<PAGE>


                                UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION

                           Washington, D.C. 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 September 30, 1998

                                     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: 1-14128

                            STERLING VISION, INC.
              -------------------------------------------------
           (Exact name of Registrant as specified in its Charter)

        New York                                         11-3096941
------------------------                      ---------------------------------
(State of Incorporation)                      (IRS Employer Identification No.)

               1500 Hempstead Turnpike, East Meadow, NY 11554
               ----------------------------------------------
        (Address of Principal Executive Offices, including Zip Code)

                               (516) 390-2100
                 ------------------------------------------
            (Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed 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.

Yes  X            No

              APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

         Indicate by check mark whether the Registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.

Yes               No

                    APPLICABLE ONLY TO CORPORATE ISSUERS:

There were 14,892,407 shares outstanding of the Registrant's Common Stock,
par value $.01 per share, as of October 30, 1998.


<PAGE>



                                                       -19-

Item 1.  Financial Statements

                   STERLING VISION, INC. AND SUBSIDIARIES

                    CONSOLIDATED CONDENSED BALANCE SHEETS

                           (Dollars In Thousands)

<TABLE>
<CAPTION>
                                                                           September 30,  December 31,
                                                                                1998         1997
                                                                                ----         ----
ASSETS                                                                        (Unaudited)
<S>                                                                        <C>            <C> 
Current Assets:
   Cash and cash equivalents                                                   $    768    $    334
   Accounts receivable - net of allowance for
     doubtful accounts of $287 and $514, respectively                             8,506       8,446
   Franchise and other notes receivable - current                                 2,698       3,301
   Inventories                                                                    3,272       3,310
   Due from related parties - current                                                98         110
   Prepaid expenses and other current assets                                        418         516
                                                                               --------    --------
   Total Current Assets                                                        $ 15,760    $ 16,017

Property and equipment - net of accumulated depreciation                         10,677       9,903
Franchise and other notes receivable - net of allowance
   for doubtful accounts of $1,062 and $562, respectively                        11,808      14,884
Excess of cost over net assets acquired                                           4,589       2,957
Restricted cash                                                                     624         550
Other noncurrent assets                                                           1,173       1,532
                                                                               --------    --------
   Total Assets                                                                $ 44,631    $ 45,843
                                                                               ========    ========

LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities:
   Current portion of long-term debt                                           $  2,926    $  3,477
   Convertible debentures due August 25, 1998                                      --         1,652
   Accounts payable and accrued liabilities                                       6,567       6,127
   Accrual for store closings (Note 11)                                           2,885         452
   Franchise related obligations - current                                          990         837
                                                                               --------    --------
   Total Current Liabilities                                                   $ 13,368    $ 12,545

Long-term debt                                                                    7,639      10,249
Deferred franchise income                                                            75          96
Excess of fair value of assets acquired over cost                                 1,100       1,362
Lease termination costs                                                            --           320

Commitments and contingencies (Note 7)

Shareholders' Equity:
   Preferred stock, $.01 par value per share; authorized
     5,000,000 shares; issued 35 shares                                           4,025        --
   Common stock, $.01 par value per share; authorized 28,000,000
     shares; 14,892,407 and 13,713,585, issued and outstanding, respectively        149         139
   Additional paid-in capital                                                    46,903      40,843
   (Deficit)                                                                    (28,628)    (19,711)
                                                                               --------    --------
   Total Shareholders' Equity                                                    22,449      21,271
                                                                               --------    --------
   Total Liabilities and Shareholders' Equity                                  $ 44,631    $ 45,843
                                                                               ========    ========
</TABLE>



See accompanying notes to Consolidated Condensed Financial Statements.


                                    -2-

<PAGE>


                   STERLING VISION, INC. AND SUBSIDIARIES
               CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                 (Unaudited)
                (Dollars In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
                                                             Three Months Ended                 Nine Months Ended
                                                       September 30,     September 30,     September 30,    September 30,

                                                           1998               1997              1998              1997
                                                           ----               ----              ----              ----

<S>                                                    <C>               <C>               <C>              <C>      
Systemwide sales (Unaudited)                             $  38,036         $  42,013         $ 114,364         $ 114,950
                                                         =========         =========         =========         =========


Revenues:
   Net sales - Company stores                            $   7,249         $   6,027         $  20,925         $  17,784
   Franchise royalties                                       2,281             2,263             6,967             6,931
   Net gains and fees from the conveyance of
     Company-owned store assets to franchisees                --                 414               167             1,293
   Other income                                                520               840             1,746             2,056
                                                         ---------         ---------         ---------         ---------
Total revenues                                           $  10,050         $   9,544         $  29,805         $  28,064
                                                         ---------         ---------         ---------         ---------

Costs and expenses:
   Cost of sales                                         $   1,808         $   1,622         $   5,313         $   4,795
   Selling expenses                                          5,223             3,831            14,584            11,196
   General and administrative expenses                       3,954             4,189            13,075            11,118
   Provision for store closings (Note 11)                    2,500              --               2,500              --
   Interest expense                                            331               301             1,248               923
   Amortization of debt discount                              --               1,512             1,110             5,029
                                                         ---------         ---------         ---------         ---------
Total costs and expenses                                 $  13,816         $  11,455         $  37,830         $  33,061
                                                         ---------         ---------         ---------         ---------

(Loss) before provision for income taxes and
   extraordinary charge                                  $  (3,766)        $  (1,911)        $  (8,025)        $  (4,997)
Provision for income taxes                                    --                --                --                --
                                                         ---------         ---------         ---------         ---------
(Loss) before extraordinary charge                       $  (3,766)        $  (1,911)        $  (8,025)        $  (4,997)
Extraordinary charge for early retirement of debt             --                --                (805)             --
                                                         ---------         ---------         ---------         ---------
Net (loss)                                               $  (3,766)        $  (1,911)        $  (8,830)        $  (4,997)
                                                         =========         =========         =========         =========

Weighted average number of
   common shares outstanding                                14,844            13,801            14,536            13,801
                                                         =========         =========         =========         =========

Basic (loss) per common share                            $    (.26)        $    (.14)        $    (.61)        $    (.36)
                                                         =========         =========         =========         =========
</TABLE>



See accompanying notes to Consolidated Condensed Financial Statements.


                                    -3-

<PAGE>


                   STERLING VISION, INC. AND SUBSIDIARIES
               CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                 (Unaudited)
                           (Dollars In Thousands)

<TABLE>
<CAPTION>
                                                                              For the Nine Months Ended
                                                                                    September 30,
                                                                                  1998        1997
                                                                                  ----        ----
<S>                                                                           <C>          <C> 
Cash flows from operating activities:
   Net (loss)                                                                  $ (8,830)   $ (4,997)
   Adjustments to reconcile net (loss) to net cash provided
     by operating activities:
       Depreciation and amortization                                              1,866       1,614
       Allowance for doubtful accounts                                            3,653         625
       Provision for store closings                                               2,500        --
       Net gain from the conveyance of Company-owned
         assets to franchisees                                                     (102)     (1,053)
       Accrued interest                                                              54          63
       Amortization of fair value of assets acquired over cost                     (262)       (284)
       Issuance of non-employee stock options                                       227         140
       Lease termination costs                                                       65        --
       Amortization of debt discount                                              1,915       5,029
   Changes in assets and liabilities:
       Accounts receivable                                                       (2,463)         30
       Inventories                                                                   38          37
       Prepaid expenses and other current assets                                    119        (343)
       Other assets                                                                 (70)     (1,171)
       Accounts payable and accrued liabilities                                    (449)     (4,814)
       Franchise related obligations                                                153        (419)
       Deferred franchise income                                                    (21)       (160)
                                                                               --------    --------

Net cash (used in) operating activities                                        $ (1,607)   $ (5,703)
                                                                               --------    --------

Cash flows from investing activities:
   Acquisition, net of cash acquired                                             (1,598)       --
   Franchise notes receivable issued                                               (698)     (2,945)
   Repayment of franchise notes receivable                                        2,082       2,107
   Purchase of property and equipment                                              (957)     (1,331)
   Conveyance of property and equipment                                             213       1,127
                                                                               --------    --------

Net cash (used in) investing activities                                        $   (958)   $ (1,042)
                                                                               --------    --------
</TABLE>




See accompanying notes to Consolidated Condensed Financial Statements.



                                    -4-

<PAGE>


                   STERLING VISION, INC. AND SUBSIDIARIES
          CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - Cont'd.
                                 (Unaudited)
                               (In Thousands)

<TABLE>
<CAPTION>
                                                                             For the Nine Months Ended
                                                                                   September 30,
                                                                                  1998       1997
                                                                                  ----       ----

<S>                                                                          <C>           <C>  
Cash flows from financing activities:
   Sale of common stock and other capital contributions                           2,714        --
   Payments on debt                                                              (3,215)     (9,481)
   Borrowings under franchise notes receivable Loan Agreement                      --         9,500
   Repayment of revolving credit note                                              --        (1,000)
   Issuance of Convertible Debentures                                             3,500       7,540
                                                                               --------    --------

Net cash provided by (used in) financing activities                            $  2,999    $  6,559
                                                                                           --------

Net increase in cash and cash equivalents                                      $    434    $   (186)

Cash and cash equivalents - beginning of year                                       334         868
                                                                               --------    --------

Cash and cash equivalents - end of period                                      $    768    $    682
                                                                               ========    ========

Supplemental disclosure of cash flow information: Cash paid during the
   period for:
     Interest                                                                  $    250    $    860
                                                                               ========    ========
     Income taxes                                                              $     29    $     47
                                                                               ========    ========
   Non-cash investing and financing transactions:
     Franchise stores reacquired                                                  1,159        --
     Conversion of Convertible Debentures to Preferred Stock                      4,025        --
     Preferred Stock dividend                                                        87        --

Acquisition, net of cash acquired:
   Working capital, other than cash                                                (314)       (231)
   Property, plant and equipment                                                    160         200
   Other assets                                                                      31        --
   Goodwill                                                                       1,721       2,541
   Less:  Common Stock issued                                                      --        (2,510)
                                                                               --------    --------
   Acquisition, net of cash acquired                                           $  1,598    $      0
                                                                               ========    ========
</TABLE>




See accompanying notes to Consolidated Condensed Financial Statements.




                                    -5-

<PAGE>


                   STERLING VISION, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
                                 (Unaudited)
                   (In Thousands, Except Number of Shares)



<TABLE>
<CAPTION>
                                                                                            Additional                    Total
                                       Preferred Stock              Common Stock             Paid-In      Retained     Shareholders'
                                     Shares       Amount        Shares        Amount         Capital      (Deficit)       Equity
                                     ------       ------        ------        ------         -------      ---------       ------

<S>                                  <C>       <C>            <C>           <C>            <C>            <C>            <C>       
Balance - December 31, 1997             --           --       13,927,227    $      139     $   40,843     $  (19,711)    $   21,271
                                                              ==========    ==========     ==========     ==========     ==========

Issuance of shares upon
   conversion of 1997 Debentures -                   --          395,630             4          1,648           --            1,652
Debt discount for the intrinsic
   value of the 1998 Debentures
   and fair value of Warrants           --           --             --            --            1,915           --            1,915
Net (loss)                              --           --             --            --             --             (971)          (971)
                                                              ----------    ----------     ----------     ----------     ----------
Balance - March 31, 1998                --           --       14,322,857    $      143     $   44,406     $  (20,682)    $   23,867
                                        ==     ==========     ==========    ==========     ==========     ==========     ==========
Issuance of shares upon
   conversion of 1997 Warrants          --           --          392,000             4          2,073           --            2,077

Issuance of Preferred Stock             35          4,025           --            --             (525)          --            3,500

Net (loss)                              --           --             --            --             --           (4,093)        (4,093)
                                               ----------     ----------    ----------     ----------     ----------     ----------
Balance - June 30, 1998                 35     $    4,025     14,714,857    $      147     $   45,954     $  (24,775)    $   25,351
                                        ==     ==========     ==========    ==========     ==========     ==========     ==========
Issuance of shares upon
   conversion of 1997 Warrants          --           --          158,000             2            820           --              822

Reduction related to stock price
   guarantees                           --           --             --            --             (185)          --             (185)

Stock dividend for Preferred Stock      --           --           19,550          --               87            (87)          --

Non-employee stock options              --           --             --            --              227           --              227

Net (loss)                              --           --             --            --             --           (3,766)        (3,762)
                                        --     ----------     ----------    ----------     ----------     ----------     ----------
Balance - September 30, 1998            35     $    4,025     14,892,407    $      149     $   46,903     $  (28,628)    $   22,449
                                        ==     ==========     ==========    ==========     ==========     ==========     ==========
</TABLE>


See accompanying notes to Consolidated Condensed Financial Statements.



                                    -6-

<PAGE>


                   STERLING VISION, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                 (Unaudited)

NOTE 1

         The accompanying Consolidated Condensed Financial Statements of
Sterling Vision, Inc. (the "Registrant") and Subsidiaries (collectively, the
"Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and in accordance
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statement presentation. In the opinion of management, all adjustments for a
fair statement of the results of operations and financial position for the
interim periods presented have been included. Except for the extraordinary
charge noted in the Condensed Consolidated Statement of Operation, all such
adjustments are of a normal recurring nature. This financial information
should be read in conjunction with the Consolidated Condensed Financial
Statements and Notes thereto included in the Registrant's Annual Report on
Form 10-K for the Year ended December 31, 1997. There have been no changes
in significant accounting policies since December 31, 1997.

NOTE 2

         On April 1, 1997, the Company acquired all of the issued and
outstanding shares of the capital stock of Singer Specs, Inc., a Delaware
corporation, and certain of its wholly-owned subsidiaries (collectively,
"Singer") pursuant to the terms of a certain Agreement and Plan of
Reorganization, dated February 19, 1997 (the "Singer Agreement"), between
the Company and the owners (collectively, the "Shareholders") of all of the
capital stock of Singer. As of the closing, Singer was the: (i) operator of
four retail optical stores (collectively, the "Singer Stores"); (ii)
franchisor of an additional 27 other retail optical stores, all of which
company operated and franchised stores are located in the States of
Pennsylvania, Delaware, New Jersey, Virginia and the U.S. Virgin Islands;
and (iii) owner of a commercial building located in Philadelphia,
Pennsylvania.

         The Singer Agreement provided for such Shareholders to convey all
of said capital stock to the Company, free and clear of any and all claims,
liens and/or encumbrances, in exchange for shares of the Company's Common
Stock.

         The Singer Agreement also provided: (i) that the assets of each of
the Singer Stores be conveyed to corporations owned by one or more of the
Shareholders, which entities, simultaneously with the closing, each entered
into a Sterling Optical Center Franchise Agreement for the same; (ii) for
the pledge, by the Shareholders, of all of their shares of the Company's
Common Stock, to secure their obligations under the Singer Agreement; (iii)
that the Company file, with the Securities and Exchange Commission ("SEC"),
a registration statement seeking registration of the Common Stock issued to
the Shareholders, as discussed below; (iv) for the Shareholders being
restricted from selling a portion of their shares of said Common Stock, all
as more particularly set forth in the Singer Agreement; and (v) a
requirement that the Company, under certain circumstances, pay to the
Shareholders the difference between the market price of its Common Stock
(upon which the purchase price was calculated) and the selling price (net of
50% of commissions) of any such shares sold by such Shareholders (the "Price
Protection Guaranty Amount"). This transaction was accounted for as a
purchase, effective April 1, 1997, in accordance with Accounting Principle
Opinion ("APO") 16 and 17, with allocations made based upon the estimated,
fair market value of the assets acquired. Franchise Agreements are being
amortized over a period of ten (10) years. The Company, pursuant to the
terms of the Singer Agreement: (i) filed with the SEC a registration
statement seeking registration of the Shareholders' Common Stock, which
registration statement was declared effective on May 30, 1997; and (ii) in
1997, approximately $143,000 was paid to the Shareholders, which represented
the difference between the market price of its Common Stock (upon which the
purchase price for the capital stock of Singer was calculated) and the
selling price (net of 50% of commissions) generated from their sale of
approximately 100,000 shares of the Company's Common Stock (see Note 12 -
Subsequent Events).



                                    -7-

<PAGE>


         On July 31, 1998, the Company and the Shareholders entered into a
Settlement Agreement pursuant to which; (i) the Company released to such
Shareholders all of the remaining shares pledged to the Company to secure
their obligations under the Singer Agreement; (ii) the parties agreed to
reduce the Price Protection Guaranty Amount to $6.60; (iii) the Shareholders
agreed to pay to the Company the first $300,000 of net proceeds realized by
them in connection with their future sale of the Company's Common Stock
above the Price Protection Guaranty Amount; (iv) the Shareholders are
restricted from selling such shares except pursuant to an agreed upon
schedule; and (v) the Company waived certain of its claims against the
Shareholders.

         During the third quarter of 1998, the Company, pursuant to the
terms of the Singer Agreement, paid to the Shareholders approximately
$186,000 which represented the difference between the selling price of their
Common Stock and the Price Protection Guaranty Amount, from the sale of
approximately 50,000 shares of the Company's Common Stock.

         On April 21, 1997, the Company entered in to a Note Amendment and
Conversion Agreement (the "BEC Agreement") with BEC Group, Inc. ("BEC"), the
holder of two promissory notes (each having a term of 25 months and in the
original principal amounts of $1,050,000 and $200,000, respectively) issued
by the Company in connection with its acquisition (the "Pembridge
Transaction"), on August 26, 1994, from Pembridge Optical Partners, Inc., of
the assets of eight retail optical stores. Pursuant to the BEC Agreement:
(i) the Company, on June 9, 1997, prepaid the principal balance of (but not
accrued interest on) each of said promissory notes in registered shares of
its Common Stock; and (ii) was required to pay the difference between the
market price of its Common Stock (upon which the number of shares issued to
BEC was calculated) and the selling price of any such shares sold by BEC.

         On May 9, 1997, the Company filed with the SEC, and on May 30, 1997
the SEC declared effective, a Registration Statement on Form S-3 seeking
registration, under the Securities Act of 1933, as amended (the "Act"), of
an aggregate of 3,213,464 shares of its Common Stock, as follows: (i)
2,477,506 shares registered on behalf of the investors in the Private
Placement (see Note 4); (ii) 305,747 shares registered on behalf of the
Shareholders, as discussed above; (iii) 152,211 shares registered on behalf
of BEC, as discussed above; and (iv) 278,000 shares registered on behalf of
the holders of certain options granted to the former President of the
Company and certain warrants issued to the Underwriters of the Company's
initial public offering.

NOTE 3

         Effective December 31, 1997, the Company adopted SFAS No. 128,
"Earnings Per Share." Basic net income (loss) per common share ("Basic EPS")
is computed by dividing net income (loss) by the weighted average number of
common shares outstanding. Diluted net income (loss) per common share
("Diluted EPS") is computed by dividing net income (loss) by the weighted
average number of common shares, dilutive common share equivalents and
convertible securities then outstanding. SFAS No. 128 requires the
presentation of both Basic EPS and Diluted EPS on the face of the Company's
Consolidated Statements of Operations. No information is presented for
Diluted EPS, as the effect of the inclusion of convertible securities would
be anti-dilutive.

NOTE 4

         On February 26, 1997, the Company entered into Convertible
Debentures and Warrants Subscription Agreements with certain investors in
connection with the private placement (the "Private Placement") of units
(collectively, the "Units") consisting of an aggregate of $8,000,000
principal amount of Convertible Debentures (collectively, the "Debentures")
and an aggregate of 800,000 warrants (collectively, the "Warrants"), each
Warrant entitling the holder thereof to purchase one share of Common Stock
at a price to be determined in accordance with a specified formula and, for
each two Warrants exercised within a specified period of time, an additional
warrant (collectively, the "Bonus Warrants") to purchase one additional
share of the Common Stock at a price of $7.50 per share. The Company used
the net proceeds (approximately $7,500,000) of the Private Placement to: (i)
repay a portion of the


                                    -8-

<PAGE>

loans made to it by certain principal shareholders of the Company ($1,000,000,
together with interest thereon, in the approximate amount of $50,000); and (ii)
pay down the Company's revolving line of credit ($1,000,000) with The Chase
Manhattan Bank (the "Bank").

         The Debentures bear no interest and matured on August 25, 1998.
Except for $400,000 principal amount of the Debentures which were redeemed
by the Company, prior to March 31, 1998 all of the Debentures were converted
by the holders thereof into registered shares of the Company's Common Stock
at a price per share (the "Conversion Price") equal to the lesser of $6.50
or 85% of the average closing bid price of the Company's Common Stock, as
reported on the Nasdaq National Market System ("Nasdaq"), for the five
trading days immediately preceding the date of conversion (see Note 5).

         The Warrants entitle the holders thereof to purchase an aggregate
of 800,000 shares of Common Stock at an exercise price per share equal to
the lower of $6.50 or the average of the Conversion Price of any Debentures
converted, by the holder, prior to the date of exercise. The Warrants are
exercisable until February 26, 2000. If a holder of a Warrant exercises a
Warrant at any time during the 2-year period following the effectiveness of
the Registration Statement, such holder will receive, for each two Warrants
exercised within such time, an additional Bonus Warrant entitling the holder
thereof to purchase one additional share of Common Stock at an exercise
price of $7.50 per share, which Bonus Warrants have a term of 3 years from
the date of grant (see Note 5).

         In May 1998, certain of the holders of the Company's Warrants
exercised their right to acquire an aggregate of 392,000 registered shares
of the Company's Common Stock in exchange for the Company's agreement to
reduce the respective exercise prices thereof by 15%, which transactions
resulted in an approximately $311,000 non-cash charge to earnings. The
proceeds of such exercise were utilized by the Company to acquire the
Ambulatory Surgery Center described in Note 10.

         In July 1998, certain of the holders of the Company's Warrants
exercised their right to acquire an aggregate of 158,000 registered shares
of the Company's Common Stock in exchange for the Company's agreement to
reduce the respective exercise prices thereof to $4.50, which transactions
resulted in an approximately $110,000 non-cash charge to earnings. The
proceeds of such exercise are being utilized by the Company for working
capital.

NOTE 5

         At the March 13, 1997 meeting of the Emerging Issues Task Force,
the staff of the SEC issued an announcement regarding accounting for the
issuance of convertible debt securities. The announcement dealt with, among
other things, the belief, by the SEC, that any beneficial conversion
features on future conversions of debt securities increase the effective
interest rate of the securities and should, therefore, be reflected as a
charge to earnings. During the quarter ended March 31, 1997, the Company
issued $8 million principal amount of the Debentures, together with the
Warrants and Bonus Warrants. The Debentures provided for conversion features
that permitted the holders thereof to convert their Debentures to shares of
the Company's Common Stock at a discount from the market price at the time
the Debentures were issued. Although the date of this pronouncement was
subsequent to the Company's issuance of the Debentures, it is the Company's
opinion that the SEC intended this announcement to apply retroactively.

         Utilizing the conversion terms most beneficial to the purchasers of
the Units, the Company has recorded in the accompanying financial statements
amortization of debt discount of approximately $3,517,000 out of a total
debt discount, with respect to all of the Debentures, of $5,916,000, which
was credited to the Company's paid-in-capital (Shareholders' Equity) over
the period of time that the holders thereof actually converted the same to
Common Stock. The non-cash portion of the discount was $5,436,000.
Accordingly, since all of the Debentures were previously converted by the
holders thereof, such discount has no effect on the Company's Shareholders'
Equity. This amount represents the intrinsic value of the beneficial
conversion feature which is inherent in the conversion terms of the
Debentures, and the fair value of the Warrants (with an assumed exercise
price of $6.50), the Bonus Warrants (with an assumed exercise price of
$7.50), and the issuance cost of the Units. This discount is being amortized
over the minimum period the Debentures became convertible.


                                    -9-

<PAGE>


         The Debentures were originally classified on the Company's
Consolidated Balance Sheet as Common Stock to be issued, net of costs of
approximately $500,000, because the Company believed the likelihood that the
Debentures would not be converted was remote. Since such date, however, the
Company has determined that the Debentures should have been classified on
the Company's Consolidated Condensed Balance Sheet as Long-Term Debt. As a
result, the Company restated the financial statements contained in its
Quarterly Report on Form 10-Q for the three month and nine month periods
ended September 30, 1997.

NOTE 6

         In February 1998, the Company entered into Convertible Debentures
and Warrants Subscription Agreements with certain investors in connection
with the private placement of units consisting of an aggregate of $3.5
million principal amount of convertible debentures (as amended on March 25,
1998, collectively, the "1998 Debentures") and an aggregate of 700,000
warrants (collectively, the "1998 Warrants"), which 1998 Warrants entitled
the holders thereof to purchase up to 700,000 shares of the Company's Common
Stock at a price of $5.00 per share. The Company used the net proceeds
(approximately $3.3 million) of the private placement: (i) to repay certain
loans previously made to it by certain of the Company's principal
shareholders ($1,700,000), together with interest thereon; and (ii) the
balance for working capital.

         Subsequent to the date of the Company's issuance and sale of the
1998 Debentures and 1998 Warrants, the Company and the holders thereof
(collectively, the "Original Holders") determined that the issuance and sale
of such 1998 Debentures and 1998 Warrants should be rescinded based upon a
certain mutual mistake of the Company and the Original Holders. Accordingly,
on April 14, 1998, the Company and the Original Holders entered into an
Exchange Agreement, effective as of February 17, 1998, pursuant to which the
1998 Debentures were rescinded and declared null and void from inception,
and were exchanged for $3.5 million stated value ($4,025,000 fair value) of
a series of the Company's Preferred Stock, par value $.01 per share (the
"Senior Convertible Preferred Stock"), and the 1998 Warrants were exchanged
for new warrants (the "New Warrants"), entitling the Original Holders to
purchase up to 700,000 shares of Common Stock at a price of $5.00 per share
until February 17, 2001.

         The Senior Convertible Preferred Stock: (i) requires the Company to
pay quarterly dividends thereon, commencing May 17, 1998, calculated at the
rate of ten (10%) percent per annum; (ii) permits the Company to pay such
dividends in registered shares of its Common Stock; (iii) permits the
holders thereof, at any time prior to redemption by the Company, to convert
all or a portion of the same into shares of Common Stock based upon a
conversion price of $5.00; (iv) requires the Company to redeem, in either
cash or registered shares of its Common Stock, at the Company's option, all
(but not less than all) of the Senior Convertible Preferred Stock at 105% of
the then outstanding stated value thereof, based upon the conversion price
of $5.00 (hereinafter the "Redemption Amount") at any time from and after
February 17, 1999 that a registration statement (pursuant to which the
Common Stock (into which the Senior Convertible Preferred Stock may be
converted) has been registered) is effective; (v) permits the Company to
redeem all (but not less than all) of the Senior Convertible Preferred
Stock, in cash and at the Redemption Amount, at any time from and after
February 17, 1999; (vi) provides that from and after February 18, 1999, the
Company will be required to pay dividends thereon, until the same are
redeemed by the Company, at the rate of twenty-four (24%) percent per annum;
and (vii) a requirement that the Company, under certain circumstances, pay
to the shareholders the difference between the market price of its Common
Stock (upon which the conversion price was calculated) and the selling price
(net of commissions) of any such shares sold by such shareholders (the
"Price Protection Guaranty Amount").

         On August 12, 1998, the SEC declared effective the Company's
Registration Statement on Form S-3 pursuant to which the shares of Common
Stock into which the Senior Convertible Preferred Stock is convertible,
together with the Common Stock issuable upon the exercise of the New
Warrants issued in connection therewith, and, in addition, 70,000 shares of
Common Stock which may be issued by the Company in payment of the dividends
on the Senior Convertible Preferred Stock, were registered.


                                    -10-

<PAGE>


         On August 18, 1998, the Company issued 19,550 registered shares of
its Common Stock in payment of the required dividend on the Senior
Convertible Preferred Stock.

         After the Exchange Agreement was entered into, management
determined that it was in the Company's best interest to select another firm
of independent public accountants as the auditors of the Company. In
response to the Company's change in auditors, the SEC reviewed and discussed
the exchange transaction with the Company. As a result of these discussions,
the Company determined that the issuance and sale, in February 1998, of the
1998 Debentures and 1998 Warrants should be treated separate and apart from
the April 1998 exchange of such securities for the Senior Convertible
Preferred Stock and New Warrants.

         As a result of the foregoing, the Company recorded, in its
financial statements for the quarter ended September 30, 1998, amortization
of debt discount of $1,110,000 and an extraordinary loss of $805,000 related
to the early extinguishment of the 1998 Debentures. This amount represented
the intrinsic value of the beneficial conversion feature which is inherent
in the conversion feature of the 1998 Debentures (approximately $963,000),
amortization of approximately $147,000 related to the fair value of the New
Warrants, and an extraordinary loss of $805,000, which represents the
unamortized discount related to the 1998 Warrants in connection with the
early extinguishment of the 1998 Debentures and the issuance of the Senior
Convertible Preferred Stock and New Warrants.

NOTE 7 - Commitments and Contingencies

         The Company is, from time to time, a party to litigation arising in
the ordinary course of business. In the opinion of management, there are no
significant claims outstanding that are likely to have a material adverse
effect upon the consolidated financial statements of the Company.

         The Company leases locations for the majority of both its operated
and franchised stores. The Company holds the master lease on substantially
all franchised locations and, as part of the franchise agreement, sublets
the subject premises to the franchisee. Most master leases require the
payment of common area charges and percentage rent based upon sales volume.
As is required by SFAS 13 "Accounting for Leases," the Company amortizes its
rent expense on a straight-line basis over the life of the related lease.

         In connection with the November 1995 acquisition, by Sterling
Vision BOS, Inc., of substantially all of the assets of OCA Acquisition
Corp., Benson Optical Co., Inc. and Superior Optical Company, Inc., (the
"Benson Transaction") the Company issued a non-negotiable, subordinated
convertible debenture (the "Benson Debenture"), in the principal amount of
$5,900,000, subject to reduction and payable, without interest, on September
15, 2015. The Benson Debenture is subordinated to all existing and future
indebtedness, debts and obligations of the Company. The Company had a right
of offset against the principal amount of the Benson Debenture in the event
the Company did not retain at least 40 of the 98 Benson stores acquired by
the Company in the Benson Transaction, which right of offset was equal to
$147,000 for each store less than 40 that the Company retained. In December
1995, the Company elected to assume the leases for 32 stores and,
consequently, was entitled to reduce the principal amount of the Benson
Debenture by the sum of $1,176,000, from $5,900,000 to $4,724,000. The
Benson Debenture is included in Long-Term Debt and is recorded at its
present value of $1,076,000 using an imputed internal interest rate of 8.5%.

         On June 30, 1997, the Company entered into a loan agreement (the
"Loan Agreement") with STI Credit Corporation ("STI") that established, in
favor of the Company, a $20,000,000 credit facility to finance a portion of
the Company's currently existing and future franchise promissory notes
receivable, $10,000,000 of which was funded by STI on such date, although
$1,000,000 (the "Additional Funds") of the funded amount was withheld
pending the Company's satisfaction of a required collateral ratio with
respect to such credit facility (less a facility fee equal to two percent of
the amount of the loan). Sixty-five (65%) percent of the funded amount is to
be repaid by the Company over a term of 60 months, with a final balloon
payment at the expiration of the sixty-first month of the term of said loan.
The Company granted to STI a first priority, continuing security interest in
a substantial portion of its franchise notes and the proceeds related to
such notes. A portion of the net proceeds (approximately $6,100,000) of the
loan was used to 



                                    -11-

<PAGE>


satisfy, pay and discharge, in full, all amounts then due by the Company to:
(i) the Bank ($5,035,000, together with accrued interest thereon, in the
approximate amount of $37,000); and (ii) certain principal shareholders of
the Company ($1,000,000, together with accrued interest thereon, in the
approximate amount of $9,000). As a result of the foregoing: (i) the Bank's
lien upon, and security interest in, substantially all of the Company's
assets (previously securing the Bank's various loans to the Company) was
discharged; and (ii) restrictions previously imposed upon the Company
(pursuant to the Company's prior Credit Agreement with the Bank) are no
longer applicable.

         On October 9, 1997, STI amended the Loan Agreement and disbursed a
portion of the Additional Funds to the Company. As of September 30, 1998,
the outstanding principal balance of such loan was approximately $6,596,000.
Pursuant to the terms of the Loan Agreement, the Company must comply with
the following financial covenants: (i) the maintenance of positive, annual
net income for each of its calendar years; (ii) working capital of not less
than $2 million; (iii) shareholders' equity of not less than $26 million;
and (iv) from and after June 30, 1998, a collateral ratio of 1.2 to 1.0. As
of December 31, 1997, the Company was not in compliance with the financial
covenants described in clauses (i) and (iii) above, although STI
subsequently waived such non-compliance in exchange for the Company's
agreement to execute an amendment to the Loan Agreement, which amended the
Loan Agreement so as to: (i) waive the Company's compliance with all of its
financial covenants until December 31, 1998; (ii) reduced such shareholders'
equity requirement to $25 million; (iii) provided for a prepayment penalty
of $500,000; and (iv) required the Company to pay certain fees to STI, in
the aggregate amount of $70,000.

         As of September 30, 1998, the Company was the lessee of six excimer
lasers and ancillary equipment under capital leases expiring in various
years through 2001. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or
the fair value of the asset.

NOTE 8 - Recent Accounting Requirements

         In the first quarter of 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income," which requires companies to report all
changes in equity during a period, except those relating from investment by
owners and distribution to owners, for the period in which they are
recognized. Comprehensive income is the total of net income and all other
nonowner changes in equity (or other comprehensive income) such as
unrealized gains/losses on securities classified as available-for-sale,
foreign currency exchange adjustments and minimum pension liability
adjustments. Comprehensive and other comprehensive income must be reported
on the face of annual financial statements or, in the case of interim
reporting, the footnote approach may be utilized. For the quarters ended
September 30, 1998 and 1997, the Company's operations did not give rise to
items included in comprehensive income which were not already included in
net income. Accordingly, the Company's comprehensive income is the same as
its net income for all periods presented.

         In June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information." SFAS No. 131 requires the reporting of profit and loss,
specific revenue and expense items, and assets for reportable segments. It
also requires the reconciliation of total segment revenues, total segment
profit or loss, total segment assets, and other amounts disclosed for
segments, to the corresponding amounts in the general purpose financial
statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. The segments utilized by the Company include: (i) the
retail optical segment, wherein the Company owns and operates, as well as
franchises a retail chain of optical stores which offer eyecare products and
services, such as prescription and non-prescription eyeglasses, eyeglass
frames, ophthalmic lenses, contact lenses, sunglasses and a broad range of
ancillary items; and (ii) the Insight Laser segment, wherein the Company:
(x) owns the tangible assets of, and operates an ambulatory surgery center;
and (y) owns and operates a laser surgery center and provides access, for a
fee, to affiliated ophthalmologists who utilize Insight's other excimer
lasers in offering photorefractive keratotomy ("PRK"), a procedure performed
with such lasers for the correction of certain degrees of myopia. Management
is presently evaluating the impact on the Company's financial reporting from
the adoption of this statement.



                                    -12-

<PAGE>


NOTE 9 - Impact of the Year 2000 Issue

         The Year 2000 Issue is the result of potential problems with
computer systems and/or any equipment with computer chips that use dates,
where the date has been stored as just two digits (e.g. 98 for 1998). On
January 1, 2000, any clock or date recording mechanism (including date
sensitive software) which uses only two digits to represent the year, may
recognize the year 1900 (when using 00 as the year) rather than the year
2000. This could result in a system failure or miscalculations, causing
disruption of operations, as such systems may be unable to accurately
process certain date-based information.

         The Company has reviewed the Year 2000 Issue with its Management
Information System's providers and consultants. The Company believes that
the Year 2000 Issue will not have a material, adverse impact on the
operations of the Company, since its computer programs were written
utilizing four digits to define the applicable year. The Company, however,
cannot determine, as of the date hereof, the impact of the Year 2000 Issue
on any of its vendors and/or franchisees, which might materially impact the
operations of the Company.

NOTE 10

         On May 6, 1998, the Company, through its wholly-owned subsidiary,
Insight Laser Centers N.Y. I, Inc., purchased substantially all of the
assets of an ambulatory surgery center located in Garden City, New York (the
"Center") and, in connection therewith: (i) settled its legal action against
the estate of the former owner of such Center; (ii) entered into a long term
lease of the premises in which such Center is located; and (iii) entered
into an agreement pursuant to which it will manage the operations of the
Center, on an interim basis, pending the approval, from the New York State
Department of Health, of the transfer of the license and certificate of need
therefore to an affiliate of the Company.

NOTE 11 - Provision for Store Closings

         The Company has identified certain long-lived assets, principally
those contained in certain of its Company-owned stores, where there has
been, or there is expected to be, a change in circumstances which would
affect the recoverability of all or a portion of the depreciated cost of
such long-lived assets. The Company anticipates the future closure of
certain of its Company-owned stores and/or the sale, to Franchisees, of the
assets contained therein; and, as such, the Company has recorded a provision
for Store closings of $2,500,000.

NOTE 12 - Subsequent Events

         In October 1998, the Company, pursuant to the terms of the Singer
Agreement, paid to the Shareholders approximately $30,000, which represented
the difference between the selling price of their Common Stock and the Price
Protection Guaranty Amount, from the sale of approximately 10,000 shares of
the Company's Common Stock.

         On October 14, 1998, the Board of Directors appointed Edward Celano
as a member of the Company's Board of Directors, as well as to each of the
Board's Audit Committee, Independent Committee and Right of First Refusal
Committee.

         On October 14, 1998, the Board of Directors authorized the Company
to borrow up to the aggregate sum of $2,000,000 from Broadway Partners, a
New York general partnership owned by certain of the children of Robert and
Alan Cohen, which loans will be payable, on demand, together with interest,
calculated at the rate of 12% per annum. The loan is secured by a first lien
upon, and security interest in, the Company's ambulatory surgery center. As
of September 30, 1998, the Company had borrowings of $550,000 from Broadway
Partners, and in October 1998, the Company increased its borrowings to
$1,400,000.


                                    -13-

<PAGE>


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

         All statements contained herein (other than historical facts)
including, but not limited to, statements regarding the Company's future
development plans, the Company's ability to generate cash from its
operations, including the operations of the Registrant's subsidiary, Insight
Laser Centers, Inc. ("Insight"), and any losses related thereto, are based
upon current expectations. These statements are forward looking in nature
and involve a number of risks and uncertainties. Actual results may differ
from the anticipated results or other expectations expressed in the
Company's forward looking statements. Generally, the words "anticipate,"
"believe," "estimate," "expects" and similar expressions, as they relate to
the Company and/or its management, are intended to identify forward looking
statements. Among the factors that could cause actual results to differ
materially are the following: the inability of the Company to obtain a
waiver from STI on its failure to comply with certain covenants under its
Loan Agreement; the inability of the Company to enter into third party,
managed care provider agreements on favorable terms; the inability of the
Company to obtain additional financing to meet its capital needs;
competition in the retail optical, managed care and ambulatory surgery
center industries; the ability of the Company to acquire, at favorable
prices, retail optical chains; the uncertainty of the acceptance of PRK, a
procedure being offered by the Company's subsidiary, Insight, to correct the
vision of individuals experiencing certain degrees of myopia; the
availability of new and better ophthalmic laser technologies or other
technologies that serve the same purpose as PRK; the inability of the
Company to finalize favorable agreements with ophthalmologists to utilize
the Company's excimer lasers to perform the PRK procedure; competition in
the PRK market; and general business and economic conditions.

Results of Operations

For the Nine Months Ended September 30, 1998 compared to September 30, 1997

         Systemwide sales represent combined retail sales generated by
Company-owned and franchised stores, as well as revenues generated by
VisionCare of California ("VCC"), a wholly-owned subsidiary of the Company
licensed by the California Department of Corporations as a specialized
health maintenance organization, and Insight. There were 296 and 317
Sterling Stores in operation as of September 30, 1998 and September 30,
1997, respectively, of which 248 and 267, respectively, were franchised.
Such stores operate under various tradenames including Sterling Optical,
Site for Sore Eyes, IPCO Optical, Benson Optical, Superior Optical, Southern
Optical, Nevada Optical, Duling Optical, Monfried Optical, Kindy Optical and
Singer Specs. Systemwide sales decreased by $(586,000), or .5%, to
$114,364,000 for the nine month period ended September 30, 1998, as compared
to $114,950,000 for the comparable period in 1997. On a same store basis
(for stores that operated as either a Company-owned or franchised store
during the entirety of both of the nine month periods ended September 30,
1998 and 1997), systemwide sales increased by $716,000, or .8%, to
$90,632,000 for the nine month period ended September 30, 1998, as compared
to $89,916,000 for the comparable period in 1997.

         Aggregate sales generated from the operation of Company-owned
stores increased by $3,141,000, or 17.7%, to $20,925,000 for the nine month
period ended September 30, 1998, as compared to $17,784,000 for the
comparable period in 1997. This increase was principally due to the
Company's agreement to manage, on behalf of the owners of certain franchise
stores, the operation of such stores, and an increase in comparative sales
as described below. Historical comparisons of aggregate sales generated by
Company-owned stores can become distorted due to the conveyance of
Company-owned store assets to franchisees. When Company-owned store assets
are conveyed to franchisees, sales generated by such franchised store are no
longer reflected in Company-owned store sales; however, the Company receives
on-going royalties based upon a percentage of the sales generated by such
franchised stores. On a same store basis, aggregate sales generated by
Company-owned stores in operation during the entirety of both of the nine
month periods ended September 30, 1998 and 1997, increased by $(88,000), or
 .6%, to $14,057,000 for the nine month period ended September 30, 1998, as
compared to $13,969,000 for the comparable period in 1997.

         Aggregate sales generated from the operation of franchised stores
decreased by $(3,727,000), or 3.8%, to $93,439,000 for the nine month period
ended September 30, 1998, as compared to $97,166,000 for the comparable



                                    -14-

<PAGE>


period in 1997. On a same store basis, aggregate sales generated by
franchised stores in operation during the entirety of both of the nine month
periods ended September 30, 1998 and 1997, increased by $628,000, or .8%, to
$76,575,000 for the nine month period ended September 30, 1998 as compared
to $75,947,000 for the comparable period in 1997.

         Franchise royalties increased by $36,000, or .5%, to $6,967,000 for
the nine month period ended September 30, 1998, as compared to $6,931,000
for the comparable period in 1997.

         Net gains on the conveyance of the assets of three Company-owned
stores to franchisees decreased by $1,126,000, or 87%, to $167,000 for the
nine month period ended September 30, 1998, as compared to net gains on the
conveyance of the assets of seven Company-owned stores to franchisees of
$1,293,000 for the comparable period in 1997.

         The Company's gross profit margin increased by 1.6%, to 74.6% for
the nine month period ended September 30, 1998, as compared to 73.0% for the
comparable period in 1997. In the future, the Company's gross profit margin
may fluctuate depending upon the extent and timing of changes in the product
mix in Company-owned stores, competition and promotional incentives.

         Selling expenses increased by $3,388,000, or 30.3%, to $14,584,000
for the nine month period ended September 30, 1998, as compared to
$11,196,000 for the comparable period in 1997. This increase was principally
due to the increase in the number of Company-managed, franchised stores over
the comparable period in 1997.

         General and administrative expenses (including interest expense)
increased by $2,282,000, or 19.0%, to $14,323,000 for the nine month period
ended September 30, 1998, as compared to $12,041,000 for the comparable
period in 1997. This increase was principally due to an approximately
$2,400,000 increase in the Company's provision for doubtful accounts,
reflecting the Company's assessment that certain receivables have become
uncollectible and approximately $227,000 in costs related to stock options
granted to certain consultants to the Company.

         The Company has identified certain long-lived assets, principally
those contained in certain of its Company-owned stores, where there has
been, or there is expected to be, a change in circumstances which would
affect the recoverability of all or a portion of the depreciated cost of
such long-lived assets. The Company anticipates the future closure of
certain of its Company-owned stores and/or the sale, to Franchisees, of the
assets contained therein; and, as such, the Company has recorded a provision
for store closings of $2,500,000.

         The Year 2000 Issue is the result of potential problems with
computer systems and/or any equipment with computer chips that use dates,
where the date has been stored as just two digits (e.g. 98 for 1998). On
January 1, 2000, any clock or date recording mechanism (including date
sensitive software) which uses only two digits to represent the year, may
recognize the year 1900 (when using 00 as the year) rather than the year
2000. This could result in a system failure or miscalculations, causing
disruption of operations, as such systems may be unable to accurately
process certain date-based information.

         The Company has reviewed the Year 2000 Issue with its Management
Information System's providers and consultants. The Company believes that
the Year 2000 Issue will not have a material, adverse impact on the
operations of the Company, since its computer programs were written
utilizing four digits to define the applicable year. The Company, however,
cannot determine, as of the date hereof, the impact of the Year 2000 Issue
on any of its vendors and/or franchisees, which might materially impact the
operations of the Company.

         The Company's net loss increased by $(3,833,000), or 76.7%, to a
loss of $(8,830,000) for the nine month period ended September 30, 1998, as
compared to a loss of $(4,997,000) for the comparable period in 1997. The
increase in net loss was principally due to an increase of $2,400,000 in the
Company's provision for doubtful accounts, reflecting the Company's
assessment that certain receivables have become uncollectible; an increase
of $2,500,000 in the Company's provision for Store closings, resulting from
the Company identifying certain long-lived assets,



                                    -15-

<PAGE>


principally those contained in certain of its Company-owned stores, where
there has been, or there is expected to be, a change in circumstances which
would affect the recoverability of all or a portion of the depreciated cost
of such long-lived assets; a non-cash charge of $1,915,000 ($1,110,000 of
amortization of debt discount and an extraordinary loss of $805,000) related
to the extinguishment of debt upon the issuance of the Senior Convertible
Preferred Stock on April 14, 1998; approximately $227,000 in costs related
to stock options granted to certain consultants to the Company; the
write-off of $175,000 of debt issuance costs related to the issuance of the
1998 Debentures; $421,000 of costs related to the inducement of Warrant
conversions; a reduction in the net gains on the conveyance of Company-owned
store assets to franchisees; and the increase of costs associated with the
increase in Company-managed, franchised stores in 1998; all of which were
offset, in part, by a decrease in the amortization of debt discount of
approximately $3,919,000.

Liquidity and Capital Resources

         As of September 30, 1998 and December 31, 1997, the Company had
$2,392,000 and $3,472,000, respectively, in working capital, and $768,000
and $334,000, respectively, of cash and cash equivalents. The Company
believes that, based upon current projections, its liquid assets presently
on hand will be sufficient for the following future capital requirements:
renovating and/or remodeling of Company-owned stores in amounts that cannot
be projected by the company at this time; the continuing upgrade of the
Company's management information system in conjunction with the software
computer programs being installed in its Company-owned stores, in the
aggregate approximate amount of $250,000; and acquiring retail optical
stores, subject to the availability of qualified opportunities, in
furtherance of the Company's business strategy, in amounts that cannot be
projected by the Company at this time.

         The Company experienced negative cash flow from operations during
the nine month period ended September 30, 1998 resulting, primarily, from an
increase in accounts receivable. By the end of 1997, the following measures
were taken by the Company, which management believes will reduce, in the
future, the magnitude of the losses it sustained for the calendar year ended
December 31, 1997, as well as improve the Company's operations and cash
flow: (i) closed or did not renew the leases for ten of its Company-owned
stores; and (ii) reduced a substantial amount of administrative overhead
expenses. Although the Company, based, in part, upon the anticipated
financial impact of such measures taken by the Company, believes that its
financial condition will improve for the twelve months ended December 31,
1998, there can be no assurance that its financial condition will so
improve. The Company was not in compliance with certain of its existing
financial covenants as contained in its Loan Agreement with STI as of
December 31, 1997, although the Company subsequently received a waiver
thereof. In the event the Company is not in compliance with such covenants
by the end of 1998, there can be no assurance that it will be able to obtain
a waiver thereof and, in such event, STI will have the right to accelerate
the payment of the then outstanding principal amount then due under the
Company's Loan Agreement with STI. However, in the event of STI's
acceleration of such loan, the Company believes that it could meet its needs
through either additional borrowings, the sale of its franchise note
receivables and/or additional sales of equity, although there can be no
assurance that the Company would be successful in obtaining such additional
borrowings, selling any of its franchise note receivables and/or selling
additional equity, or on what terms said transactions could be effected.
Accordingly, the Company believes that its current cash resources and cash
flow from operations would be sufficient to fund its anticipated future
capital expenditures.

Forward Looking Statements

         All statements contained herein (other than historical facts) are
based upon current expectations. These statements are forward looking in
nature and involve a number of risks and uncertainties. Actual results may
differ materially from anticipated results or other expectations expressed
in the Company's forward looking statements. Generally, the words
"anticipate," "believe," "estimate," "expects," and similar expressions as
they relate to the Company and/or its management, are intended to identify
forward looking statements.


                                    -16-

<PAGE>


PART II - OTHER INFORMATION

Item 1. Legal Proceedings.   Not applicable.

Item 2. Changes in Securities.   Not applicable.

Item 3. Defaults Upon Senior Securities.  Not applicable.

Item 4. Submission of Matter to a Vote of Security Holders.  Not applicable.

Item 5. Other Information.  Not applicable.

Item 6. Exhibits and Reports on Form 8-K.

a.) Exhibits

                                EXHIBIT INDEX

Exhibit
Number

27            Financial Data Schedule.

b.) Reports on Form 8-K

          1)   On August 17, 1998, the Registrant filed a current Report on
               Form 8-K with respect to the resignation of Jay Fabrikant as
               a Director of the Registrant.

          2)   On September 22, 1998, the Company filed a current Report on
               Form 8-K with respect to the resignation of Jerry Lewis as
               the Chief Executive Officer of the Company, as well as the
               appointment of Dr. Alan Cohen as his successor.




                                    -17-

<PAGE>


                                 SIGNATURES

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

                                                  STERLING VISION, INC.
                                                  (Registrant)



                                                  By:   /s/ William J. Young
                                                        -----------------------
                                                        William J. Young
                                                        Chief Financial Officer


                                                        Date: November 20, 1998