<PAGE>   1
                                    FORM 10-K

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

       FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
    For the fiscal year ended December 27, 1997
                                       OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934
    For the transition period from       to
                                   -----   -----

                         Commission file number 1-12740

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

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

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

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

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

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

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

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

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

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

Common Stock, $0.01 par value: $ 35,027,145 (as of March 20, 1998)

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

Common Stock, $0.01 par value: 4,870,436 (as of March 20, 1998)

Portions of the Company's definitive Proxy Statement for the 1998 Annual Meeting
of Stockholders are incorporated by reference into Part III of this Form 10-K.

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                             NEW WEST EYEWORKS, INC.

                           Annual Report on Form 10-K
                      For the Year Ended December 27, 1997

                                Table of Contents

                                                                         Page
PART I

Item 1.   Business .....................................................   3
Item 2.   Properties....................................................  14
Item 3.   Legal Proceedings ............................................  14
Item 4.   Submission of Matters to a Vote of Security Holders ..........  14

PART II

Item 5.   Market for Registrant's Common Equity
          and Related Stockholder Matters ..............................  15
Item 6.   Selected Financial Data.......................................  15
Item 7.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations ................  18
Item 7A.  Quantitative and Qualitative Disclosures about Market Risk ...  26
Item 8.   Financial Statements and Supplementary Data ..................  26
Item 9.   Changes In and Disagreements With Accountants
          on Accounting and Financial Disclosure .......................  26

PART III

Item 10.  Directors and Executive Officers of the Registrant ...........  27
Item 11.  Executive Compensation .......................................  27
Item 12.  Security Ownership of Certain Beneficial
          Owners and Management ........................................  27
Item 13.  Certain Relationships and Related Transactions ...............  27


PART IV

Item 14.  Exhibits, Financial Statement Schedules,
          and Reports on Form 8K .......................................  28

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PART I

ITEM 1.  BUSINESS

GENERAL

           New West Eyeworks, Inc. (the "Company") is a leading specialty
retailer of eyewear, operating under the trade names "Vista Optical" and "Lee
Optical." As of March 21, 1998, the Company operated 167 value-priced optical
stores in thirteen states. The stores are located in malls, strip shopping
centers and Fred Meyer, Inc. ("Fred Meyer") host stores. The Company's everyday
value-pricing strategy features its "signature" $64 price point for a wide
selection of quality, brand name eyeglasses offered at attractive, convenient
locations with professional service. The Company's stores also sell brand name
contact lenses and non-prescription sunglasses and offer customers on-site eye
examinations by independent optometrists. The Company operates optical
laboratory and distribution facilities in Tempe, Arizona and near Portland,
Oregon.

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

           In early 1997, the Company completed a public offering of 1,505,400
shares of its common stock, $0.01 par value per share, including shares sold
upon the exercise of the underwriters' over allotment option (the "Offering").
Net proceeds to the Company from the Offering were $5.5 million. Of the shares
sold, 400,000 shares were sold by selling stockholders. The Company did not
receive any proceeds from the sale of shares by the selling stockholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Liquidity and Capital Resources."

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



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EXPANSION STRATEGY

           The Company's expansion plan is to open new mall and strip shopping
center stores where it can market its value-pricing strategy under the "Vista
Optical" and "Lee Optical" tradenames. With a portion of the proceeds of the
Offering, the Company accelerated its store opening program with the addition of
17 new stores in 1997, substantially all of which were located in malls and
strip shopping centers. In addition, the Company also remodeled two of its mall
center stores and closed two stores in 1997.

           In 1998, the Company began a significant expansion in Florida, a new
market for the Company. Approximately 16 of the anticipated 20 to 25 new store
openings in 1998 will occur in this state. Assuming the Company opens 25 new
stores in 1998, including 24 new stores in malls and strip shopping centers and
one new store within a Fred Meyer host store, the Company expects that the costs
of these new stores, including furniture, fixtures, leasehold improvements,
inventory and optometric equipment, will be approximately $3.5 million. Actual
costs will vary based upon, among other factors, geographic location, the size
of the store and the extent of the build-out required at the selected site. In
addition to opening new stores, the Company may relocate stores within a mall or
strip shopping center if sites become available with better traffic patterns and
better merchandising opportunities. In 1998, the Company plans to remodel four
of its mall and strip shopping center stores at an estimated cost of
approximately $600,000.

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

           The Company's strategy is to improve its market share in existing
markets and to expand into new markets by clustering stores in a particular
metropolitan area or in smaller adjacent markets. For example, in 1996, the
Company entered a new market in Iowa where it has established itself as a
leading eyewear retailer. The Company believes that by clustering stores it can
obtain economies of scale with respect to advertising, distribution and
management costs as well as attract additional managed care business. As
incremental sales occur, the Company anticipates that these economies, as well
as its optical laboratory fixed cost structure, will enable it to enhance its
operating margins. In its new markets, the Company expects that all of its
stores will be operated under the trade name "Vista Optical."

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

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

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



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successful. The Company has no outstanding commitments or agreements regarding
any acquisitions.

MERCHANDISING AND MARKETING

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

           Value-Pricing. The Company's merchandising focuses on offering
quality, brand name eyewear at everyday value prices. Beginning in September
1991, the Company implemented a "signature" value price point concept for single
vision, plastic lens eyeglasses (including both the frame and lenses), enabling
consumers to comparison price shop. "Single vision" eyewear refers to a
non-bifocal prescription. Additional pairs of single vision, plastic lens
eyeglasses purchased on the same store visit with the same prescription are sold
at a $10 discount. The Company also features similar value pricing for contact
lenses with daily wear, soft lenses at $22 a pair. In January 1998, over six
years after establishing the initial $59 price point for single vision, plastic
lens eyeglasses, the price point was increased to $64, with additional pairs
purchased on the same store visit with the same prescription increasing to $54
from $49. There can be no assurance that the Company will be able to
successfully implement the price increase.

           Wide Selection of Eyewear Products. Each store carries a selection of
650 to 1,200 frames, depending on the size and type of store. The Company
continually analyzes sales of its frames to keep its stores stocked with a wide
selection of the latest in eyewear fashion and a proper assortment of styles,
colors, and sizes. Approximately 65% of each store's inventory consists of
frames that are sold at the Company's value price point, and in 1997,
approximately 80% of the Company's eyeglass unit sales were at the then $59
price point. The balance of each store's inventory is distributed among
higher-priced frames, including recognized designer brand names that are sold at
price points ranging from $84 to $184 complete with single vision, plastic
lenses. The result is that the Company's customers are offered a broad selection
at the value price point with the opportunity to purchase higher-priced designer
frames, many of which the Company believes are sold at lower prices than at
chains offering "one-hour" service to customers. The Company also believes that
its value pricing is conducive to multiple sales.

           At its value price point, the Company carries recognizable brand name
eyewear, such as REM, St. Moritz, Zimco and Limited Editions. Designer frames
carried by the Company include Nautica, Liz Claiborne, Stetson, Safilo,
Converse, Perry Ellis, Polo by Ralph Lauren, Monet, Jones of New York, Halston,
and Sophia Loren. The Company sells gas permeable and soft contact lenses,
including daily wear, flexible wear and disposable lenses manufactured by such
nationally-recognized eyewear companies as Bausch & Lomb, Inc., Ciba-Vision
Corporation, Johnson & Johnson and Wesley-Jessen. The Company does not buy
close-out or discontinued inventory.

           The Company also offers several different types of eyeglass lenses,
such as, progressive, transition, bi-focal, polycarbonate, polarized and
hi-index lenses, as well as other eyeglass options, including fashion tints,
ultraviolet protection, anti-reflective coatings and scratch resistance. In
keeping with its value-pricing strategy, the Company offers these options at
prices ranging from $15 for options, such as tints or scratch resistance, to $90
for polarized lenses. For



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multiple pair purchases, the customer is offered a package of three options on
all additional pairs for free.

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

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

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

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

MANAGED CARE

           Managed care is a substantial and rapidly growing area of the retail
optical business. The Company, through Vista Eyecare Network, LLC, a wholly
owned subsidiary of the Company ("Vista Eyecare Network") (formerly Alexis
Vision Plan), uses its stores as a managed care network. The Company markets
Vista Eyecare Network to managed care administrators at health maintenance
organizations ("HMO's"), preferred provider organizations ("PPO's") and other
health insurance plans and to local and state governments and mid-sized to large
companies that offer eyecare benefits to their employees. When the Company
provides benefits to members of an HMO or PPO, beneficiaries of a health care
insurer or employees of a government or company, the covered participants may
use their eyecare benefits at the Company's stores, generally at a small
discount from the Company's everyday value prices. Because of the Company's
value pricing, participants will typically be eligible for greater eyecare
benefits at the Company's stores than at other eyecare providers participating
in managed care programs. The Company believes that the additional customer
traffic generated under the Vista Eyecare Network, including family members of
the covered participants, and purchases by covered



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participants beyond their eyecare benefits, more than offset the reduced gross
margins generated under the Vista Eyecare Network. In 1997, net sales generated
under the Vista Eyecare Network were $14.1 million (or 28.7% of net sales), a
23.4% increase over 1996.

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

OPERATIONS

           Store Locations and Layout. The Company's stores are located in
regional malls, strip shopping centers and leased departments within Fred Meyer
host stores. The stores operate under the "Vista Optical" trade name other than
the stores located in Arizona and Utah, which use the "Lee Optical" trade name.
In its new markets, the Company expects that its stores will be operated under
the trade name "Vista Optical."

           The following table sets forth the Company's stores by location and
type as of March 21, 1998:

<TABLE>
<CAPTION>
LOCATION         NUMBER           TYPE                        NUMBER
--------         ------           ----                        ------
<S>              <C>              <C>                             <C>
Washington         43             Regional Malls                 86
Oregon             31             Fred Meyer Host Stores         53
Arizona            29             Strip Shopping Centers         28
Colorado           17
Idaho              11
Alaska             11
Iowa                9
Florida             6
Montana             3
New Mexico          3
Wyoming             2
Illinois            1
Utah                1
                 ------                                        -----
  Total           167             Total                         167
                  =======                                      =====
</TABLE>

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

      Each of the Company's stores has separate areas for merchandise display,
customer service



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

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

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

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

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

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

      Personnel and Training. Each of the Company's stores is staffed by a
manager and, depending on the amount of customer traffic, one to six sales
associates. In certain states, in conformity with applicable regulations, each
store is staffed with a licensed optician. See "Government Regulation." Each
store employee receives a basic wage, plus incentive compensation based on sales
performance. Each of the Company's 15 districts is supported by a manager with
general supervisory authority over eight to 19 stores. These managers report




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directly to either the Executive Vice President or the Division Manager of the
Company.

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

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

RELATIONSHIP WITH HOST STORES

      Fred Meyer. The Company operates 53 stores in Fred Meyer host stores in
the states of Oregon, Washington, Idaho and Alaska. Fred Meyer has 116 stores
located primarily in the Pacific Northwest. Generally, the Fred Meyer stores are
"one-stop" department stores of approximately 140,000 square feet that offer
groceries, soft goods, home improvement items and various other merchandise.
Not all of the Fred Meyer stores have eyewear departments.

      The Company's optical store is generally located near the main checkout
counter in the front of the Fred Meyer host store, offering excellent exposure
to customer traffic. In 1997, the Company opened one new store in a Fred Meyer
location. The Company has also opened one new store within Fred Meyer in 1998.
From time to time, Fred Meyer remodels a store and the Company may remodel its
store at that location. In addition, when Fred Meyer closes a store, the
Company's store closes.

      The Company has a master lease agreement with Fred Meyer due to expire in
April 1998, that grants the Company the right of first refusal to open an
optical store in any new Fred Meyer store in which Fred Meyer decides to place
an eyewear department. However, Fred Meyer is not required under the master
lease agreement to open any future stores, or when new stores are opened, to
place an eyewear department in the store. The master lease agreement will not be
renewed after April 1998 because the Company has determined there is no
significant benefit associated with the Company's right of first refusal to open
an optical store in any new Fred Meyer location. Each optical store is covered
by its own separate lease. Generally, the term of each store lease is for a
period of five years, with an option to extend the lease term for one renewal
term of five years.

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


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OPTICAL PROFESSIONALS

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

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

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

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

COMPETITION

      The retail eyecare industry is fragmented and highly competitive and
historically has been subject to severe price competition. According to 20/20, a
leading optical industry trade journal, total sales in the U.S. retail optical
market were $11.4 billion in 1990, and grew to $14.6 billion in 1996. The
Company's competitors include large optical store chains, such as LensCrafters
and Pearle Vision Centers, many of which offer "one-hour" service to customers,
and numerous independent retail outlets, opticians, optometrists and
ophthalmologists. In addition, the increase in the number of optical units in
department store chains (including Sears, Roebuck & Co. and Wal-Mart Stores,
Inc.) and warehouse clubs (including Wholesale Club Inc. and Price/Costco Inc.)
and the emergence of mail order contact lens replacement services have further
increased the Company's competition. The Company believes it is able to compete
in the retail marketplace based on its value-pricing strategy, the wide
selection of frames offered at the Company's value price point, the quality of
its products and services, its attractive stores and its



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convenient store locations. However, many of the Company's competitors are
larger than the Company and have financial and other resources substantially
greater than those of the Company.

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

      Although the retail eyewear industry is highly competitive, demographic
trends are expected to increase demand for prescription eyewear. According to
20/20, the percentage of the U.S. population wearing prescription eyewear
increases from over 62% between ages 25 and 44 to almost 95% at age 45 and
older. The number of Americans aged 45 and over is expected to increase from
87.6 million in 1996 to approximately 96.0 million in 2000. The aging population
is a major factor in the projected growth of U.S. retail optical sales from
$14.6 billion in 1996 to $18.0 billion in 2000.

GOVERNMENT REGULATION

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


                                       11
<PAGE>   12
      In certain states, the Company is required to staff retail optical stores
with one or more licensed opticians, who fit and dispense eyeglasses or contact
lenses. The extent of these requirements varies from state to state.

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

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

EXECUTIVE OFFICERS

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

      NAME          AGE                   POSITION

Ronald E. Weinberg   56      Chairman of the Board and Treasurer
Barry J. Feld        41      Chief Executive Officer, President and Director
James W. Swanson     51      Chief Operating Officer, Executive Vice President
Darius J. DiTallo    40      Vice President-Finance and Administration
Annette C. Feld      35      Vice President-Marketing and Merchandising
Glenn K. Ozawa       40      Vice President-Manufacturing
Roger W. Deason      54      Vice President-Managed Care
Tricia L. Wood       37      Vice President-Real Estate and Construction

           Ronald E. Weinberg has served as Chairman of the Board and Treasurer
since the acquisition of the Company in August 1988. In 1986, Mr. Weinberg led
an investor group in the acquisition of SunMedia Corporation, which publishes a
chain of weekly newspapers in the Cleveland and, until October 1997, Milwaukee
markets and since then, Mr. Weinberg has served as Chairman of the Board of
SunMedia Corporation. Since December 1997, Mr. Weinberg has been the owner of
Timestar Communications Corp., a direct mail business in Cleveland, formerly
owned by SunMedia Corporation. Since 1989, Mr. Weinberg has been Vice Chairman
of the Board, Treasurer and a director of Hawk Corporation, which manufactures
friction products and powdered metal components primarily for aerospace,
industrial and specialty applications.

           Barry J. Feld has served as President and a member of the Board of
Directors since joining the Company in May 1991, and as Chief Executive Officer
since February 1994. Previously, Mr. Feld was President of Frame-n-Lens Optical,
Inc., which is the largest chain of retail optical stores in California. Mr.
Feld joined Frame-n-Lens Optical, Inc. in 1987 and served as Executive Vice
President and Chief Operating Officer until January 1990 when he



                                       12
<PAGE>   13
became President. Prior to that, Mr. Feld spent 10 years with Pearle Health
Services, Inc., one of the largest retail optical chains in the United States,
serving in various senior management capacities during his tenure, including
Retail Operations Director of Texas State Optical, Inc., then one of the largest
retail optical subsidiaries of Pearle Health Services, Inc., from 1985 until
1987.

           James W. Swanson has served as Chief Operating Officer and Executive
Vice President since September 1997, and as Vice President-Human Resources and
Optometric Relations since April 1992. He also served as Senior Vice President
between May 1996 and August 1997. Mr. Swanson joined the Company in July 1991 as
Vice President-Training and Optometric Relations. Prior to that, Mr. Swanson was
Director of Training and Third-Party Sales at Frame-n-Lens Optical, Inc. from
September 1989 to July 1991, and Director of Operations of Dr. Leventhal's
Vision Care Centers, Inc., a San Diego based chain of retail optical stores,
from March 1984 until September 1989.

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

           Annette C. Feld has served as Vice President-Marketing and
Merchandising since December 1992. Ms. Feld joined the Company in May 1991 as
Director of Marketing and Merchandising. Previously, she was the Director of
Materials and Marketing for Frame-n-lens Optical, Inc. from March 1988 to April
1991. Prior to that, Ms. Feld was an associate buyer for Bullock's, a chain of
department stores, from 1985 to 1987 and an associate buyer for R.H. Macy & Co.,
from 1983 to 1985. Ms. Feld is the wife of Barry Feld.

           Glenn K. Ozawa has served as Vice President-Manufacturing since March
1995. Mr. Ozawa joined the Company in January 1992 as Director of Manufacturing.
Prior to that, he served as Manufacturing Manager for Frame-n-Lens, Inc. from
November 1990 to December 1991 and as Director of Manufacturing of NuVision,
Inc., a chain of optical stores based in California and Michigan, from August
1988 until November 1990 after previously serving in a senior capacity at that
company for three years.

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

           Tricia L. Wood has served as Vice President-Real Estate and
Construction since September 1997. Ms. Wood served as the Director of Real
Estate from January 1996 to August 1997. Ms. Wood joined the Company in December
1989 as Real Estate Manager.

                                       13
<PAGE>   14
EMPLOYEES

           As of December 27, 1997, the Company employed 652 persons, 540 on a
full-time basis and 112 on a part-time basis. Approximately 472 of the Company's
employees work in retail sales or retail sales supervision, 95 in the Company's
optical laboratory and distribution facilities, 11 in managed care and 74 in
management and administration. None of the Company's employees are covered under
any collective bargaining agreement. The Company has experienced no strikes and
believes its relations with its employees to be excellent.

TRADEMARKS

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

ITEM 2.  PROPERTIES

           The Company's stores are located in regional malls, strip shopping
centers, and host stores. Each of the stores located in a mall or strip center
operates under a retail lease agreement which provides for certain base rents
plus, in many circumstances, additional rents based on sales. The host store
sites are leased under a master lease agreement with Fred Meyer which will
expire in April 1998 and each individual site has a separate lease. See
"Business--Operations--Store Locations and Layout" and "-- Relationship with
Host Stores."

           The Company's Clackamas, Oregon, laboratory and distribution facility
which is near Portland is located in approximately 6,430 square feet of leased
space. The lease provides for annual payments of $38,000 through August 31,
2001. The Company's executive offices and laboratory and distribution facility
in Tempe, Arizona, are located in a 24,000 square foot building that is owned by
Alexis Holdings, Inc. ("Alexis"), a wholly-owned subsidiary of the Company.
Alexis' sole purpose is ownership of the Tempe building. See "Management
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."

ITEM 3.  LEGAL PROCEEDINGS

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

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

           No matters were submitted to a vote of security holders during the
last quarter of fiscal 1997.



                                       14
<PAGE>   15
PART II

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

           The Company's common stock, $0.01 par value per share (the "Common
Stock"), trades on The Nasdaq SmallCap Stock Market(sm) ("NASDAQ") under the
symbol "NEWI" and is listed on The Pacific Stock Exchange under the symbol
"NWE." The following table sets forth the high and low closing price of the
Company's Common Stock reflected on NASDAQ for each full quarter in fiscal 1997
and 1996.


<TABLE>
<CAPTION>
                                       1997                       1996
                                       ----                       ----

                                HIGH           LOW         HIGH         LOW
                              -------       --------     --------     ------

<S>                           <C>           <C>          <C>          <C>
    First Quarter ....        $ 7 3/8       $  5 3/4     $  5 3/4     $    4
    Second Quarter....          7 3/8          5 1/4            6          5
    Third Quarter ....             10          7 1/8        6 3/4      5 1/4
    Fourth Quarter ...          9 3/4          7 3/8        7 1/2          6
</TABLE>


           As of March 20, 1998 there were approximately 28 stockholders of
record of the Common Stock of the Company representing approximately 473
beneficial owners of the Common Stock.

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

           The Company did not sell any unregistered securities in 1997.

ITEM 6.  SELECTED FINANCIAL DATA

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


                                       15
<PAGE>   16
<TABLE>
<CAPTION>
                                                                                FISCAL YEAR ENDED(1)
                                                   -------------------------------------------------------------------------
                                                   DEC. 27,        DEC. 28,        DEC. 30,         DEC. 31,        DEC. 25,
                                                     1997            1996            1995            1994            1993
                                                   -------------------------------------------------------------------------
                                                              (IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<S>                                               <C>             <C>             <C>             <C>             <C>
STATEMENT OF OPERATIONS DATA:
Net Sales ..................................        49,212          43,940          40,033          37,367          32,964
Gross Profit ...............................        24,959          22,221          19,681          17,692          15,708
Operating income (loss) ....................         1,318           1,048          (1,986)         (1,286)           (569)
 Income (loss) before income taxes,
  extraordinary gain and cumulative
  effect of change in accounting
  principle ................................         1,262             832          (2,025)         (1,288)         (1,279)
 Income tax expense (benefit)(2) ...........          (547)             30            --              --              (469)
 Extraordinary gain (3) ....................          --              --              --              --             1,674
 Cumulative effect of change in
  accounting principle (4)  ................          --              --              --              --               374
                                                  --------        --------        --------        --------        --------
 Net income (loss) .........................         1,809             802          (2,025)         (1,288)          1,238
 Dividends accrued on preferred
   stock ...................................          (324)           (328)           (329)           (328)           (396)
                                                  --------        --------        --------        --------        --------
 Net income (loss) applicable to
  common shares ............................      $  1,485        $    474        $ (2,354)       $ (1,616)       $    842
                                                  ========        ========        ========        ========        ========

INCOME (LOSS) PER COMMON SHARES (5):
 Income (loss) before extraordinary
   gain and cumulative effect of
   change in accounting principle...........      $   0.31        $   0.13        $  (0.63)       $  (0.43)       $  (1.28)
 Extraordinary gain (3) ....................          --              --              --              --              1.78
 Cumulative effect of change in
  accounting principle (4)  ................          --              --              --              --              0.40
                                                  --------        --------        --------        --------        --------

 Net income (loss) applicable to
  common shares ............................      $   0.31        $   0.13        $  (0.63)      $  (0.43)        $   0.90
                                                  ========        ========        ========        ========        ========

BALANCE SHEET DATA:
 Total assets ..............................      $ 16,352        $ 13,127        $ 11,734        $ 11,721        $  9,846
 Notes payable and
  capital lease obligations ................           659           3,162             556             259             406
 Redeemable preferred stock ................          --              --              --              --             1,752
 Convertible preferred stock ...............         5,460           5,460           5,460           5,460            --

STATISTICAL DATA:
 Net sales growth ..........................          12.0%            9.8%            7.1%           13.4%           16.1%
 Increase in comparable store sales (6) ....           8.6%            8.8%            5.9%            6.7%           15.0%
 Stores open at period beginning ...........           146             139             150             134             129
 Stores opened during period ...............            17              10               9              21               8
 Stores closed during period ...............            (2)             (3)            (20)             (5)             (3)
                                                  --------        --------        --------        --------        --------
 Stores open at period end .................           161             146             139             150             134
                                                  ========        ========        ========        ========        ========
 Types of stores at period end:
   Host stores .............................            52              51              51              65              61
   Malls and strip shopping centers ........           109              95              88              85              73
</TABLE>


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

(Footnotes on following page)


                                       16
<PAGE>   17
(1)      The Company's fiscal year consists of 52 or 53 weeks ending the last
         Saturday of the calendar year. The year ended December 31, 1994
         consisted of 53 weeks; all other years presented consisted of 52 weeks.

(2)      In 1997, amount includes income tax benefit of $579,000 from reversal
         of a portion of the valuation allowance applicable to the Company's
         deferred tax assets. See "Income Taxes" in Note 7 of Notes to
         Consolidated Financial Statements.

(3)      Net income for the year ended December 25, 1993 includes an
         extraordinary gain of $1,674,000 or $1.78 per share, that was realized
         by the Company as a result of the retirement in full of its senior bank
         debt.

(4)      In 1993, the Company recorded a cumulative effect adjustment of
         $374,000, or $0.40 per share resulting from a change in its method of
         accounting for income taxes.

(5)      The Company adopted Statement of Financial Accounting Standards No.
         128, Earnings per Share, (SFAS128) during the fourth quarter of 1997.
         Adoption of SFAS128 did not impact previously reported per share
         amounts except for periods prior to the Company's initial public
         offering in early 1994 as antidilutive stock options and warrants
         previously included in the calculation pursuant to then existing
         guidelines are no longer included under SFAS128 and other related
         guidance. Net income per share for 1993 as previously reported was
         $0.40 per share.

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


                                       17
<PAGE>   18
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS

           Unless otherwise stated, references in this report to the years 1997,
1996, and 1995 relate to the fiscal years ended December 27, 1997, December 28,
1996, and December 30, 1995. Fiscal years 1997, 1996 and 1995 include 52 weeks.

OVERVIEW

           The Company's everyday value-pricing strategy features its
"signature" $64 price point for a wide selection of quality, brand name
eyeglasses (including frame and lenses) offered at attractive, convenient
locations with professional service. The Company focuses on opening new stores,
primarily in malls and strip shopping centers, entering new geographic markets,
improving its operating efficiency, expanding its managed optical care business
and establishing the informational and operational infrastructure necessary for
further expansion.

           The Company believes that the success of its value-pricing strategy
is demonstrated by (1) its 24 consecutive quarters of positive comparable store
sales growth, including an 8.6% increase in 1997 compared to 1996, (2) an
increasing number of repeat customers and referral business and (3) its second
consecutive year of operating income. As of March 21, 1998, the Company operated
167 stores in 13 states.

           In 1997, the Company opened 17 stores, 16 of which are located in
malls or strip shopping centers and one of which is located in a Fred Meyer host
store. In addition, the Company remodeled two stores and closed and relocated
two stores during this period. As a part of the Company's strategy to expand
into new geographic markets, approximately 16 of the 20 to 25 stores planned to
open in 1998 will be in Florida, a new market for the Company. Opening stores in
new markets, including Florida, may adversely impact profitability in the
short-term. Opening new stores in markets already served by the Company may
adversely impact existing store profitability and reduce comparable store sales,
although the Company believes that such new stores will lead to increased sales
and profitability in such markets.

           The Company believes that as incremental sales occur, from both
existing stores and new stores, the operating leverage provided by its optical
laboratory fixed cost structure will enhance operating margins. However, because
it is the Company's accounting policy to expense pre-opening costs as they are
incurred, the Company expects that, in the short-term, its operating margins may
be adversely affected by increased operating costs associated with new store
openings.

           The Company's managed optical care business, Vista Eyecare Network,
is an increasingly important component of its overall business. In 1997, net
sales generated by the Vista Eyecare Network were $14.1 million (or
approximately 28.7% of net sales), a 23.4% increase over 1996. Vista Eyecare
Network sales have a negative impact on the Company's gross profit margin
because they are generally transacted at a small discount from the Company's
everyday value prices, and the Company expects this negative impact to continue.
There is no assurance that sales generated under the Vista Eyecare Network will
continue to increase at all or at the rate of increase of 1996 and 1997.


                                       18
<PAGE>   19
           Based on a preliminary study by management, the Company does not
expect to incur material costs to modify its computer information and
manufacturing systems to enable proper processing of transactions relating to
the year 2000 and beyond. However, the Company continues to evaluate whether
corrective action will be necessary. There was no amount expensed in 1997 for
year 2000 technology .

RESULTS OF OPERATIONS

           The following table sets forth for each of the years 1997, 1996, and
1995, certain selected statement of operations data expressed as a percentage of
net sales:

<TABLE>
<CAPTION>
                                                                   1997         1996         1995
                                                                  -----        -----        -----
<S>                                                               <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................................        100.0%       100.0%       100.0%
                                                                  =====        =====        =====
Gross profit .............................................         50.7         50.6         49.2
Selling, general, and administrative expense .............         48.0         48.2         54.2
                                                                  -----        -----        -----
Operating income (loss) ..................................          2.7          2.4         (5.0)
Interest income ..........................................          0.1
Interest expense .........................................          0.2          0.5          0.1
                                                                  -----        -----        -----
Income (loss) before income tax expense ..................          2.6          1.9         (5.1)
Income tax (expense) benefit .............................          1.1         (0.1)
                                                                  -----        -----        -----
Net income (loss) ........................................          3.7          1.8         (5.1)
Preferred stock dividends ................................         (0.7)        (0.7)        (0.8)
                                                                  -----        -----        -----
Net income (loss) applicable to common shares ............          3.0%         1.1%        (5.9)%
                                                                  =====        =====        =====
</TABLE>

1997 COMPARED TO 1996

           Net sales increased $5.3 million or 12.0% to $49.2 million in 1997
from $43.9 million in 1996. The net sales increase was primarily attributable to
an increase of 8.6% in comparable store sales. The increase in comparable store
sales was primarily due to increases in eyeglass and contact lens units sold and
sales generated under the Vista Eyecare Network.

           Gross profit increased $2.7 million to $25.0 million in 1997, a 12.3%
increase over gross profit of $22.2 million in 1996. The gross profit margin as
a percentage of net sales increased to 50.7% in 1997 compared to 50.6% in 1996,
primarily due to increased sales resulting from price increases on multiple pair
purchases which were implemented in the third quarter of 1996 and to a lesser
extent increased sales volume which covered more of the fixed cost components of
cost of goods sold, largely offset by the number and timing of new store
openings and increased sales under the Vista Eyecare Network. Consistent with
the Company's practice, the Vista Eyecare Network sales are generally transacted
at a small discount from the Company's everyday value prices.

           Selling, general and administrative expenses increased $2.5 million
to $23.6 million in 1997 from $21.2 million in 1996. As a percentage of sales,
these expenses decreased to 48.0% in 1997, from 48.2% in 1996. This decrease is
primarily due to an increase in the Company's sales, partially offset by the
number and timing of new store openings and increased advertising costs in the
Iowa market.

          Interest income increased to $66,000 in 1997 from zero in 1996 due to
increased cash balances from the proceeds of the Offering.


                                       19
<PAGE>   20
           Interest expense decreased by $94,000 to $122,000 in 1997 from
$216,000 in 1996 primarily as a result of the repayment of the Company's former
revolving line of credit with the proceeds of the Offering and to a lesser
extent, interest on two bridge loans initiated in early 1996 that were paid in
full in June 1996.

           Income tax benefit was $547,000 in 1997 compared to $30,000 of income
tax expense in 1996 due to the reversal of $579,000 of the valuation allowance
relating to the Company's deferred tax assets in the fourth quarter of 1997. The
Company was able to substantially offset its taxable income in both 1997 and
1996 with the utilization of its net operating loss carryforwards. See "-- Net
Operating Loss Carryforwards."

           As a result of the foregoing, net income increased by $1.0 million to
$1.8 million in 1997 compared to $802,000 in 1996.

           Dividends were accrued and paid on the Company's Series A and Series
B 6% cumulative convertible preferred stock in the aggregate amount of $324,000
in 1997 compared to $328,000 in 1996.

1996 COMPARED TO 1995

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

           Gross profit increased $2.5 million to $22.2 million in 1996, a 12.7%
increase over gross profit of $19.7 million in 1995. The gross profit margin as
a percentage of sales increased to 50.6% in 1996 compared to 49.2% in 1995,
primarily due to increased sales volume which covered more of the fixed cost
components of cost of goods sold, and partially offset by increased sales under
the Vista Eyecare Network. Consistent with the Company's practice, the Vista
Eyecare Network sales are generally transacted at a small discount from the
Company's everyday value prices.

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

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




                                       20
<PAGE>   21
           Income tax expense increased to $30,000 in 1996 compared to no income
tax expense in 1995 as a result of increased pre-tax income. The Company was
able to substantially offset its taxable income in 1996 with the utilization of
a portion of its net operating loss carryforwards.

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

           In early 1997, the Company completed the Offering. Net proceeds to
the Company from the Offering were $5.5 million. Of the shares sold in the
Offering, 400,000 shares were sold by selling stockholders. The Company did not
receive any proceeds from the sale of the shares by the selling stockholders.
With the proceeds, the Company accelerated its store expansion program,
remodeled two stores, reduced the amount outstanding on the Company's
then-existing revolving line of credit by approximately $2.0 million and retired
a $350,000 bridge loan from the Second National Bank of Warren (Ohio). The line
of credit matured on May 31, 1997, and was secured by guarantees from Mesirow
Capital Partners V, a common and preferred stockholder, Mesirow Capital Partners
VI and Ronald E. Weinberg, Chairman of the Board. William P. Sutter, Jr. is an
officer of the corporate general partner of Mesirow Capital Partners V and VI
and a director of the Company. Barry J. Feld, President and Chief Executive
Officer, agreed to share in the obligations of the guarantors.

           In exchange for the guarantee of the Company's obligations under its
revolving line of credit by such officers and shareholders, the Company issued
warrants to them to purchase, in the aggregate, 50,000 shares of the Common
Stock at a price per share of $6.11, subject to customary anti-dilution
adjustments. The value of the warrants, which was determined by independent
valuation to be $0.57 per share, was reflected on the December 28, 1996 balance
sheet in other assets and paid-in capital and was amortized to expense in 1997,
concurrent with the termination of the revolving line of credit.

          The bridge loan was guaranteed by Mr. Weinberg, and Mr. Feld agreed to
share in the guaranty. The Company paid Mr. Weinberg and Mr. Feld a total of
$7,500 in exchange for their guaranty of the loan. The Company repaid the loan
in full with the proceeds of the Offering. Norman C. Harbert, a director of the
Company, is also a director of Second Bancorp Inc., the parent holding company
of The Second National Bank of Warren (Ohio).

          On August 19, 1997, the Company entered into an agreement with a major
national bank pursuant to which the Company received a new $3.0 million
revolving line of credit (the "Revolving Credit Facility") and a new $2.0
million term loan (the "Term Credit Facility" and together with the Revolving
Credit Facility, the "Credit Facility"). Under the Term Credit



                                       21
<PAGE>   22
Facility, the Company may request advances until August 1, 1998, at which time
the outstanding principal balance will be amortized over a 48 month period. At
December 27, 1997, the Company had available $4,970,000 under the Credit
Facility.

           Interest will be due and payable monthly and will accrue under the
Revolving Credit Facility on the principal balance outstanding from time to time
at a variable rate equal to the lending bank's prime rate (the "Prime Rate")
plus 0.125% per annum or, at the Company's option, a rate equal to the then
current London Interbank Offered Rate ("LIBOR") for the term selected by the
Company plus 2.35% per annum. The Revolving Credit Facility matures on August 1,
1999.

           Under the Term Credit Facility, interest will accrue on the principal
balance outstanding at a variable rate equal to the Prime Rate plus 0.5% per
annum or, at the Company's option, a rate equal to LIBOR for the term selected
by the Company plus 2.75% per annum. Interest only on the Term Credit Facility
will be payable until August 1, 1998, after which time the Company will be
required to make equal monthly payments consisting of principal and interest
amortized over a period of 48 months. The interest rate under the Term Credit
Facility will continue to fluctuate, but the monthly payments after August 1,
1998 will remain the same. As a result, the Term Credit Facility may negatively
amortize. Any accrued but unpaid interest will be due along with the principal
balance on the maturity date of the Term Credit Facility, August 1, 2002.

           The Revolving Credit Facility is secured by the Company's accounts
receivable, inventory and general intangibles. The Term Credit Facility is
secured by substantially all of the Company's furniture, fixtures and equipment.
The Credit Facility contains financial and other covenants with respect to the
Company that, among other matters, restrict the creation of certain liens,
restrict capital expenditures and require the maintenance of certain minimum net
worth and interest rate coverage. The Company is currently in compliance with
the covenants set forth in the Credit Facility.

           Short-term trade credit represents a significant source of financing
for inventory. Trade credit arises from the willingness of the Company's vendors
to grant payment terms for inventory purchases. Although the Company has
negotiated what it believes to be favorable payment terms from its primary
vendors, there is no assurance that the Company will obtain such terms in the
future.

           The Company leases all of its retail space and its optical laboratory
and distribution facility near Portland, Oregon. Certain retail store leases
require payment of base rent and property taxes, expenses for utilities, common
area maintenance, and insurance, plus, in many circumstances, additional rent
based on sales. Total rent expenses for the Company's retail space and its
facility near Portland, Oregon were $6.0 million, $5.5 million, and $5.0 million
for 1997, 1996, and 1995, respectively, including $1.2 million, $1.0 million,
and $889,000, respectively, for additional rent based on sales. The Company owns
its executive offices and optical laboratory and distribution facility in Tempe,
Arizona.

           Net cash from operating activities was $614,000 in 1997 compared to
net cash used in operating activities of $280,000 in 1996. This fluctuation is
primarily attributable to an increase in net income of $1.0 million to $1.8
million in 1997 from net income of $802,000 in 1996, a decrease in accounts
payable of $1.4 million in 1997 compared to a decrease of $363,000 in 1996, an
increase in accrued expenses of $80,000 in 1997 compared to a decrease of $1.2
million in 1996, and an income tax benefit of $579,000 in 1997.



                                       22
<PAGE>   23
           Cash flows used in investing activities, primarily for store
expansion, renovation and relocation, were $2.9 million in 1997 compared to $1.5
million in 1996. The increase is primarily attributable to opening 17 new stores
in 1997 compared to ten new stores in 1996.

           Cash flows from financing activities were $2.6 million in 1997
compared to $1.8 million in 1996. Cash flows from financing activities in 1997
reflect net proceeds from the Offering of $5.5 million, partially offset by
repayment of the Company's previous revolving line of credit of $2.0 million,
repayment of other debt of $708,000 and payment of preferred stock dividends of
$324,000. Cash flows from financing activities in 1996 reflect proceeds from the
previous revolving line of credit of $2.0 million and proceeds from bridge loans
totaling $1.1 million, partially offset by debt repayment of $936,000 and
payment of preferred stock dividends of $328,000.

           The Company currently anticipates opening approximately 20 to 25 new
stores in 1998. Assuming the Company opens 25 new stores in 1998, including 24
new stores in malls and strip shopping centers and one new store within a Fred
Meyer host store, the Company expects that the costs of these new stores,
including furniture, fixtures, leasehold improvements, inventory and optometry
equipment, will be approximately $3.5 million. Actual costs will vary based
upon, among other factors geographic location, the size of the store and the
extent of the build-out required at the selected site. In addition to opening
new stores, the Company may relocate stores within a mall or strip shopping
center if sites become available with better traffic patterns and better
merchandising opportunities. In 1998, the Company plans to remodel four of its
mall and strip shopping center stores at an estimated cost of approximately
$600,000.

           The Company believes that the cash flow from operations, funds
available from the Credit Facility and existing capital lease financing will be
sufficient to fund its working capital needs and store expansion and renovation
program for at least the next 12 months. However, the Company may seek
additional equity or debt financing if it determines that such financing is
necessary. There is no assurance that the Company would be able to obtain such
financing on terms that are acceptable to the Company.

NET OPERATING LOSS CARRYFORWARDS

           The Company experienced operating losses prior to 1996 and as a
result, established a 100% valuation allowance against its deferred tax assets,
including its net operating loss (NOL) carryforwards, as of December 30, 1995.

           The Company generated taxable income in 1996 which it was able to
substantially offset with NOL carryforwards. As the related deferred tax assets
had been fully reserved, the Company's effective income tax rate in 1996 was
unusually low as expected income tax expense was substantially offset by the
reversal of a portion of the valuation allowance. Due to the lack of sustained
profitability, the Company maintained the 100% valuation allowance against its
remaining deferred tax assets as of December 28, 1996.

           The Company also generated taxable income in 1997 which it was able
to substantially offset with NOL carryforwards. Utilization of the related
deferred tax assets which had been fully reserved served to reduce the Company's
effective income tax rate. The Company's effective income tax rate was also
impacted by the reversal in the fourth quarter of $579,000 of the valuation
allowance relating to the Company's remaining deferred tax assets


                                       23
<PAGE>   24
as of December 27, 1997 as the Company anticipates that the related tax benefits
will be realized.

           The Company will consider further reductions to or elimination of the
remaining valuation allowance as profitable operations continue. As the
valuation allowance is reduced or eliminated, it is anticipated that the
Company's effective income tax rate will return to more normalized levels.

           As of December 27, 1997, the Company had net operating loss
carryforwards of $5.7 million and $4.9 million for regular tax and alternative
minimum tax purposes, respectively, which begin to expire in 2006.

SEASONALITY AND QUARTERLY RESULTS

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

           The Company's results of operations may also fluctuate from quarter
to quarter as a result of the amount and timing of sales contributed by new
stores and the integration of new stores into the operations of the Company, as
well as other factors. The addition of a large number of new stores can
therefore significantly affect quarterly results of operations.

           The following table presents certain unaudited financial data for
each quarter of 1997 and 1996. The quarterly results set forth below are not
necessarily indicative of results for any future period. The Company believes
that all necessary and normal recurring adjustments have been included in the
amounts stated below in order to present fairly and in accordance with generally
accepted accounting principles the following selected quarterly information when
read in conjunction with the Company's Consolidated Financial Statements
included
herein.


                                       24
<PAGE>   25
<TABLE>
<CAPTION>
                                                                     1997

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

                                              First        Second        Third        Fourth
                                             Quarter       Quarter      Quarter       Quarter
                                            ========      ========      ========      ========
                                             (In thousands, except per share and store data)
<S>                                         <C>           <C>           <C>           <C>
Net sales ............................      $ 12,791      $ 12,470      $ 12,594      $ 11,357
Gross profit .........................         6,669         6,347         6,306         5,637
Operating income (loss) ..............           693           305           422          (102)
Net income ...........................           633           295           427           454(1)
Net income applicable to common shares      $    552      $    214      $    346      $    373
                                            ========      ========      ========      ========

Basic and diluted income per share (2)      $   0.13      $   0.04      $   0.07      $   0.08
                                            ========      ========      ========      ========

Stores open at period end ............           149           152           155           161
</TABLE>


<TABLE>
<CAPTION>
                                                                     1996

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

                                              First        Second        Third        Fourth
                                             Quarter       Quarter      Quarter       Quarter
                                            ========      ========      ========      ========
                                             (In thousands, except per share and store data)
<S>                                         <C>           <C>           <C>           <C>
Net sales ............................      $11,504       $10,865       $11,674       $ 9,897
Gross profit .........................        5,704         5,436         6,056         5,025
Operating income (loss) ..............          583           220           416          (171)
Net income (loss) ....................          443           152           307          (100)
Net income (loss) applicable
to common shares .....................      $   362       $    71       $   224       $  (183)
                                            =======       =======       =======       =======
Basic and diluted income
(loss) per share (2) .................      $  0.10       $  0.02       $  0.06       $ (0.05)
                                            =======       =======       =======       =======

Stores open at period end ............          141           145           146           146
</TABLE>

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

Footnotes

(1)      Amount includes income tax benefit of $579,000 from reversal of a
         portion of the valuation allowance applicable to the Company's deferred
         tax assets. See "Income Taxes" in Note 7 of Notes to Consolidated
         Financial Statements.

(2)      During the fourth quarter of 1997, the Company adopted SFAS128,
         Earnings per Share. See "Earnings per Share" in Note 1 of Notes to
         Consolidated Financial Statements.




                                       25
<PAGE>   26
           INFLATION

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

           FORWARD-LOOKING STATEMENTS

                     Statements that are not historical facts, including
           statements about the Company's confidence in its prospects and
           strategies and its expectations about expansion into new markets,
           including Florida, growth in existing markets, comparable store sales
           and the Company's ability to attract new sources of financing, are
           forward-looking statements that involve risks and uncertainties.
           These risks and uncertainties include, but are not limited to, (1)
           the effect of the price point increase which occurred in January
           1998; (2) market acceptance risks, including whether or not the
           Company will be able to successfully implement its value-pricing
           concept in new geographic markets, most of which include competitors
           of the Company that have financial and other resources substantially
           greater than that of the Company, and whether or not the Company will
           be able to conduct a successful advertising campaign in new and
           existing markets against better-financed competitors; (3) a slowdown
           in the growth of managed care in the eyewear industry or in the
           Company's share of such business, including whether or not federal or
           state health-care legislation will have an adverse impact on managed
           care; (4) laboratory capacity and supply constraints, including
           whether or not as the Company expands into new geographic markets
           whether it will be able to successfully integrate its new markets
           into its existing eyewear laboratory manufacturing and distribution
           system; (5) the negative impact of an accelerated store expansion
           program on the Company's profitability and operating margins; (6) the
           Company's ability to attract and retain qualified optometrists; (7)
           leasing risks, including whether or not the Company will be able to
           lease prime mall and strip shopping center locations at attractive
           rates for its expansion into new markets and to fill out its store
           locations in the Company's existing markets; and (8) the impact of
           government regulations on the opticians employed by the Company and
           on the Company's advertising, locations and design of stores, and
           products sold, which regulations are subject to frequent change and
           vary widely throughout the states in which the Company operates.
           These risks and others that are detailed in this Annual Report on
           Form 10-K must be considered by any investor or potential investor in
           the Company.

           ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

                     Not applicable.

           ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

                     None.

                                       26
<PAGE>   27
           PART III

           ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

                     For information with respect to the executive officers of
           the Registrant, see "Business--Executive Officers" in Part I of this
           Form 10-K. The Company will file with the Securities and Exchange
           Commission a definitive Proxy Statement relating to its 1998 Annual
           Meeting of Stockholders no later than 120 days after the close of its
           fiscal year ended December 27, 1997 (the "Proxy Statement"). The
           information with respect to the Directors of the Registrant required
           by this Item is hereby incorporated by reference to the Proxy
           Statement.

           ITEM 11.  EXECUTIVE COMPENSATION

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

           ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                     MANAGEMENT

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

           ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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


                                       27
<PAGE>   28
PART IV

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

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

<TABLE>
<CAPTION>
1. FINANCIAL STATEMENTS                                                               PAGE
                                                                                      ----
<S>                                                                                   <C>
     Report of Independent Accountants...............................................  34

     Consolidated Balance Sheet at December 27, 1997 and December 28, 1996...........  35

     Consolidated Statement of Operations for each of the three years in the
     period ended December 27, 1997..................................................  36

     Consolidated Statement of Stockholders' Equity for each of the three
     years in the period ended December 27, 1997.....................................  37

     Consolidated Statement of Cash Flows for each of the three years in the
     period ended  December 27, 1997.................................................  38

     Notes to Consolidated Financial Statements......................................  39

2. FINANCIAL STATEMENT SCHEDULES

    Schedule II -- Valuation and Qualifying Accounts.................................  50
</TABLE>

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



                                       28
<PAGE>   29
           3.  EXHIBITS

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

        Exhibit                                  Description

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

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

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

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

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

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

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

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

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



                                       29
<PAGE>   30
         4.8      Warrant to Purchase Common Stock of the Registrant issued on
                  June 10, 1996 (Incorporated by reference to the Form 8-K filed
                  by the Company on June 17, 1996)

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

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

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

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

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

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

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

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

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


                                       30
<PAGE>   31
         10.6     Form Optometrists' Sublease (Incorporated by reference to the
                  Company's S-1 Registration Statement as filed with the
                  Securities and Exchange Commission (File No. 33-71330))

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

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

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

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

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

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

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

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

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

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

                                       31
<PAGE>   32
         10.17    Letter to Ronald E. Weinberg from the Registrant, dated
                  January 17, 1997 (Incorporated by reference to the Company's
                  S-2 Registration Statement as filed with the Securities and
                  Exchange Commission (File No. 333-18709))

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

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

         10.20    Loan Agreement between KeyBank National Association and the
                  Registrant, dated August 1, 1997

         10.21    Security Agreement executed by the Registrant for the benefit
                  of KeyBank National Association, for $3.0 million, dated
                  August 1, 1997

         10.22    Security Agreement executed by the Registrant for the benefit
                  of KeyBank National Association, for $2.0 million, dated
                  August 1, 1997

         10.23    Cross-Default and Cross-Collateralization Agreement between
                  KeyBank National Association and the Registrant, Dated August
                  1, 1997

         10.24    Revolving Note between KeyBank National Association and the
                  Registrant, dated August 1, 1997 (Incorporated by reference to
                  the Form 8-K filed by the Company on September 4, 1997)

         10.25    Term Note between KeyBank National Association and the
                  Registrant, dated August 1, 1997 (Incorporated by reference to
                  the Form 8-K filed by the Company on September 4, 1997)

         21.1     Subsidiaries of the Registrant

         23.1     Consent of Price Waterhouse LLP

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


                                       32
<PAGE>   33
SIGNATURES

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

NEW WEST EYEWORKS, INC.

By: /s/ Ronald E. Weinberg                             Dated:  March 26, 1998
    -------------------------------------------------------------
      Ronald E. Weinberg, Chairman of the Board

POWER OF ATTORNEY

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

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


<TABLE>
<S>                                                                        <C>
/s/ Ronald E. Weinberg                                                     Dated:  March 26, 1998
    -----------------------------------------------------------------
    Ronald E. Weinberg, Chairman of the Board, Treasurer and Director


/s/ Barry Feld                                                             Dated:  March 26, 1998
    -----------------------------------------------------------------
    Barry Feld, Chief Executive Officer, President and Director
    (principal executive officer)


/s/ Darius J. DiTallo                                                      Dated: March 26, 1998
    -----------------------------------------------------------------
    Darius J. DiTallo, Vice President - Finance & Administration
    (principal financial and accounting officer)


/s/ Byron S. Krantz                                                        Dated:  March 26, 1998
    -----------------------------------------------------------------
    Byron S. Krantz, Secretary and Director


/s/ Donald M. Gleklen                                                      Dated:  March 26, 1998
    -----------------------------------------------------------------
    Donald M. Gleklen, Director


/s/ Larry I. Pollock                                                       Dated:  March 26, 1998
    -----------------------------------------------------------------
    Larry I. Pollock, Director


/s/ William P. Sutter, Jr.                                                 Dated:  March 26, 1998
    -----------------------------------------------------------------
    William P. Sutter, Jr., Director


/s/ Norman C. Harbert                                                      Dated:   March 26, 1998
    -----------------------------------------------------------------
    Norman C. Harbert, Director
</TABLE>


                                       33
<PAGE>   34
                        Report of Independent Accountants


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

In our opinion, the consolidated financial statements and schedule listed in the
index appearing under Item 14(a) 1 and 2 present fairly, in all material
respects, the financial position of New West Eyeworks, Inc. and its subsidiaries
at December 27, 1997 and December 28, 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
27, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.




PRICE WATERHOUSE LLP
Phoenix, Arizona
March 6, 1998



                                       34
<PAGE>   35
                            NEW WEST EYEWORKS, INC.

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                  December 27,      December 28,
                                                                      1997              1996

                                                                  ------------       ------------
                                     ASSETS
<S>                                                                <C>                <C>
Current Assets:
 Cash and cash equivalents                                         $    577,000       $    256,000
 Accounts receivable, net                                             1,741,000          1,304,000
 Inventory                                                            3,519,000          3,190,000
 Deferred tax assets                                                    579,000
 Other current assets                                                   400,000            309,000
                                                                   ------------       ------------

        Total current assets                                          6,816,000          5,059,000

Property and equipment, net                                           9,108,000          7,518,000
Goodwill, net                                                           416,000            506,000
Other assets                                                             12,000             44,000
                                                                   ------------       ------------
        Total assets                                               $ 16,352,000       $ 13,127,000
                                                                   ============       ============


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
 Accounts payable                                                  $  4,022,000       $  5,392,000
 Accrued expenses                                                     1,948,000          1,868,000
 Line of credit                                                          30,000          1,968,000
 Deferred warranty revenues                                             271,000            279,000
 Notes payable and capital lease obligations, current portion           338,000            320,000

 Notes payable to related party                                                            358,000
                                                                   ------------       ------------

        Total current liabilities                                     6,609,000         10,185,000
Notes payable and capital lease obligations                             291,000            516,000
                                                                   ------------       ------------
        Total liabilities                                             6,900,000         10,701,000
                                                                   ------------       ------------


Stockholders' Equity:
Series A 6% Cumulative Convertible Preferred Stock, $1,000
 par value, 3,960 shares authorized, issued and outstanding           3,960,000          3,960,000
Series B 6% Cumulative Convertible Preferred Stock, $1,000
 par value, 1,500 shares authorized, issued and outstanding           1,500,000          1,500,000
Common stock, $0.01 par value, 25,000,000 shares authorized,
 4,868,436 and 3,763,036 shares issued and outstanding at
 December 27, 1997 and December 28, 1996, respectively                   49,000             38,000
Paid-in capital                                                      15,630,000         10,100,000
Accumulated deficit                                                 (11,687,000)       (13,172,000)
                                                                   ------------       ------------
      Total stockholders' equity                                      9,452,000          2,426,000
                                                                   ------------       ------------
      Total liabilities and stockholders' equity                   $ 16,352,000       $ 13,127,000
                                                                   ============       ============
</TABLE>

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

                                       35
<PAGE>   36
                             NEW WEST EYEWORKS, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS


<TABLE>
<CAPTION>
                                                                    Fiscal Year Ended
                                                   --------------------------------------------------


                                                   December 27,      December 28,        December 30,
                                                       1997               1996               1995
                                                   --------------------------------------------------
<S>                                                <C>                <C>                <C>
Net sales ...................................      $ 49,212,000       $ 43,940,000       $ 40,033,000
Cost of sales ...............................        24,253,000         21,719,000         20,352,000
                                                   ------------       ------------       ------------
   Gross profit .............................        24,959,000         22,221,000         19,681,000

Selling, general and administrative expenses         23,641,000         21,173,000         21,667,000
                                                   ------------       ------------       ------------


Operating income (loss) .....................         1,318,000          1,048,000         (1,986,000)

Interest income .............................            66,000                                12,000
Interest expense ............................           122,000            216,000             51,000
                                                   ------------       ------------       ------------


Income (loss) before income tax expense .....         1,262,000            832,000         (2,025,000)

Income tax benefit (expense) ................           547,000            (30,000)
                                                   ------------       ------------       ------------

Net income (loss) ...........................         1,809,000            802,000         (2,025,000)

Preferred stock dividends ...................          (324,000)          (328,000)          (329,000)
                                                   ------------       ------------       ------------

Net income (loss) applicable to common shares      $  1,485,000       $    474,000       $ (2,354,000)
                                                   ============       ============       ============
Basic and diluted income (loss) per share ...      $       0.31       $       0.13       $      (0.63)
                                                   ============       ============       ============

Weighted average shares outstanding - Basic .         4,717,000          3,763,000          3,763,000
Weighted average shares outstanding - Diluted         4,785,000          3,786,000          3,763,000
</TABLE>

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

                                       36
<PAGE>   37
                            NEW WEST EYEWORKS, INC.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                      Shares                                             Amounts
                               --------------------     -------------------------------------------------------------------------
                                                                                       Paid-in       Accumulated
                               Preferred    Common       Preferred      Common         Capital         Deficit            Total
                                 -----     ---------      ---------     ------        ----------      -----------       ---------
<S>                            <C>        <C>            <C>           <C>          <C>              <C>              <C>
BALANCES AT DECEMBER 31, 1994    5,460     3,763,036     $5,460,000    $38,000      $ 10,070,000     $(11,292,000)    $ 4,276,000

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

Net loss                                                                                               (2,025,000)     (2,025,000)
                                 -----     ---------     ----------    -------      ------------     ------------     -----------
BALANCES AT DECEMBER 30, 1995    5,460     3,763,036      5,460,000     38,000        10,070,000      (13,646,000)      1,922,000

Issuance of warrants                                                                      30,000                           30,000

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

Net income                                                                                                802,000         802,000
                                 -----     ---------     ----------    -------      ------------     ------------     -----------
BALANCES AT DECEMBER 28, 1996    5,460     3,763,036      5,460,000     38,000        10,100,000      (13,172,000)      2,426,000


Common stock issued                         1,105,400                   11,000         5,530,000                        5,541,000

Preferred stock dividends                                                                                (324,000)       (324,000)

Net income                                                                                              1,809,000       1,809,000
                                 -----     ---------     ----------    -------      ------------     ------------     -----------
BALANCES AT DECEMBER 27, 1997    5,460      4,868,436    $5,460,000    $49,000      $ 15,630,000     $(11,687,000)    $ 9,452,000
                                 =====      =========     =========     ======      ============     =============      =========
</TABLE>


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


                                       37
<PAGE>   38
                             NEW WEST EYEWORKS, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                             Fiscal Year Ended
                                                          --------------------------------------------------

                                                          December 27,       December 28,       December 30,
                                                              1997               1996               1995
                                                          ------------       ------------       ------------
<S>                                                       <C>                <C>                <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss)                                         $  1,809,000       $    802,000       $ (2,025,000)
   Adjustments to reconcile net income (loss) to
   net cash from (used in) operating activities:
      Depreciation and amortization                          1,505,000          1,229,000          1,048,000
      Loss on disposal of fixed assets                           2,000                                65,000
      Income tax benefit                                      (579,000)
   Changes in assets and liabilities:
      Accounts receivable                                     (437,000)          (305,000)          (124,000)
      Inventory                                               (329,000)           (58,000)          (281,000)
      Other current assets                                     (91,000)          (231,000)            52,000
      Accounts payable                                      (1,370,000)          (363,000)         1,696,000
      Accrued expenses                                          80,000         (1,228,000)           603,000
      Deferred warranty revenues                                (8,000)           (69,000)          (240,000)
      Other assets and liabilities                              32,000            (57,000)           (72,000)
                                                          ------------       ------------       ------------

   Net cash from (used in) operating activities                614,000           (280,000)           722,000
                                                          ------------       ------------       ------------

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
   Purchase of property and equipment                       (2,864,000)        (1,459,000)        (1,532,000)
                                                          ------------       ------------       ------------

    Net cash (used in) investing activities                 (2,864,000)        (1,459,000)        (1,532,000)
                                                          ------------       ------------       ------------

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
      Proceeds from the revolving line of credit             8,136,000         24,050,000
      Payment on the revolving line of credit              (10,074,000)       (22,082,000)
      Proceeds from the bridge loans                                            1,050,000
      Payment of bridge loans                                 (358,000)          (700,000)
      Proceeds from capital leases                                                                   505,000
      Payment of capital leases                               (350,000)          (236,000)          (208,000)
      Payment of preferred stock dividends                    (324,000)          (328,000)          (246,000)
      Net proceeds from common stock offering                5,541,000
                                                          ------------       ------------       ------------

   Net cash from financing activities                        2,571,000          1,754,000             51,000
                                                          ------------       ------------       ------------

NET INCREASE (DECREASE) IN CASH and CASH EQUIVALENTS           321,000             15,000           (759,000)

CASH and CASH EQUIVALENTS, beginning of year                   256,000            241,000          1,000,000
                                                          ------------       ------------       ------------

CASH and CASH EQUIVALENTS, end of year                    $    577,000       $    256,000       $    241,000
                                                          ============       ============       ============

SUPPLEMENTAL CASH FLOW INFORMATION:
   Interest paid ...................................      $    122,000       $    208,000       $     51,000
   Income taxes paid ...............................      $     25,000       $     30,000
   Assets acquired under capital lease .............      $    141,000       $    524,000
</TABLE>

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


                                       38
<PAGE>   39
                             NEW WEST EYEWORKS, INC.

NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES:

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

USE OF ESTIMATES

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

PRINCIPLES OF CONSOLIDATION

The accompanying financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

FISCAL YEAR

The Company's fiscal year ends on the last Saturday of the calendar year.
References to the year 1997, 1996, and 1995 relate to the fiscal years ended
December 27, 1997, December 28, 1996, and December 30, 1995, each of which
consisted of 52 weeks.

REVENUE RECOGNITION

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

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

STORE OPENING COSTS

The Company expenses store opening costs as incurred.

ADVERTISING COSTS

The Company expenses advertising production costs in the period in which the
related advertisement first takes place. Advertising communication costs such as
television air time and newspaper advertising space are expensed as the related
services are received. All other costs are expensed as incurred. Advertising
expenses totaled $4,228,000, $3,576,000, and $4,136,000, for the years 1997,
1996, and 1995, respectively.



                                       39
<PAGE>   40
                            NEW WEST EYEWORKS, INC.

NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

CASH AND CASH EQUIVALENTS

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

ACCOUNTS RECEIVABLE

Accounts receivable are primarily comprised of amounts due from insurance and
managed care plans on sales where the Company has contractual arrangements or
has accepted an assignment of insurance benefits from the customer. The reported
balance is net of an allowance for doubtful accounts of $159,000 and $139,000 at
December 27, 1997, and December 28, 1996, respectively.

INVENTORY AND COST OF SALES

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

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

PROPERTY AND EQUIPMENT

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

GOODWILL

Goodwill represents the cost in excess of the net assets of a business acquired
and is being amortized for financial statement purposes on a straight-line basis
over a period of fifteen years. The reported balance is net of accumulated
amortization of $849,000 and $759,000 at December 27, 1997, and December 28,
1996 respectively. The Company evaluates the possibility of goodwill impairment
when events or changes in economic circumstances indicate that the related
carrying amount may not be recoverable.

ACCOUNTS PAYABLE

Accounts payable includes $641,000 at December 27, 1997 and $644,000 at December
28, 1996 relating to the reclassification of book overdrafts.

STOCK COMPENSATION

The Company measures compensation expense related to employee stock options
using the intrinsic value-based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related interpretations.

                                       40
<PAGE>   41
                            NEW WEST EYEWORKS, INC.

NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

INCOME TAXES

The Company accounts for income taxes using the liability method, recognizing
temporary differences between the financial reporting basis of the Company's
assets and liabilities and the related income tax basis for such assets and
liabilities. This method generates a net deferred income tax liability or a net
deferred income tax asset for the Company as of the end of the year, as measured
by the statutory tax rates in effect as enacted. The Company derives its
deferred income tax charge or benefit by recording the change in the net
deferred income tax liability or net deferred income tax asset balance for the
year.

The Company's deferred income tax assets include certain future tax benefits.
The Company records a valuation allowance against the portion of these deferred
income tax assets which it believes it will more likely than not fail to
realize.

EARNINGS PER SHARE

In 1997, the Company adopted Statement of Financial Accounting Standards No.
128, Earnings per Share (SFAS No. 128). Basic earnings per share is computed by
dividing income applicable to common shares by the weighted average number of
common shares outstanding for the year. Diluted earnings per share is similar to
basic earnings per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if potential
dilutive common shares had been issued. Adoption of SFAS No. 128 did not effect
the Company's previously reported income (loss) per share computations for years
subsequent to its initial public offering. The following table presents a
reconciliation of the basic and diluted earnings per share calculations:

<TABLE>
<CAPTION>
                                           1997            1996               1995
                                       -----------      -----------       -----------
<S>                                    <C>              <C>               <C>
Basic earnings per share:
Numerator:
  Net income (loss) applicable
  to common shares                     $ 1,485,000      $   474,000       $(2,354,000)
                                       -----------      -----------       -----------
Denominator:
  Weighted average common shares
  outstanding                            4,717,000        3,763,000         3,763,000
                                       -----------      -----------       -----------

Basic earnings (loss) per share        $      0.31      $      0.13       $     (0.63)
                                       ===========      ===========       ===========
Diluted earnings per share:
  Numerator:
   Net income (loss) applicable
    to common shares                   $ 1,485,000      $   474,000       $(2,354,000)
                                       -----------      -----------       -----------
Denominator:
   Weighted average common shares
    outstanding                          4,717,000        3,763,000         3,763,000
   Weighted average employee stock
    options                                 68,000           23,000              --
                                       -----------      -----------       -----------

                                         4,785,000        3,786,000         3,763,000
                                       -----------      -----------       -----------
Diluted earnings per share             $      0.31      $      0.13       $     (0.63)
                                       ===========      ===========       ===========
</TABLE>


                                       41
<PAGE>   42
                            NEW WEST EYEWORKS, INC.

NOTE 2 - PROPERTY, EQUIPMENT AND LEASES:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                       December 27,        December 28,
                                           1997                1996
                                       ------------       ------------
<S>                                    <C>                <C>
Store fixtures and equipment           $ 13,796,000       $ 11,549,000
Laboratory fixtures and equipment         2,286,000          2,100,000
Other fixtures and equipment              2,717,000          2,558,000
Building and improvements                   686,000            641,000
Construction in progress                    188,000
                                       ------------       ------------
                                         19,673,000         16,848,000
Less:  accumulated depreciation         (10,565,000)        (9,330,000)
                                       ------------       ------------

                                       $  9,108,000       $  7,518,000
                                       ============       ============
</TABLE>

The Company leases substantially all of its store facilities under operating
leases which expire at various dates through 2002. Certain leases require
payment of property taxes, utilities, common area maintenance and insurance as
well as additional rent if sales exceed specified amounts. Total rent expense
incurred during 1997, 1996, and 1995 approximated $6,069,000, $5,493,000, and
$5,000,000, respectively, including additional rent expense of $1,192,000,
$1,045,000, and $889,000, respectively. At December 27, 1997, future minimum
annual rental commitments under noncancelable operating leases were as follows:

<TABLE>
<S>          <C>                          <C>
             1998                         $   3,820,000
             1999                             3,184,000
             2000                             2,455,000
             2001                             2,016,000
             2002                             1,554,000
             Thereafter                       3,109,000
                                          -------------
                                          $  16,138,000
                                          =============
</TABLE>


NOTE 3 - LINE OF CREDIT:

The Company entered into a new $3.0 million revolving line of credit agreement
and a $2.0 million term loan agreement with a major national bank in August
1997. The revolving line of credit matures on August 1, 1999, and is secured by
the Company's inventory, accounts receivable, and general intangibles. The
revolving line of credit bears interest at a rate of prime plus one-eighth
percent (8.625% at December 27, 1997) or, at the Company's option, a rate equal
to the then current London Interbank Offered Rate ("LIBOR") for the term
selected by the Company plus 2.35% on any principal outstanding; interest is
payable on a monthly basis. The Company may request advances on the term loan
until August 1, 1998, at which time the balance will be amortized over a 48
month period. The term loan is secured by the Company's property and equipment,
and bears interest at a rate of prime plus one-half percent or, at the Company's
option, a rate equal to LIBOR for the term selected by the Company plus 2.75% on
any principal outstanding. At December 27, 1997, $30,000 was outstanding on the
revolving line of credit while no amounts were outstanding under the term loan.



                                       42
<PAGE>   43
                            NEW WEST EYEWORKS, INC.

NOTE 3 - LINE OF CREDIT: (CONTINUED)

The Company entered into a $2.0 million revolving line of credit with a bank in
June 1996. The revolving line of credit matured on May 31, 1997, and was secured
by substantially all of the Company's assets, including the Company's executive
office building and optical laboratory in Tempe, Arizona, but excluding
furniture, fixtures, and equipment. The Company repaid the line of credit
borrowings with a portion of the proceeds from its February 1997 common stock
offering described in Note 5.

NOTE 4 - NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS:

Notes payable, and capital lease obligations consist of the following:

<TABLE>
<CAPTION>
                                   December 27,    December 28,
                                      1997            1996
                                   ----------      ----------
<S>                                <C>             <C>
Capital lease obligations          $  629,000      $  836,000

Notes payable - related party                         358,000
                                   ----------      ----------

Total debt                            629,000       1,194,000

Less:  current portion                338,000         678,000
                                   ----------      ----------

Total long-term debt               $  291,000      $  516,000
                                   ==========      ==========
</TABLE>

In early 1996, the Company entered into two bridge loans with Mesirow Capital
Partners VI, a common and preferred stockholder, and Ronald E. Weinberg,
Chairman of the Board, totaling $700,000 to fund the Company's expansion and
advertising needs. The loans bore interest at an annual rate of 15% and were
secured by a deed of trust on the Company's executive office building and
optical laboratory facility in Tempe, Arizona. The bridge loans were retired
with the proceeds of the former revolving line of credit described in Note 3.

In December 1996, the Company entered into a bridge loan for $350,000 with The
Second National Bank of Warren (Ohio). The loan was scheduled to mature on June
2, 1997 and bore interest at a rate equal to the lending bank's prime rate plus
1.5% per annum, payable upon maturity. The loan was guaranteed by Mr. Weinberg
and Mr. Feld agreed to share in the guaranty. The Company paid Mr. Weinberg and
Mr. Feld a total of $7,500 in exchange for their guaranty of the loan. Norman C.
Harbert, a director of the Company, is also a director of Second Bancorp Inc.,
the parent holding company of the Second National Bank of Warren (Ohio). The
Bridge Loan was retired with a portion of the proceeds from the February 1997
common stock offering described in Note 5.



                                       43
<PAGE>   44
                            NEW WEST EYEWORKS, INC.

NOTE 5 - STOCKHOLDERS' EQUITY:

In February 1997, the Company completed a public offering (the "Offering") of
1,505,400 shares of its common stock, including shares sold upon the exercise of
the underwriters' over allotment option. Gross proceeds, direct costs, and net
proceeds of this Offering totaled approximately $6,626,000, $1,085,000, and
$5,541,000, respectively. Of the shares sold, 400,000 shares were sold by
selling stockholders. The Company did not receive any proceeds from the sale of
shares by the selling stockholders.

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

NOTE 6 - COMMON STOCK OPTIONS AND WARRANTS:

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


                                       44
<PAGE>   45
                            NEW WEST EYEWORKS, INC.

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

A summary of the status of the Company's Stock Option Plan as of December 27,
1997, December 28, 1996, and December 30, 1995 and changes during the years
ended is presented below:

<TABLE>
<CAPTION>
                                              1997                       1996                      1995
                                     ------------------------  -----------------------   ----------------------

                                                    Weighted                  Weighted                 Weighted
                                                     Average                   Average                 Average
                                                    Exercise                  Exercise                 Exercise
                                       Shares        Price       Shares        Price       Shares       Price
                                     ------------------------  -----------------------   ----------------------
<S>                                  <C>            <C>        <C>            <C>        <C>           <C>
Options outstanding at
beginning of year                      143,500       $5.56       131,500       $5.89       108,500       $7.00
 Granted                               159,000       $6.75        53,000       $4.25        99,500       $4.10
 Exercised
 Forfeited                              (7,000)      $4.75       (41,000)      $5.00       (76,500)      $4.99
                                      ----------------------  --------------------------  ----------------------
Options outstanding at
 end of year                           295,500       $6.29       143,500       $5.56       131,500       $5.89
                                      ======================  ==========================  ======================


Options exercisable at end of
 year
                                       163,600       $6.31        77,000       $6.90        86,500       $7.00


Weighted-average fair value of
 options granted during the year                     $3.61                     $2.12                     $2.17
</TABLE>



The following table summarizes information about the stock options granted
during 1997, 1996, and 1995 which are outstanding at December 27, 1997:

<TABLE>
<CAPTION>

                                   Weighted          Weighted                  Weighted
    Range of                       Average           Average                    Average
    Exercise        Options        Remaining         Exercise        Options    Exercise
     Prices       Outstanding    Contract Life       Price        Exercisable    Price
---------------   -----------    ---------------    ---------    -----------  ----------
<S>               <C>            <C>                <C>          <C>          <C>
   $3.44-$4.63        64,500      7.2-8.2 years     $  4.14          6,600     $  4.63
   $5.50-$7.00       189,000      6.0-9.1 years     $  6.31        157,000     $  6.38
   $      9.50        42,000          9.8 years     $  9.50            --          --
                  -----------                                     -----------
                     295,500                                       163,600
</TABLE>

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

<TABLE>
<CAPTION>
                                         1997              1996         1995
                                         -----------------------------------
<S>                                      <C>             <C>            <C>
    Expected dividend yield              0%              0%             0%
    Expected stock price volatility      50%             50%            50%
    Risk free interest rate              4.6%            5.3%           7.1%
    Expected option life                 5 years         5 years        5 years
</TABLE>


                                       45
<PAGE>   46
                            NEW WEST EYEWORKS, INC.

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

In accordance with the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company applies APB 25 and related interpretations in
accounting for its stock option plan and, accordingly, does not recognize
compensation expense. If the Company had elected to recognize compensation
expense based on the fair value of the options granted at grant date as
prescribed by SFAS No. 123, net income and earnings per share (basic and
diluted) for 1997 would have been reduced by approximately $170,000 and $0.04,
respectively. Similar pro forma disclosures for 1996 and 1995 have not been
presented as the effect of such pro forma adjustments is not material.

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

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

In exchange for the guarantee of the Company's obligations under its former line
of credit by certain officers and shareholders, the Company issued warrants to
them to purchase, in the aggregate, 50,000 shares of the Company's common stock
at a price per share of $6.11, subject to customary anti-dilution adjustments.
The value of the warrants, which was determined by independent valuation to be
$0.57 per share, is reflected on the December 28, 1996 balance sheet in other
assets and paid-in capital and was amortized to expense in 1997, concurrent with
the termination of the revolving line of credit.


                                       46
<PAGE>   47
                            NEW WEST EYEWORKS, INC.

NOTE 7 - INCOME TAXES:

Income tax (expense) benefit is comprised of the following:

<TABLE>
<CAPTION>
                                    1997            1996        1995
                                 ---------       ---------    --------
<S>                              <C>             <C>          <C>
Current (expense) benefit:
  Federal                        $ (32,000)      $ (30,000)      --
  State                               --              --         --
                                 ---------       ---------    --------

    Total                          (32,000)        (30,000)      --
                                 ---------       ---------    --------

Deferred (expense) benefit:
  Federal                          521,000            --         --
   State                            58,000            --         --
                                 ---------       ---------    --------

    Total                          579,000            --         --
                                 ---------       ---------    --------

Total (expense) benefit          $ 547,000       $ (30,000)      --
                                 =========       =========    ========
</TABLE>

Deferred tax assets are comprised of the following:

<TABLE>
<CAPTION>
                                          December 27,      December 28,
                                              1997              1996
                                          -----------       -----------
<S>                                       <C>               <C>
    Net operating loss carryforwards      $ 2,297,000       $ 2,873,000
    Employee benefits                         289,000           244,000
    Deferred warranty revenues                108,000           112,000
    Other                                     317,000           306,000
                                          -----------       -----------

   Deferred tax assets                      3,011,000         3,535,000
   Less: valuation allowance               (2,432,000)       (3,535,000)
                                          -----------       -----------

Net deferred tax assets                   $   579,000       $      --
                                          ===========       ===========
</TABLE>


                                       47
<PAGE>   48
                            NEW WEST EYEWORKS, INC.

NOTE 7 - INCOME TAXES: (CONTINUED)

Income tax (expense) benefit differs from the amount determined by applying the
U.S. statutory federal tax rate of 34% to income (loss) before income tax
(expense) benefit as a result of the following:

<TABLE>
<CAPTION>
                                               1997              1996             1995
                                           -----------       -----------       ------------

<S>                                        <C>               <C>               <C>
Expected income tax (expense) benefit      $  (429,000)        $(283,000)      $   689,000
Nondeductible expenses                         (49,000)          (56,000)          (38,000)
(Increase) decrease in valuation             1,025,000           309,000          (651,000)
allowance
                                           -----------       -----------       ------------

Income tax (expense) benefit               $   547,000       $   (30,000)      $      --
                                           ===========       ===========       =============
</TABLE>


The Company increased its valuation allowance in 1995 due to the net operating
loss (NOL) incurred during the year coupled with the lack of sustained
historical profitability. In 1996, the Company returned to profitability and
reduced its valuation allowance as it was able to substantially offset taxable
income generated during the year with existing NOL carryforwards. The Company
further reduced its valuation allowance in 1997 because of its ability to once
again substantially offset taxable income generated during the year as well as
the Company's belief that it will be able to realize a portion of its remaining
deferred tax assets. The Company will consider further reduction to or
elimination of the remaining valuation allowance as profitable operations
continue.

As of December 27, 1997, the Company had NOL carrryforwards of $5.7 million and
$4.9 million for regular tax and alternative minimum tax purposes, respectively,
which begin to expire in 2006. The Company also has nonexpiring alternative
minimum tax credit carryforwards of $79,000 available to offset future regular
taxes.

NOTE 8 - EMPLOYEE BENEFIT PLAN:

The Company established the New West Eyeworks, Inc. Profit Sharing and 401(k)
Savings Plan (the Plan) for the benefit of employees (participants) who meet
certain age and eligibility requirements. The Plan provides for discretionary
profit sharing contributions as well as employer matching contributions on
participants' pre-tax savings deferrals. A profit sharing contribution was not
made in 1997, 1996 or 1995; however, employer matching contributions
approximated $106,000, $90,000, and $97,000 in 1997, 1996 and 1995,
respectively.

NOTE 9 - RELATED PARTY TRANSACTIONS:

The Company is a party to an expense sharing arrangement whereby it pays an
entity owned by an officer of the Company for certain services provided by such
entity for the Company and as reimbursement for certain expenses incurred
directly on behalf of the Company. The


                                       48
<PAGE>   49
                            NEW WEST EYEWORKS, INC.

NOTE 9 - RELATED PARTY TRANSACTIONS: (CONTINUED)

aggregate amount of the payments by the Company to such entity, including
expenses incurred directly on behalf of the Company, were approximately
$137,000, $109,000, and $136,000 in 1997, 1996 and 1995, respectively.

A director of the Company is a partner in a law firm which provides legal
services to the Company. The aggregate amount of expense included in 1997 and
1996 for services provided to the Company by this entity amount to $173,000 and
$158,000, respectively.

NOTE 10 - COMMITMENTS AND CONTINGENCIES:

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


                                       49
<PAGE>   50
VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE II


<TABLE>
<CAPTION>
                                                          Charged to
                                        Balance at        costs and                       Balance at
        Description                 beginning of year      expenses       Deductions      end of year
------------------------------------------------------------------------------------------------------
<S>                                  <C>               <C>              <C>              <C>
         1995

Allowance for doubtful accounts       $   186,000      $   143,000      $  (169,000)      $   160,000
Deferred tax valuation allowance      $ 3,194,000      $   880,000      $                 $ 4,074,000

        1996

Allowance for doubtful accounts       $   160,000      $    65,000      $   (86,000)      $   139,000
Deferred tax valuation allowance      $ 4,074,000      $                $  (539,000)      $ 3,535,000

        1997

Allowance for doubtful accounts       $   139,000      $   263,000      $  (243,000)      $   159,000
Deferred tax valuation allowance      $ 3,535,000      $                $(1,103,000)      $ 2,432,000
</TABLE>



                                       50
<PAGE>   51
                             NEW WEST EYEWORKS, INC.


EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit      Description
-------      -----------
<S>          <C>
10.20        Loan Agreement between KeyBank National Association and the Registrant,
             dated  August 1, 1997

10.21        Security Agreement executed by the Registrant for the benefit of KeyBank
             National Association, for $3.0 million, dated August 1, 1997

10.22        Security Agreement executed by the Registrant for the benefit of KeyBank
             National Association, for $2.0 million, dated August 1, 1997

10.23        Cross-Default and Cross-Collateralization Agreement between KeyBank National
             Association and the Registrant, Dated August 1, 1997

21.1         Subsidiaries of the Registrant

23.1         Consent of Price Waterhouse LLP

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

27.1         Financial Data Schedule for Period Ended 12-27-97

27.2         Restated Financial Data Schedule for the Interim periods of 1997

27.3         Restated Financial Data Schedule for the Interim Periods of 1996

27.4         Restated Financial Data Schedule for the fiscal year ended 12-28-1996
</TABLE>