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                                 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 March 31, 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 14,714,863 shares outstanding of the Registrant's Common Stock, par
value $.01 per share, as of May 14, 1998.

                                       1

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Item 1.  Financial Statements

                    STERLING VISION, INC. AND SUBSIDIARIES
                     CONSOLIDATED CONDENSED BALANCE SHEETS
                            (Dollars In Thousands)

                                                          March 31, December 31,
                                                              1998        1997
                                                          (Unaudited)
                                                            --------    --------
ASSETS
Current Assets:
   Cash and cash equivalents ............................ $    717    $    334
   Accounts receivable - net of allowance for
         doubtful accounts of $604 and $514, respectively   10,247       8,446
   Franchise and other notes receivable - current .......    3,270       3,301
   Inventories ..........................................    3,272       3,310
   Due from related parties - current ...................      104         110
   Prepaid expenses and other current assets ............      432         516
                                                          --------    --------
         Total Current Assets ........................... $ 18,043    $ 16,017

Property and equipment - net of
         accumulated depreciation .......................    9,614       9,903

Franchise and other notes receivable - net of allowance
         for doubtful accounts of $562 ..................   14,235      14,884
Excess of cost over fair value of assets acquired .......    3,120       3,272
Restricted cash .........................................      550         550
Other noncurrent assets .................................    1,236       1,217
                                                          --------    --------
         Total Assets ................................... $ 46,798    $ 45,843
                                                          ========    ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
   Current portion of long-term debt .................... $  2,477    $  3,477
   Convertible debentures due August 25, 1998 ...........     --         1,652
   Accounts payable and accrued liabilities .............    6,446       6,579
   Franchise related obligations - current ..............      758         837
                                                          --------    --------
         Total Current Liabilities ...................... $  9,681    $ 12,545

Long term debt ..........................................    9,189      10,249
Deferred franchise income ...............................       93          96
Excess of fair value of assets acquired over cost .......    1,275       1,362
Lease terminations costs ................................      191         320

Commitments and contingencies (Note 7)

Shareholders' Equity:
   Preferred stock, $.01 par value per share;
         authorized 5,000,000 shares; issued 35 .........     --          --
   Common stock, $.01 par value per share; authorized
         28,000,000 shares; 14,322,857 and 13,927,227
         issued and outstanding, respectively ...........      143         139
   Additional paid-in capital ...........................   48,240      40,843
   (Deficit) ............................................  (22,014)    (19,711)
                                                          --------    --------
         Total Shareholders' Equity .....................   26,369      21,271
                                                          --------    --------
         Total Liabilities and Shareholders' Equity ..... $ 46,798    $ 45,843
                                                          ========    ========

See accompanying notes to Consolidated Condensed Financial Statements.

                                       2


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

                                                     For the Three Months Ended
                                                              March 31,
                                                         1998          1997
                                                       --------      --------

Systemwide sales(Unaudited) ......................     $ 37,031      $ 36,658
                                                       ========      ========

Revenues:
   Net sales - Company stores ....................     $  6,939         6,004
   Franchise royalties ...........................        2,385         2,113
   Net gains and fees from the conveyance of
         Company-owned assets to franchisees .....          135           810
   Other income ..................................          555           547
                                                       --------      --------
Total Revenues ...................................       10,014         9,474
                                                       --------      --------

Costs and expenses:
   Cost of sales .................................        1,894         1,621
   Selling expenses ..............................        4,237         3,849
   General and Administrative expenses ...........        3,386         3,344
   Interest expense ..............................          331           334
   Amortization of debt discount .................         --           2,021
                                                       --------      --------
Total Costs and Expenses .........................        9,848        11,169
                                                       --------      --------


Net income (loss) before provision for
         income taxes ............................     $    166        (1,695)
Provision for income taxes .......................         --            --
                                                       --------      --------
Net income (loss) ................................     $    166      $ (1,695)
                                                       ========      ========


Weighted average number of common
         shares outstanding ......................       14,318        13,239
                                                       ========      ========

Basic (loss) per common share (Note 11) ..........        ($.16)     $   (.13)
                                                       ========      ========


See accompanying notes to Consolidated Condensed Financial Statements.

                                       3


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

                                                      For the Three Months Ended
                                                                   March 31,
                                                               1998       1997
                                                             -------    -------

Cash flow from operating activities:
         Net income .......................................  $   166    $(1,695)
         Adjustments to reconcile net income to net
           cash provided by operation activities:
                  Depreciation and amortization ...........      572        408
                  Amortization of debt discount ...........        0      2,001
                  Allowance for doubtful accounts .........       90         91
                  Net gain from the conveyance
                     of Company-owned assets to franchisees      (75)      (700)
                  Accrued interest ........................       22         21
                  Accretion of fair value of assets
                     acquired over cost ...................      (87)       (97)
                  Changes in assets and liabilities:
                  Accounts receivable .....................   (1,890)      (825)
                  Inventories .............................       38        240
                  Prepaid expenses and other
                     current assets .......................       84        (63)
                  Other assets ............................      (42)        21
                  Accounts payable and accrued liabilities      (177)    (2,785)
                  Franchise related obligations ...........      (80)      (149)
                  Deferred franchise income ...............        3       (100)
                  Lease termination costs .................      129       --
                                                             -------    -------

Net cash (used in) operating activities ...................  $(1,511)   $(3,632)
                                                             -------    -------

Cash flows from investing activities:
         Franchise notes receivable issued ................      (22)      (982)
         Repayment of franchise notes receivable ..........      708        502
         Purchase of property and equipment ...............     (182)      (205)
         Conveyance of property and equipment .............      148      1,041
                                                             -------    -------
Net cash provided by investing activities .................  $   652    $   356
                                                             -------    -------

                            Continued on next page

See accompanying notes to Consolidated Condensed Financial Statements.

                                       4


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                    STERLING VISION, INC. AND SUBSIDIARIES
          CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
                                  (UNAUDITED)
                                (IN THOUSANDS)

                                                      For the Three Months Ended
                                                                  March 31,
                                                               1998      1997
                                                             -------   -------
Cash flows from financing activities:
   Sale of stock and other capital contributions,
      out of issuance costs ...............................    3,324      --
   Repayment of term loans ................................     --        (498)
   Repayment of revolving credit note .....................     --      (1,000)
   Payments on other debt .................................   (2,082)   (1,224)
   Issuance of Convertible Debentures .....................              7,540 

Net cash provided by financing activities .................    1,242     4,818

Net increase in cash and cash equivalents .................      383     1,542

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

Cash and cash equivalents - end of period .................  $   717   $ 2,410
                                                             =======   =======

Supplemental disclosure of cash flow information:                    

Cash paid during the period for:                                     
                                                                     
   Interest ...............................................  $   331   $   334
                                                                     
   Income taxes ...........................................  $     0   $    43
                                                             =======   =======


See accompanying notes to Consolidated Condensed Financial Statements.

                                       5


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                    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.
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 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 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 mature 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 Common Stock as reported on the Nasdaq
National Market System ("Nasdaq") for the 5 trading days immediately preceding
the date of conversion (See Note 7).

      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 Notes 5 and 10).

                                       6

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NOTE 3

      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 "Company Stores"); (ii) franchisor of approximately 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,
subject to certain post closing adjustments.

      The Singer Agreement provided: (i) that the assets of each of the
Company 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; (ii) for the pledge, by
the Shareholders, of all of their shares of the 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. This transaction was accounted for as a purchase, effective
April 1, 1997, in accordance with Accounting Principle Board Pronouncements
("APB") 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, paid to the Shareholders approximately $143,000, 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.

      On April 21, 1997, the Company entered in 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 amount 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)is afforded the right to prepay the principal balance of (but not
accrued interest on) each of said promissory notes in registered shares of its
Common Stock; and was required to pay the difference between market price of
its Common Stock (upon which the number of shares to be used to BEC was
calculated) and the selling price of any such shares sold by BEC.

                                       7

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

NOTE 4

      Effective December 15, 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share". Statement No. 128 replaced the
previously reported primary and fully diluted earnings per share with basic
and diluted earnings per share. Under the new requirements for calculating
earnings per share, the dilutive effect of stock options will be excluded from
basic earnings per share but included in the computation of diluted earnings
per share. All earnings per share amounts have been restated so as to comply
with Statement No. 128.

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, therefor, be reflected as a charge to earnings.
During the quarter ended March 31, 1997, the Company issued $8 million
principal amount of its Convertible Debentures due August 25, 1998 (the

"Debentures"), together with Warrants to purchase up to 800,000 shares of the
Company's Common Stock, and, for each two Warrants exercised within a
specified period of time, one additional Bonus Warrant (collectively, the
"Units"). The Debentures provide for conversion features that permit 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 $2,021,000 for the three months
ended March 31, 1997, 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, as of March 31, 1998 such discount had
no effect on the Company's Shareholders' Equity. This amount represented 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), issued with the Debentures, and the issuance cost of
the Units. This discount was being amortized over the minimum period the
Debentures become convertible.

      The Debentures were originally classified on the Company's Consolidated
Condensed Balance Sheet as Common Stock to be issued, net of costs of
approximately $500,000, because the Company believed that the likelihood that
the Debentures would not be converted was remote. Since such date, however,
the Company has determined that the

                                       8

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Debentures should have been classified on the Company's Consolidated Condensed
Balance Sheet as Long Term Debt.

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 ($1,700,000), together with interest thereon; and (ii) the balance
for general corporate purposes.

      Subsequently 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 of a series of the Company's
Preferred Stock, par value $.01 per share (the "Preferred Stock"), and the
1998 Warrants were exchanged for new warrants (the "New Warrants"), entitling
holders thereof to purchase up to 700,000 shares of Common Stock at a price of
$5.00 per share (the "Conversion Price"), until February 17, 2001. (See Note
10: Subsequent Events).

      The 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 the Conversion Price: (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 Stock (at 105% of the
then, outstanding Stated Value thereof, based upon the Conversion Price,
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 Preferred Stock may be converted) has been registered) is effective;
(v) permits the Company to redeem all (but not less than all) of the Preferred
Stock, in cash and at the Redemption Amount, at any time from and after
February 17, 1999; and (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.

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

                                       9

<PAGE>

franchisee. Most master leases are subject to common area charges and
additional 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.

      As part of 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: (i) 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; and, (ii) funded $10,000,000, 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 satisfy, pay and discharge,
in full, all amounts then due by the Company to: (i) Chase Manhattan Bank (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 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 March 31, 1997, the
outstanding principal balance of such loan was approximately $8,026,000.
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.

                                      10

<PAGE>

      As of March 31, 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 resulting 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
translation 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 March 31, 1998 and 1997, the
Company's operations did not give rise to items includible 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 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 Company's operations are presently
classified into two principal industry segments: (i) the retail optical
segment, whereby 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, whereby the Company owns and operates a laser
surgery center and provides access, for a fee, to affiliated ophthalmologists
who utilize Insight's excimer lasers in offering 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.

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. 97 for 1997). 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 a
date using 00 as the year 1900, 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 Systems's providers and consultants. The Company believes that the
Year 2000 Issue will not have a material 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.

                                      11

<PAGE>

NOTE 10 - Subsequent Events

      On May 1, 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%. The proceeds of such exercise
were utilized by the Company to acquire the Ambulatory Surgery Center
described below.

      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 therefor to the
Company.

NOTE 11 - Earnings per Share

      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 consolidated statements of operations.

      The following chart provides a reconciliation of information used in
calculating the per share amounts for the three months ended March 31, 1998
and for the three months ended March 31, 1997. No information is presented for

Diluted EPS as the effect of the inclusion of convertible securities would be
anti-dilutive:

                                                                    Net Income
Basic EPS             Net Income            Shares                  Per Share
---------            ------------         ----------                  ------

Net (Loss)-1998      ($2,303,000)         14,318,000                  ($.16)
                     ------------         ----------                  ------
Net (Loss)-1997      ($1,695,000)         13,239,000                  ($.13)
                     ------------         ----------                  ------

      The calculation of earnings per share for the three months ended March
31, 1998, reflects a one-time, non-cash charge to earnings attributable to
common stock of $2,469,000, or $.17 per share, as a consequence of the imputed
value of dividends, resulting from the beneficial conversion feature
attributable to the Preferred Stock and the beneficial exercise price of the
New Warrants (see Note 6), reducing net income attributable to common stock
from $166,000 to a net loss attributable to common stock of ($2,469,000). In
addition, net income for the three months ended March 31, 1997, reflected a
non-cash charge of $2,021,000, or $.15 per share.

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, 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

                                      12

<PAGE>

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 of 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 Laser Centers, Inc. ("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 PRK procedures; competition in the PRK market; and general
business and economic conditions.

Results of Operations

For the Three Months Ended March 31, 1998 compared to March 31, 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 specialized health care maintenance
organization licensed by the California Department of Corporations. There were
308 and 309 Sterling Stores in operation as of March 31, 1998 and March 31,
1997, respectively, of which 263 and 256, 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 increased by $373,000, or 1.0%, to $37,031,000 for the
three months ended March 31, 1998, as compared to $36,658,000 for the same
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 three
month periods ended March 31, 1998 and 1997), systemwide sales increased by
$142,000, or .5%, to $31,003,000 for the three months ended March 31, 1998, as
compared to $30,861,000 for the same period in 1997. There were 276 stores
that operated as either a Company-owned or franchised store during the
entirety of both of the three month periods ended March 31, 1998 and 1997.

      Aggregate sales generated from the operation of Company-owned stores
increased by $935,000, or 15.6%, to $6,939,000 for the three months ended
March 31, 1998, as compared to $6,004,000 for the same period in 1997. This
increase was principally due to the Company's agreement, in January 1998, to
manage, on behalf of the owner of seven (7) franchised stores, the operations
of such stores. Such increase was offset, in part, by the decrease in sales
from the conveyance of Company-owned store assets to franchisees. 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 three month periods ended March 31, 1998 and 1997,
increased by $71,000, or 1.5%, to $4,801,000 for the three months ended March
31, 1998, as

                                      13


<PAGE>

compared to $4,730,000 for the comparable period in 1997.

      Aggregate sales generated from the operation of franchised stores
decreased by $562,000, or 1.8%, to $30,092,000 for the three months ended

March 31, 1998, as compared to $30,654,000 for the comparable period in 1997.
This decrease was principally due to the Company's agreement to manage the
operations of certain of its franchise stores (as discussed above). On a same
store basis, aggregate sales generated by franchised stores in operation
during the entirety of both of the three month periods ended March 31, 1998
and 1997, increased by $100,000, or .4%,to $26,202,000 for the three month
period ended March 31, 1998, as compared to $26,102,000 for the comparable
period in 1997.

      Franchise royalties increased by $272,000, or 12.9% to $2,385,000 for
the three months ended March 31, 1998, as compared to $2,113,000 for the same
period in 1997. This increase is principally due to an increase in the number
of Company-owned stores conveyed to franchisees and the acquisition of certain
franchised stores acquired in the Singer Specs transaction.

      Net gains and fees from the conveyance of Company-owned assets to
franchisees decreased by $675,000, or (83.3%), to $135,000 for the three
months ended March 31, 1998, as compared to $810,000 for the same period in
1997. This decrease was principally due to the conveyance of the assets of two
Company-owned stores to franchisees for the three months ended March 31, 1998,
as compared to the conveyance of the assets of six Company-owned stores to
franchisees during the comparable period in 1997.

      The Company's gross profit margin was 73% for both of the three months
ended March 31, 1998 and March 31, 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 388,000, or 10.1%, to $4,237,00 for the
three months ended March 31, 1998, as compared to $3,849,000 for the
comparable period in 1997. This increase was principally due to the increase
in the number of Company-owned and/or managed stores over the comparable
period in 1997.

      General and administrative expenses (including interest expense,
depreciation and bad debt expense) increased $39,000, or 1.1%, to $3,717,000
for the three months ended March 31, 1998, as compared to $3,678,000 for the
comparable period in 1997. This increase was principally due to an increase in
depreciation and amortization expense of approximately $208,000, to $615,000
for the three months ended March 31, 1998, as compared to $407,000 for the
same period in 1997, which increase was offset, in part, by a decrease in
payroll costs related to the Company's reduction in administrative payroll.

      The Company's income before taxes increased to $166,000 for the three
months ended March 31, 1998, as compared to a loss of ($1,695,000) for the
comparable period in 1997. This increase was principally due to a non-cash
charge against earnings, for the three months ended March 31, 1997, in the
amount of approximately $2,021,000, as a result of the Company's issuance and
sale, in February, 1997, of its Convertible Debentures due August 25, 1998
(see Note 5). In addition, for the three months ended March 31, 1998, income
before taxes reflected gains on the conveyance of Company owned store assets
to franchises of approximately $75,000, as compared to approximately $700,000
for the comparable period in 1997.


                                      14

<PAGE>

Liquidity and Capital Resources

      On February 26, 1997, the Company entered into Convertible Debentures
and Warrants Subscription Agreements (see Note 4) with certain investors in
connection with the Private Placement. The Company utilized the net proceeds
(approximately $7,500,000) of the Private Placement to: (i) repay $1,000,000
of the loans made to it by Drs. Robert, Alan and Edward Cohen, as discussed
above, together with interest thereon, in the approximate amount of $50,000;
and, (ii) pay down the Company's revolving line of credit with Chase Manhattan
Bank ($1,000,000), with the balance of such proceeds being utilized by the
Company for general corporate purposes.

       As of March 31, 1998 and December 31, 1997, the Company had $8,406,000
and $3,472,000, respectively, in working capital, and $717,000 and $334,000,
respectively, of cash and cash equivalents. During the twelve months ended
December 31, 1998, the Company anticipates having the following capital
requirements: renovating one existing Company-owned store; the continuing
upgrade of the Company's management information system in conjunction with the
A-P Systems being installed in its Company-owned stores, in the aggregate,
approximate amount of $250,000; acquiring retail optical stores, subject to
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
three months ended March 31, 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 measure
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. Although the Company believes that it will be in compliance
with such covenants by the end of 1998, there can be no assurance that it will
be able to do so 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. Accordingly, the Company believes that its current
cash resources and cash flow from operations would be sufficient to fund its
anticipated capital expenditures in 1998.

                                      15

<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 Matters 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.

  10.77        Waiver, dated April 14, 1998, to the Company's Loan Agreement,
               dated June 30, 1997, as previously amended on October 9, 1997
               (Incorporated by reference to Exhibit 10.77 to the Company's
               Annual Report on Form 10-K for the year ended December 31,
               1997).

  10.78        Form of Exchange Agreement, with Exhibits attached thereto,
               entered into on April 14, 1998, effective as of February 17,
               1998, between the Company and the holders of its Convertible
               Debentures Due February 17, 1999 (Incorporated by reference to
               Exhibit 10.78 to the Company's Current Report on Form 8-K,
               dated April 14, 1998).

  10.79        Contract of Sale, dated May 6, 1998, pursuant to which Insight
               Laser Centers N.Y. I, Inc. purchased, from Nassau Center for
               Ambulatory Surgery, Inc., substantially all of the non-medical
               assets of an ambulatory surgery center located in Garden City,
               New York. (Incorporated by reference to Exhibit 10.79 to the
               Company's Current Report on Form 8-K, dated May 6, 1998).

  10.80        Contract of Sale, dated May 6, 1998, pursuant to which Insight
               AmSurg Centers, Inc. has agreed to purchase, from Nassau Center
               for Ambulatory Surgery, Inc., the New York State License and
               Certificate of Need for an ambulatory surgery center located in
               Garden City, New York (Incorporated by reference to Exhibit
               10.80 to the Company's Current Report on Form 8-K, dated May 6,

               1998).

                                      16

<PAGE>

  10.81        Form of Convertible Debentures and Warrants Subscription
               Agreement, with Exhibits attached thereto, dated February 17,
               1998, representing the form of Debenture and Warrant
               (Incorporated by reference to Exhibit 4.2 to the Company's
               Current Report on Form 8-K, dated February 17, 1998).

  10.82        Employment Agreement, dated as of March 2, 1998, between the
               Company and William J. Young.

  10.82        Letter from Deloitte & Touche LLP, dated May 12, 1998, in
               response to the Company's Current Report on Form 8-K, dated May
               1, 1998 (Incorporated by reference to Exhibit 16 to the
               Company's Current Report on Form 8-K/A, dated May 13, 1998).

B.      Reports on Form 8-K.

      1.       On February 17, 1998, the Company filed a Report on Form 8-K
               with respect to its issuance and sale of its Convertible
               Debentures Due February 17, 1999.

      2.       On April 14, 1998, the Company filed a Report on Form 8-K with
               respect to the exchange of its Convertible Debentures Due
               February 17, 1999, for shares of its Senior Convertible
               Preferred Stock.

      3.       On May 1, 1998, the Company filed a Report on Form 8-K with
               respect to its decision to replace its auditors for the 1998
               fiscal year.

      4.       On May 1, 1998, the Company filed a Report on Form 8-K with
               respect to its acquisition of the assets of an ambulatory
               surgery center located in Garden City, New York.

      5.       On May 13, 1998, the Company filed a Report on Form 8-K/A with
               respect to Deloitte & Touche LLP's response to the Company's
               Report on Form 8-K, dated May 1, 1998.


                                      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/
                                                Treasurer

                                                Dated: April 15, 1998



                                      18