##### 



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

FORM 10-K

(Mark One)

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

For the fiscal year ended December 28, 2002

OR

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

Commission File Number 0-20001

NATIONAL VISION, INC.
(Exact name of Registrant as specified in its charter)

Georgia
(State or other jurisdiction of
incorporation or organization)

58-1910859
(I.R.S. Employer Identification No.)

296 Grayson Highway, Lawrenceville, Georgia
(Address of principal executive offices)

30045
(Zip Code)

Registrants telephone number, including area code: (770) 822-3600

Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.01 per share
12% Senior Secured Notes, due 2009

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the 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
o
No þ

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. o

Indicate by check mark whether the registrant is an accelerated filer ( as
defined in Exchange Act Rule 12b-2). Yes o
No þ

The number of shares of Common Stock of the registrant outstanding as of March 7,
2003, was 5,084,400, including shares that are part of the disputed claims
reserve in the registrants Chapter 11 Case. The aggregate market value of
shares of Common Stock held by non-affiliates of the registrant as of June 28,
2002, was approximately $5.6 million based on a closing price of $1.11 per
share on the American Stock Exchange on such date. For purposes of this
computation, all executive officers and directors of the registrant are deemed
to be affiliates. Such determination should not be deemed to be an admission
that such directors and officers are, in fact, affiliates of the registrant.

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities and
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes o No þ



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(LOGO)




PART I

ITEM 1. BUSINESS

OVERVIEW

National Vision, Inc. (the Company) is a retail optical company, with 518
vision centers as of December 28, 2002 throughout the United States and Mexico.
Our locations sell a wide range of optical products, including eyeglasses,
contact lenses, and sunglasses. We offer the services of optometrists at
substantially all of our locations. These optometrists are typically
independent of us and operate their own practices within our retail locations.
To support our retail operations, we also operate two manufacturing and
distribution centers.

HISTORY OF THE COMPANY

The Company was founded as National Vision Associates, Ltd. in 1990, when it
entered into a master license agreement with Wal-Mart Stores, Inc.
(Wal-Mart). The original agreement gave the Company the right to operate 75
vision centers in Wal-Mart stores. The agreement was amended in 1992 to
provide for 190 vision centers and was again amended in 1994 to give the
Company the right to operate 400 vision centers.

In late 1997, the Company made a strategic decision to diversify its revenue
base through acquisitions in the freestanding optical market. Between October
1997 and October 1998, the Company acquired three prominent chains in the
freestanding optical market. More specifically, Midwest Vision, Inc. was
acquired in October 1997 with 51 freestanding retail optical centers in four
Midwest states. Frame-n-Lens Optical, Inc. was acquired in July 1998 with 150
freestanding vision centers in California and 120 vision centers located within
Sams Clubs. New West Eyeworks, Inc. was acquired in October 1998 with 175
retail optical centers in 13 states, including approximately 120 vision centers
in freestanding locations and more than 50 host vision centers in Fred Meyer
stores. Following the acquisitions, the Company changed its name to Vista
Eyecare, Inc. To fund the acquisitions, the Company issued its $125 million
senior notes due 2005 bearing interest at 12.75% per annum.

Sales shortfalls in the freestanding stores caused adverse pressure on cash
flow and liquidity. In October 1999, the Company announced that, because of
slow sales in its recently acquired businesses, it would use the 30-day grace
period for making the interest payment due on the senior notes.

The Company continued to experience weak sales and cash flow problems with the
freestanding stores throughout early 2000. After failing to negotiate an
out-of-court restructuring with the holders of the senior notes, the Company
filed for reorganization under Chapter 11 on April 5, 2000.

2



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During the bankruptcy process, the Company closed or disposed of all of its
freestanding stores and closed all of its host vision centers operating in
Sams Clubs and in Meijer Thrifty Acres stores. On May 31, 2001, the Company
emerged from bankruptcy as an optical retailer operating vision centers in host
departments, including Wal-Mart and Fred Meyer locations.

Upon emerging from bankruptcy, the Company changed its name to National Vision,
Inc. (National Vision) and implemented fresh start accounting. As a
result, all assets and liabilities were restated to reflect their respective
fair values. The consolidated financial statements after emergence are those
of a new reporting entity (the Successor) and are not comparable to the
financial statements of the pre-confirmation company (the Predecessor). A
black line has been drawn in the financial statements to distinguish
Predecessor and Successor Company results.

DEPENDENCE ON WAL-MART

As of December 28, 2002, we operated 399 vision centers in domestic Wal-Mart
stores, all of which operate pursuant to a master license agreement (see
Business-Leased Department Agreements). These units generated approximately
87% of our revenue in 2002 and represent the most profitable division of the
Companys host retail operations measured as a percent of sales. We therefore
depend on Wal-Mart and on our agreement with them for much of our operations.

DATE OF INFORMATION

Unless otherwise expressly stated, all information in this Business section of
this Form 10-K is as of December 28, 2002.

VISION CENTER OPERATIONS

Our vision centers typically occupy between 1,000 and 1,500 square feet,
including areas for merchandise display, customer service, and contact lens
fitting. Each vision center maintains inventory of approximately 850 eyeglass
frames and 550 pairs of contact lenses, along with sunglasses and other optical
accessories. Our two optical laboratories deliver prescription eyewear to all
our vision centers. Many of the vision centers located in Wal-Mart have a
finishing laboratory, which allows for the vision center to provide one-hour
service for most single vision prescription lenses. These vision centers carry
inventory of approximately 725 pairs of spectacle lenses. We have, however,
removed the finishing laboratory from 14 of our vision centers as of March 7,
2003, as part of a test to determine whether removing these facilities can
reduce our operating expenses. We expect to determine the results of this test
by the end of 2003 (see Managements Discussion and Analysis
of Financial Condition and Results of Operations).

In the second quarter of 2002, the Company began selling a managed care
insurance product in its Wal-Mart California vision centers to retail customers
who do not otherwise have vision insurance coverage. At this time, the Company
does not plan to expand the sale of this or similar products outside of California.

MARKETING

We are a value provider of optical goods and stress that theme in our
marketing. We offer everyday low prices at our vision centers. National
Vision also has a satisfaction guaranteed customer policy. We are vigilant
about ways to lower our own costs so we may pass savings on to our customers.

MANAGED VISION CARE

We expect that retail optical sales through numerous managed vision care
programs will increase over the next several years as a percentage of overall
retail optical sales. Under managed vision care plans, members fulfill their
eyecare and eyewear needs at specific locations designated by the plan sponsor.
We believe our network of vision centers combined with the convenience of
their locations and our ability to offer low prices should enable us to make
competitive bids for managed care contracts.

3



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MARKS

Our vision centers in Wal-Mart are identified as the Vision Center located in
Wal-Mart. We use the Vista Optical name to identify some of our vision
centers operating in Fred Meyer locations. As part of our agreement to sell
the freestanding vision centers, we have agreed to phase out our use of the
Vista name. We have obtained a license to continue our use of this name
through January 2004. The licensor of this mark recently filed for bankruptcy,
and it is possible that we will lose our right to use this name.

EMPLOYEES

We employ 2,190 associates on a full-time basis and 740 associates on a
part-time basis. We have 2,500 associates engaged in retail sales, 240 in
laboratory and distribution operations, and 190 in management and
administration. Apart from our retail employees in Mexico, none of our
employees are governed by any collective bargaining agreements. We believe
that our employment relations are generally good.

OPTOMETRISTS

Optometrists are important to the success of our vision centers. We strive to
have an optometrist on a full-time basis at most of our locations. These
optometrists are typically independent from us and lease a portion of our
locations for an eye examination facility. We typically charge rent to these
optometrists, in exchange for the premises and the equipment which we provide.
Our agreement with Wal-Mart contemplates that we generally will have an
optometrist on duty at least 48 hours each week. Our relationships with
optometrists are subject to extensive regulation. (See Business-Government
Regulation.)

MANUFACTURING AND DISTRIBUTION

We operate two manufacturing and distribution facilities that supply
substantially all merchandise requirements of our vision centers. The
facilities are located in Lawrenceville, Georgia (this facility also includes
our central administrative offices) and St. Cloud, Minnesota.

Our distribution centers provide lens blanks, frames, contact lenses, and
sunglasses to our vision centers. We use an overnight delivery service to ship
completed orders and replenishment items to the vision centers. The
distribution centers and the manufacturing facilities are interfaced with our
management information system. Raw materials consist of frames and lenses
which are readily available from multiple vendors.

MANAGEMENT INFORMATION SYSTEM

In 2000, National Vision completed the development of a new point of sale
system. We began installing the system in our vision centers in the fall of
2000 and completed the installation in all of our units in 2002. The system is
working substantially as planned. The system was designed to upgrade data
processing, broaden capabilities at the retail level, and improve the processing
of managed care transactions.

LEASED DEPARTMENT AGREEMENTS

We have agreements governing our operations in host environments, such as
Wal-Mart. Typically, each agreement is for a base term, followed by an option
to renew for a specified length of time. The agreements provide for payments
of minimum and percentage rent, and also contain customary provisions for
leased department operations. (See Managements Discussion and Analysis of
Financial Condition and Results of Operations  Summary of Lease Agreements.)

4



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GOVERNMENT REGULATION

Our business is heavily regulated by federal, state, and local law. We must
comply with federal laws such as the Social Security Act (which applies to our
participation in Medicare programs), the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) (which governs our participation in
managed care programs), and the Food and Drug Administration Act (which
regulates medical devices such as contact lenses). We also must comply with
the privacy regulations under HIPAA, which went into effect in April 2003.
In addition, all states have passed laws that govern or affect our arrangements
with the optometrists who practice in our vision centers. Some states, such as
California, Texas, North Carolina, and Kansas, have particularly extensive and
burdensome requirements that affect the way we do business. In California,
optometrists who practice adjacent to our retail locations are providers to and
subtenants of a subsidiary, which is licensed as a single-service HMO.

Many of these states also have adopted laws that mirror the federal laws
described above. Local ordinances (such as zoning requirements) can also
impose significant burdens and costs of compliance. Frequently, our
competitors sit on state and local boards. Our risks and costs of compliance
are often increased as a result.

We believe that we substantially comply with material regulations that apply to
our business.

COMPETITION

The retail eyecare industry is extremely competitive. We compete with national
companies such as LensCrafters and Cole; we also compete with numerous regional
and local firms. In addition, optometrists, ophthalmologists, and opticians
provide many of the same goods and services we provide. The level and
intensity of competition can vary dramatically depending on the particular
market. We believe that we have numerous competitive advantages, such as our
everyday low pricing, convenience, product selection, and quality and consistency of
service.

We also compete for managed care business. Our competition for this business
is principally the larger national and regional optical firms. Competition for
this business is driven by size of provider network, quality and consistency of
service, and by pricing of vision care services. We have one of the largest
networks in the country and believe that the size of the network gives us a
competitive advantage.

Several of our competitors have significantly greater financial resources than
we do. As a result, they may be able to engage in extensive and prolonged
price promotions that may adversely affect our business. They may also be able
to spend more than we do for advertising.

MEXICO OPERATIONS

We operate 37 vision centers in Mexico under a master license agreement with
Wal-Mart. Our operations in Mexico face unique risks, such as currency
devaluations, inflation, difficulties in cross-cultural marketing, and similar
factors.

Information relative to sales and long-lived assets for the United States and
Mexico for the seven months ended December 29, 2001, the five months ended June
2, 2001, and for the years ended December 30, 2000 and December 28, 2002 are
summarized in the following tables (amounts in thousands):

5



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|                     |                                      |                     |  |               |         |        |  |              |       |  |  |   |         | 
|-------------------- | ------------------------------------ | ------------------- |  | ------------- | ------- | ------ |  | ------------ | ----- |  |  | - | ------- | 
|                     |                                      |                     |  | United States |         | Mexico |  | Consolidated
|                     |                                      |                     |  |               |         |        |  |             
|SUCCESSOR COMPANY:   |                                      |                     |  |               |         |        |  |              |       |  |  |  
|                     | Fiscal year 2002                     |                     |  |               |         |        |  |              |       |  |  |   |        
|                     |                                      | Sales               |  | $             | 241,994 |        |  | $            | 5,026 |  |  | $ | 247,020 | 
|                     |                                      |                     |  |               |         |        |  |              |       |  |  |  
|                     |                                      | Identifiable assets |  | $             | 148,816 |        |  | $            | 2,206 |  |  | $ | 151,022 | 
|                     |                                      |                     |  |               |         |        |  |              |       |  |  |  
|                     | Seven months ended December 29, 2001 |                     |  |               |         |        |  |              |       |  |  |   |        
|                     |                                      | Sales               |  | $             | 132,633 |        |  | $            | 2,910 |  |  | $ | 135,543 | 
|                     |                                      |                     |  |               |         |        |  |              |       |  |  |  
|                     |                                      | Identifiable assets |  | $             | 168,600 |        |  | $            | 2,617 |  |  | $ | 171,217 | 
|                     |                                      |                     |  |               |         |        |  |              |       |  |  |  
|PREDECESSOR COMPANY: |                                      |                     |  |               |         |        |  |              |       |  |  |  
|                     | Five months ended June 2, 2001       |                     |  |               |         |        |  |              |       |  |  |   |        
|                     |                                      | Sales               |  | $             | 118,407 |        |  | $            | 2,150 |  |  | $ | 120,557 | 
|                     |                                      |                     |  |               |         |        |  |              |       |  |  |  
|                     |                                      | Identifiable assets |  | $             | 184,034 |        |  | $            | 2,654 |  |  | $ | 186,688 | 
|                     |                                      |                     |  |               |         |        |  |              |       |  |  |  
|                     | Fiscal year 2000                     |                     |  |               |         |        |  |              |       |  |  |   |        
|                     |                                      | Sales               |  | $             | 302,902 |        |  | $            | 4,792 |  |  | $ | 307,694 | 
|                     |                                      |                     |  |               |         |        |  |              |       |  |  |  
|                     |                                      | Identifiable assets |  | $             | 88,666  |        |  | $            | 2,222 |  |  | $ | 90,888  | 
|                     |                                      |                     |  |               |         |        |  |              |       |  |  |  

Availability of Financial
Information

The Companys Annual Report on Form 10-K, filed with the Securities and
Exchange Commission, may be obtained by any shareholder without charge upon
written request to National Vision, Inc., 296 Grayson Highway, Lawrenceville,
GA 30045, Attn: Investor Relations. In addition, the Companys most recent
public filings with the Securities and Exchange Commission are available on the
Companys web site at www.nationalvision.com.

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ITEM 2. PROPERTIES

Our 518 vision centers in operation as of December 28, 2002 are located as
follows:

|              |  |       |    |          |  |                |  |  |    |  |  | 
|------------- |  | ----- | -- | -------- |  | -------------- |  |  | -- |  |  | 
|Location      |  | Total |    | Location |  | Total         
|              |  |       |    |          |  |               
|Alabama       |  |       | 8  |          |  | Nevada         |  |  | 7  | 
|Alaska        |  |       | 13 |          |  | New Hampshire  |  |  | 4  | 
|Arizona       |  |       | 14 |          |  | New Jersey     |  |  | 13 | 
|California    |  |       | 97 |          |  | New Mexico     |  |  | 10 | 
|Colorado      |  |       | 8  |          |  | New York       |  |  | 26 | 
|Connecticut   |  |       | 10 |          |  | North Carolina |  |  | 60 | 
|Florida       |  |       | 5  |          |  | North Dakota   |  |  | 4  | 
|Georgia       |  |       | 37 |          |  | Oregon         |  |  | 34 | 
|Hawaii        |  |       | 4  |          |  | Pennsylvania   |  |  | 18 | 
|Idaho         |  |       | 3  |          |  | Puerto Rico    |  |  | 1  | 
|Kansas        |  |       | 10 |          |  | South Carolina |  |  | 11 | 
|Kentucky      |  |       | 1  |          |  | South Dakota   |  |  | 1  | 
|Louisiana     |  |       | 1  |          |  | Tennessee      |  |  | 2  | 
|Maine         |  |       | 1  |          |  | Texas          |  |  | 7  | 
|Maryland      |  |       | 3  |          |  | Virginia       |  |  | 23 | 
|Massachusetts |  |       | 5  |          |  | Washington     |  |  | 29 | 
|Minnesota     |  |       | 1  |          |  | West Virginia  |  |  | 7  | 
|Montana       |  |       | 2  |          |  | Wyoming        |  |  | 1  | 
|              |  |       |    |          |  | Mexico         |  |  | 37 | 

Our headquarters in Lawrenceville, Georgia are located in a 66,000 square foot
building that includes a distribution center and lens laboratory. The building
is leased through January 2009.

The Company also has a regional facility located in St. Cloud, Minnesota. The
20,000 square foot St. Cloud facility is subject to a lease that expires in
October 2007. The facility contains an optical laboratory.

ITEM 3. LEGAL PROCEEDINGS

LITIGATION IN CALIFORNIA

On May 20, 2002, an entity called Consumer Cause, Inc. filed a complaint
against the Company in the Superior Court for Los Angeles County (Case No. BC
274257). A first amended complaint was filed on September 4, 2002. The
complaint alleges that the Companys operations in California violate certain
provisions of California law governing arrangements between opticians and
optometrists. The complaint seeks attorney fees and an injunction prohibiting
the Company from continuing the alleged violations. The complaint largely
duplicates portions of a complaint filed by the California attorney general
against one of the competitors of the Company. The case was dismissed on
January 23, 2003; the plaintiff has filed an appeal.

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CHAPTER 11 PROCEEDINGS

On April 5, 2000, the Company and ten of its subsidiaries (collectively, the
Debtors) filed voluntary petitions with the United States Bankruptcy Court
for the Northern District of Georgia for reorganization under Chapter 11 (the
Chapter 11 Cases). In March 2001, the Debtors filed a plan or reorganization
(the Plan) for the Chapter 11 Cases. The Plan was confirmed by the
bankruptcy court on May 18, 2001. On May 31, 2001, the Company emerged from
bankruptcy.

Under the Plan, the Companys pre-petition unsecured claims were converted into
new secured notes and common stock. The secured notes have a face value of
$120 million, provide for the payment of interest of 12% twice a year at the
end of March and September and are subordinated to debt under the Companys
credit facility. The notes are payable over eight years with principal
repayments based on excess cash flow. Five million shares of new common stock,
par value $0.01, were issued, based on the Companys reorganization value.
Under the Plan, former shareholders received no value for their interests,
consequently, all common stock issued prior to emergence from bankruptcy was
cancelled.

The Plan also provided for the creation of a disputed claims reserve, which
holds securities that will be distributed to creditors as and when pending
claims are resolved in the Chapter 11 cases. As of March 7, 2003,
approximately 613,000 shares of the Companys common stock and approximately
$14.5 million of secured notes remained in the disputed claims reserve.

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

No matters were submitted to a vote of security holders during the last quarter
of fiscal 2002.

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(LOGO)

PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS

On May 31, 2001, the Companys plan of reorganization was confirmed, resulting
in the cancellation of 21,169,103 shares of Common Stock and the issuance of
5,000,000 shares of Common Stock, par value $0.01, to the Companys creditors,
inclusive of shares held in the disputed claims reserve.

The Companys Common Stock was traded on the NASDAQ Small Cap Market under the
symbol VSTA from October 1999 until May 2000, when it began trading on the
OTC Bulletin Board. Upon issuance of Common Stock after our emergence from
bankruptcy, the Companys Common Stock was listed on the American Stock
Exchange in August of 2001 under the symbol NVI. The following table sets
forth for the periods indicated the high and low prices of the Companys Common
Stock in the various market systems as noted above.

Pre-emergence

|            |  |                |  |      |       |     |  |   |       |  |  | 
|----------- |  | -------------- |  | ---- | ----- | --- |  | - | ----- |  |  | 
|            |  | Period Ended   |  | High |       | Low
|            |  |                |  |      |       |    
|Fiscal 2001 |  | March 31, 2001 |  | $    | 0.200 |     |  | $ | 0.030 | 
|            |  | June 2, 2001   |  | $    | 0.040 |     |  | $ | 0.020 | 

Post-emergence

|            |  |                    |  |      |       |     |  |   |       |  |  | 
|----------- |  | ------------------ |  | ---- | ----- | --- |  | - | ----- |  |  | 
|            |  | Period Ended       |  | High |       | Low
|            |  |                    |  |      |       |    
|Fiscal 2001 |  | September 29, 2001 |  | $    | 5.000 |     |  | $ | 0.900 | 
|            |  | December 29, 2001  |  | $    | 1.050 |     |  | $ | 0.350 | 
|           
|Fiscal 2002 |  | March 30, 2002     |  | $    | 1.44  |     |  | $ | 0.65  | 
|            |  | June 29, 2002      |  | $    | 1.18  |     |  | $ | 0.65  | 
|            |  | September 28, 2002 |  | $    | 1.20  |     |  | $ | 0.70  | 
|            |  | December 28, 2002  |  | $    | 0.75  |     |  | $ | 0.25  | 

As of March 7, 2003, there were approximately 450 holders of record of the
Companys Common Stock.

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The Companys plan of reorganization in the Chapter 11 Cases provides that, as
claims of creditors are resolved, the Company will make periodic distributions
of its new common stock and notes. As of March 7, 2003, the Company has made
10 such distributions, for a total of approximately 4,387,000 shares of new
common stock and approximately $105.5 million face amount of new notes. The
balance of approximately 613,000 shares of new common stock and approximately
$14.5 million face amount of new notes are held in the disputed claim reserve
and will be distributed as and when disputed claims are resolved. Such
distributions could have an adverse impact on any trading price for the
Companys securities.

It is the Companys intent to use cash resources only for its operations and
for payment of interest expense and repayment of principal on and repurchases
of the Companys new secured notes. The indenture governing our senior notes
and our credit facility agreement restrict the Companys ability to pay
dividends.

USE OF NON-GAAP FINANCIAL MEASURES

We frequently refer to EBITDA in this document. EBITDA is calculated as
net earnings before interest, taxes, depreciation and amortization,
extraordinary items, cumulative effect of a change in accounting
principle, and reorganization items as
defined in the terms of our Senior Subordinated Debt agreement. We refer to EBITDA
because:



| |  |  | it is the basis for the calculation of the excess cash flow
principal repayment under our senior notes; and
| | - |  | -----------------------------------------------------------------------------------------------------------
|
| |  |  | it is a widely accepted financial indicator of a companys ability
to service or incur indebtedness.       

EBITDA does not represent cash flow from operations as defined by generally
accepted accounting principles, is not necessarily indicative of cash available
to fund all cash flow needs, should not be considered an alternative to net
income or to cash flow from operations (as determined in accordance with GAAP)
and should not be considered an indication of our operating performance or as a
measure of liquidity. EBITDA is not necessarily comparable to similarly titled
measures for other companies.

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data of the Company for the years ended December 28, 2002,
December 29, 2001, December 30, 2000, January 1, 2000 and January 1, 1999 are
derived from the Companys Consolidated Financial Statements. The Company
emerged from Chapter 11 on May 31, 2001 and implemented fresh start
accounting as of June 2, 2001. Results of operations for the 3-day period from
May 31, 2001 through June 2, 2001 were not material. In accordance with fresh
start accounting, all assets and liabilities were restated to reflect their
respective fair values. The consolidated financial statements after that date
are those of a new reporting entity and are not comparable to the
pre-confirmation periods. The
selected financial data set forth below should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Report.

National Vision, Inc.
Consolidated Statements of Operations
(In thousands except vision center store count)

|                                                                                                            |                                  |   |           |     |        |             |              |           |  |              |   |           |     |      |   |          |     |  |   |         |     |  |   |         |     | 
|----------------------------------------------------------------------------------------------------------- | -------------------------------- | - | --------- | --- | ------ | ----------- | ------------ | --------- |  | ------------ | - | --------- | --- | ---- | - | -------- | --- |  | - | ------- | --- |  | - | ------- | --- | 
|                                                                                                            |                                  |   | Successor |     |        | Predecessor
|                                                                                                            |                                  |   |           |     |        |            
|                                                                                                            |                                  |   |           |     |        |             | Seven months |           |  | Five months  |   |           |     |      |   |          |     |  |   |         |     | 
|                                                                                                            |                                  |   |           |     |        |             | ended        |           |  | ended        |   |           |     |      |   |          |     |  |   |         |     | 
|                                                                                                            |                                  |   |           |     |        |             | December 29, |           |  | June 2,      |   |           |     |      |   |          |     |  |   |         |     | 
|                                                                                                            |                                  |   | 2002      |     | 2001   |             |              | 2001      |  | 2000         |   | 1999      |     | 1998
|                                                                                                            |                                  |   |           |     |        |             |              |           |  |              |   |           |     |     
|                                                                                                            |                                  |   | (1)       |     | (1)(2) |             |              | (1)(2)(5) |  | (1)(4)(6)(7) |   | (1)(3)(6) |     | (1) 
|Retail sales, net                                                                                           |                                  | $ | 244,860   |     |        | $           | 135,543      |           |  |              | $ | 120,557   |     |      | $ | 307,694  |     |  | $ | 329,055 |     |  | $ | 245,331 |    
|Premium revenue                                                                                             |                                  |   | 2,160     |     |        |             |             |           |  |              |   |          |     |      |   |         |     |  |   |        |     |  |   |        |    
|                                                                                                            |                                  |   |           |     |        |             |              |           |  |              |   |           |     |      |   |          |     |  |   |         |     |  |   |         |    
|Net
sales                                                                                                   |                                  |   | 247,020   |     |        |             | 135,543      |           |  |              |   | 120,557   |     |      |   | 307,694  |     |  |   | 329,055 |     |  |   | 245,331 |    
|Cost of goods sold                                                                                          |                                  |   | 112,446   |     |        |             | 61,488       |           |  |              |   | 57,404    |     |      |   | 143,458  |     |  |   | 147,768 |     |  |   | 112,929 |    
|                                                                                                            |                                  |   |           |     |        |             |              |           |  |              |   |           |     |      |   |          |     |  |   |         |     |  |   |         |    
|Gross profit                                                                                                |                                  |   | 134,574   |     |        |             | 74,055       |           |  |              |   | 63,153    |     |      |   | 164,236  |     |  |   | 181,287 |     |  |   | 132,402 |    
|Gross profit percentage                                                                                     |                                  |   | 54.5      | %   |        |             | 54.6         | %         |  |              |   | 52.4      | %   |      |   | 53.4     | %   |  |   | 55.1    | %   |  |   | 54.0    | %  
|                                                                                                            |                                  |   |           |     |        |             |              |           |  |              |   |           |     |      |   |          |     |  |   |         |     |  |   |         |    
|Selling, general & administrative expense                                                                   |                                  |   | 128,715   |     |        |             | 71,526       |           |  |              |   | 68,377    |     |      |   | 166,364  |     |  |   | 177,162 |     |  |   | 121,413 |    
|Impairment of long-lived assets                                                                             |                                  |   |          |     |        |             |             |           |  |              |   |          |     |      |   | 2,684    |     |  |   | 1,952   |     |  |   |        |    
|Restructuring expense                                                                                       |                                  |   |          |     |        |             |             |           |  |              |   |          |     |      |   | 1,601    |     |  |   |        |     |  |   |        |    
|                                                                                                            |                                  |   |           |     |        |             |              |           |  |              |   |           |     |      |   |          |     |  |   |         |     |  |   |         |    
|Operating income/(loss)                                                                                     |                                  |   | 5,859     |     |        |             | 2,529        |           |  |              |   | (5,224    | )   |      |   | (6,413   | )   |  |   | 2,173   |     |  |   | 10,989  |    
|Interest expense, net                                                                                       |                                  |   | 13,629    |     |        |             | 8,389        |           |  |              |   | 1,150     |     |      |   | 7,723    |     |  |   | 19,329  |     |  |   | 5,538   |    
|                                                                                                            |                                  |   |           |     |        |             |              |           |  |              |   |           |     |      |   |          |     |  |   |         |     |  |   |         |    
|Earnings/(loss) before reorganization items and taxes                                                       |                                  |   | (7,770    | )   |        |             | (5,860       | )         |  |              |   | (6,374    | )   |      |   | (14,136  | )   |  |   | (17,156 | )   |  |   | 5,451   |    
|Reorganization expense/(gain)                                                                               |                                  |   |          |     |        |             |             |           |  |              |   | (102,515  | )   |      |   | 121,539  |     |  |   |        |     |  |   |        |    
|                                                                                                            |                                  |   |           |     |        |             |              |           |  |              |   |           |     |      |   |          |     |  |   |         |     |  |   |         |    
|Earnings/(loss)
before taxes, extraordinary items and cumulative effect of a change in accounting principle |                                  |   | (7,770    | )   |        |             | (5,860       | )         |  |              |   | 96,141    |     |      |   | (135,675 | )   |  |   | (17,156 | )   |  |   | 5,451   |    
|Income tax expense                                                                                          |                                  |   |          |     |        |             |             |           |  |              |   |          |     |      |   |         |     |  |   |        |     |  |   | 2,037   |    
|                                                                                                            |                                  |   |           |     |        |             |              |           |  |              |   |           |     |      |   |          |     |  |   |         |     |  |   |         |    
|Earnings/(loss)
before extraordinary items and cumulative effect of a change in accounting principle        |                                  |   | (7,770    | )   |        |             | (5,860       | )         |  |              |   | 96,141    |     |      |   | (135,675 | )   |  |   | (17,156 | )   |  |   | 3,414   |    
|Extraordinary gain/(loss), net                                                                              |                                  |   | 1,566     |     |        |             |             |           |  |              |   | 17,182    |     |      |   | (827     | )   |  |   | (406    | )   |  |   |        |    
|Cumulative effect, net                                                                                      |                                  |   |          |     |        |             |             |           |  |              |   |          |     |      |   | (3,378   | )   |  |   |        |     |  |   |        |    
|                                                                                                            |                                  |   |           |     |        |             |              |           |  |              |   |           |     |      |   |          |     |  |   |         |     |  |   |         |    
|Net earnings/(loss)                                                                                         |                                  | $ | (6,204    | )   |        | $           | (5,860       | )         |  |              | $ | 113,323   |     |      | $ | (139,880 | )   |  | $ | (17,562 | )   |  | $ | 3,414   |    
|                                                                                                            |                                  |   |           |     |        |             |              |           |  |              |   |           |     |      |   |          |     |  |   |         |     |  |   |         |    
|BALANCE SHEET DATA:                                                                                         |                                  |   |           |     |        |             |              |           |  |              |   |           |     |      |   |          |     |  |   |         |     |  |   |         |    
|Total assets                                                                                                |                                  | $ | 151,022   |     |        | $           | 171,217      |           |  |              | $ | 186,688   |     |      | $ | 90,888   |     |  | $ | 220,219 |     |  | $ | 229,097 |    
|Current and long-term obligations                                                                           |                                  | $ | 109,706   |     |        | $           | 120,000      |           |  |              | $ | 123,000   |     |      | $ | 183,735  |     |  | $ | 151,902 |     |  | $ | 139,608 |    
|Shareholders equity/(deficit)                                                                              |                                  | $ | 12,829    |     |        | $           | 19,274       |           |  |              | $ | 25,000    |     |      | $ | (113,323 | )   |  | $ | 26,557  |     |  | $ | 43,927  |    
|                                                                                                            |                                  |   |           |     |        |             |              |           |  |              |   |           |     |      |   |          |     |  |   |         |     |  |   |         |    
|STATISTICAL DATA:                                                                                           |                                  |   |           |     |        |             |              |           |  |              |   |           |     |      |   |          |     |  |   |         |     |  |   |         |    
|Domestic vision centers open at end of period:                                                              |                                  |   |           |     |        |             |              |           |  |              |   |           |     |      |   |          |     |  |   |         |     |  |   |         |    
|                                                                                                            | Leased department vision centers |   |           | 481 |        |             |              | 479       |  |              |   |           | 473 |      |   |          | 472 |  |   |         | 577 |  |   |         | 562 | 
|                                                                                                            | Freestanding vision centers      |   |           |    |        |             |              |          |  |              |   |           |    |      |   |          | 226 |  |   |         | 322 |  |   |         | 331 | 
|Average
annual sales per Wal-Mart leased department vision center(8)                                        |                                  | $ | 547       |     |        | $           | 535          |           |  |              | $ | 535       |     |      | $ | 540      |     |  | $ | 527     |     |  | $ | 522     |    
|Average
annual sales per other host leased department vision center(8)                                      |                                  | $ | 234       |     |        | $           | 245          |           |  |              | $ | 245       |     |      | $ | 248      |     |  | $ | 242     |     |  | $ | 176     |    
|Average
annual rent per Wal-Mart leased department vision center(8)                                         |                                  | $ | 76        |     |        | $           | 71           |           |  |              | $ | 71        |     |      | $ | 68       |     |  | $ | 66      |     |  | $ | 63      |    
|Wal-Mart
leased department vision centers converted to supercenters                                         |                                  |   | 14        |     |        |             | 7            |           |  |              |   | 4         |     |      |   | 13       |     |  |   | 5       |     |  |   | 5       |    
|Capital expenditures                                                                                        |                                  | $ | 5,209     |     |        | $           | 2,750        |           |  |              | $ | 2,084     |     |      | $ | 5,379    |     |  | $ | 12,704  |     |  | $ | 9,183   |    
|Depreciation and amortization                                                                               |                                  | $ | 18,999    |     |        | $           | 11,425       |           |  |              | $ | 4,808     |     |      | $ | 17,526   |     |  | $ | 18,602  |     |  | $ | 14,177  |    
|EBITDA(9)                                                                                                   |                                  | $ | 24,858    |     |        | $           | 13,954       |           |  |              | $ | (416      | )   |      | $ | 11,113   |     |  | $ | 20,775  |     |  | $ | 25,166  |    



---

|(1) |  | Financial information for all years presented includes results of
international operations for the 12 months ended November 30. (See Note
2 to Consolidated Financial Statements.)                                                                                                                                                                                                                                                                                                                    
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The Company emerged from Chapter 11 on May 31, 2001 and implemented
fresh start accounting as of June 2, 2001. Results of operations for
the 3 day period from May 31, 2001 through June 2, 2001 were not
material. In accordance with fresh start accounting, all assets and
liabilities were restated to reflect their respective fair values. The
consolidated financial statements after that date are those of a new
reporting entity and are not comparable to the periods prior to
emergence.
|   
|(3) |  | In 1999, the Company recorded a $2.7 million provision for the
write-off of certain receivables and an impairment of $1.9 million in
connection with 36 under-performing vision centers. The receivables
provision was included in selling, general and administrative expense.                                                                                                                                                                                                                       
|   
|(4) |  | In 2000, the Company recorded an impairment provision for inventory and
receivables at the freestanding locations totaling $1.1 million and
$518,000, respectively. These items were included in cost of goods sold
and selling, general administrative expense, as appropriate.                                                                                                                                                                                                                      
|   
|(5) |  | In 2001, the Predecessor Company recorded a $6.3 million provision for
uncollectable receivables. Of this amount $2.9 million related                                                                                                                                                                                                                                                                                                                                                                 

10



---



---



##### 



|    |  | to the ongoing host business. This
expense was included in selling, general and administrative
expense. In addition, the Predecessor Company recorded a
$2.4 million provision for inventory. This expense was included
in cost of goods sold.                                                                                                                                                                           
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(6) |  | The Company incurred expenses for the impairment of certain long-lived
assets and store closing costs prior to the Companys filing of Chapter
11 in April 2000.                                                                                                                                                                                                                                                         
|   
|(7) |  | This represents the cumulative effect of a change in accounting
principle for the adoption of SAB 101. (See Note 2 to the Consolidated
Financial Statements.)                                                                                                                                                                                                                                                            
|   
|(8) |  | For the purposes of calculating average annual sales and average annual
rent, the Successor results for the seven months ended December 29,
2001 have been combined with the Predecessor results for the five
months ended June 2, 2001.                                                                                                                                                                                 
|   
|(9) |  | EBITDA is calculated as net earnings
before interest, taxes, depreciation
and amortization, extraordinary items, cumulative effect of a change in accounting principle, and reorganization items. (See Managements Discussion and Analysis
of Financial Condition and Results of Operations  Use of
Non-GAAP Financial Measures). The following is a
reconciliation of net earnings to EBITDA (amounts in
thousands):

(Successor)
    

    (Predecessor)Seven months
    

    Five monthsEnded
    

    EndedDecember 29,
    

    June 2,2002
    
    2001
    

    2001
    
    2000
    
    1999
    
    1998Net earnings / (loss)
    
    $
    (6,204
    )
    
    $
    (5,860
    )
    

    $
    113,323
    
    
    $
    (139,880
    )
    
    $
    (17,562
    )
    
    $
    3,414Addback:Interest expense, net
    
    
    13,629
    
    
    
    8,389
    
    

    
    1,150
    
    
    
    7,723
    
    
    
    19,329
    
    
    
    5,538Reorganization expense / (gain)
    
    
    
    
    
    
    
    
    

    
    (102,515
    )
    
    
    121,539
    
    
    
    
    
    
    
    Income tax expense
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    2,037Extraordinary (gain) / loss, net
    
    
    (1,566
    )
    
    
    
    
    

    
    (17,182
    )
    
    
    827
    
    
    
    406
    
    
    
    Cumulative effect, net
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    3,378
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    18,999
    
    
    
    11,425
    
    

    
    4,808
    
    
    
    17,526
    
    
    
    18,602
    
    
    
    14,177EBITDA
    
    $
    24,858
    
    
    $
    13,954
    
    

    $
    (416
    )
    
    $
    11,113
    
    
    $
    20,775
    
    
    $
    25,166


11



---



---



##### 



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

TABLE OF CONTENTS

|                                                     |                                                                                       |  |          |    | 
|---------------------------------------------------- | ------------------------------------------------------------------------------------- |  | -------- | -- | 
|                                                     |                                                                                       |  | PAGE NO.
|                                                     |                                                                                       |  |         
|Results of Operations:                               |                                                                                       |  |          |   
|                                                     | Year Ended December 28, 2002 Compared to Year Ended December 29, 2001                 |  |          | 14 | 
|                                                     | Three Months Ended December 28, 2002 Compared to Three Months Ended December 29, 2001 |  |          | 17 | 
|                                                     | Year Ended December 29, 2001 Compared to Year Ended December 30, 2000                 |  |          | 18 | 
|                                                    
|Proceedings Under Chapter 11 of Bankruptcy Code      |                                                                                       |  | 21       |   
|                                                    
|Historical Pro Forma Results of Ongoing Operations   |                                                                                       |  | 23       |   
|                                                     | Quarterly Information                                                                 |  |          | 23 | 
|                                                     | Year Ended December 28, 2002 Compared to the Pro Forma Year Ended December 29, 2001   |  |          | 24 | 
|                                                     | Use
of Non-GAAP Financial Measures                                                    |  |          | 25 | 
|                                                    
|Summary of Lease Agreements                          |                                                                                       |  | 25       |   
|                                                    
|Operating Strategies and Forward-Looking Information |                                                                                       |  | 27       |   
|                                                    
|Critical Accounting Policies                         |                                                                                       |  | 31       |   
|                                                    
|Recent Accounting Pronouncements                     |                                                                                       |  | 35       |   
|                                                    
|Risk Factors                                         |                                                                                       |  | 36       |   

Results of Operations

The Company emerged from Chapter 11 on
May 31, 2001 and implemented fresh
start accounting as of June 2, 2001. Results of operations for the 3-day
period from May 31, 2001 through June 2, 2001 were not material. In accordance
with fresh start accounting, all assets and liabilities were restated to
reflect their respective fair values. The consolidated financial statements
after that date are those of a new reporting entity and are not comparable to
the periods prior to emergence. However, for purposes of this discussion, the
Successor results for the seven months ended December 29, 2001 have been
combined with the Predecessor results for the five months ended June 2, 2001 and
then compared to the Successor results for the fiscal year ended December 28,
2002 and the Predecessor results for the fiscal year ended December 30, 2000.
Differences between periods due to fresh start accounting are explained when
necessary. Results for these periods are summarized in the following table:

12



---



---



##### 



National Vision, Inc.
Consolidated Statements of Operations
(In thousands)

|                                                                |  |                   |         |                   |  |                   |          |   |  |   |          |  
|--------------------------------------------------------------- |  | ----------------- | ------- | ----------------- |  | ----------------- | -------- | - |  | - | -------- | -
|                                                                |  |                   |         |                   |  | Year Ended        |          |   |  |  
|                                                                |  | Year Ended        |         | December 29, 2001 |  | Year Ended       
|                                                                |  | December 28, 2002 |         | (A)               |  | December 30, 2000
|                                                                |  |                   |         |                   |  |                  
|Retail sales, net                                               |  | $                 | 244,860 |                   |  | $                 | 256,100  |   |  | $ | 307,694  |  
|Premium revenue                                                 |  |                   | 2,160   |                   |  |                   |         |   |  |   |         |  
|                                                                |  |                   |         |                   |  |                   |          |   |  |   |          |  
|Total net sales                                                 |  |                   | 247,020 |                   |  |                   | 256,100  |   |  |   | 307,694  |  
|Cost of goods sold                                              |  |                   | 112,446 |                   |  |                   | 118,892  |   |  |   | 143,458  |  
|                                                                |  |                   |         |                   |  |                   |          |   |  |   |          |  
|Gross profit                                                    |  |                   | 134,574 |                   |  |                   | 137,208  |   |  |   | 164,236  |  
|Selling, general & administrative expense                       |  |                   | 128,715 |                   |  |                   | 139,903  |   |  |   | 166,364  |  
|Impairment of long-lived assets                                 |  |                   |        |                   |  |                   |         |   |  |   | 2,684    |  
|Restructuring expense                                           |  |                   |        |                   |  |                   |         |   |  |   | 1,601    |  
|                                                                |  |                   |         |                   |  |                   |          |   |  |   |          |  
|Operating income / (loss)                                       |  |                   | 5,859   |                   |  |                   | (2,695   | ) |  |   | (6,413   | )
|Interest expense, net                                           |  |                   | 13,629  |                   |  |                   | 9,539    |   |  |   | 7,723    |  
|                                                                |  |                   |         |                   |  |                   |          |   |  |   |          |  
|Loss before reorganization items, taxes
and extraordinary items |  |                   | (7,770  | )                 |  |                   | (12,234  | ) |  |   | (14,136  | )
|Reorganization expense / (gain)                                 |  |                   |        |                   |  |                   | (102,515 | ) |  |   | 121,539  |  
|                                                                |  |                   |         |                   |  |                   |          |   |  |   |          |  
|Earnings / (loss) before taxes                                  |  |                   | (7,770  | )                 |  |                   | 90,281   |   |  |   | (135,675 | )
|Income taxes                                                    |  |                   |        |                   |  |                   |         |   |  |   |         |  
|                                                                |  |                   |         |                   |  |                   |          |   |  |   |          |  
|Net earnings / (loss) before extraordinary item                 |  |                   | (7,770  | )                 |  |                   | 90,281   |   |  |   | (135,675 | )
|Extraordinary gain / (loss), net of taxes                       |  |                   | 1,566   |                   |  |                   | 17,182   |   |  |   | (827     | )
|Cumulative effect, net of taxes                                 |  |                   |        |                   |  |                   |         |   |  |   | (3,378   | )
|                                                                |  |                   |         |                   |  |                   |          |   |  |   |          |  
|Net
earnings / (loss)                                           |  | $                 | (6,204  | )                 |  | $                 | 107,463  |   |  | $ | (139,880 | )
|                                                                |  |                   |         |                   |  |                   |          |   |  |   |          |  



---

|(A) |  | Represents the combined results of the Successor for the seven months ended December 29,
2001 and the results of the Predecessor for the five months ended June 2, 2001.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13



---



---



##### 



The Companys results of operations in any period are significantly affected by
the number and mix of vision centers operating during such period. At December
28, 2002, the Company operated 518 vision centers, versus 514 vision centers at
December 29, 2001 and 725 vision centers at December 30, 2000. The
freestanding stores open at year end 2000 were disposed of during the first
half of 2001. The following table sets forth information about the number and
type of vision centers owned and operated by the Company as of the end of
fiscal 2002, 2001 and 2000, respectively.

|                    |       |  |                   |     |                   |  |                   |     |  |  |     |     | 
|------------------- | ----- |  | ----------------- | --- | ----------------- |  | ----------------- | --- |  |  | --- | --- | 
|                    |       |  | December 28, 2002 |     | December 29, 2001 |  | December 30, 2000
|                    |       |  |                   |     |                   |  |                  
|Wal-Mart, domestic  |       |  | 399               |     |                   |  | 400               |     |  |  | 397 |    
|Fred Meyer          |       |  | 58                |     |                   |  | 55                |     |  |  | 56  |    
|Military            |       |  | 24                |     |                   |  | 24                |     |  |  | 19  |    
|Wal-Mart de Mexico  |       |  | 37                |     |                   |  | 35                |     |  |  | 27  |    
|Freestanding stores |       |  |                  |     |                   |  |                  |     |  |  | 226 |    
|                    |       |  |                   |     |                   |  |                   |     |  |  |     |    
|                    | TOTAL |  |                   | 518 |                   |  |                   | 514 |  |  |     | 725 | 

YEAR ENDED DECEMBER 28, 2002 (CURRENT YEAR) COMPARED TO YEAR ENDED DECEMBER
29, 2001 (PRIOR YEAR)

Net sales.The Company recorded net sales of $247.0 million in the Current
Year versus $256.1 million in the Prior Year, a decrease of 3.5% or $9.1
million. This decrease is mostly attributable to the sale or closure of the
Companys freestanding operations in the first half of 2001. These stores
represented sales of $18.2 million in 2001. The offsetting sales increase of
$9.1 million came from the following areas:



| |  |  | $2.2 million of premium revenue from a managed care insurance
product that the Company began selling in the Wal-Mart California
vision centers during 2002, and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a domestic comparable store sales increase of 2.0% and sales from
new stores opened since the end of 2001.                                                     

Historically, the Companys in-store presentation of frame and lens options was
based on a package price concept. The package price included a pair
of base lenses,
a frame and certain lens options. In July, the Company changed its
presentation strategy by unbundling the package price so that pricing for
frames and lenses are separately presented in the store. The new presentation
is intended to be more clear, concise and customer-friendly and is similar to
product and price presentation at a majority of our competitors stores. After
an initial orientation phase, the Company has experienced increases in the
average spectacle transaction value and in spectacle unit count. Although we
expect these positive trends to continue, we can provide no assurance regarding
future average transaction value or spectacle unit count.

Gross profit.In the Current Year,
gross profit dollars decreased by $2.6 million over gross profit dollars in the Prior Year. This decrease in gross
profit dollars is primarily the result of the disposition of the Companys
freestanding operations in the first half of 2001. The retail and insurance
components of sales and gross profit for the Current and Prior Year are
detailed below (in thousands):

14



---



---



##### 



|                          |  |                   |         |                   |  |  |       |   |  |   |         |  |  |  |       |  
|------------------------- |  | ----------------- | ------- | ----------------- |  |  | ----- | - |  | - | ------- |  |  |  | ----- | -
|                          |  | Year Ended        |         | Year Ended       
|                          |  | December 28, 2002 |         | December 29, 2001
|                          |  |                   |         |                  
|Retail sales, net         |  | $                 | 244,860 |                   |  |  | 100.0 | % |  | $ | 256,100 |  |  |  | 100.0 | %
|Retail cost of goods sold |  |                   | 110,509 |                   |  |  | 45.1  | % |  |   | 118,892 |  |  |  | 46.4  | %
|                          |  |                   |         |                   |  |  |       |   |  |   |         |  |  |  |       |  
|Retail gross profit       |  | $                 | 134,351 |                   |  |  | 54.9  | % |  | $ | 137,208 |  |  |  | 53.6  | %
|                          |  |                   |         |                   |  |  |       |   |  |   |         |  |  |  |       |  
|Premium revenue           |  | $                 | 2,160   |                   |  |  | 100.0 | % |  | $ |        |  |  |  |      | %
|Claims expense            |  |                   | 1,937   |                   |  |  | 89.7  | % |  |   |        |  |  |  |      | %
|                          |  |                   |         |                   |  |  |       |   |  |   |         |  |  |  |       |  
|Insurance gross profit    |  | $                 | 223     |                   |  |  | 10.3  | % |  | $ |        |  |  |  |      | %
|                          |  |                   |         |                   |  |  |       |   |  |   |         |  |  |  |       |  
|Total net sales           |  | $                 | 247,020 |                   |  |  | 100.0 | % |  | $ | 256,100 |  |  |  | 100.0 | %
|Total cost of goods sold  |  |                   | 112,446 |                   |  |  | 45.5  | % |  |   | 118,892 |  |  |  | 46.4  | %
|                          |  |                   |         |                   |  |  |       |   |  |   |         |  |  |  |       |  
|Total gross profit        |  | $                 | 134,574 |                   |  |  | 54.5  | % |  | $ | 137,208 |  |  |  | 53.6  | %
|                          |  |                   |         |                   |  |  |       |   |  |   |         |  |  |  |       |  

Retail gross profit increased as a percent of sales in the Current Year. The
Company experienced a shift in sales mix toward eyeglasses, coupled with an
increase in eyeglass margins in the Current Year partially as a result of the
Companys unbundling of frame and lens pricing. This margin improvement was
offset by an increase in rent expense (which is a component of Gross Profit)
for the Wal-Mart division. This was due to approximately 43 vision centers
entering the 3-year option period of the Wal-Mart lease. The option period
effectively increases each locations minimum rent requirement. As of December
28, 2002, we have 126 vision centers in the three-year option period of the
Wal-Mart lease. We expect this trend of increased rent to continue as
additional Wal-Mart locations enter the option period of their lease. During
2002, the Companys effective rent percentage on the Wal-Mart store revenues
was approximately 14%. Any significant shortfall in comparable store sales
would have a negative impact on occupancy expense as a percent of sales. The
Company cannot give any assurances that it will be able to continue to record
comparable sales increases at these levels.

Insurance gross profit represents premium revenue less claims expense for a
managed care insurance product that the Company began selling in the Wal-Mart
California vision centers in the second quarter of 2002. We do not expect a
significant change in insurance gross profit as a percent of premium revenue in
future periods. The addition of the lower-margin managed care insurance
product increase total revenues and gross profit dollars, but decreases total
gross profit as a percent of total net sales.

Selling, general and administrative expense (SG&A expense).SG&A expense
(which includes both store operating expenses and home office overhead)
decreased to $128.7 from the Prior Year amount of $139.9 million. This dollar
decrease was primarily the result of lower payroll, depreciation and other
expenses due to the above-mentioned disposition of the Companys freestanding
operations in April 2001. Also, SG&A expense declined as a percentage of sales
to 52.1% in the Current Year compared to 54.6% in the Prior Year. The
percentage decrease in SG&A was the result of:



| | 1) |  | significant improvements in managed care processing which resulted in
a decline in receivable write-offs of approximately $4.9 million in the
Current Year;           
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2) |  | a Prior Year Predecessor Company charge of $6.3 million for
uncollectible managed care receivables ($2.9 million of which related
to the ongoing host businesses); and
|
| | 3) |  | a reduction in advertising spending of approximately
$3.2 million in the Current Year versus the Prior Year.                                                          

15



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##### 



This decrease was partially offset by:



| | 1) |  | approximately $800,000 in incremental costs incurred for evaluating
and implementing organizational changes. These costs are expected to
continue in the first half of 2003 as we proceed with this process,
and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2) |  | increases in retail-level payroll costs, which increased approximately
$4.9 million or 1.0% of sales over the Prior Year.                                                                                       

This payroll increase was due to 1) an increase in health and medical benefit
costs and 2) an increase in rates in certain markets, where growing competition
resulted in upward pressure on rates for optical personnel.

Operating income.Operating income increased from a loss of $2.7 million in
the Prior Year to income of $5.9 million in the Current Year primarily due to
the disposition of the freestanding operations in April 2001. Operating income
as a percentage of sales was 2.4% in the Current Year, compared to -1.1% in the
Prior Year.

Interest expense.Interest expense in the Current Year represents a full
years worth of interest incurred on an average subordinated debt balance of
$116 million. As a result of the Companys Chapter 11 proceedings, the Company
did not accrue interest on subordinated debt until it emerged from Chapter 11
in May 2001.

Reorganization gain.The reorganization gain of $102.5 million in 2001 is
discussed in detail under Year Ended December 29, 2001 Compared to Year Ended
December 30, 2000.

Income taxes.The Company incurred
tax operating losses in 2002 and 2001. Resulting tax benefits have
been offset by a valuation allowance as realization is
considered unlikely.

Extraordinary gain, net.During the Current Year, the Company repurchased
notes with a face value of approximately $4.5 million for $3 million in cash,
which included accrued interest of approximately $106,000. These transactions
resulted in an extraordinary, non-cash gain of $1.6 million. The extraordinary
gain in the Prior Year represents the gain on extinguishment of debt as
recorded in fresh start accounting.

Net income / (loss).The Company
posted a net loss of $6.2 million in the
Current Year versus net income of $107.5 million in the Prior Year. The
current period variance is primarily the result of fresh start adjustments and
the gain on extinguishments of debt recognized in May 2001 as the Company
emerged from Chapter 1l.

EBITDA.EBITDA is calculated as net
earnings before interest, taxes,
depreciation and amortization, extraordinary items, cumulative effect
of a change in accounting principle and reorganization items. (See Managements Discussion and Analysis of
Financial Condition and Results of Operations  Use of Non-GAAP Financial
Measures.)

The following is a reconciliation of net earnings to EBITDA:

2002
    
    2001Net earnings / (loss)
    
    $
    (6,204
    )
    
    $
    107,463Addback:Interest expense, net
    
    
    13,629
    
    
    
    9,539Reorganization expense / (gain)
    
    
    
    
    
    
    (102,515
    )Income tax expense
    
    
    
    
    
    
    Extraordinary
(gain) / loss, net
    
    
    (1,566
    )
    
    
    (17,182
    )Cumulative effect, net
    
    
    
    
    
    
    Depreciation and amortization
    
    
    18,999
    
    
    
    16,233EBITDA
    
    $
    24,858
    
    
    $
    13,538


16



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##### 



THREE MONTHS ENDED DECEMBER 28, 2002 (CURRENT THREE MONTHS) COMPARED TO THE
THREE MONTHS ENDED DECEMBER 29, 2001 (PRIOR THREE MONTHS)

Condensed consolidated results for the fourth quarter of 2002 and 2001 are
included in the quarterly pro forma table on page 23. Both quarters shown are
actual results. We are presenting a discussion of fourth quarter results as we
believe it is relevant to the reader in conjunction with consideration and
review of the quarterly financial results filed with the SEC for the first,
second and third quarters of 2002. Significant variances are discussed below.

Net Sales.The Company recorded net sales of $61.5 million in the Current
Three Months versus $57.2 million in the Prior Three Months, an increase of
$4.3 million or 7.5%. This increase was primarily due to
November programs
that gave rise to a quarterly domestic comparable store sales increase of 5.5%.
Premium revenue of approximately $0.8 million in the Current Three Months also
contributed to the total net sales increase.

Gross profit.In the Current Three Months, gross profit dollars increased by
$1.0 million over the Prior Three Months. Gross profit percentages declined
from 52.6% in the Prior Three Months to 50.5% in the Current Three Months as
the product mix shifted towards contact lenses and accessories, which have
lower margins than eyeglass sales. Also, premium revenues, which have a gross
profit margin of approximately 7 to 10%, contributed to the decline in gross
profit percentage in the Current Three Months. Also, in connection
with finalizing financial results for 2002, the Company recorded certain
adjustments which had the effect of increasing cost of goods sold from
levels preliminarily reported in a Form 8-K filed on
April 10, 2003.

Selling, general and administrative expense (SG&A).SG&A expense (which
includes both store operating expenses and home office overhead) increased from
$30.1 million in the Prior Three Months to $31.4 million in the Current Three
Months. Increases in compensation costs were a significant factor in the
dollar increase in SG&A expenses. More specifically, fourth quarter 2002
includes payroll cost in excess of $1 million related to a quarterly management
incentive plan as well as approximately $400,000 of expenses related to its review of the
Companys retail and support organization. Expenses for this project will
continue into the first half of 2003, as we proceed with this process. SG&A
expense decreased as a percent of sales from 52.7% in the Prior Three Months to
51.1% in the Current Three Months. This decline is partially due to:



| | 1) |  | significant improvements in managed care processing which resulted in a decline in receivable
write-offs in the Current Three Months, and
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|
| | 2) |  | a reduction in advertising spending in the Current Three Months versus the Prior Three Months.                                           

The current year improvement in SG&A expenses as a percent of sales was
partially offset by increases in rent expense (which is a component of gross
profit) as a percent of sales for the Wal-Mart division. This was due to
approximately 46 vision centers entering the three-year option period of the
Wal-Mart lease since the end of the Prior Year. The option period effectively
increases each locations minimum rent requirement. We expect this trend of
increased rent to continue as additional Wal-Mart locations enter the option
period of their lease. During 2002, the Companys effective rent percentage on
the Wal-Mart store revenues was approximately 14.0%. Any significant shortfall
in comparable store sales would have a negative impact on occupancy expense as
a percent of sales. The Company cannot give any assurances that it will be
able to continue to record comparable sales increases at historical levels.

Operating income.Operating income
for the Current Three Months declined $0.5
million to a loss of $549,000 from a loss of $48,000 in the Prior Three Months primarily
due to the shift in product mix as previously discussed.

Interest expense. Interest expense
declined by $0.7 million in the Current Three
Months to $3.0 million due to principal repayments and repurchases totaling
$10.4 million since the Prior Three Months.

Extraordinary gain.The Company repurchased notes with a face value of
approximately $2.8 million for $1.8 million in cash, which included accrued
interest of approximately $20,000. These transactions resulted in an
extraordinary, non-cash gain of $1.0 million in the Current Three Months.

17



---



---



##### 



Net loss.The Companys net loss in the Current Three Months was approximately
$2.5 million compared to a net loss of $3.7 million in the Prior Three Months.
This improvement of $1.2 million over the Prior Three Months is attributable to
three factors:



| | 1) |  | strong operating performance in the Current Three Months, as evidenced by
domestic comparable store sales growth of 5.5%;     
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------
|
| | 2) |  | decreases in interest expense due to reductions in the total outstanding debt; and                                            
|
| | 3) |  | an extraordinary gain of approximately $1.0 million as we repurchased a portion
of our senior subordinated debt at a discount.

YEAR ENDED DECEMBER 29, 2001 COMPARED TO YEAR ENDED DECEMBER 30, 2000

Net Sales. The Company recorded net sales of $256.1 million in fiscal 2001, a
decrease of 16.8% from sales of $307.7 million in fiscal 2000. Sales decreased
due to the following reasons:



| |  |  | In April 2001, the Company disposed of the remainder of its
freestanding stores. These stores had sales of approximately $61
million in 2000 versus sales of $18 million in 2001.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Company closed all of its Sams Club operations in the third
quarter of 2000. These locations had sales of approximately $12
million in fiscal 2000.                         

Comparable store sales in the Companys Wal-Mart business declined 0.5% from
levels recorded in the prior fiscal year. This decrease was partially offset
by sales from 5 new stores opened in 2001.

Gross Profit.In the Current Year, gross profit decreased to $137.2 million
from $164.2 million in the prior year. This decrease in gross profit was
primarily driven by a reduction in sales caused by the closure of the
freestanding locations and the Sams Club locations. Gross margin, as a
percent of sales, increased to 53.6% from 53.4% in the Prior Year. Gross
margin percentage was positively impacted by an increase in eyeglass margins,
resulting from the introduction and repositioning of certain eyeglass lens
items and additional price-point options placed on the frame boards. Also, the
Company recorded a charge of approximately $2.6 million and $1.1 million to
adjust inventory of the freestanding locations to its net realizable value in
the Current Year and the Prior Year, respectively.

The current year improvement was partially offset by increases in rent expense
(which is a component of gross profit) as a percent of sales for the Wal-Mart
division. This was due to approximately 46 vision centers entering the
three-year option period of the Wal-Mart lease since the end of the Prior Year.
The option period effectively increases each locations minimum rent
requirement. We expect this trend of increased rent to continue as additional
Wal-Mart locations enter the option period of their lease. The Company believes
that, on the basis of comparable store sales growth it has historically
achieved over the five year period prior to 2001, occupancy expense under the
Wal-Mart agreement as a percent of sales should not, in the foreseeable future,
increase by more than one percentage point over levels recorded in 2001. During
2001, the Companys effective rent percentage on the Wal-Mart store revenues
was approximately 13.5%. The Company cannot give any assurances that it will
be able to continue to record comparable sales increases at these historical
levels. Any significant shortfall in comparable store sales would have a
negative impact on occupancy expense as a percent of sales.

Selling, General, And Administrative Expense(SG&A expense). SG&A expense
(which includes both store operating expenses and home office overhead)
decreased to $139.9 million in the Current Year from $166.4 million for the
Prior Year. The dollar decrease was primarily the result of lower payroll,
depreciation and other expenses due to the above-mentioned store dispositions
and closures. However, SG&A expense increased as a percent of sales from 54.1%
in the Prior Year to 54.6% in the Current Year.

18



---



---



##### 



The percentage increase in SG&A was the result of



| |  |  | the amortization of the newly established intangible value of
contractual rights of approximately $4.4 million for the seven months
ended December 29, 2001;                                                                       
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a $6.3 million charge for uncollectible managed care receivables in
the Predecessor Company ($2.9 million of which related to ongoing
businesses);                                                                                 
|
| |  |  | an increase in freestanding healthcare costs of approximately $1.0
million; and                                                                                                                                                    
|
| |  |  | an increase in third party processing costs as a result of
increased managed care sales and receipts. Third party processing
costs as a percentage of sales are expected to increase as sales under
managed care programs increase.

The percentage increase in SG&A partially offset by



| |  |  | a 1.7% decrease in retail and field supervision payroll costs as a
percent of sales primarily due to the closure of the freestanding
stores that had higher payroll costs as a percent of sales;                                                                                                                                                                                                                                                      
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a charge of approximately $0.5 million in the Prior Year to adjust
accounts receivable in the Companys freestanding stores to net
realizable value; and                                                                                                                                                                                                                                                                                              
|
| |  |  | a reduction in total advertising expenditures in the Current Year
due to the disposal of the Companys freestanding locations.
Historically the Companys advertising expenditures for the
freestanding locations have been in excess of 10% of sales, well in
excess of expenditures as a percentage of sales for the domestic host
businesses. Advertising for the Companys domestic host businesses in
2001 is up slightly from historical levels.

Impairment Loss and Restructuring Expense. In the first quarter of 2000, the
Company recorded a non-cash pre-tax charge of approximately $2.7 million,
primarily related to the impairment of leasehold improvements and furniture and
fixtures of 91 stores which were closed prior to the Companys Chapter 11
filing. Also, the Company recorded a $1.6 million reserve for anticipated
closing costs which was comprised of $1.4 million of lease termination costs
and $0.2 million of severance and other closing costs.

Operating Loss. The operating loss for the Current Year was $2.7 million
compared to a loss of $6.4 million in the Prior Year. Operating loss as a
percentage of sales prior to the restructuring reserve and the impairment loss
was 1.1% in the Current Year, compared to a loss of 0.7% in the Prior Year.
This improvement was primarily due to the closure of the freestanding locations
and the Sams Club locations.

Interest Expense. Interest expense increased to $9.5 million compared to $7.7
million in the Prior Year. In the Prior Year, the Company stopped accruing
interest on unsecured debt. The Company emerged from bankruptcy on May 31,
2001, and new senior notes in the amount of $120 million, bearing interest of
12%, were issued and the previous notes were cancelled. The new notes were
outstanding for seven months in the current period and interest of
approximately $8.4 million was accrued. Contractual interest for the Prior
Year was $20.7 million.

Reorganization Items. The Company recorded all transactions incurred as a
result of the Chapter 11 filing separately as reorganization items. There were
no reorganization items recorded after June 2, 2001, as the Company emerged
from bankruptcy. The table below summarizes the items incurred by the
Predecessor Company (amounts in thousands):

19



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##### 



|                                          |                               |   |              |          |                   |   |         |         | 
|----------------------------------------- | ----------------------------- | - | ------------ | -------- | ----------------- | - | ------- | ------- | 
|                                          |                               |   | Five Months  |          | Twelve Months    
|                                          |                               |   | Ended        |          | Ended            
|                                          |                               |   | June 2, 2001 |          | December 30, 2000
|                                          |                               |   |              |          |                  
|Fresh start adjustments(a)                |                               | $ | (114,263     | )        |                   | $ |        |        
|Impairment of goodwill                    |                               |   |             |          |                   |   | 100,805 |        
|Impairment of fixed assets                |                               |   | 33           |          |                   |   | 12,000  |        
|Provision for rejected leases             |                               |   | 1,592        |          |                   |   | 1,920   |        
|Loss on disposal of freestanding division |                               |   | 3,645        |          |                   |   |        |        
|Other store closing costs                 |                               |   | 532          |          |                   |   | 670     |        
|Retention plan                            |                               |   | 3,231        |          |                   |   | 2,173   |        
|Professional fees                         |                               |   | 2,008        |          |                   |   | 3,421   |        
|Letter of credit reserve on DIP Facility  |                               |   | 197          |          |                   |   |        |        
|Interest income on accumulated cash       |                               |   | (127         | )        |                   |   | (144    | )      
|Other reorganization costs                |                               |   | 637          |          |                   |   | 694     |        
|                                          |                               |   |              |          |                   |   |         |        
|                                          | Reorganization (gain)/expense |   | $            | (102,515 | )                 |   | $       | 121,539 | 
|                                          |                               |   |              |          |                   |   |         |        



---

|(a) |  | The adjustments represent the elimination of Predecessor
Company equity and the fair value adjustments that were made
as part of fresh-start accounting.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

20



---



---



##### 



Benefit For Income Taxes. The Company
generated operating losses for tax purposes in 2002. No income tax
benefit has been recorded as realization is not considered probable.

Extraordinary Items. In 2001, as part of the Companys emergence from
bankruptcy, the Predecessor Company recognized an extraordinary gain of $17.2
million related to the extinguishment of debt. The gain was calculated as
follows:

|                                                           |  |   |         |  
|---------------------------------------------------------- |  | - | ------- | -
|Net
liabilities subject to compromise                      |  | $ | 169,245 |  
|Deferred financing costs related to
cancelled senior notes |  |   | (7,063  | )
|                                                           |  |   |         |  
|Net liabilities extinguished                               |  |   | 162,182 |  
|Less: Reorganized value                                    |  |   | 145,000 |  
|                                                           |  |   |         |  
|Gain on extinguishment of debt                             |  | $ | 17,182  |  
|                                                           |  |   |         |  

The 2000 results also include an extraordinary loss of $827,000 associated with
the write-off of the capitalized costs of the Companys previous Foothill
credit facility.

Net Income / (loss).The Company posted net income of $107.5 million in the
Current Year versus a net loss of $139.9 million in the Prior Year. Of the
2001 net income of $107.5 million, $102.5 million results from a reorganization
gain, as noted above.

EBITDA. EBITDA is calculated as net
earnings before interest, taxes,
depreciation and amortization, extraordinary items, cumulative effect
of a change in accounting principle, and reorganization items. (See Managements Discussion and Analysis of Financial
Condition and Results of Operations  Use of non-GAAP financial Measures.)

The following is a reconciliation of operating income to EBITDA (amounts in
thousands):

2001
    
    2000Net earnings / (loss)
    
    $
    107,463
    
    
    $
    (139,880
    )Addback:Interest expense, net
    
    
    9,539
    
    
    
    7,723Reorganization expense / (gain)
    
    
    (102,515
    )
    
    
    121,539Income tax expense
    
    
    
    
    
    
    Extraordinary
(gain) / loss, net
    
    
    (17,182)
    
    
    
    827Cumulative effect, net
    
    
    
    
    
    
    3,378Depreciation and amortization
    
    
    16,233
    
    
    
    17,526EBITDA
    
    $
    13,538
    
    
    $
    11,113


Proceedings Under Chapter 11 of the Bankruptcy Code

On April 5, 2000, the Company and ten of its subsidiaries (collectively, the
Debtors) filed voluntary petitions with the United States Bankruptcy Court
for the Northern District of Georgia for reorganization under Chapter 11 (the
Chapter 11 Cases). In March 2001, the Debtors filed a plan of reorganization
(the Plan) for the Chapter 11 Cases. The Plan was confirmed by the
bankruptcy court on May 18, 2001. On May 31, 2001, after securing a new
revolving credit facility with Fleet Capital Corporation, the Company emerged
from bankruptcy.

Under the Plan, the Companys pre-petition unsecured claims were converted into
new secured notes and common stock. The secured notes have a face value of
$120 million, provide for the payment of interest of 12% twice a year at the
end of March and September, and are subordinated to debt under the Companys
credit facility. The notes are payable over eight years with principal
repayments based on excess cash flow for the prior six month period. Five
million shares of new common stock, par value $0.01, were issued, based on the
Companys reorganization value. Under the Plan, former shareholders received
no value for their interests, consequently, all common stock issued prior to
emergence from bankruptcy was cancelled.

The Companys reorganization value was developed by the Company, the Official
Committee of Unsecured Creditors and their respective financial advisors. The
reorganization value was based on a calculation of the present value of the
free cash flows under the Companys financial projections, including an
assumption of a terminal value. Such projections were necessarily based on a
variety of estimates and assumptions which might not be realized and are
inherently subject to significant uncertainties and contingencies. Some
assumptions inevitably will not materialize. The projections therefore should
not be considered as a guarantee or other assurance of actual results.

21



---



---



##### 



The allocation of the Companys reorganization value is shown below:

|                     |            |   |         |         | 
|-------------------- | ---------- | - | ------- | ------- | 
|Reorganized value:   |            |   |         |        
|                     | New Debt   |   | $       | 120,000 | 
|                     | New Equity |   |         | 25,000  | 
|                     |            |   |         |        
|Reorganization value |            | $ | 145,000 |        
|                     |            |   |         |        

In the allocation of the reorganization value, the Companys tangible and
intangible assets were recorded at their assumed fair value. Intangible Value
of Contractual Rights, approximating $113.6 million, was established as part of
fresh start accounting and will be amortized over 15 years using the
straight-line method. This intangible asset represents the value of the
Companys lease agreement and the business relationship developed with
Wal-Mart. In accordance with SFAS No. 142, Goodwill and Other Intangible
Assets, this intangible is an amortizable asset because it has a finite useful
life. However, the precise length of its life is subject to future change due
to various reasons, including the Wal-Mart superstore conversions that
automatically trigger extensions on the contractual life of the asset, possible
changes and/or extensions to the Master Lease Agreement as well as other
businesses that may be developed through our relationship with Wal-Mart. Based
on projections, management believes that the best estimate of the useful life
of this asset is 15 years. Due to the uncertainty involved in predicting the
pattern of economic benefits realized from the Wal-Mart relationship, this
asset is amortized using the straight-line method.

22



---



---



##### 



HISTORICAL PRO FORMA RESULTS OF ONGOING OPERATIONS.

On April 20, 2001 the Predecessor Company completed the sale of its
freestanding retail operations to Vista Acquisition LLC (the Buyer). We
received consideration of approximately $7.0 million, consisting of $5.7
million in cash and a $1.3 million note receivable. The note receivable was
fully reserved at the time of the sale, due to the low probability of
collection. The assets sold consisted primarily of furniture, fixtures and
inventory at approximately 200 freestanding locations and inventory and
equipment at the Fullerton, California laboratory/distribution center. In a related transaction, the Company agreed to sell, subject to regulatory approval, to the Buyer its interest
in a managed care subsidiary. The net book value of the assets of the
subsidiary ($1.1 million) was fully reserved upon the agreement date as the Buyer took possession of these assets; however, the Company received no
consideration from the Buyer for these assets and future receipt was uncertain. For purposes of the unaudited
pro forma financial information, these transactions have been combined.

The following information presents the Companys results of operations for the
retail store operations retained by the Company upon emergence from bankruptcy
in June 2001. In addition to the exclusion of the freestanding store financial
results, the pro forma information also excludes the financial results of other
dispositions that occurred during the bankruptcy process, including the Sams
Club stores and Meijer Thrifty Acres stores. Accordingly, data for the first
and second quarter of 2001 is presented on a pro forma basis as if all disposed
operations were closed or disposed of as of the beginning of 2001. The pro forma information does not necessarily reflect
actual results that would have occurred nor is it necessarily indicative
of future results of operations of the Company without the closed or
disposed operations. Costs related to the bankruptcy, reorganization and restructuring costs are excluded.

|                                       |  |         |        |         |  |         |        |         |  |        |        |   |  |   |        |   |  |   |         |  
|-------------------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | ------ | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                       |  | First   |        | Second  |  | Third   |        | Fourth  |  | Fiscal
|2002                                   |  | Quarter |        | Quarter |  | Quarter |        | Quarter |  | 2002  
|                                       |  |         |        |         |  |         |        |         |  |       
|Store count at end of period           |  |         | 516    |         |  |         | 518    |         |  |        | 518    |   |  |   | 518    |   |  |   | 518     |  
|Domestic comparable store sales growth |  |         | 0.0    | %       |  |         | 1.0    | %       |  |        | 1.5    | % |  |   | 5.5    | % |  |   | 2.0     | %
|                                      
|Net sales                              |  | $       | 61,873 |         |  | $       | 61,935 |         |  | $      | 61,745 |   |  | $ | 61,467 |   |  | $ | 247,020 |  
|Gross profit                           |  | $       | 34,893 |         |  | $       | 34,255 |         |  | $      | 34,358 |   |  | $ | 31,068 |   |  | $ | 134,574 |  
|Operating income                       |  | $       | 2,160  |         |  | $       | 2,008  |         |  | $      | 2,239  |   |  | $ | (549   | ) |  | $ | 5,859   |  
|Net loss                               |  | $       | (1,420 | )       |  | $       | (1,556 | )       |  | $      | (753   | ) |  | $ | (2,475 | ) |  | $ | (6,204  | )
|                                      
|Capital expenditures                   |  | $       | 796    |         |  | $       | 1,357  |         |  | $      | 825    |   |  | $ | 2,231  |   |  | $ | 5,209   |  
|Depreciation and amortization          |  | $       | 4,953  |         |  | $       | 4,868  |         |  | $      | 4,791  |   |  | $ | 4,387  |   |  | $ | 18,999  |  

|                                       |  |           |        |           |  |         |        |         |  |        |        |   |  |           |        |   |  |   |         |  
|-------------------------------------- |  | --------- | ------ | --------- |  | ------- | ------ | ------- |  | ------ | ------ | - |  | --------- | ------ | - |  | - | ------- | -
|                                       |  | Pro Forma |        | Pro Forma |  |         |        |         |  |        |        |   |  | Pro Forma
|                                       |  | First     |        | Second    |  | Third   |        | Fourth  |  | Fiscal
|2001                                   |  | Quarter   |        | Quarter   |  | Quarter |        | Quarter |  | 2001  
|                                       |  |           |        |           |  |         |        |         |  |       
|Store count at end of period           |  |           | 502    |           |  |         | 503    |         |  |        | 505    |   |  |           | 514    |   |  |   | 514     |  
|Domestic comparable store sales growth |  |           | -0.5   | %         |  |         | 0.5    | %       |  |        | 0.0    | % |  |           | -0.5   | % |  |   | 0.0     | %
|                                      
|Net sales                              |  | $         | 60,906 |           |  | $       | 60,042 |         |  | $      | 59,741 |   |  | $         | 57,196 |   |  | $ | 237,885 |  
|Gross profit                           |  | $         | 33,357 |           |  | $       | 33,699 |         |  | $      | 33,644 |   |  | $         | 30,100 |   |  | $ | 130,800 |  
|Operating income                       |  | $         | 4,428  |           |  | $       | 789    |         |  | $      | 2,204  |   |  | $         | (48    | ) |  | $ | 7,374   |  
|Net earnings /(loss)                   |  | $         | 3,689  |           |  | $       | (731   | )       |  | $      | (1,469 | ) |  | $         | (3,655 | ) |  | $ | (2,165  | )
|                                      
|Capital expenditures                   |  | $         | 1,200  |           |  | $       | 1,100  |         |  | $      | 970    |   |  | $         | 1,445  |   |  | $ | 4,715   |  
|Depreciation and amortization          |  | $         | 2,817  |           |  | $       | 3,443  |         |  | $      | 4,979  |   |  | $         | 4,910  |   |  | $ | 16,149  |  

Reconciliation to Pro Forma Results

A reconciliation of the quarterly results for the
first and second quarter of 2001 from reported results to pro forma results is presented in the following tables (amounts in thousand):

|                                                                                                                      |  |                                  |        |             |  |           |        |     |  |   |        | 
|--------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | ----------- |  | --------- | ------ | --- |  | - | ------ | 
|                                                                                                                      |  | Three
Months EndedMarch 31, 2001
|                                                                                                                      |  |                                 
|                                                                                                                      |  | As Reported                      |        | Adjustments |  | Pro Forma
|                                                                                                                      |  |                                  |        |             |  |          
|Net sales                                                                                                             |  | $                                | 74,735 |             |  | $         | 13,829 | (D) |  | $ | 60,906 | 
|Cost of goods sold                                                                                                    |  |                                  | 34,525 |             |  |           | 6,976  | (D) |  |   | 27,549 | 
|                                                                                                                      |  |                                  |        |             |  |           |        |     |  |   |        | 
|Gross profit                                                                                                          |  |                                  | 40,210 |             |  |           | 6,853  |     |  |   | 33,357 | 
|Selling, general & administrative                                                                                     |  |                                  | 39,071 |             |  |           | 10,142 | (D) |  |   | 28,929 | 
|                                                                                                                      |  |                                  |        |             |  |           |        |     |  |   |        | 
|Operating income / (loss)                                                                                             |  |                                  | 1,139  |             |  |           | (3,289 | )   |  |   | 4,428  | 
|Interest expense, net                                                                                                 |  |                                  | 739    |             |  |           |       |     |  |   | 739    | 
|                                                                                                                      |  |                                  |        |             |  |           |        |     |  |   |        | 
|Loss before reorganization items, taxes, extraordinary item
and cumulative effect of a change in accounting principle |  |                                  | 400    |             |  |           | (3,289 | )   |  |   | 3,689  | 
|Reorganization expense / (gain)                                                                                       |  |                                  | 1,789  |             |  |           | 1,789  | (E) |  |   |       | 
|                                                                                                                      |  |                                  |        |             |  |           |        |     |  |   |        | 
|(Loss) / earnings before taxes, extraordinary item and
cumulative effect of a change in accounting principle          |  |                                  | (1,389 | )           |  |           | (5,078 | )   |  |   | 3,689  | 
|Income taxes                                                                                                          |  |                                  |       |             |  |           |       |     |  |   |       | 
|                                                                                                                      |  |                                  |        |             |  |           |        |     |  |   |        | 
|Net earnings / (loss) before extraordinary item and
cumulative effect of a change in accounting principle             |  |                                  | (1,389 | )           |  |           | (5,078 | )   |  |   | 3,689  | 
|Extraordinary (loss) / gain, net                                                                                      |  |                                  |       |             |  |           |       |     |  |   |       | 
|                                                                                                                      |  |                                  |        |             |  |           |        |     |  |   |        | 
|Net earnings / (loss)                                                                                                 |  | $                                | (1,389 | )           |  | $         | (5,078 | )   |  | $ | 3,689  | 
|                                                                                                                      |  |                                  |        |             |  |           |        |     |  |   |        | 

|                                                                                                                      |  |                                 |          |             |  |           |          |      |  |   |        |  
|--------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | -------- | ----------- |  | --------- | -------- | ---- |  | - | ------ | -
|                                                                                                                      |  | Three
Months EndedJune 30, 2001
|                                                                                                                      |  |                                
|                                                                                                                      |  | As Reported (A)                 |          | Adjustments |  | Pro Forma
|                                                                                                                      |  |                                 |          |             |  |          
|Net sales                                                                                                             |  | $                               | 64,428   |             |  | $         | 4,386    | (D)  |  | $ | 60,042 |  
|Cost of goods sold (B)                                                                                                |  |                                 | 31,174   |             |  |           | 4,831    | (D)  |  |   | 26,343 |  
|                                                                                                                      |  |                                 |          |             |  |           |          |      |  |   |        |  
|Gross profit                                                                                                          |  |                                 | 33,254   |             |  |           | (445     | )    |  |   | 33,699 |  
|Selling, general & administrative (C)                                                                                 |  |                                 | 39,244   |             |  |           | 6,334    | (D)  |  |   | 32,910 |  
|                                                                                                                      |  |                                 |          |             |  |           |          |      |  |   |        |  
|Operating income / (loss)                                                                                             |  |                                 | (5,990   | )           |  |           | (6,779   | )    |  |   | 789    |  
|Interest expense, net                                                                                                 |  |                                 | 1,520    |             |  |           |         |      |  |   | 1,520  |  
|                                                                                                                      |  |                                 |          |             |  |           |          |      |  |   |        |  
|Loss before reorganization items, taxes, extraordinary item
and cumulative effect of a change in accounting principle |  |                                 | (7,510   | )           |  |           | (6,779   | )    |  |   | (731   | )
|Reorganization expense / (gain)                                                                                       |  |                                 | (104,304 | )           |  |           | (104,304 | )(E) |  |   |       |  
|                                                                                                                      |  |                                 |          |             |  |           |          |      |  |   |        |  
|(Loss) / earnings before taxes, extraordinary item and
cumulative effect of a change in accounting principle          |  |                                 | 96,794   |             |  |           | 97,525   |      |  |   | (731   | )
|Income taxes                                                                                                          |  |                                 |         |             |  |           |         |      |  |   |       |  
|                                                                                                                      |  |                                 |          |             |  |           |          |      |  |   |        |  
|Net earnings / (loss) before extraordinary item and
cumulative effect of a change in accounting principle             |  |                                 | 96,794   |             |  |           | 97,525   |      |  |   | (731   | )
|Extraordinary (loss) / gain, net                                                                                      |  |                                 | 17,182   |             |  |           | 17,182   | (E)  |  |   |       |  
|                                                                                                                      |  |                                 |          |             |  |           |          |      |  |   |        |  
|Net earnings / (loss)                                                                                                 |  | $                               | 113,976  |             |  | $         | 114,707  |      |  | $ | (731   | )
|                                                                                                                      |  |                                 |          |             |  |           |          |      |  |   |        |  



---

|(A) |  | For the three months ending
June 30, 2001, represents the combination of the Predecessor Companys financial
results for the two months ended June 2, 2001 and the Successor
Companys financial results for the one month ending June 30,
2001.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(B) |  | Includes a $2.6 million charge to reflect the net realizable value
of certain inventories impacted by the sale of the freestanding
operations.                                                                                                  
|   
|(C) |  | Includes a $6.3 million charge for uncollectible accounts
receivable incurred by the Predecessor Company, $2.9 million of
which related to host vision centers.                                                                                 
|   
|(D) |  | Represents the results of the disposed operations that were
either sold or closed during the restructuring of the Company.                                                                                                                      
|   
|(E) |  | Reorganization items and the
Extraordinary gain were expenses/gains recorded during the
Companys Chapter 11 proceedings and are not expenses/gains
of the Successor Company.                                                                   

23



---



---



##### 



Year Ended December 28, 2002 (Current Year)
Compared to the Pro Forma Year Ended December 29, 2001 (Pro Forma Prior Year)

|                              |  |                   |         |                   |  |   |         |  
|----------------------------- |  | ----------------- | ------- | ----------------- |  | - | ------- | -
|                              |  | Fiscal Year Ended
|                              |  |                  
|                              |  | December 28, 2002 |         | December 29, 2001
|                              |  |                   |         |                  
|Domestic store comp %         |  |                   | 2.0     | %                 |  |   | 0.0     | %
|Store count at end of period  |  |                   | 518     |                   |  |   | 514     |  
|                              |  |                   |         |                   |  |   |         |  
|Net sales                     |  | $                 | 247,020 |                   |  | $ | 237,885 |  
|Gross profit                  |  | $                 | 134,574 |                   |  | $ | 130,800 |  
|Operating income              |  | $                 | 5,859   |                   |  | $ | 7,374   |  
|Net
earnings/(loss)           |  | $                 | (6,204  | )                 |  | $ | (2,165  | )
|                              |  |                   |         |                   |  |   |         |  
|Capital expenditures          |  | $                 | 5,209   |                   |  | $ | 4,715   |  
|Depreciation and amortization |  | $                 | 18,999  |                   |  | $ | 16,149  |  

Other variances are discussed below:



| |  |  | Net sales increased over the Pro Forma Prior Year primarily due to a
2.0% domestic comparable store sales increase and premium revenue of
$2.2 million in the Current Year.                                                                                                                                                                                                                                                                                                                                                   
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Gross profit as a percent of
sales decreased to 54.5% from 55.0% in
the Pro Forma Prior Year. This percentage decrease was partially
driven by $2.2 million in sales of a new managed care product in the
Companys California Wal-Mart stores. This product has a profit
margin of approximately 7 to 11% of sales, which served to increase
the Companys gross profit dollars, but decreases gross profit as a
percent of sales.                                                                                           
|
| |  |  | Operating income declined in the Current Year primarily as a result of
the amortization of Intangible Value of Contractual Rights and
depreciation of revalued fixed assets, both of which were established
during fresh start accounting. The incremental increase in these
expenses was $3.8 million in the Current Year. This increase in
expenses was partially offset by the Prior Year non-cash provision of
$2.9 million related to receivables.                                                                       
|
| |  |  | SG&A expense increased due to an increase in payroll costs as a
percent of sales primarily resulting from new store openings and an
increase in benefit costs and payroll rates in certain markets where
increased competition has resulted in upward pressure on rates for
optical personnel. Also, in the fourth quarter of 2002, the Company
incurred approximately $800,000 of consulting expenses and other
organizational costs as part of our review of the retail and support
organizations, processes and technology.

24



---



---



##### 





---

USE OF NON-GAAP FINANCIAL MEASURES

We frequently refer to EBITDA in this document. EBITDA is calculated as
net earnings before interest, taxes, depreciation and amortization,
extraordinary items, cumulative effect of a change in accounting
principle, and reorganization items as
defined in the terms of our Senior Subordinated Debt agreement. We refer to EBITDA
because:



| |  |  | it is the basis for the calculation of the excess cash flow
principal repayment under our senior notes; and
| | - |  | -----------------------------------------------------------------------------------------------------------
|
| |  |  | it is a widely accepted financial indicator of a companys ability
to service or incur indebtedness.       

EBITDA does not represent cash flow from operations as defined by generally
accepted accounting principles, is not necessarily indicative of cash available
to fund all cash flow needs, should not be considered an alternative to net
income or to cash flow from operations (as determined in accordance with GAAP)
and should not be considered an indication of our operating performance or as a
measure of liquidity. EBITDA is not necessarily comparable to similarly titled
measures for other companies.

Reconciliation of Non-GAAP Financial Measures

This table includes the reconciliation of net earnings to EBITDA of reported
results to the historical pro forma results for the Year Ended December 29,
2001. EBITDA is calculated as net earnings before interest, taxes, depreciation, and amortization. (See Managements Discussion and Analysis of
Financial Condition and Results of Operations  Use of Non-GAAP Financial
Measures.)

Twelve
Months EndedDecember 29, 2001As Reported (A)
    
    Adjustments
    
    Pro FormaNet earnings / (loss)
    
    $
    107,463
    
    
    $
    109,628
    
    
    $
    (2,165
    )Addback:Interest expense, net
    
    
    9,539
    
    
    
    
    
    
    
    9,539Reorganization expense / (gain)
    
    
    (102,515
    )
    
    
    (102,515
    )(C)
    
    
    Income tax expense
    
    
    
    
    
    
    
    
    
    
    Extraordinary
(gain) / loss, net
    
    
    (17,182
    )
    
    
    (17,182
    )(C)
    
    
    Cumulative effect, net
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    16,233
    
    
    
    84
    (B)
    
    
    16,149EBITDA
    
    $
    13,538
    
    
    $
    (9,985
    )(B)
    
    $
    23,523




---

|(A) |  | Represents the combination of the Predecessor Companys financial
results for the five months ended June 2, 2001 and the Successor
Companys financial results for the seven months ending December
29, 2001.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(B) |  | Represents the results of the disposed operations that were
either sold or closed during the restructuring of the Company.                                                                                   
|   
|(C) |  | Reorganization items and the
extraordinary gain were expenses/gains recorded during the
Companys Chapter 11 proceedings and are not expenses/gains
of the Successor Company.                                

SUMMARY OF LEASE AGREEMENTS

We have agreements governing our operations in host environments, such as
Wal-Mart. Typically, each agreement is for a base term, followed by an option
to renew for a specified length of time. The agreements provide for payments
of minimum and percentage rent, and also contain customary provisions for
leased department operations. The table below sets forth key data about each
of these agreements:

|                   |  |                    |     |                 |  |                  |   |                |   |        |   |  |    |                |    | 
|------------------ |  | ------------------ | --- | --------------- |  | ---------------- | - | -------------- | - | ------ | - |  | -- | -------------- | -- | 
|                   |  |                    |     |                 |  |                  |   |                |   |        |   |  |    | No. of Options
|Vision Centers     |  | No. of Units as of |     | Length of Base  |  | Length of Option |   | Exercisable in
|Located In         |  | December 28, 2002  |     | Term (in years) |  | Term (in years)  |   | Fiscal 2003   
|                   |  |                    |     |                 |  |                  |   |               
|Wal-Mart           |  |                    | 399 |                 |  |                  | 9 |                |   |        | 3 |  |    |                | 52 | 
|Fred Meyer         |  |                    | 58  |                 |  |                  | 5 |                |   |        | 5 |  |    |                | 50 | 
|Wal-Mart de Mexico |  |                    | 37  |                 |  |                  | 5 |                |   | 2 or 1 |   |  | 13 |               
|Military Bases     |  |                    | 24  |                 |  | 2 or 5           |   |                |  |        |   |  | 10 |               

Wal-Mart Vision Centers

Our agreement with Wal-Mart gives us the right to open 400 vision centers, the
last of which opened in 2001. Our agreement with Wal-Mart also provides that,
if Wal-Mart converts its own store to a supercenter (a store which contains a
grocery department in addition to the traditional Wal-Mart store offering) and
relocates our vision center as part of the conversion, the term of our lease
begins again. During 2002, 14 locations were relocated, effectively renewing
these leases. We expect approximately 16 leases to relocate to supercenters in
2003. As of December 28, 2002, we have 158 vision centers located in Wal-Mart
supercenters. We believe that Wal-Mart may in the future convert many of its
stores and thereby cause many of our leases to start again. We have received
no assurances from Wal-Mart as to how many of their locations will ultimately
be converted.

25



---



---



##### 



We have previously discussed with Wal-Mart possible amendments to our master
license agreement. The parties have considered various proposals to
restructure the master license agreement. At this time, the parties have not
agreed to amend the master license agreement, which remains in effect. The
Wal-Mart leases will accordingly expire as noted in the table below. The
number of lease expirations indicated could decrease if there are future
supercenter conversions.

The following table sets forth the number of leases for domestic Wal-Mart and
Fred Meyer vision centers that expire each year, assuming the Company exercises
all available options to extend the terms of the leases. This table includes
16 future Wal-Mart superstore conversions which are scheduled at this time.

Leases Expiring in Calendar Year

|           |  |      |   |      |  |      |    |      |  |      |    |      |  |      |    |            |  |  |       |  |  |  |    |  |  |  |    |  |  |          |     |  |  |  |  |     | 
|---------- |  | ---- | - | ---- |  | ---- | -- | ---- |  | ---- | -- | ---- |  | ---- | -- | ---------- |  |  | ----- |  |  |  | -- |  |  |  | -- |  |  | -------- | --- |  |  |  |  | --- | 
|HOST       |  |      |   |      |  |      |    |      |  |      |    |      |  |      |    |            |  |  |       |  |  |  |    |  |  |  |    |  |  | 2009 AND |     |  |  |  | 
|COMPANY    |  | 2002 |   | 2003 |  | 2004 |    | 2005 |  | 2006 |    | 2007 |  | 2008 |    | THEREAFTER |  |  | TOTAL
|           |  |      |   |      |  |      |    |      |  |      |    |      |  |      |    |            |  |  |      
|Wal-Mart   |  |      | 6 |      |  |      | 31 |      |  |      | 41 |      |  |      | 40 |            |  |  | 52    |  |  |  | 58 |  |  |  | 29 |  |  |          | 143 |  |  |  |  | 400 | 
|Fred Meyer |  |      |  |      |  |      |   |      |  |      |   |      |  |      |   |            |  |  |      |  |  |  |   |  |  |  | 58 |  |  |          |    |  |  |  |  | 58  | 
|           |  |      |   |      |  |      |    |      |  |      |    |      |  |      |    |            |  |  |       |  |  |  |    |  |  |  |    |  |  |          |     |  |  |  |  |     | 
|Totals     |  |      | 6 |      |  |      | 31 |      |  |      | 41 |      |  |      | 40 |            |  |  | 52    |  |  |  | 58 |  |  |  | 87 |  |  |          | 143 |  |  |  |  | 458 | 

Of the six Wal-Mart leases scheduled to expire in 2002, one location was closed
in the first quarter of 2002 at the end of the original nine-year lease term.
The remaining five leases expired on December 31, 2002, which fell in the
Companys fiscal year 2003. These five leases represent annualized sales of
approximately $3.3 million and annualized store-level cash flow of
approximately $1 million. In 2003, 36 leases are scheduled to expire over the
course of the year, including five closed on December 31, 2002; 13 in the first
quarter, five in the second quarter, seven in the third quarter, and
eleven in
the fourth quarter. These stores represent annualized sales of approximately
$16.6 million and annualized store-level cash flow of approximately $2.3
million. Store-level cash flow excludes corporate overhead and other costs not
specifically attributable to individual stores. The Company anticipates that
the results of stores which cease operations in 2003 will be shown as
discontinued operations beginning in 2003.

As of March 7, 2003, we have closed 13 Wal-Mart vision centers in fiscal 2003.
We are experiencing declining sales of approximately -25% in the final month of
operations for stores that are closing. We also have incurred store closing
costs, including severance related to the thirteen stores closed through March
7, 2003. Store closing costs average between $5,000 and $10,000 per vision
center.

As of December 28, 2002, we had 126 vision centers that were operating in the
three-year extension period of the Wal-Mart lease. We exercised our option to
renew the leases for the three year extension period for 43 Wal-Mart vision
centers in 2002. The base term for 52 vision centers expires in 2003, and we
will need to determine which leases to extend. We expect to renew the leases
for the vast majority of these vision centers. These decisions will be based
on various factors, including sales levels, anticipated future profitability,
increased rental fees in the option period, and market share.

Other Vision Centers

Our agreement with Wal-Mart de Mexico provides that each party will not deal
with other parties to operate leased department vision centers in Mexico. (We
have agreed to waive this restriction for the next five stores opened by
Wal-Mart de Mexico.) This agreement also permits each party to terminate the
lease for each vision center which fails to meet minimum sales requirements
specified in the agreement. Under our agreement with Wal-Mart de Mexico, we
have two options for two-year renewals, and one option for an additional
one-year renewal, for each vision center.

26



---



---



##### 



Our agreement with Fred Meyer obligates us to exercise our renewal option as to
all or none of these locations with the exception of five stores, which are
covered by a separate agreement. This option must be exercised in
2003. We are currently discussing possible changes to this agreement
with Fred Meyer.

OPERATING STRATEGIES

The Companys Vision is to be the
Best Growth Retailer operating in host environments. To
achieve this vision, we are focused on a strategic process, which
includes efforts to (1) maximize sales and cash flow from our Wal-Mart stores
and other host retail operations, (2) selectively expand
store operations in other host environments, and (3) test,
develop, and create additional growth opportunities within
Wal-Mart. More specifically, we are actively pursuing this vision
through the following three steps:

| |   |                                                                    |                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | STEP 1                                                             |                                                                                                                                                                                                       
| |   | Maximize sales and cash
flow from our current base stores.         |                                                                                                                                                                                                       
| | - |                                                                    | Increase profits per store for base stores
through same store sales increases and expense control.                                                                                                    
| | - |                                                                    | Shift to a more variable cost structure.                                                                                                                                                              
| | - |                                                                    | Grow store count among existing brands,
while continuing to hope for and enjoy vision center conversions to
Wal-Mart supercenters, which extends the lease terms of each affected vision center lease.
|
| |   | STEP 2                                                             |                                                                                                                                                                                                       
| |   | Grow in the optical industry,
but outside our current host stores.
| | - |                                                                    | Successfully identify and execute on new
hosts and/or new concepts.                                                                                                                                   
| | - |                                                                    | Successfully identify and execute on new
revenue lines.                                                                                                                                               
|
| |   | STEP 3                                                             |                                                                                                                                                                                                       
| |   | Grow inside Wal-Mart, but
outside optical.                         |                                                                                                                                                                                                       
| | - |                                                                    | Partner with manufacturers who could
benefit from a
consultative selling environment for new product
introductions inside Wal-Mart.                                                                 
| | - |                                                                    | Explore alternative business ideas with
Wal-Mart and encourage execution on such ideas.                                                                                                               

We cannot provide any assurances as to whether these measures will be successful.

During the second half of 2002 and the first
quarter of 2003, we implemented numerous changes and initiatives
in our existing host stores, which, we believe, will improve our long-term
operations and profitability for the average store. Such changes and
initiatives include the following:



| | 1. |  | In July, we changed the in-store presentation and pricing strategy
of our frame and lens options by unbundling the package prices so
that pricing for frames and lenses are separately presented in the
store. The new presentation is more clear, concise and
customer-friendly and is similar to product and price presentation at
optical stores managed by Wal-Mart. We believe this change has
provided a small increase in average spectacle transaction value.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | We instituted a partnership initiative with our independent doctors
which includes business discussions and goal setting with objectives
toward improving the working relationship between the retail optical
store and the doctors practice, as well as improving business results.
This initiative is an ongoing process.                                                                                                                                           
|
| | 3. |  | We broadened and improved our offerings related to our fourth
quarter contact lens and holiday programs.                                                                                                                                                                                                                                                                                                                                                               

During the first half of 2003, we will continue to implement changes and
initiatives that, in the opinion of management, will have a favorable long-term
impact on the operations and profitability of our existing host stores. Some
of the anticipated changes and initiatives may be summarized as follows:



| | 1. |  | New Frame Collection/Improved Price Points: We rolled out a new
frame collection in January and February involving a change to 50% of
the frames we carry. Through this process, we
substantially reduced the number of frame vendors, consolidated certain
price points and enhanced the presentation of the frames on the frame
boards to make them more brand focused for the customer and easier to
manage for our associates. As a result of this process, we expect to achieve an increase
in gross profit margin as a percent of sales and an increase in average
transaction value on frame sales.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Improvements to Store-level Operations: During our annual sales
meeting in January, we introduced new improvements in store operating
procedures, which include:                                                                                                                                                                                                                                                                                                                                                                                                                                          



| | (a) |  | A code of excellence for all associates with a new training regimen
which requires skill practice sessions on a weekly basis;                 
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | A revised store compensation
plan, which is simpler in concept but
shorter in duration, with payouts every two weeks.                           
|
| | (c) |  | A revised approach to store personnel scheduling based on a
pre-determined hours matrix targeting required coverage based on store
sales volume;
|
| | (d) |  | Added technology at store level, on an as-needed basis to enhance
performance, including computer upgrades, voice mail and new printers;
and    
|
| | (e) |  | Improved management training for district and region managers.                                                                                  

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| | 3. |  | Capitalizing on Managed Care Opportunities: During the first
quarter of 2003, we neared completion of restructuring our approach to
the managed care optical market segment. In 2002, managed care sales
requiring reimbursement by plan payors represented approximately 11% of
our domestic retail sales. Industry statistics indicate managed care
sales are between 45% and 55% of optical industry sales (statistics
exclude optometrist examination fees). The objective of these changes
is to put ourselves in a better position to increase our share of sales
in this market segment. We have engaged an outside consulting firm
with strong retail experience to assist us in this process. Through
this process, the Company has also consulted with Wal-Mart, with the
goal to explore alternatives that would allow both companies to work
together in servicing this market segment. The components of this
revised approach to the managed care segment may be summarized as
follows:
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | Increase plan participation and plan utilization, which will
lead to greater sales growth;                                                                                                                                                                                                 
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Increase participation by our optometrists and improve the
teamwork between the optometrists and the retail associates,
which will lead to increased plan participation and plan
utilization;                                                                                              
|
| | (c) |  | Develop faster, better, cheaper and easier in-store processes,
which incorporate personal computer and web-based applications
for eligibility verification and claims processing; this will
enhance participation by our optometrists and lead to improved
teamwork at the store level; and
|
| | (d) |  | Continue improvement to our back office processing environment
to accommodate sales growth and to facilitate collections of
reimbursement amounts from payors.                                                                                                                             



| |    |  | We view the managed care market as the best opportunity for enhanced sales
growth in our existing retail store operations.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------
|
| | 4. |  | Changes to Merchandising Presentation: During 2003, we will review
all of our product offerings with an eye toward        



| | (a) |  | improvement of product presentation;                      
| | --- |  | ----------------------------------------------------------
|
| | (b) |  | enhancement of the pricing structure;                     
|
| | (c) |  | improvement in product margins;                           
|
| | (d) |  | simplification of associate presentation to customers; and
|
| | (e) |  | higher customer satisfaction.                             



| |    |  | As of the first quarter of 2003, we have completed the rollout of a new
accessory collection that adds value to our customers purchasing eyewear.
We plan to make changes to the contact lens inventories stocked in
stores in June and July. In the second half of the year, we plan to
test changes to our eyeglass lens offerings, as well.                                                                                                                                                                                      
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 5. |  | Improvements in Store Support: On an ongoing basis, we continue to
review alternatives to improve the way our labs and distribution
centers support our stores. We will continue to pursue such changes in
this area if such changes represent an improvement in our efficiency
and quality of store support. We are currently testing taking
lensmaking labs out of the stores and providing more cost effective service from
our central labs. We expect to test this in approximately 50 stores by
the end of the second quarter.

We cannot provide any assurances as to whether these changes and
initiatives will improve our operations or profitability.

We are also looking at new growth opportunities that are similar to our
existing optical business and that allow for leveraging existing
competencies, capacities and relationships. These growth opportunities represent new areas in which we do
not currently have an operating business. In order to create new business
opportunities, our strategic focus is to leverage existing strengths acquired
in operating our host retail optical stores. The Company is considering the
creation of a retail business with both a product and service component,
consultation from a professional services expert and a store model within a
host environment. We are considering options including health, wellness and
beauty-related services, which require consultative selling, managed
care, and medical competencies and customer support
services similar to those required in the optical industry. As part of our
efforts, we are working with Wal-Mart to investigate potential growth vehicles.
We can provide no assurances, however, (a) that Wal-Mart or any other host
operator will permit us to test new concepts in their stores, (b) that any such
test will be successful, or (c) that we will be able to develop a profitable
line of business arising out of any such test.

28



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Under the indenture governing the Companys senior notes, the Company can
engage in businesses that are the same, similar or reasonably related to the
businesses engaged in by the Company as of the date the Company emerged from
bankruptcy. In the fourth quarter of 2002, certain holders of the Companys
senior notes (who also own a significant percentage of the Companys common
stock) notified the Company that on the basis of this limitation in the
indenture, they objected to the Companys engaging in lines of business outside
of retail vision centers. The Company has engaged in discussions with these
holders. We believe that, to date, the Company has complied with the
provisions of the indenture, and the Company intends to continue to comply with
these provisions. It is possible, however, that the indenture could prohibit
the Company from engaging in business opportunities it is exploring or may
explore in the future, or that there could be a dispute with those bondholders
regarding the applicability of those provisions. These same holders have also
objected to the Companys repurchase of senior notes outside of the mandatory
redemption provisions of the indenture. (See Managements Discussion and
Analysis of Financial Condition and Results of Operations  Liquidity and
Capital Resources).

The Company is operating one hearing
center inside one of our Wal-Mart vision centers. We believe that, consistent with our
indenture, we may engage in this line of business.

In the fourth quarter, we initiated a review of the Companys retail and
support organizations, store and home office processes and the technology that
supports both. As part of our review process, we have engaged an outside
consulting firm to assist us. Our initial focus will be on our Wal-Mart vision
centers in three areas: 1) optimizing store employee and doctor scheduling, 2)
simplifying and improving the processing of managed care transactions at the
store and in the retail support center, and 3) simplifying and improving the
customer order and delivery process. We expect to begin implementing changes
in processes, systems and possibly in staffing levels in 2003.

The outside consulting firm will also assist us in complying with new
requirements under the Health Insurance Portability and Accountability Act
(HIPAA). We will continue to incur expenses and make capital expenditures in
2003 in order to comply with these regulations.

LIQUIDITY AND CAPITAL RESOURCES

Our capital needs have been for operating expenses, capital expenditures, the
repayment of principal on the Senior Subordinated Notes and interest expense.
Our sources of capital have been cash flow from operations.

It is the Companys intent to use excess cash for its ongoing operations,
repurchase of notes, and repayment of principal on the Companys outstanding
debt. As of March 7, 2003, the Companys remaining unused availability under
its credit facility with Fleet, after being reduced for letter of credit
requirements, has increased slightly to approximately $1.8 million from $1.7
million at December 28, 2002. At December 28, 2002, the Company had no
borrowings under its credit facility, and had letters of credit of $4.4 million
outstanding. The Company believes that cash generated from operations and
funds available under the credit facility will be sufficient to satisfy its
cash requirements through 2003.

The Company made a principal redemption payment on the Senior Subordinated
Notes of approximately $2.9 million on February 28, 2003 to bond holders of
record on February 13, 2003. The Company also made principal redemption
payments of $4.2 million on August 28, 2002 and $1.6 million on February 28,
2002. These redemptions are based on the requirements of the indenture and are
made at 100% of par. Each principal redemption payment is based on the results
for the six-month period ending in June or December, respectively.

29

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Subsequent to the issuance of the
Company's 2001 financial statements, the Company's management
determined that certain revisions to the 2001 financial statements
were required. All 2001 information herein reflects the restated
amounts. An effect of the restatement was to adjust the calculation
of working capital under the indenture for purposes of determining
the excess cash flow payment for the cumulative period from June 2,
2001 through December 28, 2002. The effect of this adjustment was to
increase the cumulative payments of excess cash flow during this same
period, by approximately $950,000. Our indenture expressly provides
that, in the event of a restatement which affects a previously made
excess cash flow payment, the next payment of excess cash flow
otherwise due is appropriately adjusted so that the under or over
payment is corrected. The Company accordingly expects that, subject
to the minimum cash requirements and other provisions of the
indenture, it will increase its next cash flow payment in August 2003 by
approximately $950,000. The Company can provide no assurances that such a
payment will in fact be made. (See Note 8 to the Consolidated
Financial Statements.)

In addition, the Company made an
interest payment of approximately $6.8 million
from existing cash balances on September 27, 2002. The next scheduled interest
payment of approximately $6.4 million was made on Friday, March 28, 2003.

During the third quarter of 2002, the Companys Board of Directors authorized
the Company to spend up to $3 million in cash to repurchase (in private,
unsolicited transactions) the Companys Senior Subordinated Notes, within a
rolling twelve-month period. The initial twelve-month rolling period started
in August 2002. These repurchases have been made on individually negotiated
discounts to par. As of December 28, 2002, the Company had repurchased Notes
with a face value of $4.5 million for $3.0 million in cash (which included
$106,000 of accrued interest), resulting in a non-cash, extraordinary gain of
$1.6 million.

Certain holders of the Companys senior notes have objected to these
repurchases at a discount. The Company has engaged in discussions with these
holders and believes that it has the legal right to continue to repurchase the
notes. The Board of Directors is evaluating various means of continuing these
repurchases. The Company may seek to repurchase notes in private transactions
or other means, including a broader offer to the holders, but can give no
assurances as to whether such repurchases will take place or as to the timing,
duration or amount of any such repurchases. Depending on the nature or amount
of these transactions, the Company may need the consent of its commercial
lender.

In 2001, we opened our 400th vision center in the domestic Wal-Mart
environment, as provided for in our Wal-Mart master license agreement. In
2003, we do not expect to open additional vision centers in the domestic
Wal-Mart environment.

During 2002, we converted 14 Wal-Mart vision centers to supercenters. In 2003,
we expect to convert approximately 16 of our existing Wal-Mart vision centers
to supercenters. Each supercenter conversion requires expenditures of
approximately $60,000 to $80,000. The Company opened 5 vision centers in host environments other than domestic
Wal-Mart during 2002.

30

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Future Commitments

The table below sets forth the Companys contractual
obligations:

|                            |  |                             |        |      |  |      |        |      |  |      |        |            |  |       |       |  |  |   |       |  |  |   |         |  |  |   |         | 
|--------------------------- |  | --------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---------- |  | ----- | ----- |  |  | - | ----- |  |  | - | ------- |  |  | - | ------- | 
|                            |  | Payments due by fiscal year
|                            |  |                            
|                            |  | 2003                        |        | 2004 |  | 2005 |        | 2006 |  | 2007 |        | Thereafter |  | Total
|                            |  |                             |        |      |  |      |        |      |  |      |        |            |  |      
|Long-term debt obligations  |  |                             |        |      |  |      |        |      |  |      |        |            |  |       |       |  |  |   |       |  |  | $ | 109,706 |  |  | $ | 109,706 | 
|Operating lease obligations |  | $                           | 27,328 |      |  | $    | 20,900 |      |  | $    | 13,301 |            |  | $     | 7,406 |  |  | $ | 4,595 |  |  | $ | 7,414   |  |  | $ | 80,944  | 
|Purchase obligations        |  | $                           | 300    |      |  |      |        |      |  |      |        |            |  |       |       |  |  |   |       |  |  |   |         |  |  | $ | 300     | 

The Companys senior subordinated debt agreement provides for semi-annual
principal repayments based on the results of operations for the six-month
periods ended in June and December.

Inflation

Although the Company cannot determine the precise effects of inflation, it does
not believe inflation has had a material effect on its domestic sales or
results of operations. The Company cannot determine whether inflation will have
a material long-term effect on its sales or results of operations.

As a result of inflation in prior years, the Company has in the past adjusted
its retail pricing. Further pricing adjustments are contingent upon competitive
pricing levels in the marketplace. Management is monitoring the continuing
impact of these inflationary trends.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Managements Discussion and Analysis of Financial Condition and Results of
Operations discuss the consolidated financial statements of National Vision,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the 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.

On an ongoing basis, management evaluates its estimates and judgments and
incorporates any changes in such estimates and judgments into the accounting
records underlying the Companys consolidated financial statements. Management
bases its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

We have identified the policies below as critical to our business operations
and the understanding of our results of operations. The impact and any
associated risks related to these policies on our business operations is
discussed throughout Managements Discussion and Analysis of Financial
Condition and Results of Operations where such policies affect our reported and
expected financial results. (For a detailed discussion on the application of
these and other accounting policies, see Note 2 in the Notes to the
Consolidated Financial Statements.)

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Revenue Recognition

In December 1999, the SEC issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements (SAB 101). SAB 101 summarizes the
SECs view in applying generally accepted accounting principles to selected
revenue recognition issues. The Company defers revenue recognition until
delivery of the product by estimating the value of transactions in which final
delivery to the customer has not occurred at the end of the period presented.
The amount of cash received at the time the customers order is placed is
recorded as a deposit liability and is presented within accrued liabilities.
These estimates are based on historical trends and take into consideration
current changes in the Companys manufacturing and distribution process.

Premium revenue is earned from HMO memberships and services. Revenue from
premiums is recognized over the life of the policy as the related services are
rendered.

Management must make estimates of potential returns and replacements of all or
part of the eyewear sold to a customer. We analyze historical remake and
warranty activity, consider current economic trends and changes in customer
demand and acceptance of our products when evaluating the adequacy of our
estimate of these costs. Differences may result in the amount and timing of
revenue and related costs for any period if management made different judgments
or utilized different estimates.

Allowance for Uncollectible Receivables under Reimbursement Plans

Managed care accounts receivable are recorded net of contractual allowances and
reduced by an allowance for amounts that may become uncollectible in the
future. Substantially all of the Companys receivables are due from health
care plans or third-party administrators located throughout the United States.
Approximately 11% of the Company net sales from ongoing businesses relate to
products sold to customers that ultimately will be funded in full or in part
through private insurance plans, third party insurance administration programs
or government reimbursement programs such as Medicare and Medicaid. Failure by
the Company to accurately file for reimbursement on a timely basis with these
programs can have an adverse effect on the Companys collection results which,
in turn, will have an adverse effect on liquidity and profitability.

Estimates of our allowance for uncollectible receivables are based on our
historical billing and collection experience. Changes in our billing and
collection processes, changes in funding policies by insurance plans and
changes in our sales mix within insurance plans may have a material effect on
the amount and timing of our estimated expense requirements.

Accounting for Inventory

The Companys inventories are stated at the lower of weighted average cost or
market.

In most cases, the expected sales value (i.e., market value) of the Companys
inventory is higher than its cost. However, as the Company progresses through
a selling season, certain slow-moving merchandise may be removed from stores
and returned to the Companys distribution center to be sold below cost in
secondary markets. As a result, there is a high degree of judgment and
complexity in determining the market value of such inventories. For inventory
on hand, the Company estimates the future selling price of its merchandise,
given its current selling price and its planned promotional activities, and
provides a reserve for the difference between cost and the expected selling
price for all items expected to be sold below cost.

The Company conducts physical inventory counts for a selection of store
locations on a periodic basis through the course of the fiscal year and adjusts
the Companys records to reflect the actual inventory counts. Inventory in the
Companys distribution center is counted near the end of the fiscal year. As all
locations are not counted as of the Companys reporting dates, the Company
provides a reserve for inventory shrinkage based principally on historical
inventory shrinkage experience.

32

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Fresh Start Accounting

In accounting for the effects of the reorganization, the Company adopted fresh
start accounting principles as contained in the American Institute of
Certified Public Accountants Statement of Position 90-7, Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code (SOP 90-7). SOP
90-7 was applicable because pre-reorganization shareholders received none of
the Companys new common stock and the reorganization value of the assets of
the Successor company was less than the total pre-petition liabilities allowed
plus post-petition liabilities. SOP 90-7 also requires that, at the time of fresh start
accounting, the Company early-adopt all accounting principles that will be
required within the twelve months following fresh start accounting.

Fresh start accounting principles require that we determine the reorganization
value of the reorganized Company. The Companys reorganization value was
developed by the Company, the Official Committee of Unsecured Creditors and
their respective financial advisors. The reorganization value was based on a
calculation of the present value of the free cash flows under the Companys
financial projections, including an assumption of a terminal value. Such
projections were submitted to the bankruptcy court and to creditors for review
and objection as part of the Companys disclosure statement accompanying the
Plan.

Valuation of Long-Lived and Intangible Assets

Our most significant intangible asset is the Intangible Value of Contractual
Rights, which was established as part of the Companys adoption of fresh start
accounting in May 2001. This intangible asset, which has a value of $101.7
million at December 28, 2002, represents the value of the Companys lease
agreement with Wal-Mart and the business relationship therein created. In
accordance with SFAS No. 142, this intangible is an amortizable asset because
it has a finite useful life. However, the precise length of its life is not
known due primarily to the Wal-Mart superstore conversions that automatically
trigger extensions on the contractual life of the asset. Based on our
projections, our best estimate of the useful life of this asset is 15 years.
Due to the uncertainty involved in predicting the pattern of economic benefits
realized from the Wal-Mart relationship, we amortize this asset using the
straight-line method.

We assess the impairment of all identifiable intangibles and long-lived assets
on an annual basis and whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. Factors we consider important,
which could trigger an impairment review, include (1) a significant
underperformance of vision center operations relative to expected historical or
projected future operating results; (2) significant changes in the manner of
our use of Company assets or the strategy for our overall retail optical
business; (3) significant negative industry or economic trends; (4) a
significant decline or adverse change in the rate or geographic concentration
of Wal-Mart host store relocations or superstore conversions; and (5) a
permanent adverse change in cash flows generated by an operation.

If we determine that the carrying value of intangibles or long-lived assets may
not be recoverable based upon the existence of one or more of the above
indicators of impairment, we measure any impairment based on a projected cash
flow model. If the projected cash flows are not in excess of the book value of
the related asset, we measure the impairment based on a projected discounted
cash flow method. Significant management judgment is required regarding the
existence of impairment indicators as discussed above. Future events could
cause us to conclude that impairment indicators exist and that long-lived
assets or intangible assets are impaired. Any resulting impairment loss could
have a material adverse impact on our financial condition and results of
operations. Based on our review of our intangible and other long-lived assets
as of December 28, 2002, no impairment was determined to exist.

33

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Accounting for Income Taxes

As part of the process of preparing our consolidated financial statements we
are required to estimate our income taxes in each of the jurisdictions in which
we operate. This process involves estimating our actual current tax exposure
together with assessing temporary differences resulting from differing
treatment of items, such as equipment depreciation, for tax and accounting
purposes. These differences result in deferred tax assets and liabilities,
which are included within our consolidated balance sheet. We must then assess
the likelihood that our deferred tax assets will be recovered from future
taxable income and to the extent we believe that recovery is not likely, we
must establish a valuation allowance. To the extent we establish a valuation
allowance or increase this allowance in a period, we must include an expense
within the tax provision in the statement of operations.

The Company emerged from Chapter 11 Bankruptcy on May 31, 2001. As part of our
plan of reorganization, the Companys capital structure was highly leveraged
with $120 million of senior subordinated notes providing for interest at 12%
per annum. Before, during and after the bankruptcy process, the Company
incurred significant net operating losses (NOL) that result in tax loss
carry-forwards. A portion of these carry-forwards are subject to limitations
under Section 382 of the Internal Revenue Code.

Generally accepted accounting principles require that we record a valuation
allowance against the deferred tax asset associated with this NOL if it is
more likely than not that we will not be able to utilize it to offset future
taxes. We have provided a full valuation allowance against this deferred tax
asset because our high leverage will make it difficult for us to become
profitable, and our historical high leverage substantially contributed to our
failure to achieve profitability. We currently provide for income taxes only
to the extent that we expect to pay cash taxes for current income.

It is possible, however, that we could be profitable in the future at levels
which cause management to conclude that it is more likely than not that we will
realize all or a portion of the NOL carry forward. Upon reaching such a
conclusion, we would immediately record the estimated net realizable value at a
rate equal to our combined federal and state effective rates. Subsequent
revisions to the estimated net realizable value of the deferred tax asset could
cause our provision for income taxes to vary significantly from period to
period, although our cash tax payments would remain unaffected until the
benefit of the NOL is utilized.

Self-Insurance Accruals

We self-insure estimated costs associated with workers compensation claims and
group medical liabilities, up to certain limits. Insurance reserves are
established based on actuarial estimates of the loss that we will ultimately incur on reported
claims, as well as estimates of claims that have been incurred but not yet
reported. Trends in actual experience are
a significant factor in the determination of such reserves. We believe our
estimated reserves for such claims are adequate, however actual experience in
claim frequency and/or severity could materially differ from our estimates and
affect our results of operations.

Other Accounting Policies

The above listing is not intended to be a comprehensive list of all of our
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by generally accepted accounting
principles, with no need for managements judgment in selecting any available
alternative, which would not produce a materially different result. See our
audited consolidated financial statements and notes thereto which begin on page
F-1 of this Annual Report on Form 10-K which contain accounting policies and
other disclosures required by generally accepted accounting principles.

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RECENT ACCOUNTING PRONOUNCEMENTS

In December 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition for an entity that voluntarily changes to the fair
value-based method of accounting for stock-based employee compensation. It
also amends the disclosure provisions of SFAS No. 123 to require prominent
disclosure about the effects on reported net income of an entitys accounting
policy decisions with respect to stock-based employee compensation. SFAS No.
148 also amends the accounting and reporting provisions of Accounting
Principles Board (APB) Opinion No. 28, Interim Financial Reporting, to
require disclosure about those effects in interim financial information. SFAS
No. 148 is effective for annual and interim periods ending after December 15,
2002. As the Company has elected not to change to the fair value-based method
of accounting for stock-based employee compensation, SFAS No. 148 will not have
any impact on our financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation (FIN) No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Other. FIN 45 requires footnote disclosures of
the guarantees or indemnification agreements a company issues. With certain
exceptions, these agreements will also require a company to prospectively
recognize an initial liability for the fair value, or market value, of the
obligations it assumes under that guarantee. The initial recognition and
initial measurement provisions of this Interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002.
The disclosure requirements of the Interpretation are effective for financial
statements of the interim or annual periods ending after December 15, 2002.
The Company does not anticipate that the adoption of FIN No. 45 will have a
material impact on its consolidated financial position, results of operations,
or cash flows. Additionally, adoption of FIN No. 45 had no impact on the
Companys 2002 financial statement footnote disclosures.

In September 2002, the FASB issued Emerging Issue Task Force (EITF) Issue
02-16, Accounting By A Customer (Including A Reseller) For Cash Consideration
Received From A Vendor which addresses the accounting treatment for vendor
allowances. In accordance with the adoption of EITF Issue 02-16 on
December 29, 2002, the Company expects to record a charge for a cumulative
effect of a change in accounting principle of between $300,000 and
$500,000, in the first quarter of fiscal 2003.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon managements commitment to an exit plan, which is generally before
an actual liability has been incurred. Beginning in fiscal 2003, as vision
centers are closed, including lease expirations under the Wal-Mart master
license agreement, any costs associated with the closure or disposal will be
recorded at fair value when the liability is incurred. Adoption of this
statement is required at the beginning of fiscal year 2003.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements 4,
44 and 64, Amendment to FASB Statement 13, and Technical Corrections. One of
the major changes of this statement is to change the accounting for the
classification of gains and losses arising from the extinguishment of debt.
Upon adoption of SFAS No. 145, the Company will follow APB 30, Reporting the
Results of OperationsReporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions in determining whether such extinguishment of debt may be
classified as extraordinary. The provisions of this statement related to the
rescission of SFAS No. 5, Accounting for Contingencies shall be applied in
fiscal years beginning after May 15, 2002 with early application encouraged.
The Company plans to adopt SFAS No. 145 in the beginning of fiscal 2003, which will result in
future period gains or losses on extinguishment of debt being presented as other income
versus as extraordinary items.

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RISK FACTORS

This Form 10-K contains a number of statements about the future. It also
contains statements which involve assumptions about the future. All these
statements are forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements represent
our expectations or belief concerning future events, including any statements
regarding future sales levels, the continuation of historical trends, and the
Companys liquidity. Without limiting the foregoing, the words
believes,
anticipates, plans, expects, and similar expressions are intended to
identify forward-looking statements.

We do not know whether the forward-looking statements made in this Form 10-K
will prove to be correct. We have tried to identify factors which may cause
these statements to be incorrect, but we may not have identified all of them.
These factors could also have a negative impact on our results. The following
is our non-exclusive list of these factors:

Our substantial indebtedness could adversely affect our financial health and
prevent us from fulfilling our obligations under our notes.

As a result of the issuance of our notes, we are highly leveraged. The notes
are subordinated to our credit facility. Assuming the issuance of all of our
notes and after giving effect to the establishment of our credit facility, we
had as of March 7, 2003:



| |  |  | total indebtedness of $107 million represented by the notes, and                                  
| | - |  | --------------------------------------------------------------------------------------------------
|
| |  |  | total availability of $1.8 million under our credit facility, after letter of credit requirements.

Our ability to pay or refinance our indebtedness, including our ability to
repay the notes, or to fund capital expenditures will depend on our future
performance. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control.

Based upon our current level of operations, we believe that our cash flow from
operations, available cash, and available borrowings under our credit facility,
will be adequate to meet our future liquidity needs for at least the next two
years. A decrease in revenues, coupled with the borrowing base limitation
contained in our credit facility, could require us to postpone capital
expenditures.

We cannot assure you that our business will generate sufficient cash flow from
operations, that revenue growth will be realized or that future borrowings will
be available under our credit facility in an amount sufficient to enable us to
pay our indebtedness, including the notes, or to fund our other liquidity
needs.

Our substantial indebtedness could have important consequences to you. For example, it could:



| |  |  | make it more difficult for us to satisfy our obligations under the notes;                                                                                                                                                                                                                                                                                     
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | increase our vulnerability to general adverse economic and industry conditions;                                                                                                                                                                                                                                                                               
|
| |  |  | limit our ability to obtain additional financing to fund future
working capital, capital expenditures and other general corporate
requirements;                                                                                                                                                                                                               
|
| |  |  | require us to dedicate a substantial portion of our cash flow from
operations to the payment of our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures or other general corporate purposes;                                                                                                       
|
| |  |  | limit our flexibility in planning for, or reacting to, changes in our business and our industry;                                                                                                                                                                                                                                                              
|
| |  |  | place us at a competitive disadvantage compared to competitors that have less debt; and                                                                                                                                                                                                                                                                       
|
| |  |  | limit, along with the financial and other restrictive covenants in
our indebtedness, our ability to borrow additional funds. Our failure
to comply with the covenants in the indenture under which our notes
were issued or our credit facility would result in an event of default
which, if not cured or waived, could have a material adverse effect on
us.

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A substantial number of our vision centers are located in Wal-Mart stores. Our
ability to continue to generate revenue depends on our continued relationship
with Wal-Mart.

In connection with our emergence from Chapter 11 reorganization, we sold all of
our free standing vision centers. We are substantially dependent on Wal-Mart
and its affiliates for our current operations. The following chart shows, as of
December 28, 2002, the number of our vision centers that are in Wal-Mart stores
and the total number of our vision centers:

|                     |  |        |     | 
|-------------------- |  | ------ | --- | 
|Category             |  | Number
|                     |  |       
|Total Vision Centers |  |        | 518 | 
|Wal-Mart Locations   |  |        | 399 | 
|Wal-Mart de Mexico   |  |        | 37  | 

In addition, vision centers located in Wal-Mart stores accounted for
substantially all of the earnings before interest, taxes, depreciation and
amortization of our vision centers for the fiscal year ended December 28, 2002.
Vision centers in Wal-Mart stores rely largely on customer traffic generated by
the Wal-Mart host store. Our agreement with Wal-Mart does not require Wal-Mart
to maintain any existing Wal-Mart store or to open new ones.

Our agreement with Wal-Mart gives us the right to open at least 400 vision
centers, including those already open. We have reached that number. Wal-Mart is
under no obligation to provide us with additional vision center leases.
However, our agreement with Wal-Mart also provides that, if Wal-Mart converts
its own store to a supercenter, which is a store that contains a grocery
department in addition to the traditional Wal-Mart store offering, and
relocates our vision center as part of the conversion, the term of our lease
begins again. We believe that Wal-Mart may in the future convert many of its
stores and thereby cause many of our leases to start again. There were 14
conversions of Wal-Mart stores in which we run vision centers into
supercenters in the year 2002, and 44 of these
conversions prior to 2002. We
have received no assurances from Wal-Mart as to how many of their locations
will ultimately be converted.

Our agreement with Wal-Mart provides for a nine-year base term at each vision
center that begins at opening and gives us a three-year extension option.
Wal-Mart is under no obligation to provide us with any further extensions.
Forty-four vision centers have base terms that expired in 2002 under our
Wal-Mart agreement, substantially all of which have been extended, and another
52 have base terms that expire in 2003, which we have the option to extend.
More base terms will expire in subsequent years. As each base term expires, we
determine whether to exercise our three-year extension options for our Wal-Mart
vision centers. We make those decisions based upon various factors, including,
for example:



| |  |  | the sales levels of each vision center,                                         
| | - |  | --------------------------------------------------------------------------------
|
| |  |  | the estimated future profitability of each vision center, and                   
|
| |  |  | the increased minimum license fees charged by Wal-Mart during the option period.

We must exercise our extension option for any Wal-Mart vision center at least
six months before its initial license expires. We expect to extend the licenses
for a substantial majority of these vision centers. We cannot assure you,
however, how many licenses we will actually extend.

In each of the next several years, increasing numbers of vision centers under
our Wal-Mart agreement will have their base terms expire. Our rental
obligations to Wal-Mart will increase in the three-year option period. We will
need to continue to improve sales at these vision centers. If we do not, our
rent as a percent of sales will increase significantly during the option
period. Alternatively, we may choose not to exercise the extension options.

We cannot control our expansion in our host stores, including Wal-Mart, beyond
those currently under contract. Although we periodically discuss expansion
opportunities with each host, we cannot assure you that any host will offer to
extend our current agreements or offer us additional vision centers. Nor can we
assure you that any renewal or new store offer will be on terms similar to
those in our current agreements. Wal-Mart operates its own optical division.
Wal-Mart may, in the future, allocate its future vision centers entirely to its
own optical division.

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Our pursuit of other lines of business could be constrained by the terms of our indenture.

The indenture governing our senior notes limits our operations to those which
are the same, similar or reasonably related to the businesses in which we
were engaged as of the date we emerged from bankruptcy. We are in the process
of opening several hearing aid centers in Wal-Mart stores. We are also
investigating other concepts, such as wellness centers, which would offer
various health products and services. Our indenture could limit our ability to
pursue certain of these other lines of business that might otherwise be
attractive to us. In addition, certain holders of our notes have objected to
our engaging in these lines of business. Although we believe that we are in
compliance with the indenture and intend to continue to comply with the
indenture, we can give no assurance that these holders might not seek to
declare a default arising out of our engaging in these lines of business.

Our financial performance may be adversely affected by sales recorded at vision
centers scheduled to close under the Wal-Mart agreement.

We have observed sharp declines in sales levels as our vision centers come to
the end of their lease term under the Wal-Mart agreement. In fiscal 2003, we
expect to close approximately 36 vision centers under our Wal-Mart agreement.
We expect to close approximately 41 vision centers in fiscal 2004 under the
Wal-Mart agreement. In the months prior to their scheduled date of closure,
these vision centers could record substantial sales declines. The extent of
the sales declines, coupled with the number of vision centers nearing the end
of their lease term, could have a negative impact on our sales and on our
profitability.

We have recently made substantial changes to the inventory we carry and the
vendors we use; we could, as a result, have a greater risk of write-offs of
inventory and disruption to our retail operations.

We have recently changed our frame offering at our retail locations and have
also substantially reduced the number of vendors from whom we buy our products.
This change of product creates the risk of write-off of inventory which has
become obsolete. In addition, the new flow of products within our system could
create administrative problems which would disrupt our retail operations.

We may incur additional expenditures to replace older optometric equipment and
thereby create additional pressure on liquidity.

Some of the optometric equipment in our vision centers is older and will need
to be replaced. We may need to make significant cash expenditures to replace
this equipment.

The military action in Iraq could have a negative impact on our operations,
particularly those on military bases.

We have approximately 24 vision centers on military bases in the United States.
The military action in Iraq could have a negative impact on these vision
centers.

Our lack of growth could adversely affect our ability to make payments on our
note, and the price of our common stock.

Average revenues in our Wal-Mart vision centers are approximately $540,000 per
center per year. Average revenues in the other vision centers that we continue
to own are less than $300,000 per center per year. The expiration of our leases
with Wal-Mart will cause a reduction in our revenues, which we may not be able
to replace with revenues generated by other vision centers.

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Our sales revenues could decrease in the future as Wal-Mart leases expire. It
is unlikely that we will be able to open enough new vision centers under our
Fred Meyer and military contracts to compensate for the loss of the revenues
generated by Wal-Mart vision centers for which our leases expire. We expect
that our expenses, however, will increase over time. A combination of lower
sales and higher expenses would adversely affect our ability to repay or
refinance our notes, which could have an adverse effect on the price of our
common stock.

The use of net operating loss carry-forwards may be subject to limitations.

In conjunction with our historical results from operations, emergence from
Chapter 11 and the disposition of our free standing operations, we incurred
significant net operating losses. These losses resulted in significant net
operating loss carry-forwards. Our ability to utilize our net operating losses that were realized
prior to our emergence from Chapter 11 is limited under Section 382 of the Internal Revenue Code of 1986. If our net operating
losses realized after our emergence from Chapter 11 are subject to substantial
limitation because of a future change of control of the company or for other
reasons, our cash tax costs would increase and have an adverse effect on our
ability to repay the notes. If, after such a change of control, we
determined that we would be unable to utilize this tax asset, we
could then be forced to write down the asset and record a charge
against our financial results.

Your right to receive payments on our notes will be junior to our borrowings
under our credit facility, which could adversely affect our ability to pay off
the notes.

Our indebtedness under our credit facility is secured by liens against
substantially all of our assets. In the event of a default on our secured
indebtedness, or a bankruptcy, liquidation or reorganization of the company and
our subsidiaries, these assets will be available to satisfy obligations with
respect to the secured indebtedness before they can be used to satisfy our
obligations under our notes.

The terms of our credit facility and the indenture under which our notes were
issued restrict our corporate activities.

Our credit facility contains various restrictive covenants and requires us to
maintain specified financial ratios and satisfy financial tests, such as:



| |  |  | minimum requirements of earnings before interest, taxes,
depreciation and amortization in our credit facility of $19.6 million
for the four fiscal quarters ending June 29, 2002 and for each four
quarter period ending on the last day of each fiscal quarter for the
remainder of the term of our credit facility, and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | minimum fixed charge coverage ratios of 1.0 to 1.0.                                                                                                                                                                                                                                                                      

Our ability to meet these financial ratios and tests may be affected by events
beyond our control, and we cannot assure you we will meet these tests. In
addition, our credit facility and our indenture limit our ability to take
action with respect to:



| |  |  | capital expenditures,                                                                                                                           
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | investments,                                                                                                                                    
|
| |  |  | indebtedness,                                                                                                                                   
|
| |  |  | liens,                                                                                                                                          
|
| |  |  | dividends,                                                                                                                                      
|
| |  |  | loans,                                                                                                                                          
|
| |  |  | prepayments of other indebtedness,                                                                                                              
|
| |  |  | mergers, acquisitions or sales of assets,                                                                                                       
|
| |  |  | changes in business activities (see Risk Factors  Our pursuit of
other lines of business could be constrained by the terms of our
indenture),
|
| |  |  | transactions with affiliates, and                                                                                                               
|
| |  |  | issuance of equity.                                                                                                                             

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Our breach of any of these covenants could result in an event of default under
our credit facility. If a default occurs, our lender can declare our
indebtedness, both principal and interest, immediately due and payable, and
could terminate its commitment to make future advances. In addition, a default
under the indenture could cause the principal and accrued interest on the notes
to become due and payable. The restrictions in the indenture and the credit
facility will likely restrict our ability to obtain additional financing for
working capital, capital expenditures or general corporate purposes. Our
indebtedness requires substantial debt service payments and, with respect to
the indenture, mandatory redemptions of principal, which may restrict our
ability to use our operating cash flow for capital expenditures and other
working capital requirements. We have pledged substantially all of our assets
under our credit facility and under the indenture. If we fail to repay all
amounts declared due and payable, our lender and then the holders of our notes
could proceed against the collateral granted to it to satisfy our obligations.
It is likely that our assets would be insufficient to repay in full that
indebtedness and our other indebtedness, including the notes.

We are required by our indenture to make mandatory redemptions of principal
owing on our notes if we generate excess cash flow, which may have an adverse
impact on our common stock.

The indenture requires mandatory redemptions of principal out of the excess
cash flow that we may generate biannually. There can be no assurances that we
will generate enough excess cash flow to make any mandatory redemptions.
Prepayments of principal on the notes, if any, will prevent us from having
excess cash to reinvest in our business, and could adversely affect the price
of our common stock.

Further issuances of our common stock and our notes could adversely affect
their trading prices.

We issued a total of 5,000,000 shares of our common stock and $120,000,000
aggregate principal amount of our notes to creditors pursuant to our plan of
reorganization. As of the March 7, 2003, some of the shares of common stock and
notes have been held in reserve for distribution to creditors upon the
resolution of claims that we have disputed in the bankruptcy court. Although no
issuances of securities other than pursuant to our plan of reorganization are
currently contemplated (except grants of stock options or other stock awards
pursuant to employee benefit plans that are in place) further issuances of our
common stock and notes in the future could take place. These issuances could
cause adverse changes in the trading prices of the common stock and the notes.

The holders of our common stock may exercise significant control over us.

Former holders of our old Senior Notes due 2005 held a large majority of our
unsecured debt in bankruptcy, and thus are the initial holders of a majority of
our common stock. If holders of significant numbers of shares of our common
stock act as a group, these holders could be in a position to control the
outcome of corporate actions requiring shareholder approval, including the
election of directors. Certain of these holders have already objected to our
repurchase of notes and our pursuit of other business opportunities.

Holders of our common stock and our notes may elect to sell large blocks of
common stock or notes, which may have an adverse effect on the price of our
common stock and our notes.

Our former unsecured creditors received our common stock and our notes in
exchange for their claims against us. Some or all of the holders of our common
stock and notes may prefer to liquidate their investment rather than hold the
securities on a long-term basis. The possibility that one or more of the
holders of significant numbers of shares of our common stock or a large
principal amount of our notes may determine to sell all or a large portion of
their shares of our common stock or their notes in a short period of time may
adversely affect the market price of the common stock or notes. Partially for
that reason, there can be no assurance as to the degree of price volatility in
any trading market that may develop for the common stock and the notes. As a
result, no assurance can be given that any holder of our common stock or our
notes will be able to sell them or at what price any sale may occur. No
assurance can be given as to the market price, if any, that will prevail for
our common stock in the future. If a market were to exist for our notes, they
may trade at prices higher or lower than their face value, depending upon many
factors, including, without limitation, the prevailing interest rates, markets
for similar securities, industry conditions and the performance of, and
investor expectations for us.

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Our common stock and our notes have all been issued but not distributed.
Further distributions will be made pursuant to the bankruptcy plan as disputed
claims are resolved. Distributions of our common stock and our notes to
holders who decide to sell them immediately could cause sudden adverse changes
in the trading prices of our common stock and our notes.

Our common stock may be delisted from The American Stock Exchange, referred to
as the AMEX, if it does not maintain certain listing standards.

Our recent operating history, including our filing of and emergence from
Chapter 11, has caused the price of our securities to be depressed. In
addition, the general market for securities has been severely depressed in
recent quarters. The price of our common stock has declined significantly since
its original listing date. The rules of the AMEX allow the exchange to delist
securities if the AMEX determines that a companys securities fail to meet
guidelines with respect to corporate net worth, public float, number of
shareholders, the aggregate market value of shares, or price per share. In
light of our recent operating history specifically, and the market conditions
for stocks in general, we cannot assure purchasers of our common stock or notes
that we will continue to meet the requirements of the AMEX. If we are unable to
continue to satisfy these criteria, the AMEX may begin procedures to remove our
common stock or notes from the exchange. If our common stock or notes are
delisted, a trading market may no longer exist, and the ability of shareholders
to buy and sell common stock or notes may be materially impaired.

We have received a letter from AMEX
concerning our failure to timely file our reports under the
securities laws, including this Form 10-K. The letter states
that, if we are not current in our filings by
June 10, 2003, the exchange may seek to delist or halt
trading in our securities. Our Form 10-Q for the first quarter
of 2003 has not been filed. Although we intend to file this Form in
the near term, we cannot guarantee that we will file the
Form 10-Q by June 10, 2003 and that AMEX will not seek to
delist or halt trading in our securities.

We have not declared dividends in the past, and do not anticipate doing so in
the near future, which may adversely affect the price of our common stock.

Our credit facility and our indenture prohibit the payment of cash dividends
without the consent of the lender and the holders of the notes, respectively.
We have never declared or paid any dividend on our capital stock. We currently
anticipate that all of our earnings, if any, will be retained for payment of
the principal amount of the notes, and then for development of our business,
and do not anticipate paying any cash dividends in the foreseeable future.

A change in interest rates could adversely affect us.

We have historically borrowed long-term debt under our credit facility at
variable interest rates. We therefore incur the risk of increased interest
costs if interest rates rise.

The retail eyecare industry is extremely competitive. Failure to attract
customers will depress our earning and may adversely affect our ability to
repay the notes and the price of our common stock.

The retail eyecare industry is extremely competitive. We compete with
national companies such as LensCrafters and Cole; we also compete with numerous
regional and local firms. In addition, optometrists, ophthalmologists, and
opticians provide many of the same goods and services we provide. The level and
intensity of competition can vary dramatically depending on the particular
market. We believe that we have numerous competitive advantages, such as our
everyday low pricing, product selection, and quality and consistency of
service.

We also compete for managed care business. Our competition for this business is
principally the larger national and regional optical firms. Competition for
this business is driven by size of provider network, quality and consistency of
service, and by pricing of vision care services. Successful renewals of
certain existing third-party contracts are integral to maintaining sales
revenues.

Several of our competitors have significantly greater financial resources than
we do. As a result, they may be able to engage in extensive and prolonged price
promotions which may adversely affect our business. They may also be able spend
more than we do for advertising. If we are not able to maintain our market
share of the retail optical industry, our business will suffer. A decline in
our earnings could adversely affect the price of our common stock and the
notes, and our ability to repay the notes.

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Federal and state governments extensively regulate the health care and
insurance industries. A finding that we have violated existing regulations, or
future adverse changes in those regulations, could negatively affect our
business and its prospects, our ability to repay the notes, and the price of
our common stock and our notes.

Both federal and state governments extensively regulate the delivery of health
care, including relationships among health care providers such as optometrists
and eyewear providers like us. Many states prohibit business corporations from
practicing medicine or controlling the medical judgments or decisions of
physicians. States often also prohibit various financial arrangements, such as
splitting fees with physicians. The legality of our relationships with
opticians and independent optometrists has been and may be challenged from time
to time. Regulations vary from state to state and are enforced by both courts
and regulatory authorities, each with broad discretion. A ruling that we have
violated these laws could, for example, result in:



| |  |  | censure,                                                                          
| | - |  | ----------------------------------------------------------------------------------
|
| |  |  | delicensing of optometrists,                                                      
|
| |  |  | civil or criminal penalties, including large civil monetary penalties,            
|
| |  |  | invalidation or modification of our agreements with optometrists and opticians, or
|
| |  |  | an order requiring us to change our business practices.                           

These consequences could have an adverse effect on our business, which could
impact the price of our common stock and notes and impact our ability to repay
the notes. Also, changes in our relationships with independent optometrists and
opticians could adversely affect our relationship with Wal-Mart or our other
host stores. Local ordinances (such as zoning requirements) can also impose
significant burdens and costs of compliance. Frequently, our competitors sit on
state and local boards. Our risks and costs of compliance are often increased
as a result. All of these matters could cause our business to suffer, our
ability to repay the notes to be adversely affected, and the trading price of
our common stock and notes to decline.

In California, optometrists who practice adjacent to our retail locations are
providers to and subtenants of a subsidiary, which is licensed as a
single-source HMO. This subsidiary is regulated by the Department of Managed
Health Care. This agency has recently required that we change our way of doing
business. This new way of doing business will increase our costs in
California. On a general basis, the regulatory environment in California has
become more difficult, and future actions of regulatory agencies or private
parties could worsen this trend. Such actions could force us to change the way
we do business, to incur significant expense in litigation and compliance
efforts, and could have a material adverse impact on us.

The fraud and abuse provisions of the Social Security Act and anti-kickback
laws and regulations adopted in many states prohibit soliciting, paying,
receiving or offering any compensation for making, or causing someone to make,
referrals of patients, items or services in some circumstances. The Social
Security Act also imposes significant penalties for false or improper Medicare
and Medicaid billings. Many states have adopted similar laws applicable to any
payor of health care services. We must also comply with federal laws such as
the Health Insurance Portability and Accountability Act of 1996 (which governs
our participation in managed care programs) and the Food and Drug
Administration Act (which regulates medical devices such as contact lenses). In
addition, the Stark Self-Referral Law restricts referrals for Medicare or
Medicaid covered services where the referring physician has a financial
relationship with the service provider. In some cases, the rental of space
constitutes a financial relationship under this law. Many states have adopted
similar self-referral laws which are not limited to Medicare or Medicaid
reimbursed services. Violations of these laws may result in substantial civil
or criminal penalties, including double and treble civil monetary penalties,
and in the case of federal laws, exclusion from the Medicare and Medicaid
programs. These kinds of exclusions and penalties, if applied to us, could have
a material adverse effect on our business, which could adversely affect the
price of our common stock and our notes, and our ability to repay the notes.

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We do not have employment agreements with key management. The departure of key
executives could adversely affect our business.

We depend on the continuing efforts of our executive officers and senior
management. The departure of these individuals in significant numbers could
adversely affect our business and prospects if we are unable to attract and
retain qualified replacements. We do not currently have employment agreements
with any personnel, including key executive officers and management. However,
we offer our executives and management bonus and stock-based incentives related
to our performance.

Failure to have independent vision care professionals available in or near our
vision centers would adversely affect our ability to win managed care and host
store contracts, and could prevent us from operating in some states.

Our business and marketing strategies emphasize the availability of independent
optometrists in close proximity to our vision centers. Typically, we contract
with at least one licensed optometrist to occupy a space in or adjacent to each
of our stores. Additionally, our agreement with Wal-Mart contemplates that we
will make optometrists available at least 48 hours per week if permitted by
law. Some states require that licensed opticians be present when eyeglasses or
contact lenses are fitted or dispensed. In some markets it may be difficult for
us to attract and retain optometrists if our vision centers generate low sales.
Any difficulties or delays in securing the services of vision care
professionals could adversely affect our business and our relationship with our
host stores. Consequences of difficulty or delay could include termination of
our host store licenses for those vision centers, and imposition of legal
sanctions against us, including closure of vision centers without licensed
professionals.

Our retail business may suffer if we fail to keep sufficient licensed
optometrists available in our vision centers, which may adversely affect our
ability to repay our notes and the price of our common stock and notes.

Historically, if there is no licensed optometrist available to give eye exams,
our retail business has suffered. In some markets, it can be difficult to hire
or keep vision care professionals on staff in our vision centers. Failure to
maintain a staff of qualified vision care professionals may cause our customers
to go elsewhere to provide for their optical needs, which would have an adverse
effect on our business.

Our success increasingly depends on our ability to develop and maintain
relationships with managed vision care companies.

An increasing percentage of patients receive health care coverage through
managed care payors. As this trend continues, our success will increasingly
depend on our ability to negotiate contracts with health maintenance
organizations referred to as HMOs, employer groups and other private third
party payors. We cannot assure you that we will be able to establish or
maintain satisfactory relationships with managed care and other third party
payors. Many managed care payors have existing provider structures in place
that they may be unable or unwilling to change. Our inability to enter into
arrangements with managed care payors in the future could have a material
adverse effect on our business.

We have established a network of optometrists and other providers located in or
adjacent to our stores in order to enhance our ability to contract with managed
care payors for both professional services and retail eyewear supplies.
Currently, approximately 11% of our revenues are received from managed care
payors. We expect this percentage to increase in the future. Managed care
contracts include a variety of reimbursement methods, such as capitation and
fee for service or discounts. Our contracts with managed care companies on the
one hand, and with networks of optometrists and other providers on the other,
are subject to federal and state regulations, for example:

Insurance Licensure. Most states impose strict licensure requirements on
companies that engage in the business of insurance, including health insurance
companies and HMOs. Many licensing laws mandate strict financial and other
requirements which we may not be able to meet, were we deemed to be engaging in
the business of insurance. Additionally, the licensure process can be lengthy
and time consuming.

43

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##### 



Antitrust Laws. A range of antitrust laws apply to us and our provider network.
These laws prohibit anti-competitive conduct, including price-fixing, concerted
refusals to deal, and divisions of markets. We cannot assure you that our
operations will not be challenged on antitrust grounds in the future.

Proposed reforms may affect our earnings and may adversely affect our business.

There have been numerous reform initiatives at the federal and state levels
relating to the payment for and availability of healthcare services. We believe
that these initiatives will continue for the foreseeable future. If adopted,
some of these reforms could adversely affect our earnings, and may adversely
affect our business.

We rely on third parties to pay many of our customers costs.

A significant portion of medical care in the United States is funded by
government and private insurance programs, such as Medicare, Medicaid and
corporate health insurance plans. According to government projections, more
medical beneficiaries who are significant consumers of eye care services will
enroll in managed care organizations. Governmental and private third-party
payors are trying to contain medical costs by:



| |  |  | lowering reimbursements,                                           
| | - |  | -------------------------------------------------------------------
|
| |  |  | imposing use restrictions and risk-based compensation arrangements,
|
| |  |  | redesigning benefits, and                                          
|
| |  |  | exploring more cost-effective methods of health care delivery.     

These cost containment efforts may lead to limitations or reductions in
reimbursement for eye care services, which would adversely affect our future
sales. Additionally, some reimbursement programs require us to collect payment
from third party payors. Our inability to fully collect reimbursable amounts
could adversely affect cash flow generated from operations.

We depend on reliable and timely reimbursement of claims we submit to third
party payors. There are risks we may not be paid on a timely basis, or that we
will be paid at all. Some plans have complex forms to complete. Sometimes our
staff may incorrectly complete forms, delaying our reimbursement. These delays
can hurt our cash flow and also force us to write-off more of these accounts
receivable.

New advances may reduce the need for our products or allow other manufacturers
to produce eyewear at lower cost than we can.

Technological advances in the eyecare industry, such as new surgical procedures
or medical devices, could reduce the demand for our products. Corneal
refractive surgery procedures such as laser surgery, radial-keratotomy and
photo-refractive keratectomy may change the demand for our products. The
development of new drugs may have a similar effect. Technological advances such
as wafer technology and lens casting may make our current lens manufacturing
method uncompetitive or obsolete. The number of individuals electing Lasik and
similar surgical procedures has dramatically increased each year, which could
significantly decrease demand for our goods and services. These and other
medical and technological advances may have a material adverse effect on our
operations.

A prolonged economic downturn could have an adverse impact on us.

We believe that a weakening economy may cause an increase in the period of time
between repurchases of our retail products by the average consumer, since
customers may see replacement purchases of eyeglasses and contact lenses as
non-essential. An extension of the repurchase cycle for our retail products
would reduce the number of sales of our retail products. Lower sales of our
retail products would reduce our revenues, which could adversely affect both
our ability to pay off the notes and the price of our common stock and notes.

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##### 



Operating in other countries presents special risks that may affect our results of operations.

Our Mexican operations face risks substantially similar to those we face in our
Wal-Mart stores, including dependence on the host store and limits on
expansion. We cannot assure you that our Mexican operations will be able to
attain profitability.

Our foreign operations expose us to all of the risks of investing and operating
in foreign countries generally, including:



| |  |  | differing regulatory, political and governmental environments,
| | - |  | --------------------------------------------------------------
|
| |  |  | currency fluctuations,                                        
|
| |  |  | high inflation,                                               
|
| |  |  | price controls,                                               
|
| |  |  | restrictions on profit repatriation,                          
|
| |  |  | generally lower per capita income and spending levels,        
|
| |  |  | import duties and value-added taxes, and                      
|
| |  |  | difficulties of cross-cultural marketing.                     

Our Articles of Incorporation, By-Laws, Indenture, and shareholder rights
agreement contain provisions that make it more difficult to effect a change in
control of the company, which may adversely affect the price of our common
stock.

Provisions of our Articles of Incorporation and By-Laws could discourage tender
offers or other transactions that would result in shareholders receiving a
premium over the market price for our common stock. These include provisions:



| |  |  | authorizing the issuance of preferred stock without shareholder approval,                                                     
| | - |  | ------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | requiring a supermajority shareholder vote in various circumstances,                                                          
|
| |  |  | restricting who may call a special meeting of shareholders,                                                                   
|
| |  |  | permitting our board of directors to consider constituencies in addition to the shareholders, and                             
|
| |  |  | requiring shareholders to comply with various procedures in
connection with any shareholder proposals or director nominations.

The Indenture governing our senior notes provides that, upon a Change of
Control (as defined), the Company is obligated to offer to repurchase all
outstanding notes at par. A Change of Control is defined to include, among
other things, the acquisition by a group of 50% or more of our common stock,
and the election of a majority of directors who was not approved by a majority
of the prior directors. Our shareholder rights agreement provides us with a
defensive mechanism that decreases the risk that a hostile acquirer will
attempt to take control of us without negotiating directly with our board of
directors. It is meant to prevent an acquirer from gaining control of us by
paying an inadequate price or by using coercive techniques. The shareholder
rights agreement may discourage acquirers from attempting to purchase us, which
may adversely affect the price of our common stock.

We may not have the ability to raise the funds necessary to finance the change
of control repurchase contemplated by our indenture.

Upon some changes of control of the Company, holders of our notes have the
right to require us to repurchase all or a portion of the notes. If a change of
control occurs, we cannot assure you that we will have sufficient funds to
repurchase all of the notes tendered.

Our failure to repurchase tendered notes would be an event of default under our
indenture. Changes of control are also restricted by, and constitute a default
under, our credit facility. If the lender under our credit facility were to
accelerate our obligations due to a default, it would have a priority claim to
the proceeds from the sale of our assets that secure the credit facility.

45

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Our adoption of fresh start accounting may make evaluating our financial
position and results of operations, as compared to prior periods, more
difficult.

Due to our emergence from bankruptcy pursuant to our plan of reorganization, we
implemented fresh start accounting as of June 2, 2001. In accordance with
fresh start accounting, all assets and liabilities were restated to reflect
their respective fair values. As a result, the consolidated financial
statements for our reorganized company starting on and going forward from June
2, 2001 will not be comparable to our consolidated financial statements for the
periods prior to June 2, 2001. The change in our accounting principles may make
it more difficult to compare our operations to prior periods.

Our operating history since our emergence from bankruptcy may be insufficient
to evaluate our financial condition based on our financial statements.

Our operating history since we emerged from bankruptcy is limited. Our
financial statements since the implementation of fresh start accounting may
be insufficient to draw proper conclusions about our future ability to generate
profits and to make payments on the notes.

ITEM  7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

Market risk is the potential change in an instruments value caused by, for
example, fluctuations in interest and currency exchange rates. The Companys
primary market risk exposures are interest rate risk and the risk of
unfavorable movements in exchange rates between the U.S. dollar and the Mexican
peso. Monitoring and managing these risks is a continual process carried out by
senior management, which reviews and approves the Companys risk management
policies. We manage market risk on the basis of an ongoing assessment of trends
in interest rates, foreign exchange rates, and economic developments, giving
consideration to possible effects on both total return and reported earnings.
The Companys financial advisors, both internal and external, provide ongoing
advice regarding trends that affect managements assessment. Companys operations are not considered to give rise to
significant market risk.

Interest Rate Risk

The Company borrows long-term debt under our credit facility at variable
interest rates. (See Note 8 to Consolidated Financial Statements.) We therefore
incur the risk of increased interest costs if interest rates rise. At December
28, 2002, the Company had no outstanding borrowings under its credit
facility. The Companys interest cost under its
Senior Notes is fixed at 12% through the expiration date of the
Senior Notes, due 2009.

Foreign Currency Risk

The Companys division in Mexico operates in a functional currency other than
the U.S. dollar. The net assets of this division are exposed to foreign
currency translation gains and losses, which are included as a component of
accumulated other comprehensive loss in shareholders equity. Such translation
resulted in unrealized losses of $274,000 in 2002 and unrealized income of
$144,000 in 2001. Historically, the Company has not attempted to hedge this
equity risk.

ITEM  8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements of the Company are included as a separate
section of this Report commencing on page F-1.

46

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##### 



ITEM  9.    DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Effective May 15, 2002 the Board of Directors, upon the recommendation of the
Audit Committee, dismissed its independent accountants, Arthur Andersen LLP,
and appointed Deloitte & Touche LLP as its new independent accountant. This
matter was previously reported on Form 8-K filed May 21, 2002.

47

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##### 



(LOGO)

PART III

ITEM  10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Compensation of Directors

Non-employee directors of the Company receive an annual retainer of $45,000 and
also receive medical and dental benefits. Non-employee directors are also
eligible to participate in the restated Non-Employee Director Stock Option
Plan. Under this stock option plan, non-employee directors are entitled to
automatic grants of options to purchase 10,000 shares upon the date of each
annual meeting of shareholders. (The non-employee directors as of the date the
Company exited from bankruptcy proceedings each received an initial grant
covering 15,000 shares.) All option grants are at exercise prices no less than
the fair market value of a share of common stock on the date of grant. All
options vest 50 percent on the second anniversary of the grant date and 25
percent on each of the third and fourth anniversaries of the grant date, or 100
percent upon the death of the director.

Information Concerning Directors

The following information is provided, as of April 3, 2003, regarding current
directors and the nominees for election as directors:

Name
    
    Age
    
    Positions with the CompanyPeter T. Socha
    
    
    43
    
    
    Chairman of the BoardB. Robert Floum
    
    
    68
    
    
    DirectorJames W. Krause
    
    
    58
    
    
    DirectorMarc Nelson
    
    
    42
    
    
    DirectorJeffrey A. Snow
    
    
    51
    
    
    Director


Mr. Socha joined the Company in October 1999 as Senior Vice President,
Strategic Planning. He served as Senior Vice President, Strategic Planning and
Managed Care from February 2000 through June 2001. Prior to joining the
Company, Mr. Socha worked as a consultant and served as Executive Vice
President of COHR, Inc., from May 1998 to October 1998. He became a director
in February 2000 and was elected as Chairman of the Board in May 2002. In
March 2003, he became President and Chief Executive Officer of James River Coal
Company, a firm engaged in the mining, processing, and sale of steam coal.

Mr. Floum became a director in June 2001. From March 2000 through January
2001, he was acting Chief Operating Officer of Stage Stores. He served as
Chief Operating Officer of Jumbo Sports, a sporting goods company, from
February 1998 through July 1999.

Mr. Krause joined the Company in April 1994 as President and Chief Executive
Officer and a director. He was named Chairman of the Board in June 1995 and
retired as an executive of the Company in January 2003.

Dr. Nelson is an optometrist licensed in New Jersey and Pennsylvania. Since
1992, he has been the president and sole shareholder of Nelson Eye Associates,
P.C., which operates ten optometric clinics in retail optical locations owned
by the Company.

Mr. Snow became a director in June 2001. He was President of Hi Fi Buys, Inc.
from April 1982 through May 1997. He is currently Chairman of The Capital
Network, LLC, a consulting firm.

Executive Officers

The following table sets forth, as of April 3, 2003, certain information
regarding the executive officers of the Company:

Name
    
    Age
    
    Positions with the CompanyReade Fahs
    
    
    42
    
    
    President and Chief Executive OfficerEduardo Egusquiza
    
    
    50
    
    
    Senior Vice President, Information TechnologyMitchell Goodman
    
    
    49
    
    
    Senior Vice President, General Counsel and SecretaryPaul Gross
    
    
    39
    
    
    Senior Vice President, Marketing, Frames Merchandising and New
VenturesAngus C. Morrison
    
    
    46
    
    
    Senior Vice President, Chief Financial OfficerTimothy W. Ranney
    
    
    50
    
    
    Vice President, Corporate ControllerJ. Bruce Steffey
    
    
    56
    
    
    Senior Vice President, Retail OperationsRobert W. Stein
    
    
    47
    
    
    Senior Vice President, Human Resources and Professional Services


Mr. Fahs joined the Company in April 2002 as President and Chief Operating
Officer. He was named Chief Executive Officer in January 2003. From October
1999 until joining the Company, he served first as Chief Executive Officer,
then as Executive Director, of First Tuesday, a growth stage company based in
the United Kingdom. From 1997 until 1999, he served as a Managing Director of
Vision Express, an optical retail company also based in the United Kingdom. He
served in various senior management capacities with LensCrafters from 1986 to
1996.

Mr. Egusquiza joined the Company in March 1998 as Senior Vice President,
Information Technology.

Mr. Goodman joined the Company as General Counsel and Secretary in September
1992 and was named a Vice President in November 1993 and Senior Vice President
in May 1998.

Mr. Gross joined the Company in August 2002. He served as Vice President for
PC on Call LLC from August 2000 until shortly before joining the Company. From
September 1991 until August 2000 he was employed by LensCrafters as Director of
Marketing.

Mr. Morrison joined the Company in February 1995 as Vice President, Corporate
Controller. He was appointed Senior Vice President, Chief Financial Officer
and Treasurer in March 1998. He served as Treasurer until February 2000.

Mr. Ranney joined the Company in September 1998 and was named Vice President,
Corporate Controller in October 1998. From 1991 until joining the Company, he
was employed by CVS Corporation, where he served as Store Controller and then
as Director of Financial Systems.

Mr. Steffey joined the Company in September 2002 as Senior Vice President
Retail Operations. From March 1995 to January 2002 he was employed by Zale
Corporation, where he served as Senior Vice President Store Operations.

Mr. Stein joined the Company as Director of Human Resources in May 1992. In
January 1993, he was appointed Vice President, Human Resources, and was
appointed Senior Vice President in 1999.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Companys directors, executive
officers and holders of more than ten percent (10%) of our common stock to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. The Company believes that, during 2002, its officers, directors
and holders of more than ten percent (10%) of Common Stock complied with all
Section 16(a) filing requirements, except that a Form 3 was not filed on a
timely basis for S. Lynn Butler, the principal accounting officer of the
Company. In addition, the Company believes that two ten percent shareholders,
Deutsche Bank AG and U.S. Bancorp Investments, Inc., each did not file at least
one Form 4 arising out of one or more transactions in our common stock. In
making these statements, the Company has relied upon the written
representations of its directors and officers and upon copies of reports
furnished to the Company.

ITEM 
11.    EXECUTIVE COMPENSATION

COMPENSATION OF EXECUTIVE OFFICERS

The following table discloses compensation received from the Company by the
Companys Chief Executive Officer, and the Companys four most highly
compensated officers other than the Chief Executive Officer (all such
individuals, collectively, the named executive officers).

|                  |                               |        |                     |        |                        |       |         |         |  |          |         |         |  |         |        |            |     |            |        |      |            |         |         |        |  |  |        |        |     |  |         |        |    
|----------------- | ----------------------------- | ------ | ------------------- | ------ | ---------------------- | ----- | ------- | ------- |  | -------- | ------- | ------- |  | ------- | ------ | ---------- | --- | ---------- | ------ | ---- | ---------- | ------- | ------- | ------ |  |  | ------ | ------ | --- |  | ------- | ------ | ---
|                  |                               |        | Annual Compensation |        | Long-Term Compensation |       |         |         | 
|                  |                               |        |                     |        |                        |       |         |         | 
|                  |                               |        |                     |        |                        |       |         |         |  |          |         |         |  |         |        |            |     |            | Awards |      | Payouts    |         |         |        | 
|                  |                               |        |                     |        |                        |       |         |         |  |          |         |         |  |         |        |            |     |            |        |      |            |         |         |        | 
|                  |                               |        |                     |        |                        |       |         |         |  |          |         |         |  |         | Other  |            |     |            |        |      | Securities |         |         |        |  |  | All   
|Name              |                               |        |                     |        |                        |       |         |         |  |          |         |         |  | Annual  |        | Restricted |     | Underlying |        |      |            |         |         | Other 
|And               |                               |        |                     |        |                        |       |         |         |  |          |         |         |  | Compen- |        | Stock      |     | Options/   |        | LTIP |            | Compen-
|Principal         |                               | Fiscal |                     | Salary |                        | Bonus |         | sation  |  | Award(s) |         | SARs    |  | Payouts |        | sation    
|Position          |                               | Year   |                     | ($)    |                        | ($)   |         | ($)     |  | ($)      |         | (#)     |  | ($)     |        | ($)       
|                  |                               |        |                     |        |                        |       |         |         |  |          |         |         |  |         |        |           
|James W. Krause*  |                               |        | 2002                |        |                        |       | 364,000 |         |  |          | 57,000  |         |  |         |        |            |     |            |        |      |            |         |         |        |  |  | 52,000 | (2)    |     |  | 395,000 | (3)   
|                  | Chairman of the Board         |        |                     | 2001   |                        |       |         | 375,000 |  |          |         | 100,000 |  |         |        | 217,000    | (1) |            |        |      |            |         |         | 45,000 |  |  |        |        |     |  |         | 20,000 | (3)
|                  | and Chief Executive Officer   |        |                     | 2000   |                        |       |         | 375,000 |  |          |         |         |  |         |        | 113,000    | (1) |            |        |      |            |         |         |        |  |  |        |        |     |  |         | 20,000 | (3)
|Reade Fahs        |                               |        | 2002                |        |                        |       | 198,000 |         |  |          | 109,000 |         |  |         | 54,000 | (4)        |     |            | 63,400 | (5)  |            |         | 165,600 |        |  |  | 10,000 | (6)    |     |  |         |       
|                  | President and                 |        |                     | 2001   |                        |       |         |         |  |          |         |         |  |         |        |            |     |            |        |      |            |         |         |        |  |  |        |        |     |  |         |        |    
|                  | Chief Operating Officer       |        |                     | 2000   |                        |       |         |         |  |          |         |         |  |         |        |            |     |            |        |      |            |         |         |        |  |  |        |        |     |  |         |        |    
|Eduardo Egusquiza |                               |        | 2002                |        |                        |       | 198,000 |         |  |          | 30,000  |         |  |         |        |            |     |            |        |      |            |         |         |        |  |  | 10,000 | (6)    |     |  |         |       
|                  | Senior Vice President         |        |                     | 2001   |                        |       |         | 193,000 |  |          |         | 91,000  |  |         |        | 112,000    | (1) |            |        |      |            |         |         | 9,000  |  |  |        |        |     |  |         |        |    
|                  | Information Services          |        |                     | 2000   |                        |       |         | 188,000 |  |          |         |         |  |         |        | 58,000     | (1) |            |        |      |            |         |         |        |  |  |        |        |     |  |         |        |    
|Mitchell Goodman  |                               |        | 2002                |        |                        |       | 190,000 |         |  |          | 29,000  |         |  |         | 15,000 | (1)        |     |            |        |      |            |         |         |        |  |  | 10,000 | (6)    |     |  |         |       
|                  | Senior Vice President,        |        |                     | 2001   |                        |       |         | 177,000 |  |          |         | 71,000  |  |         |        | 102,000    | (1) |            |        |      |            |         |         | 9,000  |  |  |        |        |     |  |         |        |    
|                  | General Counsel and
Secretary |        |                     | 2000   |                        |       |         | 172,000 |  |          |         |         |  |         |        | 53,000     | (1) |            |        |      |            |         |         |        |  |  |        |        |     |  |         |        |    
|Angus C. Morrison |                               |        | 2002                |        |                        |       | 191,000 |         |  |          | 29,000  |         |  |         |        |            |     |            |        |      |            |         |         |        |  |  |        |        |     |  |         |       
|                  | Senior Vice President,        |        |                     | 2001   |                        |       |         | 184,000 |  |          |         | 66,000  |  |         |        | 98,000     | (1) |            |        |      |            |         |         | 9,000  |  |  |        | 10,000 | (6) |  |         |        |    
|                  | Chief Financial Officer       |        |                     | 2000   |                        |       |         | 170,000 |  |          |         |         |  |         |        | 51,000     | (1) |            |        |      |            |         |         |        |  |  |        |        |     |  |         |        |    
|                  | and Treasurer                 |        |                     |        |                        |       |         |         |  |          |         |         |  |         |        |            |     |            |        |      |            |         |         |        |  |  |        |        |     |  |         |        |    



---

|(1) |  | Amounts payable pursuant to the Key Employee Retention Program approved during
the Companys Chapter 11 Case. For 2002 for Mr. Goodman, this amount represents
a special one-time bonus.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Represents cash settlement of $50,000 and issuance of 5,000 shares for
achievement of Company goals in first year under long-term incentive plan.                                       

48

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##### 





|(3) |  | The Company has executed a split dollar insurance agreement with Mr.
Krause. The annual premium (payable by the Company) is $20,000. The
term life portion of this premium is $2,500; the non-term life portion
is $17,500. For 2002, includes $375,000 representing amounts accrued
under a severance agreement with Mr. Krause.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(4) |  | Reimbursement of relocation expenses.                                                                                                                                                                                                                                                                                              
|   
|(5) |  | Mr. Fahs was granted 84,400 shares of restricted stock on April 11,
2002. The shares vest in one-third increments on each anniversary of
the date of grant. Dividends are payable on the restricted stock.                                                                                                                         
|   
|(6) |  | Represents cash settlement of $10,000 and issuance of 1,000 shares for
achievement of Company goals in first year under long-term incentive
plan.                                                                                                                                                                                  
|   
|*   |  | Mr. Krause retired as Chief Executive Officer in 2003.                                                                                                                                                                                                                                                                             

OPTION GRANTS IN LAST FISCAL YEAR

The following table provides information on option grants to the named
executive officers by the Company in 2002. In accordance with rules of the
Commission, there are shown the hypothetical gains or option spreads that
would exist for the respective options. These gains are based on assumed rates
of annual compound stock price appreciation of 5% and 10% from the date the
options were granted over the full option term.

|                 |  |              |         |                |  |               |    |            |  |    |      |     |  |                        |          |  |  |                      |        |  |  |  |         | 
|---------------- |  | ------------ | ------- | -------------- |  | ------------- | -- | ---------- |  | -- | ---- | --- |  | ---------------------- | -------- |  |  | -------------------- | ------ |  |  |  | ------- | 
|                 |  |              |         |                |  |               |    |            |  |    |      |     |  |                        |          |  |  | Potential Realizable
|                 |  |              |         |                |  |               |    |            |  |    |      |     |  |                        |          |  |  | Value at Assumed    
|                 |  | No. of       |         | % of Total     |  |               |    |            |  |    |      |     |  | Annual Rates of Stock 
|                 |  | Securities   |         | Options/SARs   |  |               |    |            |  |    |      |     |  | Price Appreciation    
|                 |  | Underlying   |         | Granted to     |  |               |    |            |  |    |      |     |  | for Option Terms($)(2)
|                 |  | Options/SARs |         | Employees in   |  | Exercise or   |    | Expiration |  |   
|                 |  | Granted      |         | Fiscal Year(1) |  | Base Price($) |    | Date       |  | 5% |      | 10%
|                 |  |              |         |                |  |               |    |            |  |    |      |    
|Reade Fahs       |  |              | 165,600 | (3)            |  |               | 90 |            |  |    | 0.75 |     |  |                        | 04/11/12 |  |  |                      | 78,000 |  |  |  | 199,000 | 
|Paul Gross       |  |              | 9,000   | (3)            |  |               | 5  |            |  |    | 1.00 |     |  |                        | 08/22/12 |  |  |                      | 6,000  |  |  |  | 14,000  | 
|J. Bruce Steffey |  |              | 9,000   | (3)            |  |               | 5  |            |  |    | .60  |     |  |                        | 10/21/12 |  |  |                      | 3,000  |  |  |  | 9,000   | 



---

|(1) |  | The Company granted options covering 183,600 shares to employees in 2002.                                                                                                                                                                                                                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | These amounts represent assumed rates of appreciation only. Actual gains, if any, on stock option exercises and holdings of Common Stock are
dependent on the future performance of Common stock and overall stock market conditions. There can be no assurance that the amounts reflected in
this table will be achieved.
|   
|(3) |  | Grant under the employee stock option plan. Option vests 33% on each of the first three anniversaries of the grant date, subject to (a) continued
employment and (b) accelerated vesting upon a change of control. Expiration date is 10th anniversary of grant date.                                                     

FISCAL YEAR END OPTION VALUES

The following table provides information, as of April 3, 2003, regarding the
number and value of options held by the named executive officers.

|                  |  |                              |        |                        |  |             |         |               |  |  |       |  |  |  |        | 
|----------------- |  | ---------------------------- | ------ | ---------------------- |  | ----------- | ------- | ------------- |  |  | ----- |  |  |  | ------ | 
|                  |  | No. of Securities Underlying |        | Value of Unexercised  
|                  |  | Unexercised Options at       |        | In-the-Money Options  
|                  |  | Fiscal Year End              |        | At Fiscal Year End ($)
|                  |  |                              |        |                       
|                  |  | Exercisable                  |        | Unexercisable(1)       |  | Exercisable |         | Unexercisable
|                  |  |                              |        |                        |  |             |         |              
|James W. Krause   |  |                              | 11,250 |                        |  |             | 33,750  |               |  |  | 4,000 |  |  |  | 12,000 | 
|Reade Fahs        |  |                              | 0      |                        |  |             | 165,600 |               |  |  | 0     |  |  |  | 61,000 | 
|Eduardo Egusquiza |  |                              | 2,250  |                        |  |             | 6,750   |               |  |  | 1,000 |  |  |  | 2,000  | 
|Mitchell Goodman  |  |                              | 2,250  |                        |  |             | 6,750   |               |  |  | 1,000 |  |  |  | 2,000  | 
|Angus C. Morrison |  |                              | 2,250  |                        |  |             | 6,750   |               |  |  | 1,000 |  |  |  | 2,000  | 



---

|(1) |  | Shares represented were not exercisable as of December 28, 2002, and future
exercisability is subject to the executives remaining employed by the Company for up
to seven years from grant date of options.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

49

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##### 



LONG-TERM INCENTIVE PLANS  AWARDS IN LAST FISCAL YEAR

|           |  |                  |    |                  |  |                                 |    |        |  |                                |       |  |  |  |       |  |  |  |        | 
|---------- |  | ---------------- | -- | ---------------- |  | ------------------------------- | -- | ------ |  | ------------------------------ | ----- |  |  |  | ----- |  |  |  | ------ | 
|           |  |                  |    |                  |  |                                 |    |        |  | Estimated Future Payouts Under
|           |  | Number Of        |    | Performance Or   |  | Non-Stock Price-Based Plans (3)
|           |  | Shares, Units Or |    | Other Period     |  |                                
|           |  | Other Rights     |    | Until Maturation |  | Threshold                       |    | Target |  | Maximum                       
|Name       |  | (#) (1)          |    | Or Payout        |  | (#)                             |    | (#)    |  | (#)                           
|           |  |                  |    |                  |  |                                 |    |        |  |                               
|Reade Fahs |  |                  | (1 | )                |  |                                 | (2 | )      |  |                                | 1,500 |  |  |  | 6,000 |  |  |  | 12,000 | 



---

|(1) |  | In 2002, the Compensation Committee approved an award of units of Performance Shares. The actual
number of Performance Shares issued will depend on operating earnings of the Company (defined as
earnings before interest, taxes, depreciation and amortization) over the performance periods, as
reflected under Estimated Future Payouts Under Non-Stock Price-Based Plans in the chart above.                                     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | There are three performance periods under the terms of the awards: fiscal 2002, fiscal 2002-2003,
and fiscal 2002-2004. At the end of each performance period, the Company will determine its
operating earnings and will issue units of Performance Shares accordingly. Under the terms of the
awards, a shortfall in operating earnings in an early fiscal period can be overcome by operating
earnings in a subsequent fiscal period.
|   
|(3) |  | Reflects number of units issuable over the three-year performance period. Smaller number of units
can be issued depending on results during the first two fiscal periods. Two-thirds of units will be
paid in cash and one-third in shares. Units payable in cash will be paid at the greater of $5.00 per
unit or the closing trading price of Common Stock as of the last day of the performance period.                              

Change in Control Arrangements

There are agreements between the Company and the named executive officers which
provide severance benefits in the event of termination of employment under
certain circumstances following a change in control of the Company (as
defined). The circumstances are termination by the Company (other than because
of death or disability commencing prior to a threatened change in control (as
defined), or for cause (as defined) ), or by an officer as the result of a
voluntary termination (as defined). Following any such termination, in
addition to compensation and benefits already earned, the officer will be
entitled to receive a lump sum severance payment equal to up to three times the
officers annual rate of base salary.

Cause for termination by the Company is the: (i) commission of any act that
constitutes, on the part of the officer, (a) fraud, dishonesty, gross
negligence, or willful misconduct and (b) that directly results in material
injury to the Company, or (ii) officers material breach of the agreement, or
(iii) officers conviction of a felony or crime involving moral turpitude.

Circumstances that would entitle the officer to terminate as a result of
voluntary termination following a change in control include, among other
things: (i) the assignment to the officer of any duties inconsistent with the
officers title and status in effect prior to the change in control or
threatened change in control; (ii) a reduction by the Company of the officers
base salary; (iii) the Companys requiring the officer to be based anywhere
other than the Companys principal executive offices; (iv) the failure by the
Company, without the officers consent, to pay to the officer any portion of
the officers then current compensation; (v) the failure by the Company to
continue in effect any material compensation plan in which the officer
participates immediately prior to the change in control or threatened change in
control; or (vi) the failure by the Company to continue to provide the officer
with benefits substantially similar to those enjoyed by the officer under any
of the Companys life insurance, medical, or other plans. The term of each
agreement is for a rolling three years unless the Company gives notice that it
does not wish to extend such term, in which case the term of the agreement
would expire three years from the date of the notice.

The plan of reorganization approved in the Companys Chapter 11 case also
provides for severance of one year for any of the executive officers upon
termination without cause. The Company has modified this severance plan to
provide for payment of the severance over one year and for payment to the
executive following termination of the executive because of (i) a significant,
adverse change in the executives employment responsibilities; (ii) a reduction
in the executives base salary; (iii) relocation of more than 50 miles from the
Companys office; or (iv) the failure of the Company to pay current
compensation. Payments under the severance plan are to be netted against any
payments under the change in control agreement.

50

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##### 



COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION

Messrs. Floum, Snow, and Nelson served as members of the Compensation Committee in 2002.

ITEM 
12.    SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

Equity Compensation Plan Information

|                                                           |  |                      |         |                      |  |                       |      |  |  |                      |         |    
|---------------------------------------------------------- |  | -------------------- | ------- | -------------------- |  | --------------------- | ---- |  |  | -------------------- | ------- | ---
|                                                           |  |                      |         |                      |  |                       |      |  |  | Number of securities
|                                                           |  |                      |         |                      |  |                       |      |  |  | remaining available 
|                                                           |  |                      |         |                      |  |                       |      |  |  | for future issuance 
|                                                           |  | Number of Securities |         |                      |  | under equity         
|                                                           |  | to be issued upon    |         | Weighted-average     |  | compensation plan    
|                                                           |  | exercise of          |         | exercise price of    |  | (excluding securities
|                                                           |  | outstanding options, |         | outstanding options, |  | reflected in column  
|                                                           |  | warrants and rights  |         | warrants and rights  |  | (a))                 
|Plan Category                                              |  | (a)                  |         | (b)                  |  | (c)                  
|                                                           |  |                      |         |                      |  |                      
|Equity compensation plans approved by
security holders(1)  |  |                      | 539,450 | (2)                  |  | $                     | 0.58 |  |  |                      | 276,150 | (3)
|Equity compensation plans not approved by
security holders |  |                      | N/A     |                      |  |                       | N/A  |  |  |                      | N/A     |    



---

|(1) |  | A total of 720,000 shares, inclusive of options previously granted, are reserved for
issuance under the Companys Restated Stock Option and Incentive Award Plan (the
Employee Plan) and 180,000 shares, inclusive of options previously granted, are
reserved for issuance under the Companys Restated Non-Employee Director Stock Option
Plan (the Directors Plan).        
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Options covering 454,450 shares of common stock have been issued under the Employee Plan
and options covering 85,000 shares of common stock have been issued under the Directors
Plan.                                                                                                                                                                                            
|   
|(3) |  | The Company awarded its President 84,400 shares of restricted stock under the Employee
Plan in April 2002. The Company has also awarded 13,200 performance shares of common
stock under the Employee Plan. For determining the number of shares available for
future issuance, 26,268 number of shares were deducted in accordance with the Employee
Plan as of December 28, 2002.

51

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---



##### 



The Company is not aware of any person who, on April 3, 2003, was the
beneficial owner of five percent (5%) or more of outstanding shares of Common
Stock, except as set forth below.

|                                          |  |                      |         |          |  |  |      | 
|----------------------------------------- |  | -------------------- | ------- | -------- |  |  | ---- | 
|                                          |  | Amount and Nature of |         | Percent 
|                                          |  | Beneficial Ownership |         | of Class
|                                          |  |                      |         |         
|Deutsche Bank AG(a)                       |  |                      | 700,421 |          |  |  | 13.8 | 
|Northeast Investors Trust(b)              |  |                      | 349,784 |          |  |  | 6.9  | 
|American Express Financial Corporation(c) |  |                      | 292,419 |          |  |  | 5.8  | 



---

|(a) |  | This information is derived solely from a Schedule 13G
filed on February 12, 2003. The address of this
shareholder is Taunusanlage 12, D-60325, Frankfurt am
Main, Federal Republic of Germany.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | This information is derived solely from a Schedule 13G
filed on February 11, 2003. The address of this
shareholder is 50 Congress Street, Boston, Massachusetts
02109.                         
|   
|(c) |  | This information is derived solely from a Schedule 13G
filed on February 13, 2003. The address of this
shareholder is 200 AXP Financial Center, Minneapolis,
Minnesota 55474.                  

The following table sets forth information, as of April 3, 2003, concerning
beneficial ownership by all directors, by each of the executive officers named
in the Summary Compensation Table below, and by all directors and executive
officers as a group.

|                                                                   |  |                    |         |              |  |            |     | 
|------------------------------------------------------------------ |  | ------------------ | ------- | ------------ |  | ---------- | --- | 
|                                                                   |  |                    |         |              |  | Percent of
|                                                                   |  | Number of Shares   |         | Outstanding 
|Name and Address of Beneficial Owner (1)                           |  | Beneficially Owner |         | Common Stock
|                                                                   |  |                    |         |             
|Reade Fahs                                                         |  |                    | 140,600 | (a)          |  |            | 2.7 | 
|Jeffrey A. Snow                                                    |  |                    | 50,000  |              |  |            | *   | 
|Peter T. Socha                                                     |  |                    | 30,000  |              |  |            | *   | 
|B. Robert Floum                                                    |  |                    | 7,500   |              |  |            | *   | 
|James W. Krause                                                    |  |                    | 5,688   |              |  |            | *   | 
|Angus C. Morrison                                                  |  |                    | 3,584   | (b)          |  |            | *   | 
|Mitchell Goodman                                                   |  |                    | 3,397   | (b)          |  |            | *   | 
|Eduardo A. Egusquiza                                               |  |                    | 3,250   | (b)          |  |            | *   | 
|Paul Gross                                                         |  |                    | 3,000   |              |  |            | *   | 
|Marc Nelson                                                        |  |                    | 1,500   |              |  |            | *   | 
|J. Bruce Steffey                                                   |  |                    | 0       |              |  |            | *   | 
|All directors and executive officers as a group (thirteen persons) |  |                    | 254,365 |              |  |            | 5   | 



---

|*   |  | Represents less than one percent of the outstanding Common Stock.                                                                     
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | The address of the persons named is 296 Grayson Highway, Lawrenceville, GA 30045.                                                     
|   
|(a) |  | Includes 55,200 shares that Mr. Fahs will have the right to acquire under the employee stock option
plan of the Company in April 2003.
|   
|(b) |  | Includes 2,250 shares that this individual has the right to acquire under the employee stock option
plan of the Company.              

52

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---



##### 



ITEM  13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company made rent payments of approximately $80,000 for the St. Cloud
laboratory/distribution facility, which is owned by Myrel Neumann, a former
director of the Company.

In 2002, Nelson Eye Associates, P.C., which is wholly owned by Marc Nelson,
paid the Company approximately $300,000 in occupancy fees related to the
sub-occupancy of ten retail optical locations owned by the Company.

ITEM  14.    CONTROLS AND PROCEDURES

Within the 90 days prior to the filing date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Companys management, including the Companys Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based
upon that evaluation, the Companys Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls and procedures were
effective as of the date of such evaluation. Subsequent to
the evaluation date, the Company was advised by its independent auditors that
they had identified certain deficiencies in the Companys
controls and procedures over accounting for vendor allowances and
discounts. Management has
discussed these deficiencies with the audit committee and expects to take
immediate corrective action to remedy these deficiencies. Other than
described above, there were no other significant changes in the
Companys internal controls or in other factors that could
significantly affect internal controls subsequent to the evaluation
date. Disclosure
controls and procedures are controls and procedures that are designed to ensure that
information required to be disclosed in Company reports filed or submitted
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commissions rules
and forms.

53

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---



##### 



ITEM  15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  (1) and (2) The Consolidated Financial Statements and Schedule of the
Company and its subsidiaries are filed as a separate section of this Report
commencing on page F-1.

(3)  We have filed or incorporated by reference the following exhibits:

|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Number  |  |   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|2.1     |  |  |  | First Amended Joint Plan of Reorganization Under Chapter 11, Title 11,
United States Code, filed by Vista Eyecare, Inc. and Certain of its Debtor
Subsidiaries, dated April 13, 2001, incorporated by reference to Exhibit 2.1 to
the Companys Current Report on Form 8-K filed with the Commission on June 1, 2001.                                                                                                                                                                                                                                          
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|2.2     |  |  |  | Modification to First Amended Joint Plan of Reorganization Under Chapter 11, Title 11,
United States Code, filed by Vista Eyecare, Inc. and Certain of its Debtor Subsidiaries
and First Amended Joint Plan of Reorganization Under Chapter 11, Title 11, United States
Code, Filed by Frame-n-Lens Optical, Inc.; Midwest Vision, Inc.; New West Eyeworks, Inc.,
and Certain of their Debtor Subsidiaries, dated May 17, 2001, incorporated by reference
to Exhibit 2.2 to the Companys Current Report on Form 8-K filed with the Commission on
June 1, 2001.
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|3.1     |  |  |  | Amended and Restated Articles of Incorporation of the Company, dated
April 8, 1992, as amended, incorporated by reference to Exhibit 3.1 to the
Companys Registration Statement on Form 8-A filed with the Commission on August 9, 2001.                                                                                                                                                                                                                                                                                                                      
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|3.2     |  |  |  | Amended and Restated By-Laws of the Company, incorporated by reference
to the Companys Registration Statement on Form S-1, registration number
33-46645, filed with the Commission on March 25, 1992, and amendments thereto.                                                                                                                                                                                                                                                                                                                                 
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.1     |  |  |  | Form of Common Stock Certificate, incorporated by reference to Exhibit
4.1 to the Companys Registration Statement on Form 8-A filed with the
Commission on August 9, 2001.                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.2     |  |  |  | Rights Agreement dated as of January 17, 1997 between the Company and
Wachovia Bank of North Carolina, N.A., incorporated by reference to the
Companys Registration Statement on Form 8-A filed with the Commission on
January 17, 1997.                                                                                                                                                                                                                                                                                                                      
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.3     |  |  |  | Amendment to Rights Agreement, dated as of March 1, 1998, between the
Company and Wachovia Bank of North Carolina, N.A., incorporated by reference to
Exhibit 10.2 to the Companys Registration Statement on Form 8-A filed with the
Commission on March 24, 1998.                                                                                                                                                                                                                                                                                            
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|*4.4    |  |  |  | Indenture, dated as of June 15, 2001, between the Company and State
Street Bank and Trust Company, as trustee.                                                                                                                                                                                                                                                                                                                                                                                                                                                 

54

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##### 



|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------ |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.5    |  |  |  | First Amendment of Indenture, dated as of July 6, 2001, between the
Company and State Street Bank and Trust Company, as trustee, incorporated by
reference to Exhibit 4.2 to the Companys Registration Statement on Form 8-A
filed with the Commission on August 9, 2001.                                                                                                                                                                                                                                                                  
|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.6    |  |  |  | Registration Rights Agreement, dated as of May 31, 2001, among the
Company and the Holders (as defined therein) of registrable securities,
incorporated by reference to Exhibit 4.8 to the Companys Amendment to
Quarterly Report on Form 10-Q/A filed with the Commission on August 22, 2001.                                                                                                                                                                                                                                             
|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.7    |  |  |  | Amendment to Registration Rights Agreement, dated as of August 7, 2001,
among the Company and the Holders (as defined therein) of registrable
securities, incorporated by reference to Exhibit 4.9 to the Companys Amendment
to Quarterly Report on Form 10-Q/A filed with the Commission on August 22, 2001.                                                                                                                                                                                                                              
|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.8    |  |  |  | Lock-Up Agreement, dated May 31, 2001, between Scudder High Yield Series
 Scudder High Yield Fund and the Company, incorporated by reference to Exhibit 4.8
to the Companys Form 10-K for fiscal 2001.                                                                                                                                                                                                                                                                                                                                    
|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.9    |  |  |  | Lock-Up Agreement, dated May 31, 2001, between U.S. Bancorp Investments,
Inc. and the Company, incorporated by reference to Exhibit 4.9 to the Companys
Form 10-K for fiscal 2001.                                                                                                                                                                                                                                                                                                                                                         
|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.10   |  |  |  | Second Amendment of Indenture, dated as of December 7, 2001, between the
Company and State Street Bank and Trust Company, as trustee, incorporated by
reference to Exhibit 4.10 to the Companys Form 10-K for fiscal 2001.                                                                                                                                                                                                                                                                                                                 
|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|10.1   |  |  |  | Vision Center Master License Agreement, dated as of June 16, 1994, by
and between Wal-Mart Stores, Inc. and the Company, incorporated by reference to
the Companys Form 10-Q for the quarterly period ended September 30, 1994,
Commission File No. 0-20001. [Portions of Exhibit 10.1 have been omitted
pursuant to an order for confidential treatment granted by the Commission. The
omitted portions have been filed separately with the Commission.]                                                                                  
|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|10.2   |  |  |  | Sublease Agreement, dated December 16, 1991, by and between Wal-Mart
Stores, Inc. and the Company, incorporated by reference to the Companys
Registration Statement on Form S-1, registration number 33-46645, filed with
the Commission on March 25, 1992, and amendments thereto.                                                                                                                                                                                                                                                        
|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|10.3   |  |  |  | Agreement dated as of November 23, 1995 by and between Mexican Vision
Associates Operadora, S. de R.L. de C.V. and Wal-Mart de Mexico, S.A. de C.V.
in original Spanish and an uncertified English translation, incorporated by
reference to the Companys Form 10-K for the fiscal year ended December 30,
1995, Commission File No. 0-20001. [Portions of Exhibit 10.6 have been omitted
pursuant to a request for confidential treatment filed with the Commission. The
omitted portions have been filed separately with the Commission.]
|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|++10.4 |  |  |  | Restated Stock Option and Incentive Award Plan, incorporated by
reference to the Companys Form 10-Q for the quarterly period ended June 29,
1996, Commission File No. 0-20001.                                                                                                                                                                                                                                                                                                                                                             
|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|++10.5 |  |  |  | First Amendment to Restated Stock Option and Incentive Award Plan,
incorporated by reference to the Companys Form 10-Q for the quarterly period
ended March 29, 1997, Commission File No. 0-20001.                                                                                                                                                                                                                                                                                                                                         
|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|++10.6 |  |  |  | Restated Non-Employee Director Stock Option Plan, incorporated by
reference to the Companys Form 10-Q filed on June 28, 1997, Commission File No. 0-20001.                                                                                                                                                                                                                                                                                                                                                                                 

55

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##### 



|         |  |   |  |                                                                                                                                                                                                                                                                            
|-------- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|++10.7   |  |  |  | Form Restricted Stock Award, incorporated by reference to the
Companys Form 10-Q for the quarterly period ended March 29, 1997, Commission
File No. 0-20001.                                                                                                              
|         |  |   |  |                                                                                                                                                                                                                                                                            
|++10.8   |  |  |  | Restricted Stock Award made as of April 11, 2002 by the Company to L.
Reade Fahs, incorporated by reference to the Companys Form 10-Q for the
quarterly period ended June 29, 2002.                                                                                       
|         |  |   |  |                                                                                                                                                                                                                                                                            
|++ 10.9  |  |  |  | Form Performance Share Award Agreement, incorporated by reference to
the Companys Form 10-Q for the quarterly period ended June 29, 2002.                                                                                                                                 
|         |  |   |  |                                                                                                                                                                                                                                                                            
|++10.10  |  |  |  | Form Stock Option 2001 Grant for Employees, incorporated by reference
to the Companys Form 10-Q for the quarterly period ended June 29, 2002.                                                                                                                             
|         |  |   |  |                                                                                                                                                                                                                                                                            
|++10.11  |  |  |  | Form Change in Control Agreement, incorporated by reference to the
Companys Form 10-K for the fiscal year ended December 30, 2000.                                                                                                                                        
|         |  |   |  |                                                                                                                                                                                                                                                                            
|10.12    |  |  |  | Form indemnification agreement for directors and executive officers of
the Company, incorporated by reference to the Companys Form 10-Q for the
quarterly period ended June 30, 2001.                                                                                     
|         |  |   |  |                                                                                                                                                                                                                                                                            
|++ 10.13 |  |  |  | Split Dollar Life Insurance Agreement, dated as of November 3, 1994,
among the Company, A. Kimbrough Davis, as Trustee, and James W. Krause,
incorporated by reference to the Companys Form 10-K for the fiscal year ended
December 31, 1994, Commission File No. 0-20001.
|         |  |   |  |                                                                                                                                                                                                                                                                            
|++10.14  |  |  |  | Level IV Management Incentive Plan, incorporated by reference to the
Companys Form 10-K for the fiscal year ended December 31, 1994, Commission File No. 0-20001.                                                                                                         
|         |  |   |  |                                                                                                                                                                                                                                                                            
|++10.15  |  |  |  | Executive Relocation Policy, incorporated by reference to the
Companys Form 10-Q for the quarterly period ended March 30, 1996, Commission File No. 0-20001.                                                                                                              
|         |  |   |  |                                                                                                                                                                                                                                                                            
|10.16    |  |  |  | Loan and Security Agreement dated as of May 30, 2001, between the
Company and Fleet Capital Corporation, incorporated by reference to the
Companys Form 10-Q for the quarterly period ended June 30, 2001.                                                                
|         |  |   |  |                                                                                                                                                                                                                                                                            
|10.17    |  |  |  | Letter Agreement dated June 30, 2002 between the Company and Fleet
Capital Corporation, incorporated by reference to the Companys Form 10-Q for
the quarterly period ended September 28, 2002.                                                                            
|         |  |   |  |                                                                                                                                                                                                                                                                            
|*++10.18 |  |  |  | Agreement and General Release dated as of December 27, 2002, between
the Company and James W. Krause.                                                                                                                                                                      
|         |  |   |  |                                                                                                                                                                                                                                                                            
|*21      |  |  |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                            
|         |  |   |  |                                                                                                                                                                                                                                                                            
|*23.1    |  |  |  | Consent by Deloitte & Touche LLP.                                                                                                                                                                                                                                          
|         |  |   |  |                                                                                                                                                                                                                                                                            
|*23.2    |  |  |  | Notice Regarding Consent of Arthur Andersen LLP.                                                                                                                                                                                                                           
|         |  |   |  |                                                                                                                                                                                                                                                                            
|*99.1    |  |  |  | Certifications of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                           



---

|*  |  | Filed with this Form 10-K.                                                                                          
|-- |  | --------------------------------------------------------------------------------------------------------------------
|  
|++ |  | Management contract or compensatory plan or arrangement in which a director or named executive officer participates.

56

---





---



##### 





|(b) |  | The following reports on Form 8-K have been filed during the last quarter of the period covered by this report:
|--- |  | ---------------------------------------------------------------------------------------------------------------

|                 |  |               |  |                            |  |  |  | 
|---------------- |  | ------------- |  | -------------------------- |  |  |  | 
|Date of Report   |  | Item Reported |  | Financial Statements Filed
|                 |  |               |  |                           
|October 21, 2002 |  | Item 5        |  | none                      

57

---





---



##### 



(LOGO)

NATIONAL VISION, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
FOR THE YEAR ENDED DECEMBER 28, 2002,
THE SEVEN MONTHS ENDED DECEMBER 29, 2001,
THE FIVE MONTHS ENDED JUNE 2, 2001, AND
FOR THE YEAR ENDED DECEMBER 30, 2000
TOGETHER WITH AUDITORS REPORTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

The following consolidated financial statements and schedule of the registrant
and its subsidiaries are submitted herewith in response to Item 8 and Item
14(a)1 and to Item 14(a)2, respectively.

PageIndependent
Auditors Reports
    
    
    F-2Consolidated Balance Sheets as of December 28, 2002 and
December 29, 2001
    
    
    F-4Consolidated Statements of Operations for the Year Ended December 28, 2002,
the Seven Months Ended December 29, 2001, the Five Months Ended June 2, 2001, and
the Year Ended December 30, 2000
    
    
    F-5Consolidated Statements of Shareholders Equity/(Deficit)
for the Year Ended December 28, 2002, the Seven Months Ended December 29, 2001,
the Five Months Ended June 2, 2001, and the Year Ended December 30, 2000
    
    
    F-6Consolidated Statements of Cash Flows for the Year Ended December 28, 2002,
the Seven Months Ended December 29, 2001, the Five Months Ended June 2, 2001,
and the Year Ended December 30, 2000
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8Schedule II, Valuation and Qualifying Accounts
    
    
    S-1


All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions, are inapplicable, or have been disclosed in the notes
to consolidated financial statements and, therefore, have been omitted.

F-1



---



---



##### 



INDEPENDENT AUDITORS REPORT

Board of Directors and Shareholders
National Vision, Inc.
Lawrenceville, Georgia

We have audited the accompanying consolidated balance sheets of National
Vision, Inc. and subsidiaries as of December 28, 2002 and December 29, 2001
(Successor Company balance sheets) and the related consolidated statements of
operations, shareholders equity, and cash flows for the year ended
December 28, 2002 (Successor Company operations), the seven months ended
December 29, 2001 (Successor Company operations), and the five months ended
June 2, 2001 (Predecessor Company operations). Our audits also included the
2002 and 2001 financial statement schedules listed in the Index at
page F-1. These
financial statements and financial statement schedules are the responsibility of
the Companys management. Our responsibility is to express an opinion on the
2002 and 2001 financial statements and 2002 and 2001 financial statement
schedules based on our audits. The financial statements and financial statement
schedule as of December 30, 2000 (Predecessor Company balance sheet) and for
the one-year period then ended (Predecessor Company operations) were audited by
other auditors who have ceased operations. Those auditors expressed an
unqualified opinion on those financial statements (which included an
explanatory paragraph for the Predecessor Companys emergence from Chapter 11 bankruptcy
and adoption of fresh start accounting in accordance with AICPA Statement of
Position 90-7, Financial Reporting for Entities in Reorganization Under the
Bankruptcy Code), and stated that such 2000 financial statement schedule, when
considered in relation to the 2000 basic financial statements taken as a whole,
presented fairly, in all material respects, the information set forth therein,
in their report dated February 25, 2002.

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

In our opinion, the Successor Company consolidated financial statements present
fairly, in all material respects, the financial position of National Vision,
Inc. and subsidiaries as of December 28, 2002 and December 29, 2001, and the
results of their operations and their cash flows for the year ended
December 28, 2002 and the period from June 3, 2001 to December 29, 2001, in
conformity with accounting principles generally accepted in the United States
of America. Further, in our opinion, the Predecessor Company financial
statements referred to above present fairly, in all material respects, the
Predecessor Companys results of their operations and their cash flows for the
period December 31, 2000 to June 2, 2001, in conformity with accounting
principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLPAtlanta, Georgia
May 29, 2003





---



##### 



The following is a copy of the
previously issued report of Arthur Andersen LLP, which has ceased
operations and which report has not been reissued in connection with
this Form 10-K, on the consolidated balance sheets of National
Vision, Inc. and subsidiaries at December 29, 2001 and
December 30, 2000 and the related consolidated statements of
operations, changes in shareholders' equity (deficit) and cash flows
for the seven months ended December 29, 2001 (successor
company), the five months ended June 2, 2001 (predecessor
company), and for the years ended December 30, 2000 and
January 1, 2000 (predecessor company). Arthur Andersen LLP
reported on such financial statements prior to the restatement on the
2001 financial statements.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To National Vision, Inc. and Subsidiaries:

We have audited the accompanying balance sheets of NATIONAL VISION, INC. (a
Georgia corporation) AND SUBSIDIARIES as of December 29, 2001 (Successor
Company) and Vista Eyecare, Inc. as of December 30, 2000 (Predecessor Company)
and the related consolidated statements of operations, shareholders
equity/(deficit) and cash flows for the seven months ended December 29, 2001
(Successor Company), the five months ended June 2, 2001 (Predecessor Company),
and for the years ended December 30, 2000 and January 1, 2000 (Predecessor
Company). These financial statements and schedule referred to below 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 audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 4, effective May 31, 2001, the Company was reorganized
under a plan confirmed by the United States Bankruptcy Court for the Northern
District of Georgia and adopted a new basis of accounting whereby all remaining
assets and liabilities were adjusted to their estimated fair values.
Accordingly, the consolidated financial statements for periods subsequent to
the reorganization are not comparable to the consolidated financial statements
presented for prior periods.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of National Vision, Inc. and
subsidiaries as of December 29, 2001 and of Vista Eyecare, Inc. and
subsidiaries as of December 30, 2000, and the results of their operations and
their cash flows for the seven months ended December 29, 2001, the five months
ended June 2, 2001, and for the years ended December 30, 2000 and January 1,
2000 in conformity with accounting principles generally accepted in the United
States.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of valuation and
qualifying accounts listed in the index to consolidated financial statements is
presented for purposes of complying with the Securities and Exchange
Commissions rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.



ARTHUR ANDERSEN LLP

Atlanta, Georgia
February 25, 2002

F-3



---



---



##### 



NATIONAL VISION, INC.
CONSOLIDATED BALANCE SHEETS
December 28, 2002 and December 29, 2001
(In thousands, except share information)

2002
    
    2001ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    9,020
    
    
    $
    9,846Accounts receivable (net of allowance: 2002 - $1,031; 2001 - $2,377)
    
    
    2,164
    
    
    
    3,908Inventories
    
    
    17,928
    
    
    
    18,621Other current assets
    
    
    979
    
    
    
    583Deferred income tax asset
    
    
    975
    
    
    
    3,681Total current assets
    
    
    31,066
    
    
    
    36,639PROPERTY AND EQUIPMENT:Equipment
    
    
    19,876
    
    
    
    17,049Furniture and fixtures
    
    
    7,833
    
    
    
    6,878Leasehold improvements
    
    
    6,709
    
    
    
    6,008Construction in progress
    
    
    1,360
    
    
    
    1,06135,778
    
    
    
    30,996Less accumulated depreciation
    
    
    (17,786
    )
    
    
    (6,996
    )Net property and equipment
    
    
    17,992
    
    
    
    24,000OTHER ASSETS AND DEFERRED COSTS(net of accumulated amortization: 2002 - $658; 2001 - $259)
    
    
    1,004
    
    
    
    1,332INTANGIBLE VALUE OF CONTRACTUAL RIGHTS(net of accumulated amortization: 2002 - $11,934; 2001 - $4,360)
    
    
    100,960
    
    
    
    109,246$
    151,022
    
    
    $
    171,217LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    3,445
    
    
    $
    3,935Accrued expenses and other current liabilities
    
    
    24,067
    
    
    
    24,712Current portion of long-term debt
    
    
    3,824
    
    
    
    1,597Total current liabilities
    
    
    31,336
    
    
    
    30,244DEFERRED INCOME TAX LIABILITY
    
    
    975
    
    
    
    3,296SENIOR SUBORDINATED NOTES
    
    
    105,882
    
    
    
    118,403COMMITMENTS AND CONTINGENCIES (Note 10)
    
    
    
    
    
    
    SHAREHOLDERS EQUITY:Preferred stock, $1 par value; 5,000,000 shares authorized; none issued
    
    
    
    
    
    
    Common stock, $0.01 par value; 10,000,000 shares authorized, 5,084,400
and 5,000,000 shares issued and outstanding at
December 28,2002 and December 29, 2001, respectively
    
    
    50
    
    
    
    50Additional paid-in capital
    
    
    25,097
    
    
    
    24,940Deferred stock compensation
    
    
    (124
    )
    
    
    Retained deficit
    
    
    (12,064
    )
    
    
    (5,860
    )Accumulated other comprehensive income/(loss)
    
    
    (130
    )
    
    
    144Total shareholders equity
    
    
    12,829
    
    
    
    19,274$
    151,022
    
    
    $
    171,217


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

F-4



---



---



##### 



National Vision, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended December 28, 2002,
the seven months ended December 29, 2001,
the five months ended June 2, 2001, and for
the year ended December 30, 2000
(In thousands, except per share information)

Successor
    

    PredecessorSeven Months
    

    Five MonthsYear Ended
    
    ended
    

    ended
    
    Year EndedDecember 28, 2002
    
    December 29, 2001
    

    June 2, 2001
    
    December 30, 2000Retail sales, net
    
    $
    244,860
    
    
    $
    135,543
    
    

    $
    120,557
    
    
    $
    307,694Premium revenue
    
    
    2,160
    
    
    
    
    
    

    
    
    
    
    
    Net sales
    
    
    247,020
    
    
    
    135,543
    
    

    
    120,557
    
    
    
    307,694Cost of goods sold
    
    
    112,446
    
    
    
    61,488
    
    

    
    57,404
    
    
    
    143,458Gross profit
    
    
    134,574
    
    
    
    74,055
    
    

    
    63,153
    
    
    
    164,236Selling, general & administrative expense
    
    
    128,715
    
    
    
    71,526
    
    

    
    68,377
    
    
    
    166,364Impairment of long-lived assets
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    2,684Restructuring expense
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    1,601Operating income/(loss)
    
    
    5,859
    
    
    
    2,529
    
    

    
    (5,224
    )
    
    
    (6,413
    )Interest expense, net
    
    
    13,629
    
    
    
    8,389
    
    

    
    1,150
    
    
    
    7,723Loss before reorganization items, taxes, extraordinary
item and cumulative effect of a change in accounting
principle
    
    
    (7,770
    )
    
    
    (5,860
    )
    

    
    (6,374
    )
    
    
    (14,136
    )Reorganization expense/(gain)
    
    
    
    
    
    
    
    
    

    
    (102,515
    )
    
    
    121,539Earnings/(loss) before taxes, extraordinary item and
cumulative effect of a change in
accounting principle
    
    
    (7,770
    )
    
    
    (5,860
    )
    

    
    96,141
    
    
    
    (135,675
    )Income taxes
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    Net earnings/(loss) before extraordinary item and
cumulative effect of a change in
accounting principle
    
    
    (7,770
    )
    
    
    (5,860
    )
    

    
    96,141
    
    
    
    (135,675
    )Extraordinary gain/(loss), net
    
    
    1,566
    
    
    
    
    
    

    
    17,182
    
    
    
    (827
    )Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    (3,378
    )Net earnings/(loss)
    
    $
    (6,204
    )
    
    $
    (5,860
    )
    

    $
    113,323
    
    
    $
    (139,880
    )Basic and diluted earnings/(loss) per share:Earnings/(loss) before extraordinary item
and cumulative effect
    
    $
    (1.55
    )
    
    $
    (1.17
    )
    

    $
    4.54
    
    
    $
    (6.41
    )Extraordinary
gain/(loss), net
    
    
    0.31
    
    
    
    
    
    

    
    0.81
    
    
    
    (0.04
    )Cumulative effect, net
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    (0.16
    )Net earnings/(loss) per share
    
    $
    (1.24
    )
    
    $
    (1.17
    )
    

    $
    5.35
    
    
    $
    (6.61
    )


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

F-5



---



---



##### 



National Vision, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY/(DEFICIT)
For the year ended December 28, 2002, the seven months ended December 29, 2001,
the five months ended June 2, 2001, and for
the year ended December 30, 2000
(In thousands, except share information)

AccumulatedCommon Stock
    
    Additional
    
    
    
    
    
    Retained
    
    OtherPaid-in
    
    Deferred
    
    Earnings/
    
    Comprehensive
    
    ComprehensiveShares
    
    Amount
    
    Capital
    
    Compensation
    
    (Deficit)
    
    Income/(loss)
    
    Income
    
    TotalPredecessor
Company:Balance,
January 1,
2000
    
    
    21,179,103
    
    
    $
    211
    
    
    $
    47,387
    
    
    $
    
    
    
    $
    (16,968
    )
    
    $
    (4,073
    )
    
    
    
    
    
    $
    26,557Cancellation
of shares
    
    
    (10,000
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (139,880
    )
    
    
    
    
    
    $
    (139,880
    )
    
    $
    (139,880
    )Comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (139,880
    )BALANCE,
December 30,
2000
    
    
    21,169,103
    
    
    $
    211
    
    
    $
    47,387
    
    
    $
    
    
    
    $
    (156,848
    )
    
    $
    (4,073
    )
    
    
    
    
    
    $
    (113,323
    )Net income
through June
2, 2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113,323
    
    
    
    
    
    
    $
    113,323
    
    
    
    113,323Comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    113,323Elimination
of prior
equity
    
    
    (21,169,103
    )
    
    
    (211
    )
    
    
    (47,387
    )
    
    
    
    
    
    
    43,525
    
    
    
    4,073
    
    
    
    
    
    
    
    BALANCE, June
2, 2001
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    Successor
Company:Distribution
of new
common
shares -
June 2,
2001
    
    
    5,000,000
    
    
    $
    50
    
    
    $
    24,950
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    25,000Stock
issuance costs
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Net loss,
June 3 through
December
29, 2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,860
    )
    
    
    
    
    
    $
    (5,860
    )
    
    
    (5,860
    )Cumulative
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144
    
    
    
    144
    
    
    
    144Comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (5,716
    )BALANCE,
December 29,
2001
    
    
    5,000,000
    
    
    $
    50
    
    
    $
    24,940
    
    
    $
    
    
    
    $
    (5,860
    )
    
    $
    144
    
    
    
    
    
    
    $
    19,274Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,204
    )
    
    
    
    
    
    $
    (6,204
    )
    
    
    (6,204
    )Cumulative
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (274
    )
    
    
    (274
    )
    
    
    (274
    )Comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (6,478
    )Restricted
stock awards
    
    
    84,400
    
    
    
    
    
    
    
    157
    
    
    
    (157
    )Amortization
of deferred
compensation-
restricted
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33BALANCE,
December 28,
2002
    
    
    5,084,400
    
    
    $
    50
    
    
    $
    25,097
    
    
    $
    (124
    )
    
    $
    (12,064
    )
    
    $
    (130
    )
    
    
    
    
    
    $
    12,829


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

F-6



---



---



##### 



National Vision, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the year ended December 28, 2002, the seven months ended December 29, 2001,
the five months ended June 2, 2001, and for
the year ended December 30, 2000
(In thousands)

Successor
    

    PredecessorSeven Months
    

    Five MonthsYear Ended
    
    Ended
    

    Ended
    
    Year EndedDecember 28, 2002
    
    December 29, 2001
    

    June 2, 2001
    
    December 30, 2000Cash flow from operating activities:Net income/(loss)
    
    $
    (6,204
    )
    
    $
    (5,860
    )
    

    $
    113,323
    
    
    $
    (139,880
    )Adjustments to reconcile cash to net
income/(loss):Depreciation &
amortization
    
    
    18,999
    
    
    
    11,425
    
    

    
    4,808
    
    
    
    17,526Impairment of
long-lived assets
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    2,684Restructuring reserve
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    1,601Reorganization items
    
    
    
    
    
    
    
    
    

    
    11,748
    
    
    
    121,539Cumulative effect
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    3,378Fresh start adjustments
    
    
    
    
    
    
    
    
    

    
    (114,263
    )
    
    
    Extraordinary item
    
    
    (1,566
    )
    
    
    
    
    

    
    (17,182
    )
    
    
    827Other
    
    
    627
    
    
    
    256
    
    

    
    (259
    )
    
    
    1,181Changes in operating assets & liabilitiesAccounts receivable
    
    
    1,744
    
    
    
    636
    
    

    
    5,177
    
    
    
    (1,480
    )Inventories
    
    
    693
    
    
    
    1,245
    
    

    
    4,083
    
    
    
    5,026Other current assets
    
    
    396
    
    
    
    142
    
    

    
    597
    
    
    
    1,171Accounts payable
    
    
    (490
    )
    
    
    2,187
    
    

    
    1,210
    
    
    
    9,351Accrued expenses and
other current
liabilities
    
    
    (1,075
    )
    
    
    (5,218
    )
    

    
    322
    
    
    
    (4,335
    )Total adjustments
    
    
    19,328
    
    
    
    10,673
    
    

    
    (103,759
    )
    
    
    158,469Net cash provided by operating activities
    
    
    13,124
    
    
    
    4,813
    
    

    
    9,564
    
    
    
    18,589Cash flow from investing activities:Proceeds from sale of
property & equipment
    
    
    
    
    
    
    
    
    

    
    5,656
    
    
    
    Purchase of property &
equipment
    
    
    (5,209
    )
    
    
    (2,750
    )
    
    
    
    (2,084
    )
    
    
    (5,379
    )Net cash (used in)/provided by investing
activities
    
    
    (5,209
    )
    
    
    (2,750
    )
    

    
    3,572
    
    
    
    (5,379
    )Cash flow from financing activities:Advances on revolver
    
    
    7,378
    
    
    
    112,855
    
    

    
    125,063
    
    
    
    305,751Payments on revolver
    
    
    (7,378
    )
    
    
    (115,855
    )
    

    
    (134,975
    )
    
    
    (312,132
    )Principal payments on
subordinated debt
    
    
    (5,797
    )
    
    
    
    
    

    
    
    
    
    
    Repurchases of
subordinated debt
    
    
    (2,932
    )
    
    
    
    
    

    
    
    
    
    
    Deferred financing costs
    
    
    
    
    
    
    (286
    )
    

    
    (125
    )
    
    
    (715
    )Stock issuance costs
    
    
    
    
    
    
    (10
    )
    

    
    
    
    
    
    Principal payments on
other long-term debt
    
    
    (12
    )
    
    
    (86
    )
    

    
    
    
    
    
    (934
    )Net cash (used in) financing activities
    
    
    (8,741
    )
    
    
    (3,382
    )
    

    
    (10,037
    )
    
    
    (8,030
    )Net
increase/(decrease) in cash
    
    
    (826
    )
    
    
    (1,319
    )
    

    
    3,099
    
    
    
    5,180Cash, beginning of period
    
    
    9,846
    
    
    
    11,165
    
    

    
    8,066
    
    
    
    2,886Cash, end of period
    
    $
    9,020
    
    
    $
    9,846
    
    

    $
    11,165
    
    
    $
    8,066


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

F-7



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##### 



NATIONAL VISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     ORGANIZATION AND OPERATIONS

National Vision, Inc. formerly known as Vista Eyecare, Inc. (the Company) is
engaged in the retail sale of optical goods and services. The Company is
largely dependent on Wal-Mart Stores, Inc. (Wal-Mart) for continued operation
of vision centers which generate a significant portion of the Companys
revenues. (See Note 6  Wal-Mart Master License Agreement and Other
Agreements.)

The Company emerged from Chapter 11 on May 31, 2001 and adopted fresh start
accounting. (See Note 4  Bankruptcy Proceedings and Fresh Start
Adjustments.)

2.     SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation. The Company operates on a 52/53 week retail
calendar with the fiscal year ending on the Saturday closest to December 31.
Pursuant to such calendar, financial information for fiscal 2002, 2001, and
2000 is presented for the respective 52-week periods. Due to various statutory
and other considerations, international operations do not operate on this 52/53
week calendar. To allow for more timely consolidation and reporting,
international operations (approximately 2% of net revenues) are reported using
a twelve-month fiscal year ending November 30.

Fresh Start Accounting

Upon emergence from bankruptcy, the Company adopted fresh start
accounting in accordance with AICPA Statement of Position 90-7
(SOP 90-7). As a result,
all assets and liabilities were restated to reflect their respective fair
values. The consolidated financial statements after emergence are those of a
new reporting entity (the Successor) and are not comparable to the financial
statements of the pre-confirmation company (the Predecessor). A black line
has been drawn in the financial statements to distinguish Predecessor and
Successor Company results. (See Note 4  Bankruptcy Proceedings and Fresh
Start Adjustments.) SOP 90-7 also requires that, at the time of fresh start
accounting, the Company early-adopt all accounting principles that will be
required within the twelve months following fresh start accounting.

The Companys plan of reorganization in the Chapter 11 Cases provides that, as
claims of creditors are resolved, the Company will make periodic distributions
of its new common stock and notes. As of December 28, 2002, the Company has
made nine such distributions, for a total of approximately 4,348,000 shares of new
common stock and approximately $104.5 million face amount of new notes. The
balance of approximately 652,000 shares of new common stock and approximately
$15.5 million face amount of new notes are part of a disputed claim reserve and
will be distributed as and when disputed claims are resolved. The common stock
and senior notes remaining in the disputed claim reserve are considered issued
and outstanding for accounting purposes. Interest expense on the senior notes
remaining in the claim reserve are accrued for and paid to the trustee for
ultimate distribution to claimholders when disputed claims are resolved.

Revenue Recognition

In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
Revenue Recognition in Financial Statements. SAB 101 summarizes the SECs
view in applying generally accepted accounting principles to selected revenue
recognition issues. The Company defers revenue recognition until delivery of
the product by estimating the value of transactions in which final delivery to
the customer has not occurred at the end of the period presented. Cash
received prior to final delivery of the product is reflected as a deposit
liability within accrued liabilities. These estimates are based on historical
trends and take into consideration current changes in the Companys
manufacturing and distribution process.

F-8



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##### 



Premium revenue is earned from HMO memberships and services. Revenue from
premiums is recognized over the life of the policy as the related services are
rendered.

Cost of Goods Sold

The Company recognizes cost of
product sold to retail customers when the sales transaction is
complete and revenue is recognized. Periodically, the Company
receives purchase discounts or reduced pricing on inventory
purchases; these reductions in the normal purchase price are
accounted for in the weighted average cost of inventory.

Cash and Cash Equivalents

The Company considers cash on hand and short-term cash investments to be cash
and cash equivalents. The Companys policy is to maintain uninvested cash at
minimal levels. Cash includes cash equivalents which represent highly liquid
investments with a maturity of one month or less. The Company restricts
investment of temporary cash investments to financial institutions with high
credit standings.

Receivables Under Reimbursement Plans

Managed care accounts receivable are recorded net of contractual allowances and
are reduced by an allowance for amounts that may become uncollectible.
Substantially all of the Companys receivables are due from health care plans
and programs located throughout the United States. Estimates of our allowance
for uncollectible receivables are based on our historical collection
experience, historical and current operating, billing and collection trends.

Inventory

The Companys inventories are stated at the lower of weighted average cost or
market.

In most cases, the expected sales value (i.e., market value) of the Companys
inventory is higher than its cost. However, as the Company progresses through
a selling season, certain slow-moving merchandise may be removed from stores
and returned to the Companys distribution center to be sold below cost in
secondary markets. As a result, there is a high degree of judgment and
complexity in determining the market value of such inventories. For inventory
on hand, the Company estimates the future selling price of its merchandise,
given its current selling price and its planned promotional activities, and
provides a reserve for the difference between cost and the expected selling
price for all items expected to be sold below cost.

The Company conducts physical inventory counts for a selection of store
locations near the end of each fiscal quarter and adjusts the Companys records
to reflect the actual inventory counts. The Companys distribution center is counted near
the end of the fiscal year. As all locations are not counted as of the
Companys reporting dates, the Company provides a reserve for inventory
shrinkage based principally on historical inventory shrinkage experience.

Property and Equipment

Property and equipment are stated at cost. For financial reporting purposes,
depreciation is computed using the straight-line method over the assets
estimated useful lives or terms of the related leases, whichever is shorter.
Accelerated depreciation methods are used for income tax reporting purposes.
For financial reporting purposes, the useful lives used for computation of
depreciation range from five to ten years for equipment, from three to nine
years for furniture and fixtures, from three to six years for hardware and
software related to information systems processing, and from five to nine years
which approximate the remaining lease term for leasehold improvements. At the
time property and equipment are retired, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is credited or
charged to income. Maintenance and repairs are charged to expense as incurred.
Replacements and improvements are capitalized.

F-9



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##### 



In August 2001, the Financial Accounting Standards Board ( FASB) issued
Statement of Financial Accounting Standards, (SFAS) No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 supercedes SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, and the accounting and reporting provisions of
Accounting Principles Board (APB) Opinion No. 30, Reporting the Results of
Operations  Reporting the Effects of Disposal of a Segment of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, and
amends APB Opinion No. 51, Consolidated Financial Statements. SFAS No. 144
retains many of the requirements of SFAS No. 121 and the basic provisions of
APB Opinion No. 30; however, it establishes a single accounting model for
long-lived assets to be disposed of by sale. The Company adopted SFAS No. 144
upon implementation of fresh start accounting as required by SOP 90-7.
Management reviewed the Companys long-lived assets and has determined that
there are no assets requiring impairment loss recognition as of December 28,
2002.

Balance Sheet Financial Instruments: Fair Values

The carrying amounts reported in the consolidated balance sheets for cash and
cash equivalents, accounts receivable, accounts payable and current portion of
long-term debt approximate fair value because of the immediate or short-term
maturity of these financial instruments.

The fair value of the Companys long-term debt is determined using the closing
price on the most recent trade date prior to December 28, 2002
on the American
Stock Exchange.

Carrying Value
    
    Fair ValueLong-term debt
    
    
    $105,882
    
    
    $53,805


Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. The risk is
limited due to the large number of individuals and entities comprising the
Companys customer base.

Intangible Value of Contractual Rights

The Companys most significant intangible asset is the Intangible Value of
Contractual Rights, which was established as part of the Companys adoption of
fresh start accounting in May 2001. This intangible asset, which has a
gross carrying amount of $113.6 million and accumulated
amortization of $12.0 million at December 28, 2002, represents the value of
the Companys lease agreement with Wal-Mart and the business relationship
therein created. In accordance with SFAS No. 142, Goodwill and Other
Intangible Assets, this intangible is an amortizable asset because it has a
finite useful life. However, the precise length of its life is not known due
primarily to the Wal-Mart superstore conversions that automatically trigger
extensions on the contractual life of the asset. Based on our projections, our
best estimate of the useful life of this asset is 15 years. Due to the
uncertainty involved in predicting the pattern of economic benefits realized
from the Wal-Mart relationship, the Company amortizes this asset using the
straight-line method.

F-10



---



---



##### 



Amortization expense on the Intangible Value of Contractual Rights was
$7.6 million for the year ended December 28, 2002 and $4.4 million for the seven months
ended December 29, 2001. Future amortization expense for each of the five succeeding years is as follows:

|     |  |   |       | 
|---- |  | - | ----- | 
|2003 |  | $ | 7,454 | 
|2004 |  | $ | 7,526 | 
|2005 |  | $ | 7,526 | 
|2006 |  | $ | 7,526 | 
|2007 |  | $ | 7,526 | 

As described in Note 4, the Company emerged from
bankruptcy on June 2, 2001. In December 2002, the
Company realized net income tax benefits of $712,000 generated by the predecessor company.
In accordance with the provisions of SOP 90-7, these net benefits have been recorded as a reduction in
the value of the Intangible Value of Contractual Rights.

The Company assesses the impairment of all identifiable intangibles and
long-lived assets on an annual basis and whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors
we consider important, which could trigger an impairment review, include (1) a
significant underperformance of vision center operations relative to expected
historical or projected future operating results; (2) significant changes in
the manner of our use of Company assets or the strategy for our overall retail
optical business; (3) significant negative industry or economic trends; (4)
significant decline or adverse change in the rate or geographic concentration
of Wal-Mart host store relocations or superstore conversions; and (5) a
permanent adverse change in cash flows generated by an operation.

If we determine that the carrying value of intangibles or long-lived assets may
not be recoverable based upon the existence of one or more of the above
indicators of impairment, we measure any impairment based on an undiscounted projected cash
flow model. If the projected undiscounted cash flows are not in excess of the book value of
the related asset, we measure the impairment based on a projected discounted
cash flow method. Significant management judgment is required regarding the
existence of impairment indicators as discussed above. Based on our review of
our intangible and other long-lived assets as of December 28, 2002, no
impairment of these assets was determined to exist.

Income Taxes

Deferred income taxes are recorded using enacted tax rates in effect for the
year in which the differences are expected to reverse. Deferred income taxes
are provided for depreciation, inventory basis differences, and accrued
expenses where there is a temporary difference in recording such items for
financial reporting and income tax reporting purposes. Before, during and
after the bankruptcy process, the Company incurred significant net operating
losses (NOL) that result in tax loss carry-forwards. A portion of these
carry-forwards are subject to limitations under Section 382 of the Internal
Revenue Code.

In accordance with the provisions of SFAS 109, Accounting for Income Taxes, a
valuation allowance is recorded against any net deferred tax assets if it is
more likely than not that we will not be able to utilize it to offset future
taxes. Due to the size of the NOL carry-forward in relation to our history of
unprofitable operations and the continuing uncertainties surrounding the
profitability of our ongoing retail businesses, we provide a full valuation
allowance for the net deferred tax asset. We currently provide for income tax
only to the extent that we expect to pay taxes.

Accounting for Stock Options

The Company applies the disclosure provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. Stock Option awards continue to be accounted for in
accordance with APB Opinion No. 25. In October 2001, the Company granted stock
options to eligible employees. Because the number of shares to be issued and
the per share strike price are not subject to uncertainty, this stock option
plan qualifies for fixed accounting treatment. As a result, the Company does
not record compensation expense in connection with the granting of these stock
options.

Had compensation cost for the Plan been determined based on the fair value at
the grant date for awards in 2002, 2001, and 2000 consistent with the
provisions of SFAS No. 123, the Companys net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below (amounts in
thousands except per share information):

F-11



---



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##### 



Successor
    

    PredecessorSeven Months
    

    Five MonthsYear Ended
    
    Ended
    

    Ended
    
    Year EndedDecember 28, 2002
    
    December 29, 2001
    

    June 2, 2001
    
    December 30, 2000As reported:Net earnings/(loss)
    
    $
    (6,204
    )
    
    $
    (5,860
    )
    

    $
    113,323
    
    
    $
    (139,880
    )Pro Forma:Compensation expense
    
    $
    53
    
    
    $
    4
    
    

    $
    (4,312
    )
    
    $
    1,912Pro Forma:Net earnings
/(loss)
        
$
    (6,257
    )
    
    $
    (5,864
    )
    

    $
    117,635
    
    
    $
    (141,792
    )As reported:Earnings/(loss) per share
    
    $
    (1.24
    )
    
    $
    (1.17
    )
    

    $
    5.35
    
    
    $
    (6.61
    )Pro forma compensation expense per share
    
        
(0.01
    )
    
    
    
    
    

    
    0.21
    
    
    
    (0.09
    )Pro
forma earnings/(loss) per share
    
    $
    (1.25
    )
    
    $
    (1.17
    )
    

    $
    5.56
    
    
    $
    (6.70
    )


Basic and diluted earnings per share are the same for each period presented.

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The following weighted average assumptions
were used in the model:

Successor
    

    PredecessorSeven Months
    

    Five MonthsYear Ended
    
    Ended
    

    Ended
    
    Year EndedDecember 28, 2002
    
    December 29, 2001
    

    June 2, 2001
    
    December 30, 2000Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    

    
    (a
    )
    
    
    0.00
    %Expected volatility
    
    
    172
    %
    
    
    217
    %
    

    
    (a
    )
    
    
    142
    %Risk free interest
rates
    
    
    3.0
    %
    
    
    4.50
    %
    

    
    (a
    )
    
    
    5.1
    %Expected lives
(years)
    
    
    3.4
    
    
    
    6.7
    
    

    
    (a
    )
    
    
    5.0


(a) No options were granted during this period.

F-12



---



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##### 



Other Assets and Deferred Costs

Other assets and deferred costs include capitalized financing costs which are
being amortized using a method that approximates the effective
interest yield method over periods from one to seven years
to correspond with the terms of the underlying debt. In addition, certain
capitalized assets resulting from contractual obligations are included and are
being amortized over periods of up to five years.

Self-Insurance Accruals

The Company self-insures estimated costs associated with workers compensation
claims and group medical liabilities, up to certain limits. Insurance reserves
are established based on actuarial estimates of the loss that we will ultimately incur on
reported claims, as well as estimates of claims that have been incurred but not
yet reported. Trends in actual experience are
a significant factor in the determination of such reserves. We believe our
estimated reserves for such claims are adequate, however actual experience in
claim frequency and/or severity could materially differ from our estimates and
affect our results of operations.

Advertising and Promotion Expense

Production costs of future media advertising and related promotion campaigns
are deferred until the advertising events occur. All other advertising and
promotion costs are expensed over the course of the year in which they are
incurred. Advertising expense, net of cooperative advertising credits, for the year ended December 28, 2002, the seven
months ended December 29, 2001, the five months ended June 2, 2001, and the
year ended December 30, 2000 was approximately $3.2 million, $2.8 million, $3.6
million and $12.2 million, respectively.

Interest Expense, Net

Interest expense includes interest on debt and capital lease obligations,
purchase discounts on invoice payments, the amortization of finance fees, and
the amortization of the discount on the subordinated debt.

Foreign Currency Translation

The financial statements of foreign subsidiaries are translated into U.S.
dollars in accordance with SFAS No. 52, Foreign Currency Translation. Assets
and liabilities of our foreign operations are translated into U.S. dollars
using year-end exchange rates; income and expenses are translated using the
average exchange rates for the reporting period. Translation gains or losses
are deferred in accumulated other comprehensive income, a separate component of
shareholders equity.

Derivative Instruments and Hedging Activities

In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The adoption of
SFAS No. 133 in 2001 had no impact on the Companys financial statements as the
Company does not hold derivative instruments, nor participate in any hedging
activities.

Other Comprehensive Income

Other comprehensive income is defined as net income and other changes in
stockholders equity from transactions other than those involving stockholders
and net income. The Companys only source of other comprehensive income is the
cumulative translation adjustment from its operations in Mexico. The
Predecessor Companys cumulative other comprehensive income was eliminated as
part of fresh start accounting on June 2, 2001.

F-13



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##### 



Use of Estimates

The preparation of these financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the 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.

On an ongoing basis, management evaluates its estimates and judgments and
incorporates any changes in such estimates and judgments into the accounting
records underlying the Companys consolidated financial statements. Management
bases its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

3.     RECENT ACCOUNTING PRONOUNCEMENTS

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of SFAS No. 123. SFAS
No. 148 amends SFAS No. 123 to provide alternative methods of transition for an
entity that voluntarily changes to the fair value-based method of accounting
for stock-based employee compensation. It also amends the disclosure
provisions of SFAS No. 123 to require prominent disclosure about the effects on
reported net income of an entitys accounting policy decisions with respect to
stock-based employee compensation. SFAS No. 148 also amends APB Opinion No.
28, Interim Financial Reporting, to require disclosure about those effects in
interim financial information. The provisions of SFAS No. 148 are effective
for annual and interim periods ending after December 15, 2002. As the Company
has elected not to change to the fair value-based method of accounting for
stock-based employee compensation, SFAS No. 148 will not have any impact on our
financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation (FIN) No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires footnote disclosures of
the guarantees or indemnification agreements a company issues. With certain
exceptions, these agreements will also require a company to prospectively
recognize an initial liability for the fair value, or market value, of the
obligations it assumes under that guarantee. The initial recognition and
initial measurement provisions of this Interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002.
The disclosure requirements of the Interpretation are effective for financial
statements of the interim or annual periods ending after December 15, 2002.
The Company does not anticipate that the adoption of FIN No. 45 will have a
material impact on its consolidated financial position, results of operations,
or cash flows. Additionally, adoption of FIN No. 45 had no impact on the
Companys 2002 financial statement footnote disclosures.

In September 2002, the FASB issued Emerging Issue Task Force (EITF) Issue
02-16, Accounting By A Customer (Including A Reseller) For Cash Consideration
Received From A Vendor which addresses the accounting treatment for vendor
allowances. In accordance with the adoption of EITF Issue 02-16 on
December 29, 2002, the Company expects to record a change for a cumulative
effect of a change in accounting principle of between $300,000 and
$500,000 in the first quarter of fiscal 2003.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon managements commitment to an exit plan, which is generally before
an actual liability has been incurred. As vision centers are identified for
closure beginning in fiscal 2003, any costs associated with the closure or
disposal will be recorded at fair value when the liability is incurred.
Adoption of this statement is required with the beginning of fiscal year 2003.

F-14



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##### 



In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements 4,
44 and 64, Amendment to FASB Statement 13, and Technical Corrections. One of
the major changes of this statement is to change the accounting for the
classification of gains and losses arising from the extinguishment of debt.
Upon adoption of SFAS No. 145, the Company will follow APB 30, in determining
whether such extinguishment of debt may be classified as extraordinary. The
provisions of this statement related to the rescission of FASB Statement 5 will
be applied in fiscal years beginning after May 15, 2002. The Company plans to adopt SFAS No. 145 in the
beginning of fiscal 2003, which will
result in gains on extinguishment of debt being presented as other income
instead of as extraordinary items.

4.     BANKRUPTCY PROCEEDINGS AND FRESH START ADJUSTMENTS

On April 5, 2000, the Company and ten of its subsidiaries (collectively, the
Debtors) filed voluntary petitions with the United States Bankruptcy Court
for the Northern District of Georgia for reorganization under Chapter 11 (the
Chapter 11 Cases). In March 2001, the Debtors filed a plan of reorganization
(the Plan) for the Chapter 11 Cases. The Plan was confirmed by the
bankruptcy court by its order entered on May 18, 2001. On May 31, 2001, after
securing a new revolving credit facility with Fleet Capital Corporation, the
Company emerged from bankruptcy.

The Plan provided for the conversion of the Companys pre-petition unsecured
claims into new secured notes and common stock. The secured notes have a face
value of $120 million, provide for the payment of interest of 12% twice a year
at the end of March and September, and are subordinated to debt under the
Companys credit facility. The notes are payable over eight years with
principal repayments based on excess cash flow for the prior six month period.
Any remaining unpaid principal will become due in 2009. Five million shares of new common stock, par value $0.01, were issued based on
the Companys reorganization value. Under the Plan, former shareholders
received no value for their interests. Consequently, all Predecessor common
stock securities were cancelled.

The gain on cancellation of indebtedness aggregated $17.2 million and has been
treated as an extraordinary item in the accompanying Condensed Consolidated
Statements of Operations for the period ended June 2, 2001.

At December 28, 2002, $15.5 million of the new notes and approximately 652,000
shares of new common stock were not distributed to creditors whose claims were
disputed. The interests of creditors whose claims were not resolved upon the
Companys emergence from Chapter 11, were provided for in the Companys
disputed claim reserve. In accordance with the Plan, the notes and equity are
effectively held in trust for the benefit of the creditors, and will be
appropriately distributed upon resolution of disputed claims. Any balance
remaining in the disputed claims reserve, upon resolution of all claims, will
be distributed pro rata to all creditors.

In accounting for the effects of the reorganization, the Company adopted fresh
start accounting principles as contained in the American Institute of
Certified Public Accountants Statement of Position 90-7, Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code SOP 90-7. SOP 90-7
was applicable because pre-reorganization shareholders received none of the
Companys new common stock and the reorganization value of the assets of the
Successor company was less than the total pre-petition liabilities allowed plus
post-petition liabilities. SOP 90-7 also requires that any changes in
accounting principles required within twelve months of fresh start accounting,
must be adopted at fresh start accounting.

Fresh start accounting principles require that we determine the reorganization
value of the reorganized Company. The Companys reorganization value was
developed by the Company, the Official Committee of Unsecured Creditors and
their respective financial advisors. The reorganization value was based on a
calculation of the present value of the free cash flows under the Companys
financial projections, including an assumption of a terminal value. Such
projections were submitted to the bankruptcy court and to creditors for review
and objection as part of the Companys disclosure statement accompanying the
Plan.

F-15



---



---



##### 



In the allocation of the reorganization value, the Companys tangible and
intangible assets were recorded at their assumed fair value. Intangible Value
of Contractual Rights, approximating $113.6 million, was established as part of
fresh start accounting and is amortized over 15 years using the straight-line
method. This intangible asset represents the value of the Companys lease
agreement and the business relationship developed with Wal-Mart. In accordance
with SFAS 142, Goodwill and Other Intangible Assets, this intangible is an
amortizable asset because it has a finite useful life. However, the precise
length of its life is not known due primarily to the Wal-Mart superstore
conversions that automatically trigger extensions on the contractual life of
the asset. Based on our projections, our best estimate of the useful life of
this asset is 15 years. Due to the uncertainty involved in predicting the
pattern of economic benefits realized from the Wal-Mart relationship, we
amortize this asset using the straight-line method.

Changes to the fair value of the Companys identifiable assets totaled $114.3
million. This amount was recognized as a gain in the Predecessors statement
of operations and is detailed below (amounts in thousands):

Increase /(Decrease)Inventory
    
    $
    (700
    )(e)Property, plant and equipment, net
    
    
    1,942
    (f)Other assets
    
    
    (586
    )(g)Intangible value of contractual rights
    
    
    113,607
    (h)Total fair value adjustments
    
    $
    114,263


F-16



---



---



##### 



The application of fresh start accounting on the Predecessor companys June 2,
2001 balance sheet is as follows (amounts in thousands):

Predecessor
    
    
    
    
    
    
    
    
    
    
    
    
    
    SuccessorNewBefore
    
    Extinguish-
    
    issuance
    
    
    
    
    
    ReorganizedFresh Start
    
    ment
    
    Notes/
    
    Fair value
    
    Balance SheetJune 2, 2001
    
    of debt
    
    Stock
    
    adjustments
    
    June 2, 2001Cash & cash equivalents
    
    $
    11,165
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    11,165Accounts receivable
    
    
    4,544
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,544Inventory
    
    
    20,566
    
    
    
    
    
    
    
    
    
    
    
    (700
    )(e)
    
    
    19,866Deferred tax asset
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,199
    (j)
    
    
    7,199Other current assets
    
    
    778
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    778Total current assets
    
    
    37,053
    
    
    
    
    
    
    
    
    
    
    
    6,499
    
    
    
    43,552Property and equipmentGross property and equipment
    
    
    88,191
    
    
    
    
    
    
    
    
    
    
    
    (60,323
    )
    
    
    27,868Accumulated depreciation
    
    
    (62,265
    )
    
    
    
    
    
    
    
    
    
    
    62,265
    
    
    
    Property and equipment, net
    
    
    25,926
    
    
    
    
    
    
    
    
    
    
    
    1,942
    (f)
    
    
    27,868Other assets and deferred costs
    
    
    9,310
    
    
    
    (7,063
    )(a)
    
    
    
    
    
    
    (586
    )(g)
    
    
    1,661Deferred tax asset
    
    
    385
    
    
    
    
    
    
    
    
    
    
    
    (385
    )(j)
    
    
    Intangible value of contractual
rights
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113,607
    (h)
    
    
    113,607Total assets
    
    $
    72,674
    
    
    $
    (7,063
    )
    
    $
    
    
    
    $
    121,077
    
    
    $
    186,688Liabilities not subject to
compromise:Current liabilitiesAccounts payable
    
    $
    1,858
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,858Accrued expenses
    
    
    27,619
    
    
    
    2,300
    (b)
    
    
    
    
    
    
    
    
    
    
    29,919Total current liabilities
    
    
    29,477
    
    
    
    2,300
    
    
    
    
    
    
    
    
    
    
    
    31,777Revolving credit
facility
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Senior notes
    
    
    
    
    
    
    
    
    
    
    120,000
    (d)
    
    
    
    
    
    
    120,000Other debt
    
    
    
    
    
    
    97
    (b)
    
    
    
    
    
    
    
    
    
    
    97Deferred tax
liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,814
    (j)
    
    
    6,814Liabilities subject to compromise
    
    
    171,642
    
    
    
    (171,642
    )(b)Shareholders equity/(deficit)Common stock
    
    
    211
    
    
    
    
    
    
    
    50
    (d)
    
    
    (211
    )(i)
    
    
    50Additional paid-in
capital
    
    
    47,387
    
    
    
    
    
    
    
    24,950
    (d)
    
    
    (47,387
    )(i)
    
    
    24,950Retained earnings/
(deficit)
    
    
    (174,970
    )
    
    
    17,182
    (c)
    
    
    
    
    
    
    157,788
    (i)
    
    
    Cumulative
translation
adjustment
    
    
    (4,073
    )
    
    
    
    
    
    
    
    
    
    
    4,073
    (i)
    
    
    Total shareholders
equity/(loss)
    
    
    (131,445
    )
    
    
    17,182
    
    
    
    25,000
    
    
    
    114,263
    
    
    
    25,000Total liabilities and shareholders
equity
    
    $
    72,674
    
    
    $
    (152,063
    )
    
    $
    145,000
    
    
    $
    121,077
    
    
    $
    186,688




|(a) |  | Elimination of deferred financing costs associated with the senior
notes being cancelled as part of the plan of reorganization.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------



|(b) |  | Elimination of pre-petition liabilities. Cash claims of $2.3 million
were accrued as well as assumed capital leases totaling $97,000.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------



|(c) |  | Gain on extinguishment of debt is calculated as follows (amounts in thousands):
|--- |  | -------------------------------------------------------------------------------

F-17



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---



##### 



Net liabilities subject to compromise
    
    $
    169,245Deferred financing costs related
to cancelled senior notes
    
    
    (7,063
    )Net liabilities extinguished
    
    
    162,182Less: Reorganized value
    
    
    145,000Gain on extinguishment of debt
    
    $
    17,182




|(d) |  | Issuance of new senior notes, totaling $120 million, and the issuance
of 5,000,000 shares of new common stock with
par value of $0.01. The reorganization value was derived from a recovery
analysis filed in the Bankruptcy Court in
connection with the Plan. The components of the reorganized value are
shown below (amounts in thousands):
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Reorganized value:New Debt
    
    $
    120,000New Equity
    
    
    25,000Reorganization value
    
    $
    145,000




|(e) |  | Reduction of inventory for a change in accounting policy related to the capitalization
of certain freight costs incurred for transfers of inventory between Company locations
and certain business supplies.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(f) |  | Net increase in fixed assets is the result of fair value adjustments increasing
equipment by approximately $3.4 million and decreasing certain leaseholds and furniture
and fixtures by $1.5 million.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(g) |  | Elimination of all intangibles with the exception of the California HMO licenses.
|--- |  | ---------------------------------------------------------------------------------



|(h) |  | Establishment of Intangible value of contractual rights to be amortized over 15 years
using the straight-line method. This intangible asset represents the value of the
Companys lease agreement and the business relationship developed with Wal-Mart.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(i) |  | Elimination of Predecessor Company equity.
|--- |  | ------------------------------------------



|(j) |  | Deferred tax effects of fair value adjustments.
|--- |  | -----------------------------------------------

F-18



---



---



##### 



5.     LIABILITIES SUBJECT TO COMPROMISE AND REORGANIZATION EXPENSE/(GAIN)

As part of fresh start accounting, liabilities subject to compromise in the
amount of $169 million were exchanged for new notes and common stock as part of
the discharge of debt in the bankruptcy. These liabilities are identified
below (amounts in thousands):

(Predecessor)June 2, 2001Accounts payable
    
    $
    27,830Accrued expenses and provision for rejected contracts
    
    
    2,359
    (a)Senior notes net of discount, including accrued interest
    
    
    131,356Other long-term debt and capital lease obligations
    
    
    7,700
    (b)$
    169,245




|(a) |  | This amount is net of an accrual for claims to be paid in cash of
approximately $2.3 million.
|--- |  | ---------------------------------------------------------------------------------------------



|(b) |  | This amount is net of $97,000 worth of capital leases assumed to
continue after emergence from bankruptcy.
|--- |  | ----------------------------------------------------------------------------------------------------------

In accordance with SOP 90-7, the Predecessor Company recorded all transactions
incurred as a result of the Chapter 11 Cases as reorganization items. The
table below summarizes these items (amounts in thousands):

(Predecessor)
    
    (Predecessor)Five Months
    
    Twelve MonthsEnded
    
    EndedJune 2, 2001
    December 30, 2000Fresh start adjustments
    
    $
    (114,263
    )
    
    $
    Impairment of goodwill
    
    
    
    
    
    
    100,805Impairment of fixed assets
    
    
    33
    
    
    
    12,000Provision for rejected leases
    
    
    1,592
    
    
    
    1,920Loss on sale of freestanding division
    
    
    3,645
    
    
    
    Other store closing costs
    
    
    532
    
    
    
    670Professional fees
    
    
    2,008
    
    
    
    3,421Retention plan
    
    
    3,231
    
    
    
    2,173Interest income
    
    
    (127
    )
    
    
    (144
    )Letter of credit reserve on DIP Facility
    
    
    197
    
    
    
    Other reorganization items
    
    
    637
    
    
    
    694Total reorganization (gain)/expense
    
    $
    (102,515
    )
    
    $
    121,539


F-19



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---



##### 



The following represents activity in the reorganization provisions during 2002.
This amount includes an estimate for disputed claims that are expected to be
paid in cash (amounts in thousands):

Balance at
    
    Charged to
    
    
    
    
    
    
    
    
    
    Balance atDecember
29, 2001
    
    Expense
    
    Paid
    
    Other adjustments
    
    December 28, 2002Reorganization items
    
    $
    1,225
    
    
    $
    
    
    
    $
    605
    
    
    $
    372
    
    
    $
    248


The ending accrual for reorganization items consists primarily of
amounts accrued for disputed claims to be paid in cash.

F-20



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---



##### 



6.   WAL-MART MASTER LICENSE AGREEMENT AND OTHER AGREEMENTS

Wal-Mart Agreement

At December 28, 2002, the Company operated 399 vision centers in domestic
Wal-Mart stores, all of which operate pursuant to a master license agreement.
These units generated approximately 87% of our revenue in 2002 and represent
the most profitable of the Companys host retail operations measured as a
percent of sales. In 1994, the Company and Wal-Mart replaced their original
agreement with a new master license agreement (the Wal-Mart Agreement), which
increased minimum and percentage license fees payable by the Company and also
granted the Company the opportunity to operate up to 400 vision centers in
existing and future Wal-Mart stores. The Company opened its 400th vision
center pursuant to the agreement in 2001. Each vision center covered by the
Wal-Mart agreement has a separate license. Pursuant to the Wal-Mart agreement,
the term of each such license is nine years with a renewable option for one
additional three-year term. Percentage license fees remain the same over the
nine-year base term and three- year option term, whereas minimum license fees
increase during the three-year option term. The Wal-Mart license agreement is
subject to certain customary provisions, including a minimum tangible net worth
(as defined) calculation. Management believes that it is in compliance with
this provision at December 28, 2002.

Mexico Agreement

In 1994, the Company opened eight vision centers in stores owned and operated by
Wal-Mart de Mexico, S.A. de C.V. (Wal-Mart de Mexico). In 1995, the Company
completed the negotiation of a master license agreement governing these vision
centers. Pursuant to this agreement, each vision center has an individual base
term of five years from the date of opening, followed by two options (each for
two years), and one option for one year. Each party has the right to terminate
a location which fails to meet specified sales levels. The agreement provides
for annual fees based on a minimum and percentage of sales. The agreement also
gives the Company a right of first refusal to open vision centers in all stores
in Mexico owned by Wal-Mart de Mexico. As of December 28, 2002, the Company
operated 37 vision centers in Wal-Mart de Mexico stores.

Fred Meyer Agreement

The Company operates 58 leased vision
centers in stores owned by Fred Meyer, 55
of which operate pursuant to a master license agreement. The agreement provides
for minimum and percentage rent and other customary terms and conditions. The
term of the agreement is for five years (expiring December 31, 2003), with a
five-year option exercisable by the Company.

F-21



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##### 



7.     INVENTORY

The Company classifies inventory as finished goods if such inventory is readily
available for sale to customers without assembly or value added processing.
Finished goods include contact lenses, over the counter sunglasses and
accessories. The Company classifies inventory as raw materials if such
inventory requires assembly or value added processing. This would include
grinding a lens blank, cutting the lens in accordance with a prescription from
an optometrist, and fitting the lens in a frame. Frames and uncut lens are
considered raw materials. A majority of the Companys sales represent custom
orders; consequently, the majority of the Companys inventory is classified as
raw materials.

Inventory balances, by classification, are summarized as follows (amounts in
thousands):

2002
    
    2001Raw materials
    
    $
    10,024
    
    
    $
    12,262Finished goods
    
    
    7,344
    
    
    
    5,868Supplies
    
    
    560
    
    
    
    491$
    17,928
    
    
    $
    18,621


8.     LONG-TERM DEBT

Exit Facility

In May 2001, the Companys secured revolving credit facility with Foothill
Capital expired and was replaced with a senior secured revolving Credit
Facility (the Exit Facility) from Fleet Capital Corporation. The Exit
Facility has a term of three years, bears interest at the prime rate
plus 0.75%
per annum or at LIBOR plus 3.0%, and provides availability of
$10 million, subject to borrowing base limitations and letter of
credit requirements. The Exit Facility contains various restrictive covenants
and requires the Company to maintain minimum EBITDA standards (as defined) and
a minimum fixed charge coverage ratio (as defined) of 1.0 to 1.0. The Company
paid $275,000 in commitment fees related to the Exit Facility in 2001. At
December 28, 2002, the Company had no outstanding borrowings under the Exit
Facility and $1.7 million of unused availability.

Senior Subordinated Notes

As part of the Companys Plan of Reorganization, the Predecessor Companys $125
million unsecured notes were converted into new Successor Company secured notes
and common stock. The Successor Company notes have a face value of $120
million, provide for the payment of interest of 12% twice a year at the end of
March and September, and are subordinated to debt under the Companys credit
facility. These notes are due in 2009; however principal repayments (Excess
Cash Repayments) are required based on excess cash flow (as defined) for the
prior six month period, adjusted for existing cash balances, and measured at
the end of June and December, beginning with December 2001. The principal
repayments are to be made by the end of the second month subsequent to the
measurement date. For the six months ended December 28, 2002, the Company made
an Excess Cash Repayment of approximately $2.9 million on February 28, 2003 to
bondholders of record on February 13, 2003. This amount is classified as
current at December 28, 2002. As future excess cash is contingent
upon future cash flows, the only portion reflected as a current liability is
the repayment that is based on financial results reported herein.

Subsequent to the issuance of the
Company's 2001 financial statements, the Company's management
determined that certain revisions to the 2001 financial statements
were required. All 2001 information herein reflects the restated
amounts. An effect of the restatement was to adjust the calculation
of working capital under the indenture for purposes of determining
the excess cash flow payment for the cumulative period from June 2,
2001 through December 28, 2002. The effect of this adjustment was to
increase the cumulative payments of excess cash flow during this same
period, by approximately $950,000. Our indenture expressly provides
that, in the event of a restatement which affects a previously made
excess cash flow payment, the next payment of excess cash flow
otherwise due is appropriately adjusted so that the under or over
payment is corrected. The Company accordingly expects that, subject
to the minimum cash requirements and other provisions of the
indenture, it will increase its next cash flow payment by
approximately $950,000. The Company can provide no assurances that such a
payment will in fact be made.

F-22



---



---



##### 



Long-Term Debt Balances

Long-term debt obligations at December 28, 2002 and December 29, 2001 consisted
of the following (amounts in thousands):

2002
    
    200112% Senior Subordinated Notes due 2009
    
    $
    109,706
    
    
    $
    120,000Less current portion
    
    
    3,824
    
    
    
    1,597Total long-term debt
    
    $
    105,882
    
    
    $
    118,403


The Company is party to letters of credit totaling $4.4 million and $3.5
million at December 28, 2002 and December 29, 2001, respectively. Virtually no
claims have historically been made against these financial instruments.
Management does not expect any material losses to result from these
off-balance-sheet instruments because performance is not expected to be
required.

See Note 2 to Consolidated Financial Statements for the fair value estimate of
the long-term debt at December 28, 2002.

9.     EXTRAORDINARY ITEM

During 2002, the Company repurchased notes with a face value of
approximately $4.5 million for $3.0 million in cash, which included accrued
interest of approximately $106,000. These transactions resulted in an
extraordinary, non-cash gain of approximately $1.6 million.

In 2001, as part of the Companys emergence from bankruptcy, the Predecessor
Company recognized an extraordinary gain of $17.2 million related to the
extinguishment of debt recorded in fresh start accounting. The gain was
calculated as follows:

Net liabilities subject to compromise
    
    $
    169,245Deferred financing costs related
to cancelled senior notes
    
    
    (7,063
    )Net liabilities extinguished
    
    
    162,182Less: Reorganized value
    
    
    145,000Gain on extinguishment of debt
    
    $
    17,182


F-23



---



---



##### 



In 2000, the Company recorded an extraordinary loss of $827,000 as a result of
refinancing the Companys Foothill Credit Facility. This refinancing
necessitated the write-off of capitalized costs associated with the previous
facility. Because of the Companys decision to fully reserve for the Companys
2001 tax benefit, there is no tax effect on the 2001 extraordinary item. Also,
the Company determined that no tax expense would result from the 2002
extraordinary item, and therefore, no tax effect was recorded on the 2002
extraordinary item.

10.     COMMITMENTS AND CONTINGENCIES

Senior Subordinated Notes

Under the indenture governing the Companys senior notes, the Company can
engage in businesses that are the same, similar or reasonably related to the
businesses engaged in by the Company as of the date the Company emerged from
bankruptcy. In the fourth quarter of 2002, certain holders of the Companys
senior notes (who also own a significant percentage of the Companys common
stock) notified the Company that on the basis of this limitation in the
indenture, they objected to the Companys engaging in lines of business outside
of retail vision centers. The Company has engaged in discussions with these
holders and believes that, to date, it has complied with the provisions of the
indenture. It is possible, however, that the indenture could prohibit the
Company from engaging in business opportunities it is exploring or may explore
in the future. These same holders have also objected to the Companys
repurchase of senior notes.

In May 2003, the Company received a
letter from the trustee under the indenture governing its senior subordinated
notes, stating that the Company was in default for failing to timely
file its Form 10-K for fiscal 2002, and that the Company had 30 days
to cure the alleged default. On June 2, 2003, the Company
received a letter from the trustee, revoking the previous letter. In
addition, the filing of the Form 10-K on June 4, 2003 took place
within the 30-day cure period.

Stock Exchange Matters

The Company received a letter from AMEX
concerning its failure to timely file its reports under the
securities laws, including this Form 10-K. The letter states
that, if the Company is not current in its filings by
June 10, 2003, the exchange may seek to delist or halt
trading in the Companys securities. The Companys Form 10-Q for the first quarter
of 2003 has not been filed. Although the Company intends to file this Form 10-Q in
the near term, there can be no assurance that it will be filed by June 10, 2003 and that AMEX will not seek to
delist or halt trading in the Companys securities.

Non-cancellable Operating Lease and License Agreements

As of December 28, 2002, the Company is a lessee under non-cancellable
operating lease agreements for certain equipment which expire at various dates
through 2005. Additionally, the Company is required to pay minimum and
percentage license fees pursuant to certain commercial leases and pursuant to
its agreements with its host store companies.

Our headquarters in Lawrenceville, Georgia is located in a 66,000 square foot
building that includes a distribution center and lens laboratory. The building
is leased through January 2009. The Company paid approximately $215,000
annually in rental fees in 2002, 2001 and 2000.

In connection with its acquisition of Midwest Vision, Inc., the Company entered
into a ten-year lease for administrative headquarters and an optical laboratory
located in St. Cloud, Minnesota. The facility is leased from the former owner
of Midwest Vision. Lease expense on the headquarters and laboratory is
approximately $6,667 monthly.

Aggregate future minimum payments under the license and lease arrangements are
as follows (amounts in thousands):

OperatingFiscal Year
    
    Leases2003
    
    $
    27,3282004
    
    
    20,9002005
    
    
    13,3012006
    
    
    7,4062007
    
    
    4,595Thereafter
    
    
    7,414Total minimum lease payments
    
    $
    80,944


Total rental expenses related to cancellable and non-cancellable operating
leases were approximately $33.4 million, $17.8 million,
$16.5 million, and $41.0 million for
the year ended December 28, 2002, the seven months ended
December 29, 2001, the five months ended June 2, 2001, and the year ended December 30, 2000,
respectively. Total rental expense includes contingent rental expense of
approximately $6.9 million, $7.5 million and $7.9 million in fiscal 2002, 2001
and 2000, respectively.

Legal Proceedings



On May 20, 2002, an entity called Consumer Cause, Inc. filed a complaint
against the Company in the Superior Court for Los Angeles County (Case No. BC
274257). A first amended complaint was filed on September 4, 2002. The
complaint alleges that the Companys operations in California violate certain
provisions of California law governing arrangements between opticians and
optometrists. The complaint seeks attorney fees and an injunction prohibiting
the Company from continuing the alleged violations. The complaint largely
duplicates portions of a complaint filed by the California attorney general
against one of the competitors of the Company. The case was dismissed on
January 23, 2003; the plaintiff has filed an appeal.

The Company is involved in certain
other litigation and claims arising in the normal course of business. In
the opinion of management, the resolution of these matters will not
have a material adverse effect on the financial position or results
of operations of the Company.

F-24



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---



##### 



11.     INCOME TAXES

The Company accounts for income taxes under SFAS No. 109, Accounting for
Income Taxes, which requires the use of the liability method of accounting for
deferred income taxes. The components of the net deferred tax assets are as
follows (amounts in thousands):

December 28,
    
    December 29,2002
    
    2001Total deferred tax assets
    
    $
    41,077
    
    
    $
    43,139Total deferred tax liabilities
    
    
    (38,383
    )
    
    
    (41,617
    )Valuation allowance
    
    
    (2,694
    )
    
    
    (1,137
    )Net deferred tax asset
    
    $
    
    
    
    $
    385


F-25



---



---



##### 



The sources of the difference between the financial accounting and tax basis of
the Companys liabilities and assets which give rise to the deferred tax
liabilities and deferred tax assets and the tax effects of each are as follows
(amounts in thousands):

December 28, 2002
    
    December 29, 2001Current
    
    Noncurrent
    
    Current
    
    NoncurrentDepreciation
    
    $
    
    
    
    $
    2,170
    
    
    $
    
    
    
    $
    281Accrued expenses and
reserves
    
    
    3,054
    
    
    
    71
    
    
    
    4,396
    
    
    
    83Inventory
    
    
    612
    
    
    
    
    
    
    
    419Net operating loss
carry-forwards
    
    
    
    
    
    
    32,997
    
    
    
    
    
    
    
    34,142Intangible value of
contract rights
    
    
    
    
    
    
    (38,365
    )
    
    
    
    
    
    
    (41,514
    )Alternative minimum tax
    
    
    
    
    
    
    59
    
    
    
    
    
    
    
    1,382Other
    
    
    3
    
    
    
    2,093
    
    
    
    3
    
    
    
    2,330Valuation allowance
    
    
    (2,694
    )
    
    
    
    
    
    
    (1,137
    )Deferred tax asset /
(liability)
    
    $
    975
    
    
    $
    (975
    )
    
    $
    3,681
    
    
    $
    (3,296
    )


F-26



---



---



##### 



The tax expense differs from the amounts resulting from multiplying income
before income taxes by the statutory federal income tax rate for the following
reasons (amounts in thousands):

Successor
    

    PredecessorSeven Months
    

    Five MonthsYear Ended
    
    Ended
    

    Ended
    
    Year EndedDecember 28, 2002
    
    December 29, 2001
    

    June 2, 2001
    
    December 30, 2000Federal income tax/(benefit)
provision at statutory rate
    
    $
    (2,357
    )
    
    $
    (2,051
    )
    

    $
    39,663
    
    
    $
    (46,148
    )State income taxes, net of
federal income tax benefit
    
    
    (186
    )
    
    
    (176
    )
    

    
    3,400
    
    
    
    (3,393
    )Loss on disposed subsidiaries
    
    
    
    
    
    
    
    
    

    
    (26,912
    )
    
    
    Professional Fees
    
    
    
    
    
    
    344
    
    

    
    573
    
    
    
    Change in valuation
allowance for U.S. federal
and state taxes
    
    
    1,557
    
    
    
    1,137
    
    

    
    (17,335
    )
    
    
    8,782Nondeductible goodwill
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    38,640Other, net
    
    
    986
    
    
    
    746
    
    

    
    611
    
    
    
    2,119$
    
    
    
    $
    
    
    

    $
    
    
    
    $
    


At December 28, 2002, the Company had U.S. regular tax net operating loss
(NOL) carry-forwards of approximately $87 million that can reduce future federal
income taxes. If not utilized, these carry-forwards will expire beginning in
2009. Utilization of the Companys net operating loss
carry-forwards of $87 million
at December 28, 2002, could be substantially limited in the event of a greater than 50%
change in stock ownership of the Company. The limitation would be based on the
stock value and the Federal Exempt Tax Rate on the date of ownership change.
These limitations could create a cap on the amount of the NOLs that would be
deductible each year going forward until the amount is depleted or the time
limitation on the NOLs expires.

During the years ended December 28, 2002 and December 29, 2001, the Company
recorded a valuation allowance of approximately $2.7 million and
$1.1 million,
respectively, representing the excess of deferred tax assets over
deferred tax liabilities. This valuation allowance was recorded due to the
uncertainty of the realizability of the net operating
losses and certain other deferred tax assets.

In Mexico, the location of the Companys foreign operations, the Company pays
the greater of its income tax or an asset tax. Because the Company has
operating losses in Mexico, the Company pays no income tax, but is subject to
the asset tax. Therefore, no provision for income taxes has been made on the
Companys books for its operations in Mexico.

F-27



---





---



##### 



12. EARNINGS PER COMMON SHARE

Basic earnings per common share are computed by dividing net income by the
weighted average number of common shares outstanding during the year. Diluted
earnings per common share are computed as basic earnings per common share,
adjusted for the effect of all potential common stock equivalent shares. The
computation for basic and diluted earnings per share are summarized as follows
(amounts in thousands except per share information):

|                                                                 |                                                                  |   |                   |       |                   |   |              |              |   |                   |   |         |      |  |   |          |       |  
|---------------------------------------------------------------- | ---------------------------------------------------------------- | - | ----------------- | ----- | ----------------- | - | ------------ | ------------ | - | ----------------- | - | ------- | ---- |  | - | -------- | ----- | -
|                                                                 |                                                                  |   |                   |       |                   |   | Seven Months |              |   | Five Months       |   |         |      | 
|                                                                 |                                                                  |   | Year Ended        |       | Ended             |   |              | Ended        |   | Year Ended       
|                                                                 |                                                                  |   | December 28, 2002 |       | December 29, 2001 |   |              | June 2, 2001 |   | December 30, 2000
|                                                                 |                                                                  |   |                   |       |                   |   |              |              |   |                  
|Earnings/(loss) before extraordinary items
and cumulative effect |                                                                  | $ | (7,770            | )     |                   | $ | (5,860       | )            |   |                   | $ | 96,141  |      |  | $ | (135,675 | )    
|Extraordinary gain/(loss), net                                   |                                                                  |   | 1,566             |       |                   |   |             |              |   |                   |   | 17,182  |      |  |   | (827     | )    
|Cumulative effect, net                                           |                                                                  |   |                  |       |                   |   |             |              |   |                   |   |        |      |  |   | (3,378   | )    
|                                                                 |                                                                  |   |                   |       |                   |   |              |              |   |                   |   |         |      |  |   |          |      
|Net earnings/(loss)                                              |                                                                  | $ | (6,204            | )     |                   | $ | (5,860       | )            |   |                   | $ | 113,323 |      |  | $ | (139,880 | )    
|                                                                 |                                                                  |   |                   |       |                   |   |              |              |   |                   |   |         |      |  |   |          |      
|Weighted shares outstanding                                      |                                                                  |   | 5,084             |       |                   |   | 5,000        |              |   |                   |   | 21,169  |      |  |   | 21,169   |      
|Less: Unvested restricted stock                                  |                                                                  |   | (84               | )     |                   |   |             |              |   |                   |   |        |      |  |   |         |      
|                                                                 |                                                                  |   |                   |       |                   |   |              |              |   |                   |   |         |      |  |   |          |      
|                                                                 |                                                                  |   | 5,000             |       |                   |   | 5,000        |              |   |                   |   | 21,169  |      |  |   | 21,169   |      
|Basic earnings/(loss) per share:                                 |                                                                  |   |                   |       |                   |   |              |              |   |                   |   |         |      |  |   |          |      
|                                                                 | Earnings/(loss) before extraordinary
items and cumulative effect |   | $                 | (1.55 | )                 |   | $            | (1.17        | ) |                   |   | $       | 4.54 |  |   | $        | (6.41 | )
|                                                                 | Extraordinary gain/(loss)                                        |   |                   | 0.31  |                   |   |              |             |   |                   |   |         | 0.81 |  |   |          | (0.04 | )
|                                                                 | Loss from cumulative effect                                      |   |                   |      |                   |   |              |             |   |                   |   |         |     |  |   |          | (0.16 | )
|                                                                 |                                                                  |   |                   |       |                   |   |              |              |   |                   |   |         |      |  |   |          |      
|                                                                 | Net earnings/(loss) per basic share                              |   | $                 | (1.24 | )                 |   | $            | (1.17        | ) |                   |   | $       | 5.35 |  |   | $        | (6.61 | )
|                                                                 |                                                                  |   |                   |       |                   |   |              |              |   |                   |   |         |      |  |   |          |      
|Weighted shares outstanding                                      |                                                                  |   | 5,084             |       |                   |   | 5,000        |              |   |                   |   | 21,169  |      |  |   | 21,169   |      
|Less: Unvested restricted stock                                  |                                                                  |   | (84               | )     |                   |   |             |              |   |                   |   |        |      |  |   |         |      
|                                                                 |                                                                  |   |                   |       |                   |   |              |              |   |                   |   |         |      |  |   |          |      
|                                                                 |                                                                  |   | 5,000             |       |                   |   | 5,000        |              |   |                   |   | 21,169  |      |  |   | 21,169   |      
|Impact
of dilutive options held by employees(1)                  |                                                                  |   | 436               |       |                   |   | 62           |              |   |                   |   |        |      |  |   |         |      
|                                                                 |                                                                  |   |                   |       |                   |   |              |              |   |                   |   |         |      |  |   |          |      
|Aggregate shares outstanding                                     |                                                                  |   | 5,436             |       |                   |   | 5,062        |              |   |                   |   | 21,169  |      |  |   | 21,169   |      
|Diluted earnings/(loss) per share:                               |                                                                  |   |                   |       |                   |   |              |              |   |                   |   |         |      |  |   |          |      
|                                                                 | Earnings/(loss) before extraordinary
items and cumulative effect |   | $                 | (1.55 | )                 |   | $            | (1.17        | ) |                   |   | $       | 4.54 |  |   | $        | (6.41 | )
|                                                                 | Extraordinary gain/(loss)                                        |   |                   | 0.31  |                   |   |              |             |   |                   |   |         | 0.81 |  |   |          | (0.04 | )
|                                                                 | Loss from cumulative effect                                      |   |                   |      |                   |   |              |             |   |                   |   |         |     |  |   |          | (0.16 | )
|                                                                 |                                                                  |   |                   |       |                   |   |              |              |   |                   |   |         |      |  |   |          |      
|                                                                 | Net earnings/(loss) per diluted share                            |   | $                 | (1.24 | )                 |   | $            | (1.17        | ) |                   |   | $       | 5.35 |  |   | $        | (6.61 | )
|                                                                 |                                                                  |   |                   |       |                   |   |              |              |   |                   |   |         |      |  |   |          |      



---

|(1) |  | Outstanding options with an exercise price below the average price of the
Companys common stock have been presented as common stock
equivalents in the previous table. However, due to the Companys net
losses in the seven months ended December 29, 2001, fiscal 2000
and fiscal 2002, these options have been excluded from the computation of diluted
earnings per common share, due to their anti-dilutive
effect. Although the Company reported net earnings for the five months
ended June 2, 2001, there were no outstanding options with an
exercise price below the average price of the Companys common stock
during this period.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-28



---



---



##### 



Outstanding options with an exercise price below the average price of the
Companys common stock have been excluded from the computation of diluted
earnings per common share, in all periods presented due to their anti-dilutive
effect.

13. SUPPLEMENTAL DISCLOSURE INFORMATION

Supplemental disclosure information is as follows (amounts in thousands):

(i)  Supplemental Cash Flow Information

|                         |              |  |                   |        |                    |             |   |                   |  |                   |  |   |     |  |  |   |       | 
|------------------------ | ------------ |  | ----------------- | ------ | ------------------ | ----------- | - | ----------------- |  | ----------------- |  | - | --- |  |  | - | ----- | 
|                         |              |  | Successor         |        |                    | Predecessor
|                         |              |  |                   |        |                    |            
|                         |              |  | Year Ended        |        | Seven Months Ended |             |   | Five Months Ended |  | Year Ended       
|                         |              |  | December 28, 2002 |        | December 29, 2001  |             |   | June 2, 2001      |  | December 30, 2000
|                         |              |  |                   |        |                    |             |   |                   |  |                  
|Cash paid for/(received) |              |  |                   |        |                    |             |   |                   |  |                   |  |   |     |  |  |   |      
|                         | Interest     |  | $                 | 14,257 |                    |             | $ | 4,906             |  |                   |  | $ | 860 |  |  | $ | 2,729 | 
|                         | Income taxes |  | $                 | (1,243 | )                  |             | $ | 433               |  |                   |  | $ | 167 |  |  | $ |      | 

(ii)  Supplemental Balance Sheet Information

Significant components of accrued expenses and other current liabilities are
summarized as follows:

|                                           |  |                   |       |                   |  |   |       | 
|------------------------------------------ |  | ----------------- | ----- | ----------------- |  | - | ----- | 
|                                           |  | Balance at        |       | Balance at       
|                                           |  | December 28, 2002 |       | December
29, 2001
|                                           |  |                   |       |                  
|Accrued employee compensation and benefits |  | $                 | 5,736 |                   |  | $ | 6,452 | 
|Accrued rent expense                       |  | $                 | 5,914 |                   |  | $ | 4,714 | 
|Accrued capital expenditures               |  | $                 | 442   |                   |  | $ | 584   | 
|Customer deposit liability                 |  | $                 | 2,158 |                   |  | $ | 2,491 | 
|Accrued interest                           |  | $                 | 3,297 |                   |  | $ | 3,691 | 

(iii)  Supplemental Income Statement Information

The components of interest expense, net, are summarized as follows:

F-29



---



---



##### 



|                                                          |  |                   |        |                   |             |              |              |   |                   |  |   |       |   |  |   |       |  
|--------------------------------------------------------- |  | ----------------- | ------ | ----------------- | ----------- | ------------ | ------------ | - | ----------------- |  | - | ----- | - |  | - | ----- | -
|                                                          |  | Successor         |        |                   | Predecessor
|                                                          |  |                   |        |                   |            
|                                                          |  |                   |        |                   |             | Seven Months |              |   | Five Months       |  |   |       |  
|                                                          |  | Year Ended        |        | Ended             |             |              | Ended        |   | Year Ended       
|                                                          |  | December 28, 2002 |        | December 29, 2001 |             |              | June 2, 2001 |   | December 30, 2000
|                                                          |  |                   |        |                   |             |              |              |   |                  
|Interest expense on debt
and capital leases               |  | $                 | 13,941 |                   |             | $            | 8,476        |   |                   |  | $ | 805   |   |  | $ | 6,902 |  
|Finance fees and amortization
of deferred financing costs |  |                   | 299    |                   |             |              | 139          |   |                   |  |   | 349   |   |  |   | 881   |  
|Interest income                                           |  |                   | (141   | )                 |             |              | (156         | ) |                   |  |   |      |   |  |   |      |  
|Other(1)                                                  |  |                   | (470   | )                 |             |              | (70          | ) |                   |  |   | (4    | ) |  |   | (60   | )
|                                                          |  |                   |        |                   |             |              |              |   |                   |  |   |       |   |  |   |       |  
|                                                          |  | $                 | 13,629 |                   |             | $            | 8,389        |   |                   |  | $ | 1,150 |   |  | $ | 7,723 |  
|                                                          |  |                   |        |                   |             |              |              |   |                   |  |   |       |   |  |   |       |  



---

|(1) |  | In the fourth quarter of 2002, the
Company received approximately $300,000 in the form of cash and
equipment as settlement of certain amounts due the Company from the sale of its freestanding business, which had closed in 2001. The gain was reflected in the fourth quarter of 2002 and is presented below Operating Income as a component of interest expense, net.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Contractual interest expense for the five months ended June 2, 2001 and for the
year ended December 30, 2000 was $8.1 million and $20.7 million, respectively.

14. SHAREHOLDERS EQUITY

Employee Stock Options and Incentive Award Plan

In 1996, the Company adopted the restated Stock Option and Incentive Award Plan
(the Plan) pursuant to which incentive stock options qualifying under Section
422A of the Internal Revenue Code and nonqualified stock options may be granted
to key employees. The Plan also provides for the issuance of other equity
awards, such as awards of restricted stock. The Plan replaced and restated all
the Companys prior employee stock option plans. The Plan is administered by
the Compensation Committee of the Companys Board of Directors. The
Compensation Committee has the authority to determine the persons receiving
options, option prices, dates of grants and vesting periods, although no option
may have a term exceeding ten years. All options outstanding at the Companys
emergence from bankruptcy in 2001 were cancelled. The Plan was amended in 1999
to increase the number of shares under the Plan from 3,350,000 to 4,350,000.
In October 2001, the Committee reduced the number of shares available under the
Plan to 720,000 and granted stock options and performance stock grants to key
managers. After giving effect to outstanding awards, there were, at December 28,
2002, 180,550 remaining unissued shares under the Plan.

In 2001, the Compensation Committee granted to employees 288,750 options to
purchase shares of the Companys common stock at the stated market value on the
date of grant. These options vest 100% at the end of seven years. Vesting,
however, can be accelerated if the Company achieves certain financial goals
prior to the end of the seven-year period. Unexercised options expire ten
years from the date of grant.

In 2002, the Compensation Committee granted to employees 183,600 options to
purchase shares of the Companys common stock at the stated market value on the
date of grant. The options vest in one-third increments on the first three anniversaries of the date of grant, subject to continued employment. Unexercised options expire ten years from
the date of grant.

In April 2002, the Compensation Committee issued 84,400 shares of restricted
stock under the Plan to the Companys President and Chief Operating Officer.
The shares vest in one-third increments on the first time anniversary of the date of grant, subject to continued employment. Unamortized deferred compensation expense with respect
to the restricted stock amounted to approximately $124,000 at December 28, 2002
and is being amortized over the three-year vesting period. Compensation
expense related to the issuance of restricted stock aggregated $33,000 in 2002.

F-30



---



---



##### 



Directors Stock Option Plan

In April 1997, the Company adopted the Restated Non-Employee Director Stock
Option Plan (the Directors Plan), pursuant to which stock options for up to
500,000 shares of Common Stock may be granted to non-employee directors. The
Directors Plan replaced and restated the Companys prior non-employee director
stock option plan. All options outstanding
at the Companys emergence from bankruptcy were cancelled. In October 2001,
the Committee reduced the number of shares under the Plan to 180,000 and made a
one-time grant to eligible non-employee directors of options to purchase 15,000
shares. Non-employee directors also receive automatic grants of options to
purchase 10,000 shares as of the date of each annual meeting of shareholders.
Each grant is at an exercise price equal to the market value on the date of
grant. Under the option grant, 50% of the shares vest on the second
anniversary of the grant date, 25% on the third anniversary and 25% on the
fourth anniversary. All option grants are exercisable for a ten-year period.
In 2002 and 2001, the Compensation Committee granted to directors
40,000 and 60,000 options, respectively, to purchase shares of the
Company's common stock. The remaining shares available for grant under the Directors Plan totaled
95,000 at December 28, 2002.

All Stock Option Plans

In 2002, 2001 and 2000, all exercise prices represent the estimated fair value
of the Common Stock on the date of grant as determined by the Board of
Directors. Stock option transactions during the three years ended December 28,
2002 were as follows:

|                                          |                         |           |         |                   |       |                   |             |              |              |  |                   |            |   |       |   |           |       |       | 
|----------------------------------------- | ----------------------- | --------- | ------- | ----------------- | ----- | ----------------- | ----------- | ------------ | ------------ |  | ----------------- | ---------- | - | ----- | - | --------- | ----- | ----- | 
|                                          |                         |           |         | Successor         |       |                   | Predecessor
|                                          |                         |           |         |                   |       |                   |            
|                                          |                         |           |         |                   |       |                   |             | Seven Months |              |  | Five Months       |            |   |       |  
|                                          |                         |           |         | Year Ended        |       | Ended             |             |              | Ended        |  | Year Ended       
|                                          |                         |           |         | December 28, 2002 |       | December 29, 2001 |             |              | June 2, 2001 |  | December 30, 2000
|                                          |                         |           |         |                   |       |                   |             |              |              |  |                  
|Options outstanding beginning of period   |                         |           | 348,750 |                   |       |                   |            |              |              |  |                   | 2,739,642  |   |       |   | 2,615,421 |      
|Options granted                           |                         |           | 223,600 |                   |       |                   | 348,750     |              |              |  |                   |           |   |       |   | 431,200   |      
|Options exercised                         |                         |           |        |                   |       |                   |            |              |              |  |                   |           |   |       |   |          |      
|Options cancelled                         |                         |           | (32,900 | )                 |       |                   |            |              |              |  |                   | (2,739,642 | ) |       |   | (306,979  | )    
|                                          |                         |           |         |                   |       |                   |             |              |              |  |                   |            |   |       |   |           |      
|Options outstanding end of period         |                         |           | 539,450 |                   |       |                   | 348,750     |              |              |  |                   |           |   |       |   | 2,739,642 |      
|                                          |                         |           |         |                   |       |                   |             |              |              |  |                   |            |   |       |   |           |      
|Options exercisable end of period         |                         |           |        |                   |       |                   |            |              |              |  |                   |           |   |       |   | 1,245,105 |      
|                                          |                         |           |         |                   |       |                   |             |              |              |  |                   |            |   |       |   |           |      
|Weighted average option prices per share: |                         |           |         |                   |       |                   |             |              |              |  |                   |            |   |       |   |           |      
|                                          |                         | Granted   |         | $                 | 0.830 |                   |             | $            | 0.400        |  |                   |            |   |      |   |           | $     | 1.989 | 
|                                          |                         | Exercised |         |                   |      |                   |             |              |             |  |                   |            |   |      |   |           |       |      | 
|                                          |                         | Cancelled |         | $                 | 0.400 |                   |             |              |             |  |                   |            | $ | 4.409 |   |           | $     | 4.611 | 
|                                          |                         |           |         |                   |       |                   |             |              |              |  |                   |            |   |       |   |           |      
|                                          | Outstanding at year end |           | $       | 0.580             |       |                   | $           | 0.400        |              |  |                   |            |  |       |   | $         | 4.409 |      
|                                          |                         |           |         |                   |       |                   |             |              |              |  |                   |            |   |       |   |           |      
|Options exercisable end of period         |                         |           |        |                   |       |                   |            |              |              |  |                   |           |   |       | $ | 4.570     |      
|                                          |                         |           |         |                   |       |                   |             |              |              |  |                   |            |   |       |   |           |      

F-31



---



---



##### 



The following table shows the options outstanding and the options exercisable
with pertinent data related to each at December 28, 2002:

|                |  |                     |         |             |  |           |      |                     |  |          |      |  |  |          |   |  |  |   |      | 
|--------------- |  | ------------------- | ------- | ----------- |  | --------- | ---- | ------------------- |  | -------- | ---- |  |  | -------- | - |  |  | - | ---- | 
|                |  | Options Outstanding |         |             |  |           |      | Options Exercisable
|                |  |                     |         |             |  |           |      |                    
|                |  |                     |         |             |  | Weighted  |      |                     |  |          |      |  |  |          |   |  |  |  
|                |  |                     |         |             |  | Average   |      | Weighted            |  |          |      |  |  | Weighted
|                |  |                     |         |             |  | Remaining |      | Average             |  |          |      |  |  | Average 
|Range of        |  | Number              |         | Contractual |  | Exercise  |      | Number              |  | Exercise
|Exercise Prices |  | Outstanding         |         | Life        |  | Price     |      | Exercisable         |  | Price   
|                |  |                     |         |             |  |           |      |                     |  |         
|$0.40 - $0.40   |  |                     | 315,850 |             |  |           | 6.25 |                     |  | $        | 0.40 |  |  |          | 0 |  |  | $ | 0.00 | 
|$0.55 - $0.55   |  |                     | 9,000   |             |  |           | 9.82 |                     |  | $        | 0.55 |  |  |          | 0 |  |  | $ | 0.00 | 
|$0.75 - $0.75   |  |                     | 165,600 |             |  |           | 9.29 |                     |  | $        | 0.75 |  |  |          | 0 |  |  | $ | 0.00 | 
|$1.00 - $1.18   |  |                     | 49,000  |             |  |           | 9.45 |                     |  | $        | 1.15 |  |  |          | 0 |  |  | $ | 0.00 | 
|                |  |                     |         |             |  |           |      |                     |  |          |      |  |  |          |   |  |  |   |      | 
|$0.40 - $1.18   |  |                     | 539,450 |             |  |           | 7.54 |                     |  | $        | 0.58 |  |  |          | 0 |  |  | $ | 0.00 | 

Preferred Stock

The Company is authorized to issue up to 5,000,000 shares of preferred stock,
par value $1 per share, with such terms, characteristics and designations as
may be determined by the Board of Directors. No such shares are issued and
outstanding.

Shareholder Rights Plan

In January of 1997, the Companys Board of Directors approved a Shareholders
Rights Plan (the Rights Plan). The Rights Plan provides for the distribution of
one Right for each outstanding share of the Companys Common Stock held of
record as of the close of business on January 27, 1997 or that thereafter
becomes outstanding prior to the earlier of the final expiration date of the
Rights or the first date upon which the Rights become exercisable. Each Right
entitles the registered holder to purchase from the Company one one- hundredth
of a share of Series A Participating Cumulative Preferred Stock, par value
$0.01 per share, at a price of $40.00 (the Purchase Price), subject to
adjustment. The Rights are not exercisable until ten calendar days after a
person or group (an Acquiring Person) buys or announces a tender offer for 15%
or more of the Companys Common Stock, or if any person or group has acquired
such an interest, the acquisition by that person or group of an additional 2%
of the Companys Common Stock. In the event the Rights become exercisable, then
each Right will entitle the holder to receive that number of shares of Common
Stock (or, under certain circumstances, an economically equivalent security or
securities of the Company) having a market value equal to the Purchase Price.
If, after any person has become an Acquiring Person (other than through a
tender offer approved by qualifying members of the Board of Directors), the
Company is involved in a merger or other business combination where the Company
is not the surviving corporation, or the Company sells 50% or more of its
assets, operating income, or cash flow, then each Right will entitle the holder
to purchase, for the Purchase Price, that number of shares of common or other
capital stock of the acquiring entity which at the time of such transaction
have a market value of twice the Purchase Price. The Rights will expire on
January 26, 2007, unless extended, unless the Rights are earlier exchanged, or
unless the Rights are earlier redeemed by the Company in whole, but not in
part, at a price of $0.001 per Right. In February 1998, the Companys Board of
Directors amended the Rights Plan effective March 1, 1998 to provide that
Rights under this plan can be redeemed and certain amendments to this plan can
be effected only with the approval of the Continuing Directors, which are
defined in the Rights Plan as the current directors and any future directors
that are approved or recommended by Continuing Directors.

In 2000, the Company cancelled 10,000 shares of the Predecessor Companys
Common Stock.

F-32



---



---



##### 



15. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

Selected quarterly data for the Company for the fiscal years ended December 28,
2002 and December 29, 2001 is as follows: (amounts in thousands except per
share information)

|                                          |                                |                               |        |           |       |              |        |             |       |         |        |       |       |   |        |       |       | 
|----------------------------------------- | ------------------------------ | ----------------------------- | ------ | --------- | ----- | ------------ | ------ | ----------- | ----- | ------- | ------ | ----- | ----- | - | ------ | ----- | ----- | 
|                                          |                                |                               |        | Successor
|                                          |                                |                               |        |          
|                                          |                                |                               |        | Quarter   |       | Quarter      |        | Quarter     |       | Quarter
|                                          |                                |                               |        | Ended     |       | Ended        |        | Ended       |       | Ended  
|Fiscal 2002                               |                                | March 30                      |        | June 29   |       | September 28 |        | December 28
|                                          |                                |                               |        |           |       |              |        |            
|Retail sales, net                         |                                | $                             | 61,873 |           |       | $            | 61,235 |             |       | $       | 61,075 |       |       | $ | 60,677 |      
|Premium revenue                           |                                |                               |       |           |       |              | 700    |             |       |         | 670    |       |       |   | 790    |      
|                                          |                                |                               |        |           |       |              |        |             |       |         |        |       |       |   |        |      
|Net sales                                 |                                |                               | 61,873 |           |       |              | 61,935 |             |       |         | 61,745 |       |       |   | 61,467 |      
|Cost of goods sold                        |                                |                               | 26,980 |           |       |              | 27,680 |             |       |         | 27,387 |       |       |   | 30,399 |      
|                                          |                                |                               |        |           |       |              |        |             |       |         |        |       |       |   |        |      
|Gross profit                              |                                |                               | 34,893 |           |       |              | 34,255 |             |       |         | 34,358 |       |       |   | 31,068 |      
|Selling, general & administrative expense |                                |                               | 32,733 |           |       |              | 32,247 |             |       |         | 32,119 |       |       |   | 31,616 |      
|                                          |                                |                               |        |           |       |              |        |             |       |         |        |       |       |   |        |      
|Operating income                          |                                |                               | 2,160  |           |       |              | 2,008  |             |       |         | 2,239  |       |       |   | (549   | )    
|
|Interest expense, net                     |                                |                               | 3,580  |           |       |              | 3,564  |             |       |         | 3,539  |       |       |   | 2,945  |      
|                                          |                                |                               |        |           |       |              |        |             |       |         |        |       |       |   |        |      
|Loss before taxes and extraordinary item  |                                |                               | (1,420 | )         |       |              | (1,556 | )           |       |         | (1,300 | )     |       |   | (3,494 | )    
|Income tax benefit                        |                                |                               |       |           |       |              |       |             |       |         |       |       |       |   |       |      
|                                          |                                |                               |        |           |       |              |        |             |       |         |        |       |       |   |        |      
|Net loss before extraordinary item and    |                                |                               | (1,420 | )         |       |              | (1,556 | )           |       |         | (1,300 | )     |       |   | (3,494 | )    
|Extraordinary gain, net (See Note 9)      |                                |                               |       |           |       |              |       |             |       |         | 547    |       |       |   | 1,019  |      
|                                          |                                |                               |        |           |       |              |        |             |       |         |        |       |       |   |        |      
|Net loss                                  |                                | $                             | (1,420 | )         |       | $            | (1,556 | )           |       | $       | (753   | )     |       | $ | (2,475 | )    
|                                          |                                |                               |        |           |       |              |        |             |       |         |        |       |       |   |        |      
|Basic and diluted loss per share:         |                                |                               |        |           |       |              |        |             |       |         |        |       |       |   |        |      
|                                          | Loss before extraordinary item |                               | $      | (0.28     | )     |              | $      | (0.31       | )     |         | $      | (0.26 | )     |   | $      | (0.70 | )    
|                                          | Extraordinary item, net        |                               |        | 0.00      |       |              |        | 0.00        |       |         |        | 0.11  |       |   |        | 0.20  |      
|                                          |                                |                               |        |           |       |              |        |             |       |         |        |       |       |   |        |      
|Net loss per basic and diluted share      |                                | $                             | (0.28  | )         |       | $            | (0.31  | )           |       | $       | (0.15  | )     |       | $ | (0.50  | )    
|                                          |                                |                               |        |           |       |              |        |             |       |         |        |       |       |   |        |      
|Supplemental information:                 |                                |                               |        |           |       |              |        |             |       |         |        |       |       |   |        |      
|                                          |                                | Capital expenditures          |        | $         | 796   |              |        | $           | 1,357 |         |        | $     | 825   |   |        | $     | 2,231 | 
|                                          |                                | Depreciation and amortization |        | $         | 4,953 |              |        | $           | 4,868 |         |        | $     | 4,791 |   |        | $     | 4,387 | 

F-33



---



---



##### 



|                                                      |                                                 |          |             |        |            |           |          |           |              |         |             |         |       |   |   |        |       |   |   |        |       |  
|----------------------------------------------------- | ----------------------------------------------- | -------- | ----------- | ------ | ---------- | --------- | -------- | --------- | ------------ | ------- | ----------- | ------- | ----- | - | - | ------ | ----- | - | - | ------ | ----- | -
|                                                      |                                                 |          | Predecessor |        |            | Successor
|                                                      |                                                 |          |             |        |            |          
|                                                      |                                                 |          | Quarter     |        | Two Months |           |          | One Month |              | Quarter |             | Quarter
|                                                      |                                                 |          | Ended       |        | Ended      |           |          | Ended     |              | Ended   |             | Ended  
|FISCAL 2001                                           |                                                 | March 31 |             | June 2 |            |           | June 30  |           | September 29 |         | December 29
|                                                      |                                                 |          |             |        |            |           |          |           |              |         |            
|Net sales                                             |                                                 | $        | 74,735      |        |            | $         | 45,822   |           |              |         | $           | 18,606  |       |   | $ | 59,741 |       |   | $ | 57,196 |      
|Cost of goods sold                                    |                                                 |          | 34,525      |        |            |           | 22,879   |           |              |         |             | 8,295   |       |   |   | 26,097 |       |   |   | 27,096 |      
|                                                      |                                                 |          |             |        |            |           |          |           |              |         |             |         |       |   |   |        |       |   |   |        |      
|Gross profit                                          |                                                 |          | 40,210      |        |            |           | 22,943   |           |              |         |             | 10,311  |       |   |   | 33,644 |       |   |   | 30,100 |      
|Selling, general & administrative expense             |                                                 |          | 39,071      |        |            |           | 29,306   |           |              |         |             | 9,938   |       |   |   | 31,440 |       |   |   | 30,148 |      
|                                                      |                                                 |          |             |        |            |           |          |           |              |         |             |         |       |   |   |        |       |   |   |        |      
|Operating income/(loss)                               |                                                 |          | 1,139       |        |            |           | (6,363   | )         |              |         |             | 373     |       |   |   | 2,204  |       |   |   | (48    | )    
|Interest expense, net                                 |                                                 |          | 739         |        |            |           | 411      |           |              |         |             | 1,109   |       |   |   | 3,673  |       |   |   | 3,607  |      
|                                                      |                                                 |          |             |        |            |           |          |           |              |         |             |         |       |   |   |        |       |   |   |        |      
|Earnings/(loss) before reorganization items and taxes |                                                 |          | 400         |        |            |           | (6,774   | )         |              |         |             | (736    | )     |   |   | (1,469 | )     |   |   | (3,655 | )    
|Reorganization expense/(gain)                         |                                                 |          | 1,789       |        |            |           | (104,304 | )         |              |         |             |        |       |   |   |       |       |   |   |       |      
|                                                      |                                                 |          |             |        |            |           |          |           |              |         |             |         |       |   |   |        |       |   |   |        |      
|Earnings/(loss) before taxes and extraordinary gain   |                                                 |          | (1,389      | )      |            |           | 97,530   |           |              |         |             | (736    | )     |   |   | (1,469 | )     |   |   | (3,655 | )    
|Income tax expense                                    |                                                 |          |            |        |            |           |         |           |              |         |             |        |       |   |   |       |       |   |   |       |      
|                                                      |                                                 |          |             |        |            |           |          |           |              |         |             |         |       |   |   |        |       |   |   |        |      
|Earnings/(loss) before extraordinary gain             |                                                 |          | (1,389      | )      |            |           | 97,530   |           |              |         |             | (736    | )     |   |   | (1,469 | )     |   |   | (3,655 | )    
|Extraordinary gain, net                               |                                                 |          |            |        |            |           | 17,182   |           |              |         |             |        |       |   |   |       |       |   |   |       |      
|                                                      |                                                 |          |             |        |            |           |          |           |              |         |             |         |       |   |   |        |       |   |   |        |      
|Net earnings / (loss)                                 |                                                 | $        | (1,389      | )      |            | $         | 114,712  |           |              |         | $           | (736    | )     |   | $ | (1,469 | )     |   |   | (3,655 | )    
|                                                      |                                                 |          |             |        |            |           |          |           |              |         |             |         |       |   |   |        |       |   |   |        |      
|Basic and diluted earnings/(loss) per share:          |                                                 |          |             |        |            |           |          |           |              |         |             |         |       |   |   |        |       |   |   |        |      
|                                                      | Earnings/(loss) before extraordinary gain       |          | $           | (0.07  | )          |           | $        | 4.61      |              |         |             | $       | (0.15 | ) |   | $      | (0.29 | ) |   | $      | (0.73 | )
|                                                      | Gain from extraordinary item                    |          |             |       |            |           |          | 0.81      |              |         |             |         |      |   |   |        |      |   |   |        |      |  
|                                                      |                                                 |          |             |        |            |           |          |           |              |         |             |         |       |   |   |        |       |   |   |        |      
|                                                      | Net earnings/(loss) per basic and diluted share |          | $           | (0.07  | )          |           | $        | 5.42      |              |         |             | $       | (0.15 | ) |   | $      | (0.29 | ) |   | $      | (0.73 | )
|                                                      |                                                 |          |             |        |            |           |          |           |              |         |             |         |       |   |   |        |       |   |   |        |      
|Supplemental information:                             |                                                 |          |             |        |            |           |          |           |              |         |             |         |       |   |   |        |       |   |   |        |      
|                                                      | Capital expenditures                            |          | $           | 1,259  |            |           | $        | 825       |              |         |             | $       | 335   |   |   | $      | 970   |   |   | $      | 1,445 |  
|                                                      | Depreciation and amortization                   |          | $           | 2,867  |            |           | $        | 1,941     |              |         |             | $       | 1,536 |   |   | $      | 4,979 |   |   | $      | 4,910 |  

F-34



---



---



##### 



16. RELATED PARTY TRANSACTIONS

In 2002, 2001 and 2000, the Company made rent payments of approximately $80,000
per year for the St. Cloud laboratory/distribution facility, which is owned by
Myrel Neuman, a former director of the Company. In 2002, the Company received
approximately $300,000 in rent payments from Dr. Marc Nelson, a current
director of the Company, for leased office space in ten of the Companys
vision centers in Wal-Mart. The Company paid insurance premiums of
approximately $443,000 in 2000 for insurance policies purchased through an
agency in which J. Smith Lanier, II, a director of the Predecessor Company
during 2000, has a substantial ownership interest.

17. SUBSEQUENT EVENTS

In the first quarter of 2003, the Company has closed thirteen of its domestic
Wal-Mart stores pursuant to its master license agreement. These stores
represented net sales of $8.3 million in 2002.

F-35



---



---



##### 



SCHEDULE II

NATIONAL VISION, INC.
VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 28, 2002, Seven Months Ended December 29,
2001,
Five Months Ended June 2, 2001 and Year Ended December 30, 2000
(In thousands)

|                                     |                                                 |           |   |                      |  |                |   |            |  |               |   |       |  |            |   |        |  |  |   |       |  | 
|------------------------------------ | ----------------------------------------------- | --------- | - | -------------------- |  | -------------- | - | ---------- |  | ------------- | - | ----- |  | ---------- | - | ------ |  |  | - | ----- |  | 
|                                     |                                                 |           |   |                      |  |                |   | Additions  |  |               |   |       |  |            |   |       
|                                     |                                                 |           |   |                      |  |                |   |            |  |               |   |       |  |            |   |       
|                                     |                                                 |           |   | Balance at Beginning |  | Charged to     |   | Charged to |  |               |   |       |  | Balance at
|Description                          |                                                 | of Period |   | Cash and Expenses    |  | Other Accounts |   | Deductions |  | End of Period
|                                     |                                                 |           |   |                      |  |                |   |            |  |              
|Predecessor:                         |                                                 |           |   |                      |  |                |   |            |  |               |   |       |  |            |   |        |  |  |   |      
|Year
ended December 30, 2000         |                                                 |           |   |                      |  |                |   |            |  |               |   |       |  |            |   |        |  |  |   |      
|                                     | Allowance for uncollectible accounts receivable |           | $ | 3,836                |  |                | $ | 1,236      |  |               | $ | 1,482 |  |            | $ | 2,214  |  |  | $ | 4,340 | 
|                                     | Provision
for self-insured liabilities          |           | $ | 2,593                |  |                | $ | 9,863      |  |               | $ | 2,807 |  |            | $ | 12,061 |  |  | $ | 3,202 | 
|                                    
|Five
months ended June 2, 2001       |                                                 |           |   |                      |  |                |   |            |  |               |   |       |  |            |   |        |  |  |   |      
|                                     | Allowance
for uncollectible accounts receivable |           | $ | 4,340                |  |                | $ | 6,195      |  |               | $ |      |  |            | $ | 7,706  |  |  | $ | 2,829 | 
|                                     | Provision
for self-insured liabilities          |           | $ | 3,202                |  |                | $ | 4,741      |  |               | $ | 1,163 |  |            | $ | 5,359  |  |  | $ | 3,747 | 
|                                    
|Successor:                           |                                                 |           |   |                      |  |                |   |            |  |               |   |       |  |            |   |        |  |  |   |      
|                                    
|Seven
months ended December 29, 2001 |                                                 |           |   |                      |  |                |   |            |  |               |   |       |  |            |   |        |  |  |   |      
|                                     | Allowance for uncollectible accounts receivable |           | $ | 2,829                |  |                | $ | 320        |  |               | $ |      |  |            | $ | 1,360  |  |  | $ | 1,789 | 
|                                     | Provision
for self-insured liabilities          |           | $ | 3,747                |  |                | $ | 4,894      |  |               | $ | 2,103 |  |            | $ | 7,673  |  |  | $ | 3,071 | 
|                                    
|Year
ended December 28, 2002         |                                                 |           |   |                      |  |                |   |            |  |               |   |       |  |            |   |        |  |  |   |      
|                                     | Allowance for uncollectible accounts receivable |           | $ | 1,789                |  |                | $ | 50         |  |               | $ |      |  |            | $ | 983    |  |  | $ | 856   | 
|                                     | Provision
for self-insured liabilities          |           | $ | 3,071                |  |                | $ | 8,589      |  |               | $ | 3,005 |  |            | $ | 11,924 |  |  | $ | 2,741 | 

S-1



---



---



##### 



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.

| |  |                       |  |                                      
| |  | --------------------- |  | -------------------------------------
| |  | NATIONAL VISION, INC.
| |  |                       |  |                                      
| |  | By:                   |  | /s/ Reade Fahs                       
| |  |                       |  |                                      
| |  |                       |  | Reade Fahs                           
| |  |                       |  | President and Chief Executive Officer

June 3, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on June 3, 2003 by the following persons on behalf
of the registrant, in the capacities indicated.

|                                           |  |                                                  
|------------------------------------------ |  | -------------------------------------------------
|Signature                                  |  | Title                                            
|                                           |  |                                                  
|By: /s/ Reade FahsReade Fahs               |  | Chief Executive Officer and President            
|                                          
|By: /s/ Angus C. MorrisonAngus C. Morrison |  | Senior Vice President and Chief Financial
Officer
|                                          
|By: /s/ S. Lynn ButlerS. Lynn Butler       |  | Principal Accounting Officer                     
|                                          
|By: /s/ Robert FloumRobert Floum           |  | Director                                         
|                                          
|By: /s/ James W. KrauseJames W. Krause     |  | Director                                         
|                                          
|By: /s/ Marc B. NelsonMarc B. Nelson       |  | Director                                         
|                                          
|By: /s/ Jeffrey SnowJeffrey Snow           |  | Director                                         
|                                          
|By: /s/ Peter T. SochaPeter T. Socha       |  | Director                                         



---



---



##### 



I, Reade Fahs, certify that:



| | 1. |  | I have reviewed this annual report on Form 10-K of National Vision, Inc.                                                                                                                                                                                                                                                
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;                   
|
| | 4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures, as defined
in Exchange Act Rules 13a-14 and 15d-14, for the registrant and have:                                                                                                   



| | a. |  | Designed such disclosure controls
and procedures to ensure that
material information relating to
the registrant, including its
consolidated subsidiaries, is made
known to us by others within those
entities, particularly during the
period in which this annual report
is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | Evaluated the effectiveness of the
registrants disclosure controls
and procedures as of a date within
90 days prior to the filing date of
this annual report (the Evaluation
Date); and                                                                                                  
|
| | c. |  | Presented in this annual report our
conclusions about the effectiveness
of the disclosure controls and
procedures based on our evaluation
as of the Evaluation Date;                                                                                                                        



| | 5. |  | The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the equivalent
functions):
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | All significant deficiencies in the
design or operation of internal
controls that could adversely
affect the registrants ability to
record, process, summarize and
report financial data and have
identified for the registrants
auditors any material weaknesses in
internal controls; and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | Any fraud, whether or not material,
that involves management or other
employees who have a significant
role in the registrants internal
controls; and                                                                                                                                       



| | 6. |  | The registrants other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: June 3, 2003

| |  |                               
| |  | ------------------------------
| |  | /s/ Reade Fahs                
| |  |                               
| |  | Reade Fahs                    
| |  | Title: Chief Executive Officer



---



---



##### 



I, Angus C. Morrison, certify that:



| | 1. |  | I have reviewed this annual report on Form 10-K of National Vision, Inc.                                                                                                                                                                                                                                                
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;                   
|
| | 4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures, as defined
in Exchange Act Rules 13a-14 and 15d-14, for the registrant and have:                                                                                                   



| | a. |  | Designed such disclosure controls
and procedures to ensure that
material information relating to
the registrant, including its
consolidated subsidiaries, is made
known to us by others within those
entities, particularly during the
period in which this annual report
is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | Evaluated the effectiveness of the
registrants disclosure controls
and procedures as of a date within
90 days prior to the filing date of
this annual report (the Evaluation
Date); and                                                                                                  
|
| | c. |  | Presented in this annual report our
conclusions about the effectiveness
of the disclosure controls and
procedures based on our evaluation
as of the Evaluation Date;                                                                                                                        



| | 5. |  | The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the equivalent
functions):
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | All significant deficiencies in the
design or operation of internal
controls that could adversely
affect the registrants ability to
record, process, summarize and
report financial data and have
identified for the registrants
auditors any material weaknesses in
internal controls; and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | Any fraud, whether or not material,
that involves management or other
employees who have a significant
role in the registrants internal
controls; and                                                                                                                                       



| | 6. |  | The registrants other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: June 3, 2003

| |  |                               
| |  | ------------------------------
| |  | /s/ Angus C. Morrison         
| |  |                               
| |  | Angus C. Morrison             
| |  | Title: Chief Financial Officer



---