--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                           ---------------------------

                                    FORM 10-Q

(Mark one)
[X]        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

                  For the Quarterly Period Ended July 4, 1998

[ ]      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:        0-23633
                                                --------
                              1-800 CONTACTS, INC.
           (Exact name of registrant as specified in its certificate)
                                 
                  Delaware                                  87-0571643
-------------------------------------------      -------------------------------
      (State or other jurisdiction of          (IRS Employer Identification No.)
       incorporation or organization)

   66 E. Wadsworth Park Drive, 3rd Floor
                 Draper, UT                                    84020
-------------------------------------------      -------------------------------
  (Address of principal executive offices)                   (Zip Code)

                                 (801) 924-9800
             ------------------------------------------------------
              (Registrant's telephone number, including area code)

                   13751 S. Wadsworth Park Drive, Suite D-140
                                Draper, UT 84020
            --------------------------------------------------------
                       (Former address since last report)

         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.
                                             [X]   Yes            [ ]   No

As of August 18, 1998, the Registrant has 6,430,568  shares of Common Stock, par
value $0.01 per share outstanding.

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


<PAGE>



7

                              1-800 CONTACTS, INC.

                                      INDEX

                                                                                
<TABLE>
<CAPTION>
                                                                                            Page No.
                                                                                            --------
PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
             Condensed Balance Sheets as of July 4, 1998 (unaudited)
<S>                                                                                           <C>
                  and December 31, 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
             Condensed Statements of Operations for the Quarter and Two Quarters
                  Ended July 4, 1998 (unaudited) and June 30, 1997 (unaudited). . . . . . . . .4
             Condensed Statement of Stockholders' Equity for the Two Quarters Ended
                  July 4, 1998 (unaudited)  . . . . . . . . . . . . . . . . . . . . . . . . .. 5
             Condensed Statements of Cash Flows for the Two Quarters Ended
                  July 4, 1998 (unaudited) and June 30, 1997 (unaudited)   . . . . . . . . . . 6
             Notes to Condensed Financial Statements. . . . . . . . . . . . . . . . . . . . . .8
Item 2.      Management's Discussion and Analysis of Financial Condition
                  and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . .. 11

PART II.  OTHER INFORMATION
Item 1.      Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 2.      Changes in Securities and Use of Proceeds. . . . . . . . . . . . . . . . . . . .  15
Item 3.      Defaults upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 4.      Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . 16
Item 5.      Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 6.      Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>

<PAGE>




PART I.  FINANCIAL INFORMATION


Item 1.     Financial Statements
<TABLE>
<CAPTION>
                              1-800 CONTACTS, INC.
                            CONDENSED BALANCE SHEETS

                                     ASSETS
                                                                              July 4,             December 31,
                                                                               1998                   1997
                                                                           ------------            -----------
                                                                         (Unaudited)
<S>                                                                        <C>                     <C>
CURRENT ASSETS:
     Cash and cash equivalents                                             $ 11,970,814            $         -
     Inventories                                                              9,821,646              4,811,855
     Prepaid advertising                                                        742,438                127,696
     Deferred income tax asset                                                   35,435                      -
     Other current assets                                                       155,016                 54,968
                                                                           ------------            -----------
        Total current assets                                                 22,725,349              4,994,519
DEFERRED ADVERTISING COSTS                                                    5,923,044              1,705,695
PROPERTY AND EQUIPMENT, net:                                                  1,529,571                562,503
OTHER ASSETS                                                                    152,591                518,347
                                                                           ------------            -----------
        Total assets                                                       $ 30,330,555            $ 7,781,064
                                                                           ============            ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Line of credit                                                        $          -            $ 1,055,640
     Notes payable to stockholders                                                    -              1,370,000
     Current portion of capital lease obligation                                 30,928                 23,532
     Accounts payable                                                         5,875,096              3,762,158
     Accrued liabilities                                                        936,020                300,439
     Unearned revenue                                                           268,872                104,272
                                                                           ------------            -----------
        Total current liabilities                                             7,110,916              6,616,041
                                                                           ------------            -----------
LONG-TERM LIABILITIES:
     Notes payable to stockholders                                                    -                243,788
     Capital lease obligation, less current portion                              49,000                 66,877
     Deferred income tax liability                                              860,879                      -
                                                                           ------------            -----------
        Total long-term liabilities                                             909,879                310,665
                                                                           ------------            -----------
STOCKHOLDERS' EQUITY:
     Common stock                                                                64,306                 46,595
     Additional paid-in capital                                              22,971,890                 93,688
     Retained earnings (deficit)                                               (726,436)             1,286,220
     Notes receivable from stockholders                                               -               (572,145)
                                                                           ------------            -----------
        Total stockholders' equity                                           22,309,760                854,358
                                                                           ------------            -----------
        Total liabilities and stockholders' equity                         $ 30,330,555            $ 7,781,064
                                                                           ============            ===========
</TABLE>

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

                                       3
<PAGE>
<TABLE>
<CAPTION>
                              1-800 CONTACTS, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                                                          Quarter Ended                        Two Quarters Ended
                                                  ------------------------------         ------------------------------ 
                                                     July 4,            June 30,             July 4,           June 30,
                                                      1998                1997                1998               1997
                                                  -----------       ------------         -----------        -----------
<S>                                               <C>               <C>                  <C>                <C>        
NET SALES                                         $12,800,438       $  4,870,394         $23,229,742        $ 7,716,383
COST OF GOODS SOLD                                  7,959,185          3,253,544          14,588,098          5,111,884
                                                  -----------       ------------         -----------        -----------
     Gross profit                                   4,841,253          1,616,850           8,641,644          2,604,499
                                                                                           
SELLING, GENERAL AND
     ADMINISTRATIVE EXPENSES                        5,388,732          1,315,779           8,526,658          2,093,318
                                                  -----------       ------------         -----------        -----------
INCOME (LOSS) FROM OPERATIONS                        (547,479)           301,071             114,986            511,181
                                                  -----------       ------------         -----------        -----------
OTHER INCOME (EXPENSE):
     Interest expense                                  (2,207)           (28,153)            (75,840)           (32,256)
     Interest income                                  204,255             14,445             348,124             14,445
     Other, net                                        (1,798)            10,248               8,202             10,248
                                                  -----------       ------------         -----------        -----------
        Total other, net                              200,250             (3,460)            280,486            (7,563)
                                                  -----------       ------------         -----------        -----------
INCOME (LOSS) BEFORE BENEFIT
     (PROVISION) FOR INCOME TAXES                    (347,229)           297,611             395,472            503,618
BENEFIT (PROVISION)
     FOR INCOME TAXES                                 128,464                  -            (825,444)                 -
                                                  -----------       ------------         -----------        -----------
NET INCOME (LOSS)                               $    (218,765)      $    297,611         $  (429,972)       $   503,618
                                                =============       ============         ===========        ===========
PER SHARE INFORMATION:
     Basic and diluted net income
        (loss) per common share                 $       (0.03)      $       0.06         $     (0.07)       $      0.11
                                                =============       ============         ===========        ===========
PRO FORMA INFORMATION:
     Income before benefit
        (provision) for income taxes                 (347,229)           297,611             395,472            503,618
     Benefit (provision) for income taxes             128,464           (114,580)           (149,873)          (193,893)
                                                  -----------       ------------         -----------        -----------
     Net income (loss)                          $    (218,765)      $    183,031         $   245,599        $   309,725
                                                =============       ============         ===========        ===========
     Basic and diluted net income
        (loss) per common share                 $       (0.03)      $       0.04         $      0.04        $      0.07
                                                =============       ============         ===========        ===========
</TABLE>

            The accompanying notes to condensed financial statements
              are an integeral part of these condensed statements

                                       4
<PAGE>


                              1-800 CONTACTS, INC.
                   CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
                     For the Two Quarters Ended July 4, 1998
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                   Notes    
                                                                  Additional      Retained        Receivable  
                                            Common Stock            Paid-in        Earnings          From   
                                       Shares         Amount       Capital       (Deficit)      Stockholders       Total
                                      ---------     --------    -----------   ------------      ------------   ------------ 
<S>               <C> <C>             <C>           <C>         <C>           <C>               <C>            <C>         
BALANCE, December 31, 1997            4,659,469     $ 46,595    $    93,688   $  1,286,220      $   (572,145)  $    854,358
    Advances to stockholder                   -            -              -              -           (27,544)       (27,544)
    Distributions to stockholders,net         -            -              -     (1,582,684)          599,689       (982,995)
    Sale of common stock,
        net of offering costs         2,213,750       22,138     24,773,775              -                 -     24,795,913
    Repurchase of common stock         (442,651)      (4,427)    (1,895,573)             -                 -     (1,900,000)
    Net loss                                  -            -              -       (429,972)                -       (429,972)
                                      ---------     --------    -----------   ------------      ------------   ------------ 
BALANCE, July 4, 1998                 6,430,568     $ 64,306    $22,971,890   $   (726,436)     $          -   $ 22,309,760
                                      =========     ========    ===========   ============      ============   ============         
</TABLE>

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

                                       5
<PAGE>


                              1-800 CONTACTS, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                Increase (Decrease) In Cash And Cash Equivalents

                                                                                             Two Quarters Ended
                                                                                   ------------------------------------
                                                                                         July 4,              June 30,
                                                                                          1998                  1997
                                                                                   ---------------       --------------
<S>                                                                               <C>                   <C>           
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                                            $      (429,972)      $      503,618
     Adjustments to reconcile net income (loss) to net cash
        provided by (used in) operating activities:
     Depreciation and amortization                                                        198,821               69,512
     Loss on retirement of property and equipment                                           1,798                    -
     Deferred income taxes                                                                825,444                    -
     Changes in operating assets and liabilities:
        Inventories                                                                    (5,009,791)            (854,644)
        Prepaid advertising                                                              (614,742)             (54,900)
        Other current assets                                                             (100,048)            (132,436)
        Deferred advertising costs                                                     (4,217,349)            (764,154)
        Accounts payable                                                                2,112,938            1,029,525
        Accrued liabilities                                                               635,581              121,044
        Unearned revenue                                                                  164,600              109,772
                                                                                  ---------------       --------------
            Net cash provided by (used in) operating activities                        (6,432,720)              27,337
                                                                                  ---------------       --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Net increase in notes receivable from stockholders                                   (27,544)            (181,612)
     Purchase of property and equipment                                                (1,150,327)            (225,725)
     Purchase of intangible assets                                                         (5,000)             (50,000)
     Deposits                                                                             (21,802)                    -
                                                                                  ---------------       --------------
            Net cash used in investing activities                                      (1,204,673)            (457,337)
                                                                                  ---------------       --------------
</TABLE>
                                                                                


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

                                       6
<PAGE>


                              1-800 CONTACTS, INC.
                 CONDENSED STATEMENTS OF CASH FLOWS (continued)
                                   (Unaudited)
<TABLE>
<CAPTION>
                Increase (Decrease) In Cash And Cash Equivalents

                                                                                            Two Quarters Ended
                                                                                    -----------------------------------
                                                                                        July 4,              June 30,
                                                                                         1998                  1997
                                                                                    -------------          ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S>                                                                                     <C>                    <C>         
     Sale of common stock, net of underwriting discounts and commissions               25,734,844                   -
     Stock offering costs                                                                (563,733)             (18,664)
     Stock repurchase                                                                  (1,900,000)                   -
     Net repayments on line of credit                                                  (1,055,640)                   -
     Borrowings from stockholders                                                               -               950,000
     Principal payments on notes payable to stockholders                               (1,613,788)             (311,212)
     Principal payments on notes payable for distributions to stockholders, net          (982,995)                    -
     Principal payments on long-term debt                                                       -               (28,682)
     Principal payments on capital lease                                                  (10,481)               (7,871)
     Repayment of bank overdraft                                                                -               (68,543)
                                                                                    -------------          ------------
            Net cash provided by financing activities                                  19,608,207               515,028
                                                                                    -------------          ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                              11,970,814                85,028
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                -                     -
                                                                                    -------------          ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                          $  11,970,814          $     85,028
                                                                                                                 
SUPPLEMENTAL CASH FLOW INFORMATION:
     Cash paid for interest                                                         $     201,852         $      14,892
</TABLE>
                                                                                
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During the first quarter of 1998,  the Company  distributed  $1,582,684 to its S
Corporation  stockholders.  This  distribution  (net of  notes  receivable  from
stockholders  of  $599,689)  was in  the  form  of  promissory  notes,  totaling
$982,995,  issued by the Company.  The promissory notes were paid in full during
the first quarter of 1998.


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



                                       7
<PAGE>

                              1-800 CONTACTS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 1.  PRESENTATION OF CONDENSED FINANCIAL STATMENTS

         The accompanying  condensed financial  statements have been prepared by
the  Company,  without  audit,  pursuant  to the  rules and  regulations  of the
Securities and Exchange Commission. Certain information and disclosures normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations.  These  condensed  financial  statements  reflect  all  adjustments
(consisting  only of normal  recurring  adjustments),  which in the  opinion  of
management,  are  necessary to present  fairly the results of  operations of the
Company  for  the  periods  presented.  It is  suggested  that  these  condensed
financial  statements be read in conjunction  with the financial  statements and
the notes thereto included in the Company's  Registration  Statement on Form S-1
(registration number is 333-41055).

         The results of operations  for the quarter and two quarters  ended July
4, 1998 are not  necessarily  indicative  of the results to be expected  for the
full year.

NOTE 2.  CHANGE IN ACCOUNTING PERIOD

         Effective January 1, 1998, the Company changed from a calendar year end
to a 52/53 week year ending on the Saturday  nearest to December 31. Due to this
change,  the first quarter of 1998 represents 13 weeks and 3 days,  covering the
period January 1, 1998 to April 4, 1998. The other quarters for fiscal year 1998
are each 13 weeks.

NOTE 3.  INITIAL PUBLIC OFFERING

         During February 1998, the Company completed its initial public offering
of common stock. In connection therewith, the Company issued 2,213,750 shares of
common stock, which included 288,750 shares issued pursuant to the underwriters'
over-allotment   option.  The  proceeds  received  from  the  offering,  net  of
underwriting commissions and offering costs, totaled approximately $24,796,000.

NOTE 4.  S CORPORATION DISTRIBUTIONS

         Immediately  prior to the  consummation of its initial public offering,
the Company entered into an agreement to distribute to its existing stockholders
an amount equal to the  Company's  retained  earnings  from its  formation  date
through the date of the termination of the Company's S Corporation  status.  The
distribution  (net of notes receivable from stockholders of $599,689) was in the
form of  promissory  notes,  totaling  $982,995,  issued by the  Company.  These
promissory notes were paid in full during the first quarter of 1998.

NOTE 5.  INCOME TAXES AND PRO FORMA INFORMATION

         Effective  February 9, 1998 the  Company's S  Corporation  election was
terminated.  As a result,  the Company recorded a net deferred tax liability and
the related deferred tax provision of approximately  $791,000 for the tax effect
of the differences  between  financial  statement and income tax basis of assets
and  liabilities  that  existed  at the  termination  date of the S  Corporation
election.

         The pro forma net income  presents the pro forma  effects on historical
net income  adjusted for a pro forma  provision for income taxes.  The pro forma
provision  for income  taxes has been  determined  assuming the Company had been
taxed as a C Corporation for federal and state income tax purposes. 

                                       8
<PAGE>


NOTE 6. NET INCOME PER COMMON SHARE

         Basic net income per common share ("Basic EPS")  excludes  dilution and
is  computed  by dividing  net income by the  weighted-average  number of common
shares  outstanding  during the  period.  Diluted  net  income per common  share
("Diluted  EPS")  reflects  the  potential  dilution  that could  occur if stock
options or other  common stock  equivalents  were  exercised  or converted  into
common stock.

         The pro forma  Basic  and  Diluted  EPS  gives  effect to the pro forma
effects on historical net income  adjusted for a pro forma  provision for income
taxes  assuming  the Company had been taxed as a C  Corporation  for federal and
state income tax purposes.  In addition,  it takes into consideration the shares
deemed to be  outstanding  at the initial  public  offering  price of $12.50 per
share,  sufficient  to fund  the S  Corporation  distribution  of  approximately
$983,000 (see Note 4).

         The following is a reconciliation of the numerator and denominator used
to calculate Basic and Diluted EPS:
<TABLE>
<CAPTION>

                               Quarter Ended July 4, 1998                  Quarter Ended June 30, 1997
                           ------------------------------------       --------------------------------
                             Income                   Per-Share        Income                   Per-Share
                             (Loss)       Shares        Amount         (Loss)       Shares        Amount
                          ------------- ------------ -------------  ------------- ------------ -------------
<S>                        <C>           <C>          <C>              <C>            <C>          <C>      
Historical:
  Basic EPS                $ (218,765)   6,430,568    $    (0.03)      $  297,611     4,659,469    $    0.06
  Effect of stock options                                                                18,258
                           ----------    ---------    ----------       ----------     ---------    ---------       
   Diluted EPS             $ (218,765)   6,430,568    $    (0.03)      $  297,611     4,677,727    $    0.06
                           ==========    =========    ==========       ==========     =========    =========
Pro Forma:
  Basic EPS                $ (218,765)   6,430,568    $    (0.03)      $  183,031     4,659,469    $    0.04        
  Effect of stock options                                                                18,258
  Assumed distribution                                                                   78,640
                          ------------- ------------ -------------  ------------- ------------ -------------

  Diluted EPS              $ (218,765)   6,430,568    $    (0.03)      $  183,031     4,756,367    $    0.04        
                          ============= ============ =============     ==========     =========    =========

                              Two Quarters Ended July 4, 1998          Two Quarters Ended June 30, 1997
                           ------------------------------------       --------------------------------------
                             Income                     Per-Share        Income                    Per-Share
                             (Loss)       Shares         Amount         (Loss)         Shares       Amount
                          ------------- ------------ -------------    ---------- ------------  -------------
Historical:
  Basic EPS                $ (429,972)   6,033,580    $    (0.07)      $  503,618     4,659,469    $    0.11
  Effect of stock options                                                                13,814
                          ------------- ------------ -------------  ------------- ------------ -------------
  Diluted EPS              $ (429,972)   6,033,580         (0.07)         503,618     4,673,283    $    0.11
                          ============= ============ =============     ==========     =========    =========

Pro Forma:
  Basic EPS                $  245,599    6,033,580    $     0.04       $  309,725     4,659,469    $    0.07
  Effect of stock options                   61,437                                       13,814
  Assumed distribution                                                                   78,640
                          ------------- ------------ -------------  -------------  ------------ -------------
  Diluted EPS              $   245,599   6,095,017    $     0.04       $  309,725     4,751,923    $    0.07
                          ============= ============ =============     ==========     =========    =========
</TABLE>

                                       9
<PAGE>


NOTE 7.  ADVERTISING COSTS

         The  Company  capitalizes  certain  direct-mail  advertising  costs and
amortizes  those costs over the period for which the revenues  are  generated in
accordance  with  Statement of Position  ("SOP") 93-7.  Based upon the Company's
past  direct-response  information,  the Company amortizes those costs over a 12
month  period.  The  Company  recorded  direct-response  advertising  expense of
approximately $3,379,000 and $5,256,000,  respectively,  for the quarter and two
quarters ended July 4, 1998 and $748,000 and  $1,110,000,  respectively  for the
quarter and two  quarters  ended June 30, 1997.  The Company  expenses all other
advertising  costs when the advertising  takes place.  These  advertising  costs
totaled approximately $565,000 and $692,000,  respectively,  for the quarter and
two quarters  ended July 4, 1998 and $14,000 and $17,000,  respectively  for the
quarter and two quarters ended June 30, 1997.

NOTE 8.  LEGAL MATTERS

         On July 14, 1998, Craig S. Steinberg,  O.D., a professional corporation
d.b.a. City Eyes Optometry  Center,  filed a purported class action on behalf of
all optometrists  licensed to practice in California against the Company and its
directors in Los Angeles County Superior Court (the "Steinberg Complaint").  The
complaint  alleges three separate causes of action for unfair  competition:  (i)
selling contact lenses to California  residents without being  registered,  (ii)
selling   contact  lenses  to  California   residents   without   verifying  the
prescription,  and (iii)  failing to disclose in its  advertising  that it sells
"sample"  lenses not intended  for sale to the public.  The  complaint  requests
various forms of relief, including damages of an unspecified amount,  attorney's
fees and a permanent  injunction  to prevent the Company  from  selling  contact
lenses to California  residents  without being registered and without  verifying
the  prescription  as well as from selling  sample  contact lenses to California
residents.  In  addition,  the  plaintiff  has  filed a motion  for  preliminary
injunction  seeking the injunctive relief requested in the complaint.  On August
11, 1998, the Company removed the action to the United States District Court for
the Central District of California based on diversity jurisdiction.

         The Company is in the preliminary  stages of investigating this matter.
Based upon the limited information available to the Company at the present time,
the  Company is unable to express  an opinion as to the actual  exposure  of the
Company for this matter. The Company intends to vigorously defend this matter.

         From  time to time the  Company  is  involved  in other  legal  matters
generally  incidental to its business.  It is the opinion of  management,  after
discussion with legal counsel,  that the ultimate  dispositions of these matters
will not have a material impact on the financial condition, liquidity or results
of operations of the Company.


                                       10
<PAGE>

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations.

Overview

         The Company is a rapidly growing direct marketer of replacement contact
lenses. The Company was formed in February 1995 and is the successor to the mail
order  business  founded by the Company's  Vice President of Operations in March
1991.  Since its formation,  the Company has experienced  significant  growth in
revenues.  The  Company's  net sales have grown rapidly from $7.7 million in the
first two quarters of 1997 to $23.2 million in the first two quarters of 1998.

         Prior  to  consummation  of its  initial  public  offering  ("IPO")  in
February 1998, the Company  operated as an S corporation  and, as a result,  had
not been subject to federal or certain  state income taxes.  In connection  with
the  consummation  of the IPO,  the Company  revoked its S  Corporation  status,
became   subject  to  federal  and  state  income   taxes,   and   recognized  a
non-recurring,  non-cash charge to earnings of approximately  $791,000 to record
deferred  income taxes for the tax effect of  cumulative  temporary  differences
between financial and tax reporting.

         Effective January 1, 1998, the Company changed from a calendar year end
to a 52/53 week year ending on the Saturday  nearest to December 31. Due to this
change,  the first quarter of 1998 represents 13 weeks and 3 days,  covering the
period January 1, 1998 to April 4, 1998. The other quarters for fiscal year 1998
are each 13 weeks.

         Quarter-to-quarter  comparisons  are  impacted  by  the  timing  of the
mailing of the Company's  printed  advertisements  within and between  quarters.
Approximately  40% of the revenue  related to a particular  mailing is generated
within 60 to 90 days  after  such  mailing.  The  Company  engages in an ongoing
mailing campaign. The volume of mailings may vary in different quarters and from
year-to-year   depending  on  the  Company's  assessment  of  prevailing  market
opportunities. The Company began advertising through television and the Internet
in the  second  quarter  of 1998.  In  addition,  the  Company  expects to begin
advertising  through  radio  during  the  third  quarter  of 1998.  The costs of
television,  radio and Internet advertising are expensed as incurred and are not
capitalized   like    direct-mailing    advertising    costs.   As   a   result,
quarter-to-quarter  comparisons  are impacted by the timing of such  television,
radio and Internet advertisements.

         The sale and delivery of contact lenses are generally governed by state
laws and regulations. The Company sells to customers in nearly all 50 states and
each sale is likely to be subject to the laws of the state where the customer is
located.  The  Company's  operating  practice  is to  attempt  to obtain a valid
prescription from each of its customers or his/her eye care practitioner. If the
Company is unable to obtain a copy of or verify the customer's prescription, the
Company's  practice  is to  ship  the  lenses  to  the  customer,  based  on the
information  that the customer has provided.  The Company retained legal counsel
to identify and summarize the applicable laws of each of the states in which the
Company  generates  material sales.  The Company  compared its operations to the
applicable  requirements of the laws contained in such summaries.  Based on such
comparison,  the Company estimates that approximately one-third of its net sales
appeared  to  conform  to  the   requirements  of  applicable   state  laws  and
regulations.


                                       11
<PAGE>

Results of Operations

         The  following  table  presents  the  Company's  results of  operations
expressed as a percentage of net sales:
<TABLE>
<CAPTION>

                                                     Quarter Ended              Two Quarters Ended
                                                  ------------------------     -------------------------
                                                     July 4,     June 30,         July 4,      June 30,
                                                      1998         1997            1998          1997
                                                  -----------  -----------     -----------   -----------
<S>                                                   <C>          <C>             <C>           <C>   
Net sales                                             100.0%       100.0%          100.0%        100.0%
Cost of sales                                          62.2%        66.8%           62.8%         66.2%
                                                  -----------  -----------     -----------   -----------
Gross profit                                           37.8%        33.2%           37.2%         33.8%
Selling, general and administrative expenses           42.1%        27.0%           36.7%         27.2%
                                                  -----------  -----------     -----------   -----------
Income (loss) from operations                         (4.3%)         6.2%            0.5%          6.6%
Other income (expense), net                             1.6%       (0.1%)            1.2%        (0.1%)
                                                  -----------  -----------     -----------   -----------
Income (loss) before benefit
      (provision) for income taxes                    (2.7%)         6.1%            1.7%          6.5%
Pro forma benefit (provision) for income taxes          1.0%       (2.3%)          (0.6%)        (2.5%)
                                                  -----------  -----------     -----------   -----------
Pro forma net income (loss)                           (1.7%)         3.8%            1.1%          4.0%
                                                  ===========  ===========     ===========   ===========
</TABLE>

         Net sales. Net sales for the quarter ended July 4, 1998 increased $7.93
million,  or 163%,  to $12.80  million from $4.87  million for the quarter ended
June 30, 1997.  For the two  quarters  ended July 4, 1998,  net sales  increased
$15.51  million,  or 201%,  to $23.23  million  from $7.72  million  for the two
quarters  ended June 30, 1997.  These  increases are primarily  attributable  to
higher sales volumes  resulting from the  acquisition  of new customers  through
additional sales and marketing efforts and from reorders from a growing customer
base.

         Gross profit.  Gross profit as a percentage of sales increased to 37.8%
for the  quarter  ended July 4, 1998 from 33.2% for the  quarter  ended June 30,
1997. For the two quarters  ended July 4, 1998,  gross profit as a percentage of
sales  increased to 37.2% from 33.8% for the two  quarters  ended June 30, 1997.
These increases are largely due to decreases in inventory procurement costs.

         Selling,  general and  administrative  expenses.  Selling,  general and
administrative  expenses  for the  quarter  ended July 4, 1998  increased  $4.07
million,  or 308%,  from the quarter ended June 30, 1997. As a percentage of net
sales,  selling,  general and administrative  expenses increased to 42.1% in the
second  quarter of 1998 from 27.0% in the  comparable  1997 period.  For the two
quarters  ended July 4,  1998,  selling,  general  and  administrative  expenses
increased $6.43 million,  or 307%, from the two quarters ended June 30, 1997. As
a  percentage  of  net  sales,  selling,  general  and  administrative  expenses
increased  to  36.7%  in the  first  two  quarters  of 1998  from  27.2%  in the
comparable  1997 period.  These  increases in expense and as a percentage of net
sales are primarily due to the increase in sales and marketing  activity and the
related  increase in  expenditures  necessary  to support the  increased  sales.
Advertising  as a percentage of sales was 30.8% in the second quarter of 1998 as
compared to 15.6% in the second  quarter of 1997.  For the first two quarters of
1998,  advertising  as a percentage  of sales was 25.6% as compared to 14.6% for
the first two quarters of 1997.  During the second  quarter of 1998, the Company
tested new forms of advertising,  including television and Internet advertising.
As a result of this  testing,  the Company  has  decided to change the  business
advertising  model from mainly print  advertising,  which is  capitalized,  to a
majority  of  fully-expensed  broadcast  advertising  (television,   radio,  and
Internet).

         Other (expense) income,  net. For the quarter ended July 4, 1998, other
(expense)  income increased to $200,250 from $(3,460) for the quarter ended June
30,  1997.  For the two  quarters  ended July 4, 1998,  other  (expense)  income
increased to $280,486  from  $(7,563) for the two quarters  ended June 30, 1997.
These  increases are due to interest  income from funds  received in the initial
public offering of common stock in excess of the interest expense incurred prior
to the initial public offering.

                                       12
<PAGE>

         Income  taxes.  The pro  forma  provision  for  income  taxes  has been
determined  assuming the Company had been taxed as a C  Corporation  for federal
and state income tax purposes for the periods shown.  For the quarter ended July
4, 1998,  the pro forma  provision for income taxes is the same as the provision
for income taxes as the Company was a C Corporation  for the entire period.  The
Company   anticipates  that  its  future  effective  income  tax  rate  will  be
approximately 38%.

Liquidity and Capital Resources

         The Company has historically funded its growth through a combination of
funds  generated  from  operations  and  borrowings.  During  February 1998, the
Company  completed its initial  public  offering of common stock.  In connection
therewith,  the Company issued 2,213,750 shares of common stock,  which included
288,750 shares pursuant to the underwriters' over-allotment option. The proceeds
received from the offering, net of underwriting  commissions and offering costs,
totaled  approximately  $24.8 million.  The Company uses funds to enhance growth
through increased  advertising  expenditures and to increase inventory levels in
anticipation of future sales.

         For the two  quarters  ended July 4, 1998 and June 30,  1997,  net cash
provided by (used in) operations  was  approximately  $(6,433,000)  and $27,000,
respectively.  In both 1998 and 1997,  cash was used primarily to fund increases
in  inventory  and  advertising   assets   (prepaid   advertising  and  deferred
advertising).  In 1998, these increases were partially offset by deferred income
taxes and by increases  in accounts  payable and accrued  liabilities.  In 1997,
cash used to fund the  increases  in inventory  and  advertising  assets  mostly
offset  by net  income  and  the  increases  in  accounts  payable  and  accrued
liabilities.

         The Company used  approximately  $1,205,000  and $457,000 for investing
activities  for the  two  quarters  ended  July  4,  1998  and  June  30,  1997,
respectively.  The majority of these amounts relate to capital  expenditures and
increases in notes receivable from shareholders. The Company received payment in
full on the notes receivable during the first quarter of 1998, as the notes were
netted with the S Corporation  distribution paid during the period.  The amounts
related to capital expenditures for the 1998 and 1997 periods were approximately
$1,150,000  and  $226,000,  respectively.  The  Company  moved into its new call
center during June and July of 1998. In  conjunction  with the move, the Company
acquired new telecommunications  systems and enhanced its management information
systems.   The  Company   anticipates   additional   capital   expenditures  for
infrastructure  as it  continues  to expand and  improve  operating  facilities,
telecommunications systems and management information systems in order to handle
future growth.

         For the 1998  period,  the Company  had  approximately  $19.61  million
provided by financing activities,  resulting from net proceeds received from its
initial  public  offering,  offset  by  repayments  of  debt,  distributions  to
stockholders  and  repurchase  of stock.  For the 1997  period,  the Company had
approximately  $515,000  provided by financing  activities,  resulting  from net
borrowings  from  stockholders,  offset by debt payments and repayment of a bank
overdraft.

         In August 1997, the Company  established a revolving credit facility to
provide for working  capital  requirements  and other  corporate  purposes  (the
"Credit Facility").  The Company amended the Credit Facility in January 1998. As
a result,  the Credit  Facility  provided for borrowings  equal to the lesser of
$3.0  million  or 50% of  eligible  inventory,  declining  to the lesser of $1.5
million or 50% of eligible  inventory  upon  completion of a successful  initial
public  offering of $10 million or more. The Credit Facility bears interest at a
floating rate equal to the lender's  prime  interest rate plus 1.5% (10% at July
4, 1998).  As of July 4, 1998, the Company had no outstanding  borrowings  under
the Credit Facility.  The Credit Facility is secured by substantially all of the
Company's  assets and contains  financial  covenants  customary for this type of
financing.  The term of the Credit Facility was originally set to mature on July
31, 1998;  however,  the Credit  Facility  term has been  extended to August 31,
1998. The Company has applied for a renewal of the Credit Facility.

                                       13
<PAGE>

         The Company believes that its cash on hand after the IPO, together with
cash generated from operations, will be sufficient to support current operations
and future  growth  through  fiscal  1998.  The  Company may be required to seek
additional  sources of funds for  accelerated  growth or continued  growth after
that point,  and there can be no assurance  that such funds will be available on
satisfactory terms.  Failure to obtain such financing could delay or prevent the
Company's planned growth,  which could adversely affect the Company's  business,
financial condition and results of operations.

         As a result of state regulatory requirements,  the Company's liquidity,
capital  resources and results of operations  may be negatively  impacted in the
future if the  Company  incurs  increased  costs or fines,  is  prohibited  from
selling  its  products  in a  particular  state(s)  or  experiences  losses of a
substantial portion of the Company's customers for whom the Company is unable to
obtain or verify a prescription  due to the enforcement of requirements by state
regulatory agencies.

         During the  second  quarter of 1998,  the  Company  tested new forms of
advertising,  including television and Internet advertising. As a result of this
testing,  the Company has decided to change the business  advertising model from
mainly print advertising,  which is capitalized, to a majority of fully-expensed
broadcast advertising (television,  radio, and Internet).  This shift from print
advertising  to a majority  of  broadcast  advertising  will  result in reported
losses in the  remainder of the year.  The Company  expects  losses  during this
transition  period  to range  from  ($0.35)  to  ($0.40)  per share in the third
quarter  and from  ($0.03) to ($0.05)  per share in the fourth  quarter of 1998.
These expected  losses are mainly the result of a shift to a business model with
more immediately expensed advertising.

         The Company has reviewed all of its current computer  applications with
respect to the year 2000 issue. The Company believes all of its applications are
substantially  year 2000 compliant and that any additional costs with respect to
year 2000  compliance  will not be  material  to the  Company.  The  Company  is
currently  unable  to  determine  the  effects  of year 2000  compliance  by its
vendors.


Forward Looking Statements

         This document  contains certain  forward-looking  statements within the
meaning of Section 27A of the Securities Act of 1933 (the "Securities  Act") and
Section 21E of the  Securities  Exchange Act of 1934, as amended (the  "Exchange
Act").  Such   forward-looking   statements  include  statements  regarding  the
Company's marketing plans, expectations concerning growth in the market, certain
financial  projections  and the  planned use of capital.  Actual  results  could
differ   from  those   projected   in  any   forward-looking   statements.   The
forward-looking  statements are made as of this document and the Company assumes
no  obligation  to update  such  forward-looking  statements,  or to update  the
reasons   why  actual   results  may  differ   from  those   projected   in  the
forward-looking  statements.  Numerous  factors,  including  without  limitation
general  economic  conditions,  the health of the  contact  lens  industry,  the
effectiveness of advertising,  inventory  acquisition and management,  and legal
and  regulatory  considerations,  many  of  which  are  beyond  the  control  of
management of the Company,  could cause future  results to differ  substantially
from those contemplated in such forward-looking statements.

                                       14
<PAGE>

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

         During the quarter ended July 4, 1998, a claim against the Company by a
former applicant was settled.  The settlement amount was recorded in the quarter
ended April 4, 1998.

         On July 14, 1998, Craig S. Steinberg,  O.D., a professional corporation
d.b.a. City Eyes Optometry  Center,  filed a purported class action on behalf of
all optometrists  licensed to practice in California against the Company and its
directors in Los Angeles County Superior Court (the "Steinberg Complaint").  The
complaint  alleges three separate causes of action for unfair  competition:  (i)
selling contact lenses to California  residents without being  registered,  (ii)
selling   contact  lenses  to  California   residents   without   verifying  the
prescription,  and (iii)  failing to disclose in its  advertising  that it sells
"sample"  lenses not intended  for sale to the public.  The  complaint  requests
various forms of relief, including damages of an unspecified amount,  attorney's
fees and a permanent  injunction  to prevent the Company  from  selling  contact
lenses to California  residents  without being registered and without  verifying
the  prescription  as well as from selling  sample  contact lenses to California
residents.  In  addition,  the  plaintiff  has  filed a motion  for  preliminary
injunction  seeking the injunctive relief requested in the complaint.  On August
11, 1998, the Company removed the action to the United States District Court for
the Central District of California based on diversity jurisdiction.

         The Company is in the preliminary  stages of investigating this matter.
Based upon the limited information available to the Company at the present time,
the  Company is unable to express  an opinion as to the actual  exposure  of the
Company for this matter. The Company intends to vigorously defend this matter.

         From  time to time the  Company  is  involved  in other  legal  matters
generally  incidental to its business.  It is the opinion of  management,  after
discussion with legal counsel,  that the ultimate  dispositions of these matters
will not have a material impact on the financial condition, liquidity or results
of operations of the Company.

Item 2.  Changes in Securities and Use of Proceeds

         (b)  Use of Proceeds from Registered Securities.

         A  Registration  Statement  on  Form  S-1  (File  No.  333-41055)  (the
"Registration  Statement") registering shares of the Company's Common Stock, par
value $0.01 per share,  filed in connection with the Company's IPO, was declared
effective by the Securities and Exchange Commission on February 9, 1998. The IPO
commenced  on the  effective  date  and  terminated  after  all  the  securities
registered under such Registration Statement were sold.

         Pursuant to the  Registration  Statement,  the Company  sold  2,213,750
shares  of  Common  Stock  (including   288,750  shares  sold  pursuant  to  the
underwriter's  over-allotment  option)  for its own  account,  for an  aggregate
offering price of  $27,671,875,  and 316,250  shares of Common Stock  (including
41,250 shares sold pursuant to the underwriter's  over-allotment option) for the
account  of  the  selling   stockholder  for  an  aggregate  offering  price  of
$3,953,125.  The  managing  underwriters  of the IPO  were  McDonald  &  Company
Securities, Inc. and Morgan Keegen & Company, Inc.

         In  connection  with  the  IPO,  the  Company   incurred   expenses  of
$2,875,962,  including  underwriting discounts and commissions of $1,937,031 and
other expenses of $938,931. After such expenses, the Company's net proceeds from
the IPO were approximately  $24.8 million.  Since completion of the IPO, through
July 4, 1998,  the  approximate  amounts of net  offering  proceeds  used by the
Company were as follows:  (i) $1.0 million for the payment of the S  Corporation
distribution, net of notes receivable from stockholders,  (which was paid to the
shareholders who were shareholders of the Company prior to the IPO, some of whom

                                       15
<PAGE>
are directors and officers of the Company);  (ii) $3.0 million for the repayment
of debt (a portion of which was repaid to a director of the Company); (iii) $1.9
million to exercise an option to purchase  442,651 shares of Common Stock from a
director of the Company (iv) $1.1 million for capital  expenditures and (v) $5.8
million for working capital.  The $12.0 million remaining proceeds are held in a
money market fund.

Item 3.  Defaults upon Senior Securities

             None.

Item 4.  Submission of Matters to a Vote of Security Holders

             None.

Item 5.  Other Information

From  time  to  time  the  Company   receives   notices,   inquiries   or  other
correspondence  from states or its regulatory bodies charged with overseeing the
sale of contact  lenses.  The Company's  practice is to review such notices with
legal counsel to determine the appropriate  response on a case-by-case basis. It
is the opinion of management,  after  discussion  with legal  counsel,  that the
Company is taking the appropriate steps to address the various notices received.
To date, no formal complaints have been filed against the Company concerning its
business practices, other than the Steinberg Complaint referenced above.

Item 6.  Exhibits and Reports on Form 8-K

             (A)  Exhibit Index


                     Exhibit No.        Description of Exhibit
                     -----------        ----------------------

                     27.1               Financial Data Schedule.

             (B) No reports on Form 8-K were filed by the Registrant  during the
quarter ended July 4, 1998.


                                       16
<PAGE>

                                   SIGNATURES

             Pursuant to the  requirements  of the  Securities  Exchange  Act of
1934,  the  Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.


                              1-800 CONTACTS, INC.


Dated: August __, 1998          By:-----------------------------------------
                                Name:    Jonathan C. Coon
                                Title:   President & Chief Executive Officer


                                By:-----------------------------------------
                                Name:    Scott S. Tanner
                                Title:   Chief Financial Officer