing
facility which expires on December 7, 2002. Borrowings under the facility bear
interest at the bank's prime rate (8% at March 31, 2001) plus 3/8% and are
subject to certain financial covenants and restrictions on indebtedness,
dividend payments, business combinations, and other related items. As of March
31, 2001 no amounts were available for paying dividends. Borrowings are
collateralized by substantially all assets of the Company. As of March 31 2001
the Company had an outstanding balance of $4,064 under the facility and is in
compliance with all covenants.

      The maturities of long-term liabilities for the five years after March 31,
2001 are as follows:



                             Years Ending March 31,
---------------------------------------------------------------------------------
                                                                 
2002                $2,159                                2005            $2,119
2003                $2,128                                2006            $2,448
2004                $2,119



                                       31


          FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

8. ADVERTISING AND MEDIA COSTS

      Advertising costs for the years ended March 31, 2001, 2000 and 1999 were
$5,725, $6,412 and $12,256, respectively. Deferrals of direct response
advertising were not material.

9. COMMITMENTS

Lease Commitments

      Rent expense under all operating leases was $866, $1,111 and $1,180 for
the years ended March 31, 2001, 2000 and 1999, respectively. The future minimum
rental payments to be made under non-cancellable operating leases, principally
for facilities, as of March 31, 2001 were as follows:

                             Years Ending March 31,
--------------------------------------------------------------------------------
2002                $530                                  2005              $179
2003                $371                                  2006              $177
2004                $231

Royalty Agreements

      The Company acquires the rights to reference works and databases from
various publishers and technology companies under renewable contracts of varying
terms. Royalties and license fees are based on a per unit charge or as a
percentage of revenue from products utilizing such databases or software
licenses.

Litigation

      The Company is subject to litigation from time to time arising in the
ordinary course of its business. The Company does not believe that any such
litigation is likely, individually or in the aggregate, to have a material
adverse effect on the financial condition of the Company.

10. SHAREHOLDERS' EQUITY

Restricted Stock Plan and Unearned Portion of Common Stock Issued for Services

      The Company maintains a Restricted Stock Plan which provides for the grant
of shares of common stock for services. The shares are subject to a restriction
on transfer which requires the holder to remain employed by the Company for up
to three years in order to receive the shares. As of March 31, 2001, under the
Plan, 5,050 shares of common stock were available for distribution by the Board
of Directors.

Employee Stock Options

      Under the 1998 Plan, 1,500,000 shares of common stock have been reserved
for issuance. The Plan authorizes the Company to grant options to purchase
shares of common stock to key employees, consultants and outside directors of
the Company.


                                       32


          FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

10. SHAREHOLDERS' EQUITY-Continued

      The Plan provides for granting of options to purchase shares of common
stock at not less than the fair market value on the date of grant for incentive
stock options and at not less than 75% of the fair market value on the date of
grant for non-incentive stock options. An option may not be granted for a period
in excess of ten years from the date of grant. Options are not transferable by
the optionee other than upon death.

      Under the terms of the Plan, an employee may deliver shares of common
stock as payment for options being exercised. The shares are valued at the
closing price on the date of exercise.

      During the year ended March 31, 2001 the company granted 74,500 options to
persons performing consulting services for the company. The options were valued
at a total of $437 using the Black-Scholes option-pricing model with the expense
being amortized over the vesting period of the options. The current year's
results of operations include $224 of expense related to these options.

      During the year ended March 31, 1999, the Company granted the former
President of the Company 35,000 options at a price less than the market price of
the common stock on the grant date. These options are included in the
computation of weighted-average fair value of stock options granted during the
year ended March 31, 1999. The Company has also recorded the excess of market
price over option price of $306 at date of grant as compensation expense for the
year ended March 31, 1999.

Accounting for Employee Stock Options

      The Company accounts for its stock option plan under APB Opinion No. 25,
"Accounting for Stock Issued to Employees", under which no compensation expense
is recognized. In fiscal 1997, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation", for disclosure purposes; accordingly, no compensation
expense is recognized for options granted at fair market value in the results of
operations for its stock option plan as required by APB Opinion No. 25.

      For disclosure purposes, the fair value of each stock option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for stock options granted during
the years ended March 31, 2001, 2000, and 1999, respectively: annual dividends
of $0.00 for all years, expected volatility of 110.8%, 116.0% and 55.0%,
risk-free interest rate of 5.8%, 5.8% and 5.6% and expected life of five years
for all grants. The number of shares granted, the weighted-average exercise
price and weighted average fair value of the stock options granted during the
years ended March 31, 2001, 2000, and 1999 was as follows:



                                                          Number of
                                                            Shares          Weighted-Average    Weighted-Average
                                                           Granted           Exercise Price        Fair Value
                                                       ----------------------------------------------------------
                                                                                                   
Year ended March 31, 1999:
  Exercise price equals market value                             681,000                $10.24              $5.08
  Exercise price less than market value                           35,000                 $3.50              $9.91
                                                       -----------------   -------------------  -----------------
                                                                 716,000                 $9.91              $5.32
                                                       =================   ===================  =================



                                       33


          FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

10. SHAREHOLDERS' EQUITY-Continued


                                                                                                   
Year ended March 31, 2000:
     Exercise price equals market value                          217,000                 $5.71              $4.75
     Exercise price greater than market value                    489,000                 $4.00              $2.38
     Exercise price less than market value                        27,000                 $5.69              $4.95
                                                       -----------------   -------------------  -----------------
                                                                 733,000                 $4.57              $3.17
                                                       =================   ===================  =================

Year ended March 31, 2001:
     Exercise price equals market value                          554,354                 $7.35              $6.07
     Exercise price greater than market value                     84,000                 $8.50              $4.26
     Exercise price less than market value                        25,000                 $6.81              $8.70
                                                       -----------------   -------------------  -----------------
                                                                 663,354                 $7.47              $5.94
                                                       =================   ===================  =================


      If the Company recognized compensation cost for the employee stock option
plan in accordance with SFAS No. 123, the Company's pro-forma net income (loss)
and earnings (loss) per share would have been $(0.2) million and $(0.02) in
2001, $1.5 million and $0.19 in 2000, and $(32.0) million and $(4.06) in 1999.
The SFAS No. 123 method of accounting does not apply to options granted prior to
March 31, 1995 and, accordingly, the resulting pro-forma compensation cost may
not be representative of that to be expected in future years.

      The following table summarizes the changes in options outstanding and the
related price ranges for shares of common stock:



                                                                                          Stock Options
                                                                          -----------------------------------------------
                                                                                 Shares              Weighted Average
                                                                                                      Exercise Price
                                                                          ---------------------    ----------------------
                                                                                                             
     Outstanding at March 31, 1998                                                   1,014,474                     13.21
         Granted                                                                       716,000                      9.89
         Exercised                                                                    (29,877)                      9.19
         Expired or cancelled                                                        (110,867)                     13.40
                                                                          ---------------------
     Outstanding at March 31, 1999                                                   1,589,730                     15.13
         Granted                                                                       733,000                      4.57
         Exercised                                                                    (40,259)                      3.81
         Expired or cancelled                                                        (553,763)                     20.24
                                                                          ---------------------
     Outstanding at March 31, 2000                                                   1,728,708                      9.28
         Granted                                                                       663,354                      7.47
         Exercised                                                                    (37,942)                      7.08
         Expired or cancelled                                                        (227,275)                     10.74
                                                                          ---------------------
     Outstanding at March 31, 2001                                                   2,126,845                      8.60
                                                                          =====================



                                       34


          FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

10. SHAREHOLDERS' EQUITY-Continued

      The following table summarizes information about stock options outstanding
at March 31, 2001:



                                              Options Outstanding                                  Options Exercisable
                           -----------------------------------------------------------      -----------------------------------
                                               Weighted Average           Weighted                                Weighted
  Range of Exercise            Number              Remaining              Average              Number              Average
        Prices              Outstanding        Contractual Life        Exercise Price       Exercisable        Exercise Price
-----------------------    ---------------    --------------------    -----------------    ---------------     ----------------
                                                                                                    
$     3.00 - $4.00                424,000            7.95                  $ 3.98                 119,000          $  3.92
      4.75 - 7.00                 347,415            7.85                    5.76                  94,277             5.97
      7.50 - 8.50                 557,950            8.88                    7.69                 134,500             7.74
      8.75 - 11.81                372,015            5.60                   10.10                 292,999            10.30
     12.25 - 31.63                425,465            3.36                   15.40                 425,465            15.40
                           ---------------                                                 ---------------
$  3.00 -$31.63                 2,126,845                                                       1,066,241
                           ===============                                                 ===============


      Options exercisable and the weighted average exercise price at March 31,
2000 and March 31, 1999 were 927,042 options and $12.44, and 723,691 options and
$13.15, respectively.

      Effective March 31, 2001 the Chairman of Franklin's Board of Directors,
Dr. James H. Simons, subscribed for 3500 shares of the Company's Series A 10%
Convertible Preferred Stock in consideration for the payment of $3,500. The
preferred shares are convertible into common stock at a conversion price of
$5.00 per share and bear interest at the rate of 10% per year, payable in
additional shares of the Convertible Preferred Stock every six months. Payment
for the subscribed shares was received by the Company in April 2001.

11. FREIGHT BILLED

      The Company adopted EITF 00-10, "Accounting for Shipping and Handling Fees
and Costs," in the fourth quarter of fiscal 2001 and has restated all
comparative prior period financial statements. Under its provisions, amounts
billed to a customer in a sale transaction related to shipping and handling
represent revenue earned for the goods provided and should be classified as
sales revenue. Shipping and handling charges billed to customers are now
recorded as part of total revenue. Previously, all shipping and handling revenue
was netted within sales and marketing expense. The amounts reclassified for
shipping and handling revenue totaled $567, $656 and $642 for fiscal years ended
March 31, 2001, 2000 and 1999, respectively. The reclassification has no impact
on net income, but does have an impact on revenue, gross margin and sales and
marketing expense. Shipping and handling costs continue to be classified as part
of sales and marketing expense and were $1,528, $1,584 and $1,573 for fiscal
years ended March 31, 2001, 2000 and 1999, respectively.


                                       35


          FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

12. INCOME TAXES

      The components of the net deferred income tax asset are the following:



                                                                                       March 31,
                                                                         --------------------------------------
                                                                               2001                 2000
                                                                         -----------------    -----------------
                                                                                                 
    US loss carryforward - Franklin                                               $ 7,385              $ 8,150
    US loss carryforward - VPTI                                                     9,284                9,284
    Foreign loss carryforward                                                         217                  237
    Inventory valuation allowances                                                  2,570                1,050
    Other items (taxable) deductible in future years - net                          (924)                  172
                                                                         -----------------    -----------------
                                                                                   18,532               18,893
    Deferred income tax valuation allowance                                        12,832               13,193
                                                                         -----------------    -----------------
                                                                                  $ 5,700              $ 5,700
                                                                         =================    =================


      Deferred income taxes result from temporary differences between income tax
and financial reporting computed at the effective income tax rate. A valuation
allowance has been provided to reduce the deferred income tax asset to the
amount which is expected more likely than not to be realized.

      The loss carryforward of Voice Powered Technology International, Inc.
("VPTI") can be offset against future taxable income of VPTI and of Franklin
under certain circumstances. The deferred asset relating to VPTI's loss
carryforward has been offset by a valuation allowance.

      The income tax provision (credit) consists of the following:



                                                                         Year Ended March 31,
                                                      -----------------------------------------------------------
                                                            2001                 2000                 1999
                                                      -----------------    -----------------    -----------------
                                                                                               
Current
    Federal                                                         --                   --             $(3,383)
    State                                                           --                   --                   --
    Foreign                                                         --                   --                   --
                                                      -----------------    -----------------    -----------------
                                                                    --                   --              (3,383)
                                                      -----------------    -----------------    -----------------
Deferred
    Federal                                                         --                   --              (2,171)
    State                                                           --                   --                (158)
    Foreign                                                         --                   --                   --
                                                      -----------------    -----------------    -----------------
                                                                    --                   --              (2,329)
                                                      -----------------    -----------------    -----------------
Provision (benefit) for income taxes                                --                   --             $(5,712)
                                                      =================    =================    =================


      The reconciliation of income taxes shown in the financial statements and
amounts computed by applying the Federal income tax rate of 35% for the years
ended March 31, 2001, 2000 and 1999 is as follows:


                                       36


          FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

12. INCOME TAXES -Continued



                                                                         Year Ended March 31,
                                                      -----------------------------------------------------------
                                                            2001                 2000                 1999
                                                      -----------------    -----------------    -----------------
                                                                                              
Income before income taxes                                       $ 914              $ 2,676            $(35,903)
                                                      =================    =================    =================
Computed expected tax                                              320                  936             (12,566)
Effect of non-deductible expenses                                   41                   --                   --
Reversals of income tax accruals                                    --                   --                   --
State tax provision                                                 --                   --                   --
Change in valuation allowance                                    (361)                  936                6,854
                                                      -----------------    -----------------    -----------------
Provision (benefit) for income taxes                                --                   --             $(5,712)
                                                      =================    =================    =================


      Effective April 1, 1997, the Company filed elections with the Internal
Revenue Service to treat most of its foreign subsidiaries as divisions of the
parent for U.S. income tax reporting.

      The loss carry forwards and expiration dates are the following:



                                                                             Amounts          Expiration Dates
                                                                         -----------------    -----------------
                                                                                                 
    Franklin - US                                                                $ 20,200                 2019
    VPTI                                                                         $ 26,500              to 2012
    Foreign                                                                      $    900              to 2010


13. OPERATIONS

      Under SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," the Company's operations are treated as one operating
segment, as it only reports profit and loss information on an aggregate basis to
the chief operating decision maker of the Company. Information about the
Company's product sales and major customers are as follows:



                                                                                  March 31,
                                                          ----------------------------------------------------------
Product Sales                                                  2001                 2000                 1999
-----------------------------------------------------     ----------------     ----------------    -----------------
                                                                                                   
    Reference (including licensing)                               $61,460              $69,858              $72,806
    ROLODEX Electronics                                            13,062               18,348               13,778
    EbookMan                                                        5,209                   --                   --
    REX                                                                --                6,143               15,673
    Rocket eBook                                                       --                1,764                   --
    Other                                                             235                  965                2,178
-----------------------------------------------------     ----------------     ----------------    -----------------
    Total Sales                                                   $79,966              $97,078             $104,435
=====================================================     ================     ================    =================



                                       37


          FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

13. OPERATIONS - Continued

Approximate foreign sources of revenues including export sales were as follows:



                                                                                  March 31,
                                                          ----------------------------------------------------------
Product Sales                                                  2001                 2000                 1999
-----------------------------------------------------     ----------------     ----------------    -----------------
                                                                                                   
    Europe                                                        $21,702              $26,247              $27,767
    Other International                                             7,890                6,756                7,778


      For the fiscal years ended March 31, 2001, 2000 and 1999, no customer
accounted for more than 10% of the Company's revenues.

      For the fiscal year ended March 31, 2001, three suppliers accounted for
more than 10% of the Company's purchases of its inventory. The three suppliers
individually accounted for 16.7%, 15.6% and 10.0% of inventory purchases.

Sale of Rex Product Line

      In September 1999 the Company sold its REX product line for $13,250 and
the assumption of related liabilities. The Company realized a gain of $8,072 on
the sale. The assets sold consisted primarily of inventory with a carrying value
of approximately $5,000 and the Company's trademarks, copyrights, contract
rights and other assets used in connection with the REX business.

Restructuring Costs

      During the year ended March 31, 2000, severance and other employee costs
relating to the change in management and costs of office closures approximating
$3,000 were charged to accrued restructuring costs.

14. WEB SITE DEVELOPMENT COSTS

      In accordance with EITF 00-2, "Accounting for Web Site Development Costs"
the Company has expensed all of its web site development costs. No web site
development costs were incurred during the years ended March 31, 2001 and 2000,
which would be capitalized under EITF 00-2. Any web site development costs
incurred during the year ended March 31, 1999, which might have been
capitalizable, have been charged to expense based on the restructuring that
occurred at the end of that fiscal year.

15. RECENT ACCOUNTING PRONOUNCEMENTS

      In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101") which did not have a material impact on the Company's financial
statements.


                                       38


          FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

16. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)



                                                                               Quarter Ended
                                                  ------------------------------------------------------------------------
                                                     June 30          September 30       December 31          March 31
                                                  ---------------    ---------------    ---------------     --------------
                                                                                                 
Fiscal 2001
Net sales                                                $17,052            $20,511            $22,434            $19,969
Gross margin                                               7,460              8,812              9,639              8,487
Net income (loss)                                            433                208                524              (251)
Net income (loss) per share:
     Earnings per common share                              0.05               0.03               0.07             (0.03)
     Earnings per common share - assuming
     dilution                                               0.05               0.02               0.06             (0.03)

Fiscal 2000
Net sales                                                $19,936            $30,445            $31,397            $15,300
Gross margin                                               4,893             10,759             12,214              7,989
Net income (loss)                                    A.  (8,607)          B.  9,748              2,060              (525)
Net income (loss) per share:
     Earnings per common share                            (1.10)               1.24               0.26             (0.07)
     Earnings per common share - assuming
     dilution                                             (1.10)               1.24               0.26             (0.07)

Fiscal 1999
Net sales                                                $21,174            $32,252            $34,711            $16,298
Gross margin                                               9,557             12,040              3,986            (2,357)
Net income (loss)                                          (684)                 41            (8,131)       C.  (21,417)
Net income (loss) per share:
     Earnings per common share*                           (0.08)               0.01             (1.04)             (2.73)
     Earnings per common share - assuming
     dilution*                                            (0.08)               0.01             (1.04)             (2.73)


------------
*     Reflects the adoption of SFAS No. 128, "Earnings Per Share," including the
      restatement of prior years.

A. The loss of $8.6 million in the quarter ended June 30, 1999 includes an
inventory writedown and price protection $2.6 million in connection with the
Franklin Rocket eBook, $2.3 million in connection with the transition to the new
upgraded product lines and restructuring charges of $1.1 million, which include
severance related to a 15% reduction in personnel effected during the June 1999
quarter and expenses related to the closing of certain of the Company's foreign
subsidiaries.

B. See Note 13.

C. The loss of $21.4 million for the quarter ended March 31, 1999 includes
inventory writedowns of $3.5 million, price protection of $2.9 million,
writedown of royalty advances of $4.7 million, write-off of $2.3 million of
receivables, and restructuring charges, including costs of changes in management
of $1.4 million. The Company did not provide for any significant tax benefit
from the loss.


                                       39


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE--NONE

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



NAME                       AGE        POSITION
----                       ---        --------
                                
Barry J. Lipsky            50         President and Chief Executive Officer; Director

                           51         Executive Vice President, Business Development, General Counsel,
Gregory J. Winsky                     and Secretary

Arnold D. Levitt           64         Senior Vice President, Chief Financial Officer; Treasurer

Toni M. Tracy              52         Senior Vice President, Publisher Relations

Robert L. Garthwaite       40         Vice President, Worldwide Sales and Marketing


      Mr. Lipsky joined the Company as Vice President in February 1985. He was
elected Executive Vice President of the Company in 1997, Interim President and
Chief Operating Officer in April 1999 and President and Chief Executive Officer
in May 1999. Mr. Lipsky is a director of Voice Powered Technology International,
Inc., an approximately 82% owned subsidiary of the Company.

      Mr. Winsky was elected Vice President and Secretary of the Company in June
1984, was elected Senior Vice President in January 1993 and was elected
Executive Vice President in July 1999. Mr. Winsky is Chief Executive Officer and
a director of Voice Powered Technology International, Inc., an approximately 82%
owned subsidiary of the Company.

      Mr. Levitt joined the Company in May 1999 as Interim Chief Financial
Officer and Treasurer and was elected Senior Vice President, Chief Financial
Officer and Treasurer of the Company in September 1999. Mr. Levitt has been
engaged in consulting as a chief financial officer or senior business adviser
for companies in a variety of industries since 1996. Prior to these consulting
arrangements, Mr. Levitt was Executive Vice President and Chief Operating
Officer of WIC Gaming Supply Corp. Mr. Levitt has owned or was employed as a
chief financial officer of a number of companies and also worked in public
accounting. Mr. Levitt is Chief Financial Officer and a director of Voice
Powered Technology International, Inc., an approximately 82% owned subsidiary of
the Company.

      Ms. Tracy joined the Company in February 1995 as Vice President of the
Company's Medical Division and was elected Vice President, Publisher Relations,
of the Company in May 1996. In September 1996, Ms. Tracy was named President of
the Medical Division. She was elevated to Senior Vice President in 1998. From
1984 until 1995, Ms. Tracy was employed by Churchill Livingstone, the medical
publishing subsidiary of Pearson plc, a British media conglomerate, in a variety
of publishing positions and last held the position of Executive Vice President
and Publisher of Churchill Livingstone International, an Anglo-American medical
publishing enterprise.


                                       40


      Mr. Garthwaite joined the Company in 1990 as Product Development
Coordinator and in August 1998 was named Vice President for Reference and
ROLODEX(R) Electronics Organizer Products. In December 1999, he was elected Vice
President of the Company for Worldwide Sales and Marketing.

      Additional information called for by Item 10 is set forth under the
heading "Election of Directors" in the Company's Proxy Statement for its 2001
annual meeting of stockholders (the "2001 Proxy Statement"), which is
incorporated herein by this reference.

ITEM 11. EXECUTIVE COMPENSATION

      Information called for by Item 11 is set forth under the heading
"Executive Compensation" in the 2001 Proxy Statement, which is incorporated
herein by this reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      Information called for by Item 12 is set forth under the heading "Security
Ownership of Certain Beneficial Owners and Management" in the 2001 Proxy
Statement, which is incorporated herein by this reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Information called for by Item 13 is set forth under the heading "Certain
Relationships and Related Transactions" in the 2001 Proxy Statement, which is
incorporated herein by this reference.


                                       41


                                     PART IV

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

      Financial statements and schedules filed as a part of this report are
listed on the "Index to Financial Statements" contained herein. All other
schedules are omitted because (i) they are not required under the instructions,
(ii) they are inapplicable or (iii) the information is included in the financial
statements.

                                    EXHIBITS

         EXHIBITS NO.
         ------------

3.01        --    Certificate of Incorporation of Franklin (Incorporated by
                  reference to Exhibit 3.01 to Registration Statement on Form
                  S-1, File No. 3-6612 (the "Company's 1986 S-1 Registration
                  Statement"))

3.02        --    Articles of Amendment to the Certificate of Incorporation of
                  Franklin (Incorporated by reference to Exhibit 3.02 to the
                  Company's 1990 report on Form 10-K for the year ended March
                  31, 1990 (the "Company's 1990 10-K"))

3.03        --    Amended and Restated Statement of Rights and Preferences of
                  Series A 10% Convertible Preferred Stock (Incorporated by
                  reference to the Exhibit to the Company's Report on Form 8-K
                  filed May 23, 2001)

3.04        --    By-laws of Franklin (Incorporated by reference to Exhibit 3.02
                  to the Company's 1986 S-1 Registration Statement)

3.05        --    Amendment to By-laws of Franklin (Incorporated by reference to
                  Exhibit A to the Company's Proxy Statement relating to the
                  1987 Annual Meeting of Shareholders)

3.06        --    Amendment to By-laws of Franklin (Incorporated by reference to
                  Exhibit 3.05 to the Company's 1990 10-K)

10.01       --    Standard form of Sales Representative Agreement (Incorporated
                  by reference to Exhibit 10.07 to the Company's 1986 S-1
                  Registration Statement)

10.02**     --    Franklin Restricted Stock Plan, as amended (Incorporated by
                  reference to Exhibit 10.13 to the Company's report on Form
                  10-K for the year ended March 31, 1987)

10.03**     --    Franklin Stock Option Plan as Amended and restated effective
                  as of July 24, 1996 (Incorporated by reference to the
                  Company's Proxy Statement relating to the 1996 Annual Meeting
                  of Shareholders)


                                       42


10.04       --    Loan and Security Agreement dated as of December 7, 1999 among
                  Banc of America Commercial Finance Corp., Franklin, Franklin
                  Electronic Publishers (Europe) Ltd., and Franklin Electronic
                  Publishers (Deutchland) GmbH (Incorporated by reference to the
                  Exhibit to the Company's Report on Form 8-K filed on December
                  14, 1999)

10.05**+    --    Franklin Stock Option Plan as Amended and Restated effective
                  May 18, 2001

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

**    Management contract or compensatory plan or arrangement required to be
      filed as an exhibit to this form pursuant to Item 14(c) of this report.

+     Filed herewith


                                       43


                                   SIGNATURES

      PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

                                   FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED


Dated: June 21, 2001               By: /s/ Barry J. Lipsky
                                       -----------------------------------------
                                       Barry J. Lipsky
                                       President and Chief Executive Officer

      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.



                Signature                                 Title                     Date
                ---------                                 -----                     ----
                                                                         
           /s/ Edward H. Cohen                           Director              June 20, 2001
------------------------------------------
             Edward H. Cohen

           /s/ Kenneth D. Cron                           Director              June 20, 2001
------------------------------------------
             Kenneth D. Cron

           /s/ Barry J. Lipsky                           Director              June 21, 2001
------------------------------------------
             Barry J. Lipsky

          /s/ Leonard M. Lodish                          Director              June 20, 2001
------------------------------------------
            Leonard M. Lodish

            /s/ James Meister                            Director              June 20, 2001
------------------------------------------
              James Meister

          /s/ Howard L. Morgan                           Director              June 21, 2001
------------------------------------------
            Howard L. Morgan

          /s/ Jerry R. Schubel                           Director              June 21, 2001
------------------------------------------
            Jerry R. Schubel

           /s/ James H. Simons                           Director              June 20, 2001
------------------------------------------
             James H. Simons

                                                         Director              _______, 2001
------------------------------------------
            William H. Turner

          /s/ Arnold D. Levitt              Senior Vice President, Chief       June 21, 2001
------------------------------------------  Financial Officer and Treasurer
            Arnold D. Levitt                (Principal Financial and Accounting
                                            Officer)



                                       44