<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-Q/A

(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>

Item 1.  Financial Statements

                     STERLING VISION, INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                             (Dollars In Thousands)
<TABLE>
<CAPTION>
                                                                          September 30     December 31,
                                                                              1998            1997
                                                                            -------         -------
                                                                                  (Unaudited)
<S>                                                                          <C>             <C>    
ASSETS
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
                                                  (As restated)   (As restated)     (As restated)    (As restated)
<S>                                                  <C>             <C>               <C>              <C>     
Systemwide sales (Unaudited)                         $38,036         $42,013           $114,364         $114,950
                                                     =======         =======            =======          =======

Revenues:

   Net sales - Company stores                        $ 6,139         $ 5,554           $ 17,438         $ 16,211
   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                                        $8,940         $ 9,071           $ 26,318         $ 26,491
                                                     -------         -------           --------         --------

Costs and expenses:
   Cost of sales                                     $ 1,509         $ 1,495           $  4,363         $  4,372
   Selling expenses                                    4,141           3,419             11,716            9,947
   General and administrative expenses                 3,954           4,189             13,075           11,118
   Loss from managed stores                              271              66                331               99
   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                             $12,706         $10,982           $ 34,343         $ 31,488
                                                     -------         -------           --------         --------

(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                          14,536          13,801             14,536           13,801
                                                     =======         =======           ========         ========

Basic (loss) per common share                        $  (.26)        $  (.14)          $   (.61)        $   (.36)
                                                     =======         =======           ========         ========


See accompanying notes to Consolidated Condensed Financial Statements.
</TABLE>


                                      -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>

                                   Preferred Stock        Common Stock     Additional                Total
                                   ----------------   -------------------   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 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


                                      -8-
<PAGE>


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 satisfy, pay and discharge, in full, all
amounts then due by the Company to: (i) the Bank ($5,035,000, together with


                                      -11-
<PAGE>


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 - Company-Managed Stores

         In the fourth quarter of 1998, the Company, as required, adopted the
provisions of Emerging Issues Task Force Issue 97-2 ("EITF 97-2"), "Application
of FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management
Entities and Certain Other Entities with Contractual Management Arrangements."
As of September 30, 1998, the Company managed a total of 12 locations for
franchisees under the terms of management agreements. Such agreements generally
provide for the operations of the location to be run by the Company, with
primarily all operating decisions made by Company employees. The Company owns
the inventory at the locations and is generally responsible for the collection
of all revenues, and the payment of expenses.

         In connection with the adoption of EITF 97-2, the Company is restating
the financial statements contained in this Quarterly Report on Form 10-Q/A for
the nine month period ended September 30, 1998; in addition, the Company has
deconsolidated the results of operations of certain franchise locations operated
by the Company under management agreements to conform to the provisions of EITF
97-2. Such restatement had the effect of reducing net sales by approximately
$3,487,000 and $1,573,000 and total expenses by approximately $3,818,000 and
$1,672,000 for the nine month periods ended September 30, 1998 and 1997,
respectively. The net result of such operations is classified as loss from
stores operated under management agreements in the accompanying consolidated
statement of operations. Such restatement had no impact on the net loss or net
loss per share for either period.


                                      -13-
<PAGE>


NOTE 13 - 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.

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 Sterling Stores in operation,
consisting of 48 Company-owned (including 6 stores being managed by
Franchisees), 248 franchised stores including 12 stores being managed by the
Company on behalf of the Franchise/owners thereof as of September 30, 1998, as
compared to 317 Sterling Stores in operation, consisting of 50 Company-owned
(including 6 stores being managed by Franchisees), 267 franchised stores
including 6 stores being managed by the Company on behalf of the
Franchise/owners thereof as of September 30, 1997. 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 


                                      -14-
<PAGE>

$(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 $1,227,000, or 7.6%, to $17,438,000 for the nine month period ended
September 30, 1998, as compared to $16,211,000 for the comparable period in
1997. This increase was principally due to 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 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 2.0%, to 75.0% 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 $1,769,000, or 17.8%, to $11,716,000 for
the nine month period ended September 30, 1998, as compared to $9,947,000 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.

         Loss from Company-managed stores increased $(232,000) or 234% to
$(331,000) for the nine month period ended September 30, 1998, from $(99,000)
for the comparable period in 1997. This increase is principally due to an
increase in the number of Company-managed stores for the nine month period ended
September 30, 1998, from the comparable period in 1997.

         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


                                      -15-
<PAGE>


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, 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 


                                      -16-
<PAGE>


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.


                                      -17-
<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.


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<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: May 13, 1999


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