<PAGE>

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

                                   FORM 10-K/A

  X    Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
-----  Act of 1934 For the Year ended December 31, 1998.

       Transition Report pursuant to Section 13 or 15(d) of the Securities
-----  Exchange Act of 1934

       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 Number)

                             1500 Hempstead Turnpike
                              East Meadow, NY 11554
                        Telephone Number: (516) 390-2100
                        (Address and Telephone Number of
                          Principal Executive Offices)

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

Securities registered pursuant to Section 12(b) of the Act:  None

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

                 TITLE                                       EXCHANGE
                 -----                                       --------
Common Stock, par value $.01 per share             Nasdaq National Market System

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:

                          Yes X              No
                             ---               ----

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

       The aggregate market value of the Registrant's Common Stock, par value
$.01 per share (the "Common Stock") held by nonaffiliates of the Registrant as
of March 26, 1999, (based upon the closing price of $3.56 per share as quoted on
the Nasdaq National Market System) was approximately $14,726,000. For purposes
of this computation, the shares of Common Stock held by directors, executive
officers and principal shareholders owning more than 5% of the Registrant's
outstanding Common Stock and for which a Schedule 13G was filed, were deemed to
be stock held by affiliates. As of March 26, 1999, there were approximately
4,134,000 outstanding shares of Common Stock held by nonaffiliates.

       As of March 26, 1999, there were 15,118,524 shares of the Registrant's
Common Stock outstanding.

                       Documents Incorporated by Reference

         The Company's Proxy Statement for the 1999 Annual Meeting of
Shareholders is incorporated herein by reference in Part III of this Annual
Report on Form 10-K.


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<PAGE>

Item 1.  Business

       The Company and its franchises develop and operate retail optical stores
principally under one of the trade names "Sterling Optical," "IPCO Optical,"
"Site For Sore Eyes," "Benson Optical," "Southern Optical," "Superior Optical,"
"Nevada Optical," "Duling Optical," "Monfried Optical," "Kindy Optical" and
"Singer Specs." The Company is presently formulating plans to change the trade
name of most Sterling Stores (other than its Site for Sore Eyes stores located
in Northern California) to "Sterling Optical." The Company also operates
VisionCare of California ("VCC"), a specialized health care maintenance
organization licensed by the California Department of Corporations. VCC employs
licensed optometrists who render services in offices located immediately
adjacent to, or within, most Sterling Stores located in California.

       The Company also affiliates with health care providers (ophthalmologists)
in offering Photorefractive Keratectomy ("PRK"), a procedure performed with an
excimer laser for the correction of certain degrees of myopia
(near-sightedness). The Company's wholly owned subsidiary. Insight Laser
Centers, Inc. ("Insight") and these ophthalmologists enter into agreements
whereby the ophthalmologists pay the Company a fee for each, PRK procedure
performed using an excimer laser installed in their offices by Insight. As of
December 31, 1998, the Company  held leases for 6 excimer lasers, each with a
purchase option for nominal consideration. The Company currently owns and
operates one Insight Laser Center located in New York City, and has placed its
additional 5 excimer lasers in ophthalmological offices located in New York,
California, Pennsylvania, Delaware and New Jersey.

       The Company also operates a full service ambulatory surgery center
located in Garden City, New York, which contains 4 surgical operating rooms.

General

       The Company is one of the largest chains of retail optical stores and the
second largest franchise optical chain in the United States, based upon domestic
sales and the number of locations of Company-owned and franchised stores
(collectively referred to herein as "Sterling Stores").

       As of December 31, 1998, there were 292 Sterling Stores in operation,
consisting of 41 Company-owned stores (including 6 stores being managed by
Franchisees), 251 franchised stores including 12 stores being managed by the
Company on behalf of the Franchisee/owners thereof. The Company continually
seeks to expand both its Company-owned and franchised store operations. As of
December 31, 1998, Sterling was constructing 2 additional Company stores and an
additional 4 franchised stores, and had received commitments from existing
franchisees to develop an additional 17 franchised stores. Sterling Stores are
located in 26 states, the District of Columbia, Ontario, Canada, and the U.S.
Virgin Islands.

       Most Sterling Stores 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. To the
extent permitted by individual state regulations, an optometrist is employed by,
or affiliated with, most Sterling Stores, to provide professional eye
examinations to the public. The Company fills prescriptions from these employed
or affiliated optometrists, as well as from unaffiliated optometrists and
ophthalmologists. Most Sterling Stores have an inventory of ophthalmic and
contact lenses, as well as on-site lab equipment for cutting and edging
ophthalmic lenses to fit into eyeglass frames, which, in many cases, allows
Sterling Stores to offer same-day service.

       One of the Company's strategies is to treat certain of its Company-owned
stores as "inventory" to be strategically sold to qualified franchisees. By
selling Company-owned Sterling Stores to franchisees, the Company hopes to
achieve two goals: to recognize a gain on the conveyance of the assets of such
stores, and to create a stream of royalty payments based upon a percentage of
the gross revenues of the franchised locations. Sterling currently derives its
revenues principally from: the sale of eyecare products and services at
Company-owned stores; ongoing royalties based upon a percentage of gross
revenues of franchised stores; and the conveyance of Company-owned store assets
to existing and new franchisees.

       While most Sterling Stores presently operate under one of the trade names
"Sterling Optical," "IPCO Optical," "Site For Sore Eyes," "Benson Optical,"
"Southern Optical," "Superior Optical," "Nevada Optical," "Duling Optical,"
"Monfried Optical," "Kindy Optical," and "Singer Specs," the Company is in the
process of changing the trade name of most Sterling Stores (other than those of
its Site for Sore Eyes stores located in Northern California) to "Sterling
Optical". The Company also operates VisionCare of California ("VCC"), a
specialized health care maintenance organization licensed by the California
Department of Corporations. VCC employs licensed optometrists who render
services in offices located immediately adjacent to, or within, most Sterling
Stores located in California.

       The Company also affiliates with health care providers (ophthalmologists)
in offering PRK, a procedure performed with an excimer laser for the correction
of certain degrees of myopia (near-sightedness). The Company's wholly owned
subsidiary, Insight Laser Centers, Inc. ("Insight") and these ophthalmologists
enter into agreements whereby the ophthalmologists pay the Company a fee for
each PRK procedure performed using an excimer laser installed in their offices
by Insight. As of December 31, 1998, the Company


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held leases for six excimer lasers, each with a purchase option for nominal
consideration. The Company currently owns and operates one Insight Laser Center
located in New York City, and has placed its additional five excimer lasers in
ophthalmological offices located in New York, California, Pennsylvania, Delaware
and New Jersey.

       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 the Center; (ii) entered into a long-term lease of the premises
in which the Center is located; and (iii) entered into an agreement whereby 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 an affiliate of the Company, after
which time it will continue to manage such operations on behalf of such
affiliate.

Background of the Company

       Sterling was incorporated under the laws of the State of New York in
January 1992 and, in February 1992, purchased substantially all of the assets
(the "IPCO Acquisition") of Sterling Optical Corp., f/k/a IPCO Corporation
("IPCO"), a New York corporation then a debtor-in-possession under Chapter 11 of
the U.S. Bankruptcy Code. Subsequent to the IPCO Acquisition, the Company, in
October 1993, acquired, through a merger, 26 retail optical stores (both company
operated and franchised) operating under the name "Site For Sore Eyes" ("SFSE")
and located in Northern California (the "SFSE Merger"). In connection with the
SFSE Merger, the Company also acquired VCC. In addition, the Company: (i) in
August 1994, purchased the assets of 8 additional retail optical stores located
in New York and New Jersey (the "Pembridge Transaction") from Pembridge Optical
Partners, Inc. ("Pembridge"); (ii) in November 1995, acquired, through one of
its wholly-owned subsidiaries, substantially all of the retail optical assets of
Benson Optical Co., Inc., OCA Acquisition Corp. and Superior Optical Company,
Inc. (the "Benson Transaction"), including the assets located in approximately
70 retail optical store locations, a substantial number of which were
subsequently closed by the Company; (iii) in May 1996, acquired, through one of
its wholly-owned subsidiaries (the "VCA Transaction"), substantially all of the
retail optical assets of Vision Centers of America, Ltd., D & K Optical, Inc.,
Monfried Corporation and Duling Finance Corporation (collectively, "VCA"),
including the assets located in approximately 13 company operated stores and
franchise agreements, together with related agreements, with respect to
approximately 75 additional franchised stores; and (iv) in April 1997, acquired,
in exchange for shares of its Common Stock, all of the issued and outstanding
capital stock of Singer Specs, Inc., a chain of approximately 30 franchised
retail optical stores (the "Singer Transaction").

       The following chart sets forth the breakdown of Sterling Stores as of
December 31, 1998 and December 31, 1997:

<TABLE>
<CAPTION>
                                                                                                     December 31

                                                                                           1998                    1997
                                                                                           ----                    ----
<S>                                                                                        <C>                     <C>
 I.    COMPANY-OWNED STORES:

             Company-Owned Stores in Operation............................................  35                       50
             Company-Owned Stores Being Managed by Franchisees............................   6                        0
             Leases Under Negotiation.....................................................   2                        3
                                                                                             -                        -

                           Total..........................................................  43                       53
                                                                                            ==                       ==

             Existing store locations: California (10), Illinois (1),
             Kentucky (2), Michigan (2), New Jersey (2), New York (20), North
             Dakota (1), Pennsylvania (2) and West Virginia (1).

II.    FRANCHISED STORES:

             Stores in Operation.......................................................... 239                      257
             Franchise Owned Stores Being Managed by Company..............................  12                        6
             Stores Under Construction....................................................   4                        2
                                                                                             -                        -

                           Total.......................................................... 255                      265
                                                                                           ===                      ===

</TABLE>


                Existing store locations: California (22), Colorado (1),
                Connecticut (1), Delaware (5), Florida (2), Iowa (6), Illinois
                (8), Indiana (1), Kentucky (5), Maryland (19), Massachusetts
                (1), Michigan (4), Minnesota (20), Missouri (7), Montana (2),
                Nebraska (3), Nevada (1), New Jersey (8), New York (44), North
                Carolina (4), North Dakota (7), Pennsylvania (20), South Dakota
                (3), Virginia (10), Washington, D.C. (1), West Virginia (4),
                Wisconsin (31), Ontario, Canada (10) and the U.S. Virgin Islands
                (1).


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<PAGE>

       Sterling Stores generally range in size from approximately 1,000 square
feet to 2,000 square feet, are substantially similar in appearance and are
operated under certain uniform standards and operating procedures. Many Sterling
Stores are located in enclosed regional shopping malls and smaller strip
centers; however, some Sterling Stores are located on the ground floor of office
buildings or other commercial structures. A limited number of Sterling Stores
are housed in freestanding buildings with adjacent parking facilities, and
certain Sterling Stores are situated in professional optometric offices (such as
facilities which also include sports therapy, physical therapy and other medical
services), clinics or hospitals. Sterling Stores are generally clustered within
geographic market areas to maximize the benefit of advertising strategies and
minimize the cost of supervising operations. Sterling Stores which are not
clustered within geographic market areas (e.g., Sterling Stores located in West
Virginia and Massachusetts) have not produced results from which any consistent
performance standards can be drawn by the Company.

       Most Sterling Stores offer a full line of prescription and
non-prescription eyeglasses, sunglasses and contact lenses, and, if permitted
under applicable law, professional eye examinations which are performed by
employed or affiliated optometrists. In response to the eyewear market becoming
increasingly fashion-oriented during the past decade, most Sterling Stores carry
a large selection of designer eyeglass frames. The Company continually
test-markets various brands of sunglasses, ophthalmic lenses, contact lenses and
designer frames in an attempt to maximize systemwide sales and profits from
these categories of merchandise. Small quantities of these items are usually
purchased for selected stores that test customer response and interest. If a
product test is successful, the Company attempts to negotiate a systemwide
preferred vendor discount for the product, and the discount is made available to
the Company's franchisees. In addition, a full line of eyeglass and contact lens
accessories is also available at most Sterling Stores. For the year ended
December 31, 1998, net sales at Company-owned stores were approximately
$23,163,000, and net sales at Company-managed stores were approximately
$4,503,000.

       Most Sterling Stores maintain a working inventory of the most often
prescribed contact and ophthalmic lenses and an on-site facility for cutting and
edging ophthalmic lenses to fit into eyeglass frames, which enables most
Sterling Stores to offer same-day or next-day service to the majority of
customers ordering prescription eyeglasses.

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."
In connection with the adoption of EITF 97-2, for the year ended December 31,
1998, the Company deconsolidated the results of operations of certain franchise
locations operated by the Company under management agreements. In accordance
with EITF 97-2, the results of operations for the years ended December 31, 1997,
and 1996 have been restated to conform to the provisions of EITF 97-2 applied to
the year ended December 31, 1998. Such restatement had the effect of reducing
net sales by approximately $2,047,000 and $981,000 and total expenses by
approximately $2,220,000 and $1,246,000 for the years ended December 31, 1997
and 1996, respectively. Such restatement had no impact on the net loss or net
loss per share for either period.

       During 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. For the year ended December 31, 1998, such stores
generated revenue of approximately $4,503,000 and total expenses of $5,295,000.
The net result of such operations is classified as loss from stores operated
under management agreements in the accompanying consolidated statement of
operations.

       Effective December 31, 1998, the Company acquired 6 stores previously
operated under management agreements from a franchisee.

Franchise Operations

       As of December 31, 1998, the Company had 251 franchised stores in
operation, as compared to 263 franchised stores as of December 31, 1997. An
integral part of the Company's franchising system includes providing what the
Company believes to be a high level of marketing, financial, training and
administrative support to its franchisees. The Company provides "grand opening"
assistance for each new franchised location by consulting with its franchisees
with respect to store design, fixture and equipment requirements and sources,
inventory selection and sources, and initial marketing and promotional programs.
Specifically, the Company's grand opening assistance: (i) helps to establish
business plans and budgets; (ii) provides preliminary store designs and plan
approval prior to construction of a franchised store; and (iii) provides initial
training, an operations manual and a comprehensive business review to aid the
franchisee in attempting to maximize its sales and profitability. In addition,
the Company generally restricts itself from operating or franchising other
Sterling Stores within a specified radius of existing franchised stores.
Further, on an ongoing basis the Company provides training through regional
seminars and an annual convention, offers assistance in marketing and
advertising programs and promotions, and consults with its franchisees as to
their management and operational strategies and business plans.


                                       4
<PAGE>

       Preferred Vendor Network. With the collective buying power of
Company-owned and franchised stores, the Company has established a network (the
"Preferred Vendor Network") of preferred vendors (the "Preferred Vendors") whose
products may be purchased directly by franchisees at group discount prices,
thereby providing the franchisees with the opportunity for higher gross margins.
In addition, many Preferred Vendors pay promotional fees to the Company to be
used to defray a portion of the Company's costs in conducting certain meetings,
training seminars, conventions and other activities.

       Franchising Agreements. Each franchisee enters into a franchise agreement
(the "Franchise Agreement") with the Company, the material terms of which
generally are as follows:

        (a) Term. Generally, the term of each Franchise Agreement is ten years
and, subject to certain conditions, is renewable at the option of the
franchisee.

        (b) Initial Fees. Generally, all franchisees (except for any franchisees
converting their existing retail optical store to a Sterling Store [a "Converted
Store"] and those entering into agreements for more than one location) must pay
the Company a non-recurring, initial franchise fee of $20,000. The Company
charges each franchisee of a Converted Store a non-recurring, initial franchise
fee of $10,000 per location; and, for each franchisee entering into agreements
for more than one location, the Company charges a non-recurring, initial
franchise fee of $15,000 for the second location, and $10,000 for each location
in excess of two. Initial fees collected by the Company for the year ended
December 31, 1998 were approximately $238,000.

        (c) Ongoing Royalties. Typically, all franchisees are obligated to pay
the Company ongoing royalties in an amount equal to a percentage (generally 8%)
of the gross revenues of their Sterling Store. Franchisees of Converted Stores,
however, pay ongoing royalties on their store's historical average base sales at
reduced rates increasing (in most cases) from 2% to 6% for the first four years
of the term of the Franchise Agreement. In addition, most of the Franchise
Agreements acquired by the Company in the Singer Transaction (the "Singer
Franchise Agreements") provide for ongoing royalties calculated at 7% of gross
revenues. Franchise Agreements entered into prior to January 1994 provide for
the payment of ongoing royalties on a monthly basis, while those entered into
after January 1994 provide for their payment on a weekly basis, in each case,
based upon the gross revenues for the preceding period. Gross revenues generally
include all revenues generated from the operation of the Sterling Store in
question, except for refunds to customers, sales taxes, a limited amount of bad
debts, and, to the extent required by state law, fees charged by independent
optometrists. Ongoing royalty fees earned by the Company for the year ended
December 31, 1998 were approximately $9,135,000.

        (d) Advertising Fund Contributions. Most franchisees must make ongoing
contributions to one of two advertising funds (the "Advertising Funds") equal to
a percentage of their store's gross revenues. Except for the Singer Franchise
Agreements, which generally provide for contributions equal to 7% of gross
revenues, for Franchise Agreements entered into prior to August 1993, the rate
of contribution is generally 4% of the store's gross revenues, while Franchise
Agreements entered into after August 1993 generally provide for contributions
equal to 6% of the store's gross revenues. For the year ended December 31, 1998,
the Company received approximately $4,432,000 in Advertising Fund contributions
from franchisees.

        (e) Financing. The Company generally has financed up to 90% of the
acquisition price, to be repaid over a period of seven years, together with
interest computed at the rate of 12% per annum. The Company generally does not
finance the initial, non-recurring franchise fee or rent security deposits,
which are generally required under a franchisee's sublease. The purchase price
is generally based upon the historical and projected cash flow of the Sterling
Store in question and, in 1998, ranged from approximately $5,000 to $810,000.
However, the Company has on occasion financed, and may in the future finance, up
to 100% of the acquisition price of a franchised store. Substantially all such
financing is personally guaranteed by the franchisee (or, if a corporation, by
the principals owning in excess of an aggregate of 51% thereof) and is generally
secured by all of the assets of the store in question, including after acquired
assets and the proceeds thereof. From time to time, certain franchisees obtain
financing from third parties. In such cases, the Company generally subordinates
its security interest in the assets of the franchised location to the security
interests granted to the provider of such financing.

        (f) Termination. Franchise Agreements may be terminated if the
franchisee has defaulted on its payment of monies due to the Company, or in its
performance of the other terms and conditions of the Franchise Agreement. During
1998, 18 franchised stores were closed, an additional 8 franchised stores and
substantially all of the assets located therein were voluntarily surrendered and
transferred back to the Company in connection with the termination of the
related Franchise Agreements, although the Company, in January, 1999, reinstated
4 of such agreements. The Company has, in many such instances, reconveyed the
assets of certain of such stores to a new franchisee, whereby the new franchisee
enters into Sterling's then current form of Franchise Agreement.


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<PAGE>

Insight Laser Centers

       An integral part of the Company's business strategy of becoming a
full-service eyecare company, originally included developing and/or managing a
chain of eyecare centers offering PRK, under the trade name "Insight Laser."
Published reports indicate that there are at least 50 million Americans who are
myopic (near-sighted). Management believes that some of these individuals would
prefer to correct their vision without a corrective appliance. PRK is an
outpatient procedure performed by ophthalmologists trained to perform the
procedure. During the PRK process, the shape of the cornea (the clear outermost
layer of the eye) is altered by a high-precision, computer controlled excimer
laser which ablates microscopic layers of corneal tissue in a predetermined
pattern to reshape the cornea in a manner that allows it to focus light
properly, thereby correcting, or treating, specific refractive conditions. In
1995 and 1996, the United States Food and Drug Administration ("FDA") approved
the use of excimer lasers manufactured by Summit Technology, Inc. ("Summit") and
VISX, Incorporated ("VISX"), for use in connection with the PRK procedure. Both
Summit and VISX charge a royalty fee for each procedure performed utilizing
their respective excimer lasers.

       As of December 31, 1998, the Company held leases for six excimer lasers,
each with a purchase option for nominal consideration. The Company owns and
operates one Insight Laser Center located in New York City, and has placed its
additional five excimer lasers into ophthalmological offices located in New
York, California, Pennsylvania, Delaware and New Jersey.

Singer Transaction

       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; and, in April, 1998,
Singer Specs, Inc. was merged with and into the Registrant. As of the date of
such acquisition, Singer was the: (i) operator of 4 retail optical stores, each
of which were simultaneously franchised to corporations owned by the
Shareholders; (ii) franchisor of an additional 27 retail optical stores, all of
which were 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, which was sold by the Company in December 1998.

       The Singer Agreement provided for the Shareholders to convey all of their
capital stock to the Company in exchange for shares of the Company's Common
Stock. The Shareholders pledged all such shares of the Company's Common Stock to
secure their obligations under the Singer Agreement, with certain restrictions
as to when the Shareholders could sell certain portions of such Common Stock.

       The Singer Agreement also provided that the Company, under certain
circumstances, pay the Shareholders the difference between the market price of
its Common Stock as of the closing, and the selling price (net of 50% of
commissions) of any such shares subsequently sold by the Shareholders (the
"Price Protection Guaranty"). In 1997, approximately $143,000 was paid to the
Shareholders pursuant to the Price Protection Guaranty related to their sale of
approximately 100,000 shares of the Company's Common Stock.

       On July 31, 1998, the Company and the Shareholders entered into a
Settlement Agreement whereby: (i) the Company released to the Shareholders all
of the remaining shares originally pledged to the Company; (ii) the parties
agreed to reduce the Price Protection Guaranty, from $8.05 to $6.60; (iii) the
Shareholders agreed to pay 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; (iv) the Company agreed to accelerate
the time periods within which the Shareholders could sell such shares of Common
Stock; and (v) the Company waived certain claims it was then alleging against
the Shareholders.

       During 1998, the Company paid the Shareholders approximately $285,000
pursuant to the Price Protection Guaranty related to their sale of approximately
80,000 shares of the Company's Common Stock (see Note 18).

Competition

       The optical business is highly competitive and includes chains of retail
optical stores, superstores, individual retail outlets, the operators of
websites and a large number of individual opticians, optometrists and
ophthalmologists who provide professional services or may, in connection
therewith, dispense prescription eyewear. As retailers of prescription eyewear
generally service local markets, competition varies substantially from one
location or geographic area to another. Since 1994, certain major competitors of
the Company have been offering promotional incentives to their customers; and in
response to this, the Company has, from time to time, offered the same or
similar incentives to its customers, which competitive promotional incentives
adversely affect the Company's results of operations.

       The Company believes that the principal competitive factors in the retail
optical business are convenience of location, on-site availability of
professional eye examinations, quality and consistency of product and service,
price, product warranties, a broad


                                       6
<PAGE>

selection of merchandise and the participation in third party, managed care
provider agreements. The Company believes that it competes favorably in each of
these respects.

       As of December 31, 1998, the Company owned and operated one Insight Laser
Center and had five excimer lasers placed in ophthalmological offices. The
Company believes that its Insight Laser Center, as well as the lasers placed by
it in ophthalmological offices, experience competition from numerous other
companies that have entered the business, in addition to many existing
ophthalmological offices and hospitals that are equipped with excimer lasers
that are adapted to perform the PRK procedure. In addition, as of December 31,
1998, the Company owned substantially all of the assets of an ambulatory surgery
center which the Company believes experiences competition from hospitals and
other similar centers located in the area of the Center.

Marketing and Advertising

       The Company's marketing strategy emphasizes professional eye
examinations, value pricing (primarily through product promotions), convenient
locations, excellent customer service, customer-oriented store design and
product displays, knowledgeable sales associates, and a broad range of quality
products, including privately labeled contact lenses and lens cleaning solutions
presently being offered by the Company and certain of its franchisees.
Optometric examinations by licensed optometrists are generally available on the
premises of, or directly adjacent to, all Sterling Stores.

       The Company continually prepares and revises in-store point of purchase
displays, which provide various promotional messages to customers upon arrival
at Sterling Stores. Both Company-owned and most franchised Sterling Stores
participate in advertising and in-store promotions, which include visual
merchandising techniques to draw attention to the products displayed in Sterling
Stores. The Company has also developed an inter-active website (which it
anticipates will be fully operational in May, 1999) on which its products are
offered, and, in many instances, also uses direct mail advertising to reach
prospective, as well as existing, consumers.

       The Company annually budgets approximately 4% to 6% of systemwide sales
for advertising and promotional expenditures. Franchisees are obligated to
contribute a percentage of their stores' gross revenues to the Company's
segregated advertising fund accounts, which the Company maintains for
advertising, promotions and public relations programs. In most cases, the
Company may expend approximately 50% of such funds as it deems necessary or
appropriate, to advertise and promote all Sterling Stores.

Management Information Systems

       Over the past few years, management had conducted research as to the
availability and development of a point-of-sale computer system (the "POS
System" or the "System") for use in both Company operated and franchised
Sterling stores. The Company tested several systems available in the
marketplace, as well as developed and installed, on a trial basis, its own
Windows-based POS System. During 1995, as a result of this research, the Company
undertook the installation of ADD-POWER, a UNIX-based POS System (the "A-P
System"), that is presently utilized by various retail optical chains in
approximately 600 retail optical stores nationwide, to provide, among other
features, inventory and patient database management. The Company has commenced
utilization of the A-P System and anticipates that it will take between one or
two additional years to install the A-P System in all existing Company-owned
stores. As of December 31, 1998, the Company had installed fourteen A-P Systems
in existing Company-owned stores.

Government Regulation

       Ophthalmic excimer lasers are considered medical devices and are subject
to regulation by the FDA. The Company understands that Summit and VISX, the
manufacturers of the excimer laser systems that the Company currently uses in
its Company-owned Insight Laser Center or makes available to its affiliated
ophthalmologists, have received approval from the FDA for their use to treat
certain degrees of near-sightedness. This approval contains restrictions on the
use, labeling, promotion and advertising of the excimer laser. In addition, as
part of the FDA approval process, Summit and VISX have agreed to conduct
post-marketing studies on the long-term safety of the excimer laser, including
continuing to follow patients treated in existing studies, for at least four
years after FDA approval, to assure that those parties' vision remains stable
over long periods of time.

       Manufacturers of lasers are also subject to regulation under the
Electronic Product Radiation Control Provisions of the Federal Food, Drug and
Cosmetic Act. This law requires laser manufacturers to file new product and
annual reports, maintain quality control, keep product testing and sales
records, incorporate certain design and operating features in lasers to
end-users and certify and label each laser sold as belonging to one of four
classes based on the level of radiation (from the laser) that is accessible to
users. Certain maintenance levels at the user level are also required. Various
warning labels must be affixed and certain protective devices installed,
depending on the class of the product. The Federal Food, Drug and Cosmetic Act
applicable to all medical devices, imposes fines and other remedies for
violations of the regulatory requirements.

       The Company and its operations (including those pertaining to the
operation of its ambulatory surgery center) are subject to extensive federal,
state and local laws, rules and regulations affecting the health care industry
and the delivery of health care,


                                       7
<PAGE>

including laws and regulations prohibiting the practice of medicine and
optometry by persons not licensed to practice medicine or optometry, prohibiting
the unlawful rebate or unlawful division of fees and limiting the manner in
which prospective patients may be solicited. The regulatory requirements that
the Company must satisfy to conduct its business will vary from state to state.
In particular, some states have enacted laws governing the ability of
ophthalmologists and optometrists to enter into contracts to provide
professional services with business corporations or lay persons and some states
prohibit the Company from computing its continuing royalty fees based upon a
percentage of the gross revenues of the fees collected by its affiliated
optometrists. Various federal and state regulations limit the financial and
non-financial terms of agreements with these health care providers; and the
revenues potentially generated by the Company differ among its various health
care provider affiliations.

       The FDA and other United States state or local government agencies may
amend current, or adopt new rules and regulations that could affect the use of
ophthalmic excimer lasers for PRK, and thereby adversely affect the business of
the Company.

       The Company is also subject to certain regulations adopted under the
Federal Occupational Safety and Health Act with respect to its in-store
laboratory operations. The Company believes that it is in material compliance
with all such applicable laws and regulations.

       As a franchisor, the Company is subject to various registration and
disclosure requirements imposed by the Federal Trade Commission and by many
states in which the Company conducts franchising operations. The Company
believes that it is in material compliance with all such applicable laws and
regulations.

Environmental Regulation

       The Company's business activities are not significantly affected by
environmental regulations, and no material expenditures are anticipated in order
for the Company to comply with environmental regulations. However, the Company
is subject to certain regulations promulgated under the Federal Environmental
Protection Act ("EPA") with respect to the grinding, tinting, edging and
disposal of ophthalmic lenses and solutions. In addition, the Company is subject
to additional EPA regulations as a result of its use of the excimer laser
approved by the FDA.

Seasonality

       The Company's retail optical and laser correction businesses, as well as
the operation of its ambulatory surgery center, are not seasonal.

Patents and Trademarks

       The Company has registered the following trademarks and/or servicemarks
with the United States Patent and Trademark Office and the Canadian Registrar of
Trademarks: "Sterling Optical" "IPCO Optical," and "Site For Sore Eyes". The
Company believes that these trademarks and servicemarks have acquired
significant commercial value and have helped to promote the Company's
reputation, even though the Company intends to change the trade name of most
Sterling Stores (other than the Site for Sore Eyes stores located in Northern
California) to "Sterling Optical." In connection with the Benson, VCA and Singer
Transactions, the Company also acquired several additional trademarks, some of
which the Company continues to utilize in connection with the operation of its
Sterling Stores.

Employees

       As of December 31, 1998, the Company employed approximately 476
individuals, of which approximately 85% were employed on a full-time basis.
Except for those individuals employed at Company operated/managed Sterling
stores located in the New York metropolitan area, and except for those
individuals employed by the Registrant's wholly owned subsidiary, Insight IPA of
New York, Inc. (which solicits managed care provider agreements in the State of
New York), no employees are covered by any collective bargaining agreement. The
Company considers its labor relations with its employees to be good and has not
experienced any interruption of its operations due to disagreements.

Item 2.  Properties.

       The Company's headquarters, approximately 21,950 square feet in size
(approximately 60% of the entire building), are located in an office building
(owned by certain of the Company's principal shareholders) in East Meadow, New
York, under a sublease which expires in 2006. This facility houses the Company's
principal executive and administrative offices.

       The Company leases the space occupied by all of its Company-owed stores
and the majority of its franchised stores. The balance of the leases for
franchisees' Sterling Stores are held in the names of the individual
franchisees.


                                       8
<PAGE>

       Sterling Stores are generally located in commercial areas, including
major shopping malls, strip centers, free-standing buildings and other areas
conducive to retail trade. Certain Sterling Stores, not located in commercial
areas, are located in professional optometric offices, clinics and hospitals.

       The Company leases approximately 4,500 square feet of space in an office
building located in Trump Tower, New York, New York, under a sublease which
expires on May 30, 2000, which houses the Company's Insight Laser Center.

Item 3.  Legal Proceedings.

       The Company is a defendant in certain lawsuits alleging various claims
incurred in the ordinary course of business. These claims are generally covered
by various insurance policies, subject to certain deductible amounts and maximum
policy limits. In the opinion of management, the resolution of existing lawsuits
should not have a material adverse effect, individually or in the aggregate,
upon the Company's business or financial condition. Management believes that
there are no other legal proceedings pending or threatened to which the Company
is, or may be a party, or to which any of its properties are or may be subject,
which are likely to have a material adverse effect on the Company.

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

       There were no matters submitted to a vote by the Company's shareholders
during the fourth quarter ended December 31, 1998.

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

       The Registrant's Common Stock has been listed on the Nasdaq National
Market System ("Nasdaq") under the trading symbol "ISEE" since December 25,
1995. The range of high and low sales prices for the Registrant's Common Stock
for the last two years are as follows:

<TABLE>
<CAPTION>
                                                     1998                                                 1997
                                                     ----                                                 ----

Quarter Ended:                          High                      Low                          High                   Low
-------------                           ----                      ---                          ----                   ---
<S>                                     <C>                       <C>                        <C>                      <C>
March 31                                $6.88                     $4.63                      $10.88                   $4.50
June 30                                 $6.88                     $4.50                       $8.88                   $6.25
September 30                            $7.38                     $2.50                       $8.63                   $5.63
December 31                             $4.75                     $2.13                       $7.88                   $5.50

</TABLE>


       The approximate number of Shareholders of record of the Registrant's
Common Stock at March 26, 1999, was 187.

       The Company has no intention to pay dividends on its Common Stock in the
foreseeable future. It is the present policy of the Company's Board of Directors
to retain earnings to finance the Company's operations and expansion.

       In February 1998, the Registrant issued $3,500,000 (stated value) of its
Senior Convertible Preferred Stock (the "Preferred Stock") (see Note 14 and Note
18), which requires the Company to pay quarterly dividends during the one year
period which commenced on such date, calculated at the rate of 10% per annum.

       During 1998, the Company paid the aggregate sum of $87,500 in cash
($57,500 of interest on its Convertible Debentures Due August 1998 (the "1997
Debentures") and $30,000 of interest on the Preferred Stock) and issued an
aggregate sum of 47,494 registered shares of its Common Stock in payment of two
quarterly dividends on such Preferred Stock, as well as interest on its
Convertible Debentures (see Note 14 and Note 18).


                                       9
<PAGE>

Item 6.  Selected Financial Data

               SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

       This Selected Financial Data should be read in conjunction with the
Consolidated Financial Statements of the Company and the related notes thereto
included in Item 8 of this Report, which consolidated financial statements have
been examined and reported on by Arthur Andersen LLP, independent public
accountants, with respect to the year ended December 31, 1998. The financial
statements for the years ended December 31, 1997, 1996 and 1995 were audited by
Deloitte & Touche LLP, independent public accountants; and the financial
statements for the year ended December 31, 1994 were audited by Janover
Rubinroit, LLC, independent public accountants.

<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                         ---------------------------------------------------------------------
                                                            1998          1997          1996             1995            1994_
                                                         ----------    ----------    ----------       ----------      --------
Statement of Operations Data:                                  (In thousands except for per share data and number of stores)
<S>                                                      <C>           <C>           <C>              <C>             <C>

Systemwide sales                                           $149,947       $146,333      $131,593        $112,258       $104,168
                                                           ========       ========      ========        ========       ========

Net sales - Company-owned stores                            $23,163        $22,402       $27,496         $25,773        $27,684
Franchise royalties                                           9,135          9,550         7,616           6,891          5,921
Net gains and fees from the conveyance of
 Company-owned store assets to Franchisees that are:
    Unrelated parties                                           564          1,462         1,963           2,197          2,832
    Related parties                                            -              -             -               -               519
Other income (1)                                              2,265          2,578         2,287           2,017          1,768
                                                           --------       --------      --------        --------       --------

    Total revenues                                           35,127         35,992        39,362          36,878         38,724
                                                            -------        -------       -------         -------        -------

Cost of sales                                                 8,087          6,973         8,587           6,495          7,590
Selling expenses                                             15,981         16,296        18,961          16,127         16,414
General and administrative expenses                          21,758         17,859        16,743          10,529         11,321
Loss from Company-managed stores (2)                            792            173           265            -              -
Provision for store closings (3)                              2,800          1,336          -               -              -
Amortization of debt discount                                 1,110          5,916          -               -              -
Interest expense                                              1,571          1,601         1,297             831            647
                                                           --------       --------      --------        --------       --------

    Total costs and expenses                                 52,099         50,154        45,853          33,982         35,972
                                                            -------        -------       -------          ------         ------

(Loss) Income before provision for
  income taxes and extraordinary item                       (16,972)       (14,162)       (6,491)          2,896          2,752
Provision for (benefit from) income taxes (4)                  -              -           (2,001)          2,129            127
                                                        -----------    -----------        -------        -------        -------

(Loss) income before extraordinary item                     (16,972)       (14,162)       (4,490)            767          2,625
                                                            --------       --------       -------      ---------         ------

Extraordinary charge for early retirement of debt              (805)             -             -               -              -
Net (loss) income                                          $(17,777)      $(14,162)      $(4,490)       $    767         $2,625
                                                           ---------      ---------      --------       --------         ------

(Loss) income per share of common stock - basic and
  diluted                                               $    (1.22)    $    (1.02)    $    (.36)        $    .08       $    .26
                                                        -----------    -----------    ----------        --------       --------

Weighted average common shares - basic and diluted (6)       14,627         13,883        12,341          10,031          9,963
                                                          ---------      ---------       -------          ------         ------

Pro Forma Statement of Operations Data (Unaudited):(5)

Income before provision for income taxes and
  extraordinary item                                                                                      $2,896         $2,752
Pro forma provision for income taxes                                                                       1,158          1,101
                                                                                                          ------         ------

Pro forma net income before extraordinary item                                                            $1,738         $1,651
Pro forma income per share of common stock - basic
  and diluted                                                                                             $  .17         $  .16

Weighted average common shares - basic and diluted (6)                                                    10,031         10,031


</TABLE>


                                       10
<PAGE>

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                         ---------------------------------------------------------------------
                                                            1998          1997          1996             1995            1994
                                                         ----------    ----------    ----------       ----------      --------
Sterling Store Data:                                                  (In thousands except number of stores)
<S>                                                      <C>           <C>           <C>              <C>             <C>

Company-owned stores bought, opened or reacquired                 6              7            24              39             14
Company-owned stores sold or closed                             (17)           (19)          (33)             (8)           (19)
Company-owned at end of period                                   35             50            62              71             40
Company-owned stores being managed by Franchisees at
   end of period                                                  6              0             0               0              0
Franchised stores being managed by Company at end of
   period                                                        12              6             6               1              0
Franchise-owned/managed stores at end of period                 239            263           257             150            141

Average sales per store: (7)
  Company-owned stores                                     $    478       $    424      $    395        $    659       $    637
  Franchised stores                                        $    475       $    478      $    392        $    600       $    586

Average franchise royalties per
  franchised store (7)                                     $     35       $     37      $     43        $     48       $     45

Balance Sheet Data:

Working capital (deficit)                                   $(3,351)       $ 3,472      $ (3,803)        $16,312        $ 1,750
Total assets                                                 34,494         45,843        46,269          46,455         24,186
Total debt                                                   11,552         15,378        15,184          13,900          8,121
Shareholders' equity                                         12,547         21,271        19,557          22,825         10,517

</TABLE>


(1)      Other income consists primarily of interest income on franchise notes
         receivable and funds provided by certain Preferred Vendors for use in
         connection with the Company's annual convention and regional seminars.

(2)      Loss from Company-managed stores represents the loss from those
         Sterling stores which the Company manages on behalf of the
         Franchisees/owners thereof.

(3)      A provision of approximately $2,800,000 and $1,336,000 was established
         for the closing of certain Company stores in 1998 and 1997,
         respectively.

(4)      From May 1, 1992, until the consummation of the Company's initial
         public offering (the "Offering"), the Company operated as an S
         Corporation for federal and state income tax purposes. As a result, the
         Company's 1994 and 1995 earnings through December 19, 1995, the day
         prior to the completion of the Company's Offering (at which date the
         Company's S Corporation status terminated), have been taxed, with
         certain exceptions, for federal and certain state income tax purposes,
         directly to the individuals who were shareholders of the Company
         immediately prior to the consummation of the Offering.

(5)      Pro Forma Statement of Operations Data reflect adjustments to the
         historical income statement data assuming the Company had not elected S
         Corporation status for income tax purposes. The provision for federal
         and state income taxes assumes a combined, effective tax rate of 40%
         for each of the following years: 1994 and 1995.

(6)      Assumes as outstanding during the year ended December 31, 1994,
         9,963,495 shares of Common Stock reflecting the 4,506.31-to-1 stock
         split of the Company's outstanding Common Stock as of the date of the
         Offering; and 12,207,495 shares of Common Stock, reflecting the stock
         split, for the year ended December 31, 1995. In accordance with SFAS
         No. 128, as a result of losses from operations for the years ended
         December 31, 1998, 1997 and 1996, the inclusion of employee stock
         options and Warrants were anti-dilutive and, therefore, were not
         utilized in the computation of diluted earnings per share.

(7)      Average sales per store and average franchise royalties per franchised
         store are computed based upon the weighted average number of
         Company-owned and franchised stores, respectively, for each of the
         specified periods. For periods less than a year, the averages have been
         annualized.


                                       11
<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Results of Operations

For the Year Ended December 31, 1998 compared to December 31, 1997

       Systemwide sales, which represent combined retail sales generated by
Company-owned and franchised stores, as well as revenues generated by VCC and
Insight Laser, increased by approximately $3,614,000, or 2.5%, to approximately
$149,947,000 for the year ended December 31, 1998, as compared to approximately
$146,333,000 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 years ended December 31, 1998 and 1997), systemwide sales increased
by approximately $2,066,000, or 1.7%, to approximately $122,378,000 for the year
ended December 31, 1998, as compared to approximately $120,312,000 for the
comparable period in 1997. There were 230 stores that operated as either a
Company-owned, a Company-managed or a franchised store during the entirety of
both of the years ended December 31, 1998 and 1997.

       Aggregate sales generated from the operation of Company-owned stores
increased by approximately $761,000, or 3.4%, to approximately $23,163,000 for
the year ended December 31, 1998, as compared to approximately $22,402,000 for
the same period in 1997. This increase was principally due to an increase of
2.7% in comparable store sales, offset in part by the closing of certain
Company-owned stores. 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 stores 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 the franchised stores. On a
same store basis, aggregate sales generated by Company-owned stores in operation
during the entirety of both of the years ended December 31, 1998 and 1997,
increased by approximately $333,000, or 2.7%, to $12,910,000 for the year ended
December 31, 1998, as compared to approximately $12,577,000 for the same period
in 1997.

       Aggregate sales generated from the operation of Company-managed stores
increased by approximately $2,456,000, or 120%, to approximately $4,503,000 for
the year ended December 31, 1998, as compared to approximately $2,047,000 for
the comparable period in 1997. This increase was principally due to an increase
in the number of Company-managed stores to 12 stores for the year ended December
31, 1998, as compared to 6 stores for the comparable period in 1997.

       Aggregate sales generated from the operation of franchised stores
increased by approximately $397,000, or .3%, to approximately $122,281,000 for
the year ended December 31, 1998, as compared to approximately $121,884,000 for
the same period in 1997. On a same store basis, aggregate sales generated by
franchised stores in operation during the entirety of both of the years ended
December 31, 1998 and 1997, increased by approximately $1,733,000, or 1.6%, to
approximately $109,468,000 for the year ended December 31, 1998, as compared to
approximately $107,735,000 for the same period in 1997.

       Aggregate ongoing franchise royalties decreased by approximately
$415,000, or 4.4%, to approximately $9,135,000 for the year ended December 31,
1998, as compared to approximately $9,550,000 for the same period in 1997. This
decrease was principally due to a lower number of franchised units in operation
during the year ended December 31, 1998, as compared to the same period in 1997.

       Net gains and fees on the conveyance of Company-owned store assets to
franchisees decreased by approximately $898,000, or 61.4%, to approximately
$564,000 for the year ended December 31, 1998, as compared to approximately
$1,462,000 for the same period in 1997. This decrease was principally due to net
gains on the conveyance of the assets of 4 Company-owned stores to franchisees
for the year ended December 31, 1998, as compared to net gains on the conveyance
of the assets of 20 Company-owned stores to franchisees for the comparable
period in 1997.

       The Company's gross profit margin decreased by 3.8%, to 65.1% for the
year ended December 31, 1998, as compared to 68.9% for the same 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 decreased by approximately $315,000, or 1.9%, to
approximately $15,981,000 or 69% of net sales for the year ended December 31,
1998, from approximately $16,296,000 or 72.7% for the same period in 1997. This
decrease was principally due to lower operating costs related to stores in
operation for the year ended December 31, 1998, as compared to the comparable
period in 1997, offset, in part, by an increase in payroll related expenses.

       General and administrative expenses (including depreciation and provision
for doubtful accounts) increased by approximately $3,899,000, or 21.8%, to
approximately $21,758,000 or 61.9% of net sales for the year ended December 31,
1998, as compared to approximately $17,859,000 or 79.7% for the comparable
period in 1997. The increase was principally due to an increase of


                                       12
<PAGE>

approximately $5,200,000 in the Company's provision for doubtful accounts,
reflecting the Company's assessment that certain receivables have become
uncollectible, offset, in part, by a reduction in payroll costs as a result of
the Company's reduction in certain administrative overhead expenses.

       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 approximately $2,800,000 for the year ended December 31, 1998, as compared to
approximately $1,336,000 for the comparable period in 1997.

       Loss from the operation of franchised stores managed by the Company
increased by approximately $619,000, or 358%, to approximately $(792,000) for
the year ended December 31, 1998, as compared to approximately $(173,000) for
the comparable period in 1997. This increase was principally due to an increase
in the number of franchised stores managed by the Company to 12, as of December
31, 1998, as compared to 6 for the comparable period in 1997.

       The Company's net loss increased by approximately $3,615,000, or 25.5%,
to a loss of approximately $(17,777,000) for the year ended December 31, 1998,
as compared to a loss of approximately $(14,162,000) for the comparable period
in 1997. The increase in the net loss was principally due to an increase of
approximately $5,200,000 in the Company's provision for doubtful accounts,
reflecting the Company's assessment that certain receivables had become
uncollectible; an increase of approximately $1,464,000 in the Company's
provision for store closings; a non-cash charge of approximately $1,915,000
(approximately $1,110,000 of amortization of debt discount and an extraordinary
loss of approximately $805,000) related to the extinguishment of debt upon the
issuance of the Preferred Stock on April 14, 1998; approximately $421,000 of
costs related to the inducement of Warrant conversions (see Note 14), a
reduction of $898,000 in the net gains on the conveyance of Company-owned store
assets to franchisees; and a $619,000 increase in the losses attributable to
Company-managed, franchised stores; all of which were offset, in part, by a
decrease in the amortization of debt discount of approximately $4,806,000.

For the Calendar-Year Ended December 31, 1997 compared to December 31, 1996

       Systemwide sales, which represent combined retail sales generated by
Company-owned and franchised stores, as well as revenues generated by VCC,
increased by $14,740,000, or 11.2%, to $146,333,000 for the calendar year ended
December 31, 1997, as compared to $131,593,000 for the same period in 1996. On a
same store basis (for stores that operated as either a Company-owned or
franchised store during the entirety of both of the calendar years ended
December 31, 1997 and 1996), systemwide sales decreased by $2,773,000, or 2.5%,
to $108,094,000 for the calendar year ended December 31, 1997, as compared to
$110,867,000 for the same period in 1996. There were 193 stores that operated as
either a Company-owned or franchised store during the entirety of both of the
calendar years ended December 31, 1997 and 1996.

       Aggregate sales generated from the operation of Company-owned stores
decreased by $5,094,000, or 18.5%, to $22,402,000 for the calendar year ended
December 31, 1997, as compared to $27,496,000 for the same period in 1996. Such
decrease was primarily due to the conveyance of the assets of Company-owned
stores to franchisees, as well as the closing of certain Company-owned stores.
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 calendar years ended December 31, 1997 and 1996,
decreased by $640,000, or 3.7%, to $16,801,000 for the calendar year ended
December 31, 1997, as compared to $17,441,000 for the same period in 1996.

       Aggregate sales generated from the operation of Company-managed stores
increased $1,066,000 or 109% to $2,047,000 for the year ended December 31, 1997,
as compared to $981,000 for the comparable period in 1996. This increase was
principally due to an increase in the number of Company-managed stores for the
year ended December 31, 1997, as compared to the comparable period in 1996.

       Aggregate sales generated from the operation of franchised stores
increased by $18,768,000, or 18.2% to $121,884,000 for the calendar year ended
December 31, 1997, as compared to $103,116,000 for the same period in 1996, due
primarily to the acquisition of certain franchised stores on: (i) May 30, 1996,
from VCA and (ii) April 1, 1997, in connection with the Singer Transaction. On a
same store basis, aggregate sales generated by franchised stores in operation
during the entirety of both of the calendar years ended December 31, 1997 and
1996, decreased by $1,482,000, or 1.8%, to $78,734,000 for the calendar year
ended December 31, 1997, as compared to $80,216,000 for the same period in 1996.

       Aggregate ongoing franchise royalties increased by $1,934,000, or 25.4%,
to $9,550,000 for the calendar year ended December 31, 1997, as compared to
$7,616,000 for the same period in 1996, due primarily to an increase in the
number of Company-owned


                                       13
<PAGE>

stores conveyed to franchisees and certain franchised stores acquired in the VCA
and Singer Transactions.

       Net gains on the conveyance of the assets of 9 Company-owned stores to
franchisees decreased by $501,000, or 25.5%, to $1,462,000 for the year ended
December 31, 1997, as compared to net gains on the conveyance of the assets of
20 Company-owned stores to franchisees, in the aggregate amount of $1,963,000
for the same period in 1996. Net gains on the conveyance of the assets of
Company-owned stores to franchisees vary depending upon the number of stores
conveyed to franchisees, the consideration paid for the assets of such stores
and the Company's basis (net book value) in the assets of the stores conveyed.

       The Company's gross profit margin increased by .1 percentage points, to
68.9%, for the year ended December 31, 1997, as compared to 68.8% for the same
period in 1996. 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 decreased by $2,665,000, or 14.1%, to $16,296,000 for
the year ended December 31, 1997, as compared to $18,961,000 for the same period
in 1996, due primarily from the conveyance of the assets of Company-owned stores
to franchisees, as well as the closure of certain Company-owned stores.

       General and administrative expenses (including depreciation and provision
for doubtful accounts) increased by $1,116,000 or 6.7%, to $17,859,000 for the
year ended December 31, 1997, as compared to $16,743,000 for the same period in
1996. This increase was primarily due to the following seven factors: (i)
approximately $160,000 in higher occupancy expenses in connection with the
Company's relocation, in the second quarter of 1996, of its administrative
offices; (ii) approximately $380,000 in costs related to stock options granted
to certain consultants to the Company; (iii) approximately $188,000 in costs
related to compensation paid to the Company's new President and Chief Operating
Officer; (iv) approximately $188,000 in consulting fees paid to a company owned
by two of the Company's principal shareholders; (v) approximately $200,000 in
costs related to severance compensation paid to three former executives of the
Company; (vi) approximately $400,000 in amortization costs related to the Singer
Transaction and the shares of Common Stock issued to franchisees during 1996 and
1997; and (vii) an increase in the Company's provision for doubtful accounts, as
discussed below. This increase was partially offset by a decrease in
administrative costs of approximately $1,300,000 related to the business of
Insight. The Company's provision for doubtful accounts, which is included in
general and administrative expenses, increased by approximately $270,000, or
29.1%, to $1,198,000 for the year ended December 31, 1997, as compared to
$928,000 for the same period in 1996, was due primarily to the reduction of the
residual value of franchisee notes pledged to Sanwa.

       Interest expense increased by approximately $304,000, or 23.4%, to
$1,601,000 for the calendar year ended December 31, 1997, as compared to
$1,297,000 for the same period in 1996, substantially due to the costs related
to stock options granted as consideration of certain loans made to the Company
by certain of its principal shareholders.

       Loss from the operation of franchised stores managed by the Company
decreased by $92,000, or 34.7%, to $(173,000) for the year ended December 31,
1997, as compared to a loss of $(265,000) for the comparable period in 1996.

       The Company's loss before income taxes increased by $7,671,000, or
118.2%, to a loss of $14,162,000 for the year ended December 31, 1997, as
compared to a loss of $6,491,000 for the same period in 1996. This increase was
primarily due to the following five factors: (i) a charge against earnings, in
the approximate amount of $5,916,000, the non-cash portion which was $5,436,000,
as a result of the Company's issuance and sale, in February, 1997, of its
Convertible Debentures due August 23, 1998, which charge is being credited to
the Company's paid-in-capital (See Note 14) over the period of time that the
holders thereof actually convert the Debentures into shares of the Company's
Common Stock (See Note 14); (ii) approximately $772,000 in lease termination
costs related to the closure of eleven Company-owned stores; (iii) the reduction
in the net gains on the conveyance of Company-owned store assets to franchisees;
(iv) the increase in general and administrative costs as discussed above; and
(v) approximately $564,000 in asset impairment costs. This increase was
partially offset by the decrease in selling expenses and the decrease in
administrative costs related to the business of Insight.

Liquidity and Capital Resources

       The Company has incurred losses before income taxes and extraordinary
items aggregating approximately $37,625,000 over the three year period ended
December 31, 1998, and has a working capital deficiency of $3,351,000 as of
December 31, 1998.

       For the year ended December 31, 1998, cash flows used in operating
activities were $4,120,000, as compared to cash flows used in operating
activities of $7,629,000 for the year ended December 31, 1997. Cash flows from
operating activities were relatively flat, as compared to the net loss of
$17,777,000 for the year ended December 31, 1998, as significant components of
the loss for the year represented non-cash charges.

       For the year ended December 31, 1998, cash flows used in investing
activities were $3,138,000 comprised primarily of cash used in acquisitions and
purchases of property and equipment.


                                       14
<PAGE>

       For the year ended December 31, 1998, cash flows provided by financing
activities were $3,868,000, comprised primarily of the proceeds from the
issuance of convertible debentures. The net impact of other financing activities
(proceeds from net of payments made under various debt arrangements) was not
significant.

       The Company believes that, in the furtherance of its business strategies,
the Company's future capital requirements will include i) renovating and/or
remodeling of Company-owned stores, ii) acquiring retail optical stores, subject
to the availability of qualified opportunities and iii) continued upgrading of
management information systems within the retail chain. Additionally, the
Company is likely to continue to provide financing of sales of Company-owned
stores to franchisees, which is likely to defer the inflow of cash relating to
the sales of such assets.

       The Company believes that it will improve cash flows during 1999 based on
the following factors, among others: i) closing certain under-performing
Company-owned stores, ii) improvement in store profitability through increased
monitoring of store by store operations and actual results as compared to
expected results, iii) expected increases in operations and cash flows of the
Company's Insight Laser and ambulatory center businesses, and iv) a reduction of
administrative overhead expenses, if necessary.

       As of December 31, 1998, the Company was not in compliance with the
financial covenants of its loan agreement with STI although STI, on April 13,
1999, (i) waived all such defaults through December 31, 1999; (ii) agreed to the
elimination of all prepayment penalties contained in the Loan Agreement; and
(iii) agreed to apply the balance of the Additional Funds ($500,000 plus accrued
interest) to the balance of the loan, all in exchange for the Company's payment,
to STI, of a fee of $150,000, which fee was charged against the Additional Funds
to be credited to the balance of the loan. However, there can be no assurance
that the Company would be able to obtain such a waiver in future periods, should
such financial or other covenants not be met by the Company.

       The Company believes that, based on its current position and the
implementation of the plans described above, sufficient resources will be
available for the Company to continue in operations through the end of 1999.
However, there can be no assurance that the Company will be able to generate
positive cash flows and, if it does, that such cash flows will be sufficient to
adequately fund its ongoing operations and future plans. If the Company cannot
generate sufficient cash flows from operations, it may be required to seek
alternative debt and/or equity financing. However, there can be no assurance
that such debt and/or equity financing will be available to the Company when
necessary, or at terms that are attractive to the Company.

Year 2000

       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.

Impact of Inflation and Changing Prices

       Although the Company cannot accurately determine the precise effect of
inflation on its operations, it does not believe that inflation has had a
material effect on sales or results of operations.

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.


                                       15
<PAGE>

Item 8.  Financial Statements and Supplementary Data

                     STERLING VISION, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                            FOR THE THREE YEARS ENDED

                         DECEMBER 31, 1998 TOGETHER WITH
                          INDEPENDENT AUDITORS' REPORTS

                                TABLE OF CONTENTS

                                                                        PAGE

INDEPENDENT AUDITORS' REPORTS                                          17, 18

CONSOLIDATED FINANCIAL STATEMENTS

     Consolidated Balance Sheets as of December 31, 1998 and 1997        19

     Consolidated Statements of Operations for the Years Ended
                December 31, 1998, 1997 and 1996                         20

     Consolidated Statements of Shareholders' Equity for the
                Years Ended December 31, 1998, 1997 and 1996             21

     Consolidated Statements of Cash Flows for the Years Ended
                December 31, 1998, 1997 and 1996                       22, 23

     Notes to Consolidated Financial Statements                          24




                                       16
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders of
Sterling Vision, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of Sterling Vision,
Inc. (a New York corporation) and subsidiaries as of December 31, 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sterling Vision, Inc. and
subsidiaries as of December 31, 1998, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.

Arthur Andersen LLP
Melville, New York

April 13, 1999




                                       17
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders of
Sterling Vision, Inc. and Subsidiaries
East Meadow, New York

We have audited the accompanying consolidated balance sheets of Sterling Vision,
Inc. and Subsidiaries (the "Company") as of December 31, 1997 and the related
statements of operations, shareholders' equity, and cash flows for the two years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Sterling Vision, Inc. and
Subsidiaries as of December 31,1997 and the results of its operations and its
cash flows for the two years ended December 31, 1997, in conformity with
generally accepted accounting principles.


Deloitte and Touche LLP
New York, New York

March 27, 1998




                                       18
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                        December 31,
                                                                                                 -------------------------
                                                                                                   1998              1997
                                                                                                 --------           ------
<S>                                                                                              <C>              <C>

ASSETS

Current assets:
         Cash and cash equivalents                                                                $   828         $   334
         Franchise receivables, net of allowance for doubtful accounts of $2,060 and
            $514, respectively                                                                      2,257           5,956
         Other receivables                                                                          1,121           2,490
         Current portion of notes receivable from franchisees                                       3,077           3,301
         Inventories                                                                                2,268           3,310
         Due from related parties                                                                     125             110
         Prepaid expenses and other current assets                                                    395             516
                                                                                                 --------        --------

                  Total current assets                                                             10,071          16,017

Property and equipment, net                                                                         8,104           9,903

Franchise and other notes receivable - net of allowance for doubtful accounts
         of $450 for 1998 and $562 for 1997                                                        11,359          14,884

Goodwill/net                                                                                        3,735           2,957
Restricted cash                                                                                       624             550

Other assets                                                                                          601           1,532
                                                                                                 --------          ------

                                                                                                   34,494          45,843
                                                                                                  =======          ======

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
         Current portion of long-term debt                                                        $ 4,130         $ 3,477
         Accounts payable and accrued liabilities                                                   7,099           6,126
         Accrual for store closings                                                                 1,254             453
         Convertible debentures                                                                       -             1,652
         Franchise deposits and other current liabilities                                             939             837
                                                                                                 --------        --------

                  Total current liabilities                                                        13,422          12,545

Long-term debt                                                                                      7,422          10,249
Deferred franchise income                                                                              90              96
Excess of fair value of assets acquired over cost                                                   1,013           1,362
Lease termination costs                                                                              -                320

Commitments and contingencies (Note 10)
Shareholders' equity:
  Preferred stock, $.01 par value per share; authorized 5,000,000 shares;
    35 shares issued and outstanding                                                                4,025            -
  Common stock, $.01 par value per share; authorized 28,000,000 shares;
    14,920,351 and 13,927,227 issued and outstanding in 1998 and 1997, respectively                   149             139
  Additional paid-in capital                                                                       46,036          40,843
  (Accumulated deficit)                                                                           (37,663)        (19,711)
                                                                                                  --------        --------
                                                                                                   12,547          21,271
                                                                                                 --------        --------

                                                                                                  $34,494         $45,843
                                                                                                 ========        ========

</TABLE>



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


                                       19
<PAGE>

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


<TABLE>
<CAPTION>
                                                                                   For the Year Ended December 31,
                                                                             --------------------------------------------
                                                                                1998             1997               1996
                                                                             ----------       ----------          -------
<S>                                                                          <C>              <C>                <C>

Revenues:

         Net sales                                                             $23,163           $22,402          $27,496
         Franchise royalties                                                     9,135             9,550            7,616
         Net gains and fees from the conveyance of Company-owned
            assets to franchisees                                                  564             1,462            1,963
         Interest and other income                                               2,265             2,578            2,287
                                                                             ---------         ---------        ---------

Total revenues                                                                  35,127            35,992           39,362
                                                                             ---------         ---------        ---------

Costs and expenses:

         Cost of sales                                                           8,087             6,973            8,587
         Selling expenses                                                       15,981            16,296           18,961
         General and administrative expenses                                    21,758            17,859           16,743
         Loss from stores operated under management agreements                     792               173              265
         Provision for store closings                                            2,800             1,336             -
         Amortization of debt discount                                           1,110             5,916             -
         Interest expense                                                        1,571             1,601            1,297
                                                                             ---------         ---------        ---------

Total costs and expenses                                                        52,099            50,154           45,853
                                                                             ---------         ---------        ---------

Loss before benefit from income taxes and extraordinary item                   (16,972)          (14,162)          (6,491)
Benefit from income taxes                                                         -                 -              (2,001)
                                                                             ---------         ---------        ---------

Loss before extraordinary item                                                 (16,972)          (14,162)          (4,490)
Extraordinary item - loss from early retirement of debt                           (805)             -                  -
                                                                             ---------         ---------        ---------

Net loss                                                                      $(17,777)         $(14,162)         $(4,490)
                                                                              =========         =========         ========


Net loss per common share - basic and diluted:

Loss from continuing operations                                             $    (1.16)       $    (1.02)        $  (0.36)
Extraordinary item - loss from early retirement of debt                          (0.06)            -                   -
                                                                             ---------         ---------        ---------

Net loss                                                                    $    (1.22)       $    (1.02)        $  (0.36)
                                                                            ===========       ===========        =========


Weighted average number of common shares outstanding - basic
         and diluted                                                            14,627            13,883           12,341
                                                                             =========         =========        =========


</TABLE>


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


                                       20
<PAGE>

                     STERLING VISION, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                 (Dollars in Thousands, Except Number of Shares)

<TABLE>
<CAPTION>
                                                                                           Additional                  Total
                                           Preferred   Stock            Common Stock        Paid-In                 Shareholders'
                                             Shares    Amount       Shares       Amount     Capital       Deficit      Equity
                                           ---------   ------       ------       ------    ----------     -------   -------------
<S>                                        <C>         <C>        <C>            <C>       <C>            <C>       <C>

Balance - December 31, 1995                      -     $   -      12,207,495      $122      $23,762      $(1,059)       $22,825

Issuance of 100,000 common
  shares in an over-allotment
  from the public offering
  and 80,040 shares to
  franchisees                                    -         -         180,040         2        1,220           -           1,222
Net loss                                         -         -              -         -            -            -              -
                                            -------    ------     ----------      ----      -------     ---------       -------

Balance - December 31, 1996                      -         -      12,387,535       124       24,982       (5,549)        19,557

Issuance of common
  shares in exchange for debt                    -         -         144,916         1          973           -             974
Issuance of common shares
  related to an acquisition                      -         -         305,747         3        2,293           -           2,296
Issuance of common shares
  to franchisees                                 -         -           4,002        -            30           -              30
Issuance of shares upon
  conversion of debentures                       -         -       1,085,027        11        6,348           -           6,359
Debt discount                                    -         -              -         -         5,436           -           5,436
Non-employee stock options                       -         -              -         -           781           -             781
Net loss                                         -         -              -         -            -       (14,162)       (14,162)
                                            -------    ------     ----------      ----      -------     --------        -------

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 the fair
  value of the 1998 Warrants                     -         -              -         -         1,915           -           1,915
Issuance of shares upon
  conversion of Warrants                         -         -         550,000         6        2,038           -           2,044
Issuance of Senior
  Convertible Preferred Stock                    35     4,025             -         -          (525)          -           3,500
Reduction related to stock
  price guarantees                               -         -              -         -          (285)          -            (285)
Stock dividend on Senior
  Convertible Preferred Stock                    -         -          47,494        -           175         (175)             0
Non-employee stock options                                                                      227                         227
Net loss                                         -         -              -         -            -       (17,777)       (17,777)
                                            -------    ------     ----------      ----      -------     --------        -------

Balance - December 31, 1998                      35    $4,025     14,920,351      $149      $46,036     $(37,663)       $12,547
                                            =======    ======     ==========      ====      =======     ========        =======

</TABLE>



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




                                       21
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                            For the Year Ended
                                                                                               December 31,

                                                                                     1998          1997             1996
                                                                                 ------------  ------------     --------
<S>                                                                              <C>           <C>              <C>

Cash flows from operating activities:
    Net loss                                                                        $(17,777)     $(14,162)      $(4,490)
    Adjustments to reconcile net loss to net
         cash used in operating activities:
             Depreciation and amortization                                             3,000         2,310         1,481
             Allowance for doubtful accounts                                           6,500         1,198           928
             Provision for store closings                                              2,800           772
             Net gain from the conveyance
                of Company-owned assets
                to franchisees                                                          (564)       (1,131)       (1,610)
             Deferred income taxes payable                                               -             -          (2,082)
             Accrued interest                                                             72            84           121
             Amortization of fair value of assets acquired over cost                    (349)         (347)         (231)
             Stock options charged to expense                                            227           781           -
             Amortization of debt discount                                             1,915         5,436           -
    Changes in operating assets and liabilities:
                Accounts receivable                                                     (549)         (477)       (4,541)
                Inventories                                                            1,042           368         1,168
                Prepaid expenses and other current assets                                127           375          (478)
                Other assets                                                           1,122           223            50
                Accounts payable and accrued liabilities                                 536        (2,760)          778
                Franchise deposits and other current liabilities                         102          (387)          400
                Deferred franchise income                                                 (6)         (232)          328
                Accrual for store closings and lease termination
                    costs                                                             (2,318)          320            -
                                                                                      -------      -------       ------

Net cash used in operating activities                                                 (4,120)       (7,629)       (8,178)
                                                                                      -------       -------       -------

Cash flows from investing activities:
    Acquisition, net of cash acquired                                                 (1,598)         -           (4,150)
    Franchise notes receivable issued                                                 (2,001)       (2,658)       (3,901)
    Reduction of franchise and other notes receivable                                  4,968         2,756         1,887
    Purchases of property and equipment                                                 (791)       (1,992)       (5,607)
    Conveyance of property and equipment                                               1,023         2,517         3,536
                                                                                     -------        ------       -------

Net cash provided by (used in) investing activities                                  $ 1,601       $   623       $(8,235)
                                                                                     -------       -------       --------

</TABLE>




                            (Continued on next page)

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


                                       22
<PAGE>

                     STERLING VISION, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                            For the Year Ended
                                                                                               December 31,
                                                                                     1998          1997           1996
                                                                                 ------------  ------------     --------
<S>                                                                              <C>           <C>              <C>
Cash flows from financing activities:
    Sale of common stock and other
          capital contributions                                                        1,759          -              625
    Borrowings under STI Loan Agreement                                                 -            9,500          -
    Repayment of borrowings under STI Loan Agreement                                  (2,587)       (1,380)         -
    Borrowings under Chase Credit Agreement                                             -            1,000           225
    Borrowings under additional Loan Agreement                                         1,610
    Repayment of borrowings under Chase Credit Agreement                              (1,000)       (7,015)         -
    Repayments of other debt                                                            (269)       (3,173)       (2,984)
    Issuance of convertible debentures                                                 3,500         7,540          -
    Other borrowings                                                                    -             -            3,922
                                                                                     -------       -------       -------

Net cash provided by financing activities                                              3,013         6,472         1,788
                                                                                     -------       -------       -------

Net increase (decrease) in cash and cash equivalents                                     494          (534)      (14,625)

Cash and cash equivalents - beginning of year                                            334           868        15,493
                                                                                     -------       -------       -------

Cash and cash equivalents - end of year                                                  828           334           868
                                                                                     =======       =======      ========


Supplemental disclosures of cash flow information:
    Cash paid during the year for:

          Interest                                                                    $1,351        $1,226        $1,232
                                                                                      ======        ======        ======

          Taxes                                                                       $   88        $   57        $  579
                                                                                      ======        ======        ======


Non-cash investing and financing activities:

    Franchise stores reacquired                                                      $ 1,480     $    -        $    -
    Exchange of convertible debentures for Preferred Stock                             4,025          -             -
    Preferred Stock dividend paid in common shares                                       175          -             -

Acquisitions, net of cash acquired:

    Working capital, other than cash                                                  $ (314)       $ (231)       $  807
    Property, plant and equipment                                                        160           200           600
    Excess of cost over net assets acquired                                            1,722         2,541          -
    Excess of fair value of assets acquired over cost                                   -             -           (1,940)
    Other assets                                                                          30          -             -
    Franchise notes                                                                     -             -            4,683
    Common stock issued                                                                 -           (2,510)          -
                                                                                     -------       -------       -------

    Acquisitions, net of cash acquired                                                $1,598       $    -        $ 4,150
                                                                                     =======       =======       =======

</TABLE>


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




                                       23
<PAGE>

                     STERLING VISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS RESULTS OF OPERATIONS AND MANAGEMENT'S PLANS:

Business

       The Company and its franchisees develop and operate retail optical stores
principally under one of the trade names "Sterling Optical," "IPCO Optical,"
"Site For Sore Eyes," "Benson Optical," "Southern Optical," "Superior Optical,"
"Nevada Optical," "Duling Optical," "Monfried Optical," "Kindy Optical" and
"Singer Specs." The Company is presently formulating plans to change the trade
name of most Sterling Stores (other than its Site for Sore Eyes stores located
in Northern California) to "Sterling Optical." The Company also operates
VisionCare of California ("VCC"), a specialized health care maintenance
organization licensed by the California Department of Corporations. VCC employs
licensed optometrists who render services in offices located immediately
adjacent to, or within, most Sterling Stores located in California.

       The Company also affiliates with health care providers (ophthalmologists)
in offering Photorefractive Keratectomy ("PRK"), a procedure performed with an
excimer laser for the correction of certain degrees of myopia
(near-sightedness). The Company's wholly-owned subsidiary, Insight Laser
Centers, Inc. ("Insight") and these ophthalmologists enter into agreements
whereby the ophthalmologists pay the Company a fee for each PRK procedure
performed using an excimer laser installed in their offices by Insight. As of
December 31, 1998, the Company held leases for 6 excimer lasers, each with a
purchase option for nominal consideration. The Company currently owns and
operates one Insight Laser Center located in New York City, and has placed its
additional 5 excimer lasers in ophthalmological offices located in New York,
California, Pennsylvania, Delaware and New Jersey.

       The Company also operates a full service ambulatory surgery center
located in Garden City, New York, which contains 4 surgical operating rooms.

Results of Operations and Management's Plans

       The Company has incurred losses before income taxes aggregating $37,625
over the three year period ended December 31, 1998, and has a working capital
deficiency of $3,801 as of December 31, 1998.

       The Company believes that, in the furtherance of its business strategies,
the Company's future capital requirements will include: i) renovating and/or
remodeling of Company-owned stores, ii) acquiring retail optical stores, subject
to the availability of qualified opportunities and iii) continued upgrading of
management information systems within the retail chain. Additionally, the
Company is likely to continue to provide financing of sales of Company-owned
stores to franchisees, which is likely to defer the inflow of cash relating to
the sale of such assets.

       The Company believes that it will improve cash flows during 1999 based on
the following factors, among others: i) closing certain under-performing
Company-owned stores, ii) improvement in store profitability through increased
monitoring of store by store operations and actual results as compared to
expected results, iii) expected increases in operations and cash flows of the
Company's Insight Laser and ambulatory center businesses, and iv) a reduction of
administrative overhead expenses, if necessary.

       The Company believes that, based on its current position and the
implementation of the plans described above, that sufficient resources will be
available for the Company to continue in operations through the end of 1999.
However, there can be no assurance that the Company will be able to generate
positive cash flows and, if it does, that such cash flows will be sufficient to
adequately fund its ongoing operations and future plans. If the Company cannot
generate sufficient cash flows from operations, it may be required to seek
alternative debt and/or equity financing. However, there can be no assurance
that such debt and/or equity financing will be available to the Company when
necessary, or at terms that are attractive to the Company.

NOTE 2  - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

       The consolidated financial statements include the accounts of Sterling
Vision, Inc. and its Subsidiaries (collectively, the "Company"), all of which
are wholly-owned. All significant intercompany balances and transactions have
been eliminated in consolidation.


                                       24
<PAGE>

Use of Estimates

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

Franchised Locations Operated by the Company under Management Agreements

       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."
In connection with the adoption of EITF 97-2, for the year ended December 31,
1998, the Company deconsolidated the results of operations of certain franchise
locations operated by the Company under management agreements. In accordance
with EITF 97-2, the results of operations for the years ended December 31, 1997,
and 1996 have been restated to conform to the provisions of EITF 97-2 applied to
the year ended December 31, 1998. Such restatement had the effect of reducing
net sales by approximately $2,047,000 and $981,000 and total expenses by
approximately $2,220,000 and $1,246,000 for the years ended December 31, 1997
and 1996, respectively. Such restatement had no impact on the net loss or net
loss per share for either period.

       During 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. For the year ended December 31, 1998, such stores
generated revenue of approximately $4,503 and total expenses of $5,295. The net
result of such operations is classified as loss from stores operated under
management agreements in the accompanying consolidated statement of operations.

       Effective December 31, 1998, the Company acquired 6 stores previously
operated under management agreements from a franchisee for approximately
$1,480,000.

Revenue Recognition

       Except in limited circumstances, the Company charges each franchisee a
nonrefundable initial franchise fee. This fee is used, in part, to defray
certain costs and expenses incurred by the Company in connection with its
franchising activities. Initial franchise fees are recognized at the time all
material services required to be provided by the Company have been substantially
performed. Continuing franchise royalty fees are based upon the gross revenues
of each location and are recorded as earned.

       Interest earned on franchise notes receivable is recorded as earned and
is included in other income. Gains or losses from the conveyance of
Company-owned store assets to franchisees are recognized upon closing, net of
applicable reserves for collectibility.

Cash and Cash Equivalents

       Cash and cash equivalents includes cash and any investments with
maturities of 90 days or less.

Fair Value of Financial Instruments

       At December 31, 1998 and 1997, the carrying value of financial
instruments, such as cash and cash equivalents, accounts and notes receivable
and credit facilities, approximated their fair value, based on the short-term
maturities of these instruments.

Inventories

       Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market value, and consist primarily of contact lenses,
ophthalmic lenses, eyeglass frames and sunglasses.

Property and Equipment

       Property and equipment are recorded at cost. Depreciation is provided on
a straight-line basis over the estimated useful lives of the respective classes
of assets.


                                       25
<PAGE>

             Summary of Significant Accounting Policies (continued)

Intangible Assets

       Intangible assets is comprised of the goodwill resulting from the
acquisitions of Singer Specs and Insight, which are being amortized on a
straight line basis over their estimated useful lives of 10 and 20 years,
respectively. Accumulated amortization on goodwill was approximately $527 and
$585 at December 31, 1998 and 1997 respectively.

Impairment of Long-Lived Assets

       Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long Lived Assets and for Long-Lived Assets to be Disposed
of", requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may not be
recoverable. In accordance with SFAS No. 121, the Company periodically evaluates
the realizability of long-lived assets based on, among other factors, the
estimated undiscounted future cash flows expected to be generated from such
assets in order to determine if an impairment exists. Impairments are charged to
the statement of operations in the period identified.

Comprehensive Income

       In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") 130, "Reporting Comprehensive Income", which establishes new rules for
the reporting of comprehensive income and its components. The adoption of this
statement had no impact on the Company's net income or shareholders' equity. For
the 1998, 1997 and 1996 fiscal years, the Company's operations did not give rise
to items includible in comprehensive income which were not already included in
net income. Therefore, the Company's comprehensive income is the same as its net
income for all periods presented.

Income Taxes

       The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Under SFAS No. 109, deferred tax assets and
liabilities and are recognized for the estimated future tax consequences of
temporary differences between the carrying amounts of assets and liabilities in
the financial statements, and their respective tax bases.

Per Share Data

       The provisions of SFAS. No. 128, "Earnings Per Share" became effective
for the Company's quarter and year ended December 28, 1997. SFAS No. 128
requires the presentation of both basic and diluted earnings per share on the
face of the income statement. SFAS No. 128 replaced primary and fully diluted
earnings per share with basic and diluted earnings per share, respectively.
Earnings per share is calculated using the weighted average number of shares of
common stock outstanding for the period, with basic earnings per share
excluding, and diluted earnings per share including, potentially dilutive
securities, such as stock options that could result in the issuance of common
stock. In accordance with SFAS No. 128, as a result of losses from operations
for the years ended December 31, 1998, 1997 and 1996, the inclusion of employee
stock options and Warrants were anti-dilutive and, therefore, were not utilized
in the computation of diluted earnings per share.

Reclassifications

       Certain reclassifications have been made to prior years financial
statements to conform with the current year presentation.

NOTE 3 - NOTES RECEIVABLE:

       Franchise notes held by the Company consist primarily of purchase money
notes relating to Company-financed conveyances of Company store assets to
franchisees and certain franchise notes receivable acquired by the Company.
Substantially all notes are secured by the underlying assets of the related
franchised store, as well as, in most cases, the personal guarantee of the
principal owners of the franchise. Interest is charged at various rates ranging
from 8% to 12%.


                                       26
<PAGE>

       Scheduled maturities of such notes receivable as of December 31, 1998,
are as follows:

                            1999                                 $  4,397
                            2000                                    2,615
                            2001                                    2,382
                            2002                                    2,090
                            2003                                    2,166
                            Thereafter                              1,236
                                                                    -----

                                                                 $14,886

       Franchise notes receivable of approximately $10,671,000 at December 31,
1998, are pledged to STI Credit Corporation ("STI") pursuant to the Company's
Loan Agreement with STI, dated June 30, 1997 (see Note 8).

Valuation and Qualifying Accounts

       Accounts and notes receivable are shown in the Consolidated Balance
Sheets net of the following allowances for doubtful accounts:

<TABLE>
<CAPTION>
         Accounts Receivable

                                                                                         (In thousands)
                                                                                       As of December 31,

                                                                        1998                  1997                1996
                                                                       ------                 ----                ----
<S>                                                                    <C>                    <C>                 <C>
         Balance, beginning of year                                    $  514                 $557                $422
         Charged to expense                                             3,915                  756                 928
         Reductions, principally write-offs                            (2,369)                (799)               (793)
                                                                       -------                -----               -----

         Balance, end of year                                          $2,060                 $514                $557
                                                                       ======                 ====                ====


<CAPTION>
         Notes Receivable

                                                                                         (In thousands)
                                                                                       As of December 31,

                                                                        1998                  1997                1996
                                                                       ------                 ----                ----
<S>                                                                    <C>                    <C>                 <C>
         Balance, beginning of year                                    $  562                 $562                $712
         Charged to expense                                             2,585                  442                 -
         Reductions, principally write-offs                            (2,697)                (442)               (150)
                                                                       -------                -----               -----

         Balance, end of year                                          $  450                 $562                $562
                                                                       ======                 ====                ====

NOTE 4  -  PROPERTY AND EQUIPMENT, net:

<CAPTION>
       Property and equipment, net consists of the following:

                                                                               (In thousands)                   Estimated
                                                                             As of December 31,                  Useful
                                                                       1998                 1997                  Lives
                                                                     --------             --------              ---------
<S>                                                                    <C>                    <C>                 <C>
          Furniture and fixtures                                      $ 1,073              $ 1,361               7 years
          Machinery and equipment                                      10,244                9,595              5-7 years
          Leasehold improvements                                        2,466                3,274              10 years*
                                                                        -----                -----

                                                                       13,783               14,230

              Less: Accumulated depreciation                           (5,679)              (4,327)
                                                                       -------              -------

                                                                      $ 8,104              $ 9,903
                                                                      =======              =======

</TABLE>


*   Useful lives of leasehold improvements are based upon the lesser of the
    asset's useful life or the term of the lease of the related property.


                                       27
<PAGE>

       The net book value of assets held under capital leases (included in
property and equipment), net amounted to approximately $3,247,000 and
approximately $3,268,000 (net of accumulated depreciation of approximately
$2,224,000 and approximately $1,448,000) as of December 31, 1998 and 1997,
respectively. Depreciation expense for the years ended December 31, 1998, 1997
and 1996 was $3,000,000, $2,310,000 and $1,481,000, respectively.

NOTE 5  - PROVISION FOR STORE CLOSINGS:

       The Company provides for expected losses to be incurred for Company-owned
stores it has identified it will close in the future. Such provision is recorded
at the time the determination is made to close a store and is based on the
expected net proceeds to be generated from the disposition of the store and the
related assets, as compared to the carrying value of store assets and estimated
costs (including the present value of remaining lease payments and other
expenses) that will be incurred in the closing of the store.

       This evaluation resulted in charges to the statement of operations of
$2,800,000 and $1,336,000 for the years ended December 31, 1998 and 1997
respectively. As of December 31, 1998 and 1997, accruals for store closings were
$1,254,000 and $453,000, representing the estimated remaining net costs to be
incurred for stores that have been identified to be closed in the future.

NOTE 6  -  ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:

       Accounts payable and accrued liabilities consist of the following:

                                                             (In thousands)
                                                           As of December 31,

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

               Accounts payable                           $3,708        $3,595
               Overdraft payable                             952           996
               Accrued rent                                  411           418
               Accrued payroll and fringe benefits           667           502
               Lease termination costs                        -            453
               Other accrued expenses                      1,361           615
                                                          ------        ------

                                                          $7,099        $6,579
                                                          ======        ======

NOTE 7 - INCOME TAXES:

       The effective tax rate of zero differs from the statutory Federal income
tax rate of 34% primarily due to the impact of recording a valuation allowance
to offset the potential tax benefit resulting from net operating loss
carryforwards for all years presented.

       Significant components of the deferred tax assets and liabilities as of
December 31, 1998 and 1997 are as follows:

                                                          (In thousands)
                                                        As of December 31,

                                                      1998               1997
                                                    --------           ------
Deferred tax assets:

     Net operating loss carryforward                  $10,739          $6,322
     Other temporary differences                        1,222             585
                                                    ---------         -------

     Subtotal                                          11,961           6,907
     Valuation allowance                               (9,934)         (4,195)
                                                    ---------         -------

                                                        2,027           2,712
Deferred tax liabilities:
     Deferred gain on conveyance of
          assets to franchisees                        (2,027)         (2,712)
                                                    =========         =======


Net deferred tax asset                              $       0        $      0
                                                    =========         =======


                                       28
<PAGE>

       In accordance with SFAS No. 109, the Company has fully reserved for net
deferred tax assets as of December 31, 1998 and 1997, due to the uncertainty as
to their future realiability.

       At December 31, 1998, the Company had net operating loss carryforwards
totaling approximately $26,847,000 available to offset future taxable income.
The net operating loss carryforwards expire in varying amounts through 2018 and
may be limited based on certain changes in ownership in accordance with Section
382 of the Internal Revenue Code.

NOTE 8 - LONG-TERM DEBT:

       Principal payments due on the Company's long-term debt, as of December
31, 1998, are as follows:

<TABLE>
<CAPTION>
                                       (a)               (b)                 (c)               (d)
                                       STI           Broadway
                                    Credit            Partners            Capital
        Year                       Agreement         Agreement            Leases          Other Notes                 Total
        ----                       ---------         ---------            -------         -----------                 -----
<S>                                <C>               <C>                  <C>             <C>                       <C>
        1999                         $1,408              $1,550             $1,112               60                 $ 4,130
        2000                          1,701                   0                857                0                   2,558
        2001                          1,809                   0                351                0                   2,160
        2002                          1,115                   0                155                0                   1,270
        2003                              0                   0                161                0                     161
        Thereafter                        0                   0                132            1,141                   1,273
                                     ------              ------             ------           ------                 -------
                                     $6,033              $1,550             $2,768           $1,201                 $11,552
                                     ======              ======             ======           ======                 =======
</TABLE>


       On November 6, 1997, the Company entered into a Master Grid Note (the
"Grid Note") with Chase Manhattan Bank (the "Bank") that provided the Company
with short-term loans of $1,000,000. The Grid Note was paid by the Company on
March 9, 1998.

       (a) On June 30, 1997, the Company entered into a loan agreement (the
           "Loan Agreement") with STI whereby they set up a $20,000,000 credit
           facility to finance a portion of the Company's existing and future
           franchise promissory notes receivable. The Company initially borrowed
           $10,000,000 against the credit facility ($1,000,000 of which was
           placed in escrow pending the Company's satisfaction of a certain
           collateral ratio), approximately $5,035,000 of which was used to
           satisfy existing amounts due to the Bank and approximately $1,000,000
           of which was used to satisfy amounts due to certain principal
           shareholders of the Company. Sixty-five percent (65%) of the initial
           borrowing was to be repaid to STI over a term of 60 months, with the
           remaining 35% to be paid in a balloon payment at the end of the 60
           months. Additionally, certain voluntary prepayments were made by such
           franchisees, and applied to the balloon payment, thereby, satisfying
           such requirement in accordance with the Loan Agreement. In connection
           with the Loan Agreement, the Company granted STI a first priority
           security interest in a substantial portion of its franchise notes and
           the proceeds related to those notes.

           On October 9, 1997, STI amended the Loan Agreement and disbursed
           $500,000 of the escrow to the Company. As of December 31, 1998, the
           outstanding principal balance of the loan was approximately
           $6,033,000. In accordance with the terms of the Loan Agreement, the
           Company must comply with the following financial covenants: (i)
           maintenance of positive, annual net income for each of its calendar
           years; (ii) working capital of not less than $2,000,000; (iii)
           shareholders' equity of not less than $25,000,000; and (iv) a
           collateral ratio of 1.2 to 1.0. As of December 31, 1998, the Company
           was not in compliance with certain of the financial covenants
           described above. However, on April 13, 1999, STI waived all covenant
           defaults through December 31, 1999, agreed to eliminate all
           prepayment penalties contained in the Loan Agreement, and agreed to
           apply the remaining $500,000 held in escrow to the balance of the
           loan, all in exchange for the Company's payment to STI, of a fee of
           $150,000.

       (b) On October 14, 1998, the Board of Directors authorized the Company to
           borrow up to $2,000,000 from Broadway Partners, a New York general
           partnership owned by certain of the children of the Company Chairman
           and President. The loans are payable on demand, together with
           interest calculated at a rate of 12% per annum. The loans are secured
           by a first lien upon, and security interest in, the assets of the
           Company's ambulatory surgery center.

       (c) As of December 31, 1998, the Company was the lessee of six excimer
           lasers and ancillary equipment under capital leases expiring in
           various years through 2005. 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.

       (d) On April 21, 1997, the Company entered in a Note Amendment and
           Conversion Agreement (the "BEC Agreement") with BEC, the holder of
           two promissory notes (each having an original 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 a past
           acquisition. In accordance


                                       29
<PAGE>

           with the BEC Agreement, on June 9, 1997, the Company prepaid the
           principal balance of each of the promissory notes in registered
           shares of its Common Stock. Additionally, the Company was required
           to pay BEC 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 shares sold by BEC. In 1997, the
           Company paid BEC approximately $167,000, relating to the difference
           between the market price and selling price of a portion of the
           shares issued to BEC. During 1998, there were no such payments to
           BEC.

           In November 1995 the Company acquired substantially all of the retail
           optical assets of Benson Optical Co., Inc. and affiliates (the
           "Benson Transaction"). 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, payable
           without interest, on September 15, 2015. The Benson Debenture is
           subordinated to all existing and future 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 in the Benson
           Transaction. The offset was $147,000 for each store less than 40 that
           the Company retained. In December 1995, the principal amount of the
           Benson Debenture was reduced by approximately $1,176,000, to
           approximately $4,724,000, in accordance with the original purchase
           agreement. As of December 31, 1998, the Benson Debenture is recorded
           at its present value of approximately $1,119,000 using an imputed
           internal interest rate of approximately 8.5%. (See Note 15). In
           November 1998, the Benson Debenture was purchased from Benson by
           Broadway Partners for approximately $203,000.

NOTE 9 - ACQUISITIONS:

       On April 7, 1997, the Company acquired all of the issued and outstanding
capital stock of Singer Specs, Inc. and certain of its wholly-owned subsidiaries
(collectively, "Singer"), a privately-owned Delaware corporation. Singer was the
franchisor of approximately 30 retail optical stores. The acqusition was
accounted for as a purchase in accordance with APB Opinion No. 16 "Business
Combinations." The purchase price of approximately $2,510,000 was financed
through issuance of approximately 306,000 shares of the Company's Common Stock,
and was allocated to the fair value of the net assets acquired. Goodwill
resulting from the acquisition was approximately $2,541,000 and is being
amortized on a straight-line basis over a period of 10 years, the term of the
franchise agreements related to the franchises acquired.

       On May 6, 1998, the Company, through its wholly-owned subsidiary, Insight
Laser Centers, N.Y.I., Inc. acquired substantially all of the assets of an
ambulatory surgery center for a purchase price of approximately $1,952,000.
Goodwill resulting from the acquisition was approximately $1,721,000, and is
being amortized on a straight-line basis over a period of 20 years.

       Pro forma information has not been presented for the above acquisitions
as such acquisitions were not material to the Company.

NOTE 10 - COMMITMENTS AND CONTINGENCIES:

Operating Lease Commitments

       The Company leases locations for the majority of both its Company-owned
and franchised stores. Minimum future rental payments, as of December 31, 1998,
for Company-owned stores and stores subleased to franchisees, in the aggregate,
are as follows:

<TABLE>
<CAPTION>
                                                                               (In Thousands)
                                                        -------------------------------------------------------------
                                                          Total                    Sublease                     Net
                                                         Amount                    Rentals                    Rentals
                                                         ------                    --------                   -------
<S>                                                     <C>                       <C>                         <C>
                         1999                           $  8,294                  $  6,182                     $2,112
                         2000                              7,114                     5,239                      1,875
                         2001                              5,898                     4,240                      1,658
                         2002                              4,694                     3,451                      1,243
                         2003                              2,772                     2,062                        710
                         Thereafter                        7,832                     5,799                      2,033
                                                         -------                   -------                     ------
                                                         $36,604                   $26,973                     $9,631
                                                         =======                   =======                     ======

</TABLE>


       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. In addition to the fixed rent payable under such master
leases, most master leases require payment of a pro rata portion of the shopping
center's/mall's common area maintenance and taxes, as well as percentage rent
based upon sales volume. As required by SFAS No. 13 "Accounting for Leases," the
Company recognizes its rent expense on a straight-line basis over the life of
the related lease. Rent expense was approximately $5,458,000, $5,554,000 and
$5,185,000, net of sublease


                                       30
<PAGE>

rentals of approximately $10,485,000, $8,190,000 and $9,279,000, for the years
ended December 31, 1998, 1997 and 1996, respectively. Such rent expense includes
additional percentage rent expense of approximately $134,000, $52,000 and
$108,000 for the years ended December 31, 1998, 1997 and 1996, respectively.

       At December 31, 1998, the Company was a guarantor of indebtedness of two
separate loans by two franchisees to third party lenders in the principal
amounts of approximately $425,000 and approximately $250,000, respectively.

Contingencies

       The Company is, from time to time, a party to litigation arising in the
ordinary course of its 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.

NOTE 11  - CONCENTRATION OF RISK:

       The Company operates retail optical stores in North America,
predominantly in the United States. Profitability of the Company and
collectibility of all receivables from franchisees is contingent upon the
financial condition of the industry, as well as the overall economic
environment.

       In addition, as of December 31, 1998, the Company had balances in banks
that are in excess of the $100,000 of depository insurance provided by the
Federal Depository Insurance Corporation.

NOTE 12 - RETAIL  OUTLET  COMPOSITION (UNAUDITED):

       The number of Company-owned and franchised stores were as follows:

<TABLE>
<CAPTION>
                                                                                           As of December 31,
                                                                               -------------------------------------------
                                                                               1998               1997                1996
                                                                               ----               ----                ----
<S>                                                                            <C>                <C>                 <C>

        Company-owned                                                            35                  50                  56
        Company-owned stores being managed by Franchisees                         6                   0                   0
        Franchised                                                              239                 257                 257
        Franchise owned stores being managed by Company                          12                   6                   6
                                                                               ----               -----               -----

                                                                                292                 313                 319
                                                                                ===                 ===                 ===
</TABLE>



       The Company has the option to reacquire a franchised store upon the
occurrence of default under the applicable Franchise Agreement. The Company
reacquired the assets of 4, 4 and 8 franchised stores in 1998, 1997 and 1996,
respectively. Losses of approximately $132,000, $453,000 and $101,000 were
recognized in 1998, 1997 and 1996, respectively, on these reacquired stores, due
to the write-off of accounts receivable from the related franchisees.

NOTE 13 - RELATED PARTY TRANSACTIONS:

       Included in due from related parties are approximately $125,000 and
$110,000 in loans to a former officer of the Company at December 31, 1998 and
1997, respectively, bearing interest at the prime rate.

       On October 31, 1995, as a condition of the Company's initial public
offering, it agreed to require three related party franchisees to reconvey their
franchises to independent franchisees. During 1996, two stores were sold by the
respective related party franchisees, and the Company continues to manage the
remaining store for an officer of the Company. The franchisee of this
Company-managed store has agreed to be liable for any cash losses up to its
equity, if any, in the franchise as of the date such franchise may be sold by
the Company to an independent franchisee.

       In November 1996, certain of the Company's principal shareholders
provided approximately $2,000,000 of short-term financing to the Company, which
was subsequently repaid by the Company. As part of the financing arrangement,
these principal shareholders received options, under the Company's Stock
Incentive Plan, to purchase an aggregate of 200,001 shares of the Company's
Common Stock at an exercise price of $6.375. These options expire on December
31, 2000 (see Note 15).

       In March, 1996, the Company entered into an agreement with a Director of
the Company whereby he agreed to serve as an advisor to, and as the Chairman of
the Board of Directors of, Insight, in exchange for annual compensation of
$75,000. In connection therewith, the Company granted to this Director, under
its Stock Incentive Plan, options to purchase up to an aggregate of 310,000
shares of the Company's Common Stock at an exercise price of $6.00. These
options have a term of ten years. As of December 31,


                                       31
<PAGE>

1997, 160,000 of the options had vested and, in February 1998, the balance of
the options were canceled due to the resignation of the individual.

       On April 7, 1997, the Company entered into an Option and Consulting
Agreement with Meadows Management, LLC, a limited liability company owned by two
of the Company's principal shareholders and Directors ("Meadows"). Said
agreement provided for the Company's payment, to Meadows, of consulting fees of
$25,000 per month through the expiration date thereof, December 31, 1997. As
additional consideration, the Company also granted to such principal
shareholders, under its Stock Incentive Plan, an aggregate of 300,000 qualified
stock options, which options have a term of five years and are exercisable at
$8.9375.

       On December 12, 1997, the Company granted, under its Stock Incentive
Plan, an aggregate of 200,000 options to a former Director of the Company in
exchange for his providing and continuing to provide assistance to the Company
with respect to its third party, managed care programs. Two-thirds of such
options immediately vested. The options have a term of five years and are
exercisable at $6.4375. On August 10, 1998, this individual resigned as a
Director of the Company, and accordingly the remaining options were canceled.

       On October 15, 1998, one of the principal shareholders of the Company
assumed the offices of Chief Executive Officer and President of the Company and,
in conjunction therewith, was granted 250,000 options, exercisable at $3.00.
One-third of the options vested immediately, one-third will vest on October 15,
1999, and one-third will vest on October 15, 2000, subject to the Company
achieving certain financial results.

       The Company shares an office building with, among other tenants, a retail
optical company which is owned by certain of the principal shareholders and
Directors of the Company. Occupancy costs are appropriately allocated based upon
the applicable square footage leased by the respective tenants of the building.

       On November 4, 1998, Broadway Partners, a New York general partnership
owned by certain of the children of the Company Chairman and President, accepted
an offer to purchase the Benson Debenture from Benson (See Note 8) for
approximately $203,000.

NOTE 14 - CONVERTIBLE DEBENTURES:

1997 Debentures

       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 the Company's
debentures (collectively the "Debentures") and an aggregate of 800,000 warrants
(collectively the "Warrants"). Each Warrant, exerciseable until February 26,
2000, entitled the holder to purchase one share of the Company's Common Stock,
at a price per share assumed to be $6.50. For every two Warrants exercised
during the 2-year period ending May 30, 1999, a holder will receive an
additional warrant (collectively, the "Bonus Warrants") to purchase an
additional share of Common Stock at a price of $7.50 per share. Bonus Warrants
have a term of 3 years from the date of grant. The Company used the net proceeds
(approximately $7,500,000) of the Private Placement to 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 to
pay down the Company's revolving line of credit with the Bank of $1,000,000.

       The Debentures were convertible 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. The Company
did, however, have the right to redeem any Debentures requested to be converted,
in the event the Conversion Price was $6.00 or less. In such event, the
redemption price would have been equal to 115% of the face amount of that
portion of the Debentures requested to be converted. As of December 31, 1998,
all of the Debentures were converted by the holders thereof.

       Utilizing the conversion terms most beneficial to the purchasers of the
Units, in 1997, the Company recorded amortization of debt discount of
approximately $5,916,000. This charge was credited to additional paid-in-capital
over the period of time that the holders of the Debentures actually converted
them into shares of the Company's Common Stock. The non-cash portion of the
discount was approximately $5,436,000. Accordingly, since all of the Debentures
were previously converted by the holders in March 1998, the discount ultimately
had no effect on the Company's shareholders' equity. The debt discount
represented the intrinsic value of the beneficial conversion feature inherent in
the conversion terms of the Debenture, the fair value of the Warrants (with an
assumed exercise price of $6.50) and the Bonus Warrants (with an assumed
exercise price of $7.50), and the issuance cost of the Units. This discount was
amortized as additional interest expense over the minimum period the debentures
became convertible.


                                       32
<PAGE>

       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 by 15%. These transactions resulted in a $311,000
non-cash charge to earnings.

       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 to $4.50. These transactions resulted in a $110,000
non-cash charge to earnings.

1998 Debentures/Convertible Preferred Stock

       In February 1998, the Company again entered into Covertible Debentures
and Warrants Subscription Agreements with certain investors in connection with
the private placement of units consisting of an aggregate of $3,500,000
principal amount of convertible debentures (collectively, the "1998 Debentures")
and an aggregate of 700,000 warrants (collectively, the "1998 Warrants"). The
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.

       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 the 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, whereby the 1998 Debentures were rescinded
and declared null and void from inception and were exchanged for $3,500,000
stated value (approximately $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 originally required the Company to
pay quarterly dividends (in cash or Common Stock) calculated at the rate of 10%
percent per annum, commencing May 17, 1998. Additionally the Company was
required to redeem (in cash or Common Stock) all of the Senior Convertible
Preferred Stock, at 105% of the then outstanding stated value, based on a
conversion price of $5.00, after February 17, 1999. After February 18, 1999, the
Company would be required to pay dividends at the rate of 24% per annum.
Finally, there was a price-protection guarantee provision, whereby the Company,
under certain circumstances, would be required to pay the holders the difference
between the $5.00 conversion price and the selling price (net of commissions) of
any such shares sold (see Note 18).

       As a result of the foregoing, the Company recorded, in its financial
statements for the year ended December 31, 1998, amortization of debt discount
of approximately $1,110,000 and an extraordinary charge of approximately
$805,000 related to the early extinguishment of the 1998 Debentures. This debt
discount represented the intrinsic value of the beneficial conversion feature
inherent in the 1998 Debentures (approximately $963,000), and amortization of
approximately $147,000 related to the fair value of the New Warrants. The
extraordinary charge of $805,000 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.

       On August 18, 1998, and November 19, 1998, the Company issued 19,550 and
27,944 registered shares of its Common Stock, respectively, in payment of the
required dividend on the Senior Convertible Preferred Stock.

NOTE 15 - STOCK OPTIONS:

       In April 1995, the Company adopted a Stock Incentive Plan (the "Plan")
which permits the issuance of options to selected employees of, and consultants
to, the Company. The Plan, as amended in 1996 and 1997, reserves 3.5 million
shares of Common Stock for grant and provides that the term of each award be
determined by the Compensation Committee of the Registrant's Board of Directors
(the "Committee") charged with administering the Plan. Under the terms of the
Plan, options may be qualified or non-qualified and granted at exercise prices
and for terms to be determined by the Committee.


                                       33
<PAGE>

       A summary of the status of the Company's Plan is presented in the table
below:

<TABLE>
<CAPTION>
                                                                    1998                                  1997
                                                           ------------------------            --------------------------
                                                                          Weighted-                             Weighted-
                                                                           Average                               Average
                                                                          Exercise                              Exercise
                                                              Shares        Price                 Shares          Price
                                                            -----------------------            --------------------------
<S>                                                        <C>            <C>                  <C>              <C>
Options outstanding, beginning of period                    2,175,302       $6.76               1,462,694         $6.10
Granted                                                       590,500       $3.38                 952,501         $7.54
Exercised                                                           0           0                       0             0
Canceled or expired                                          (300,178)      $7.36                (239,893)        $6.15
                                                           ----------------------              ------------------------

Options outstanding, end of period                          2,465,624       $5.89               2,175,302         $6.76
                                                            ---------------------               -----------------------

Options exercisable, end of period                          2,069,564       $5.98               1,771,181         $6.93
                                                            ---------------------               -----------------------

</TABLE>


       Of the options outstanding at December 31, 1998, options to purchase
525,000 shares had exercise prices ranging between $3.00 and $3.13, with a
weighted average exercise price of $3.06 and a weighted average remaining
contractual life of 7.7 years, of which 333,000 were exercisable, with a
weighted average exercise price of $3.09. The remaining options to purchase
1,940,624 shares had exercise prices between $5.75 and $8.94, with a weighted
average exercise price of $6.65 and a weighted average remaining contractual
life of 6.6 years, of which 1,736,232 are exercisable, with a weighted average
exercise price of $6.54.

       The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:

                                                   1998              1997
                                                   ----              ----

              Expected life (years)                 5                  5
              Interest rate                         6%                 6%
              Volatility                          102%                32%
              Dividend yield                       -                  -

       The Company has adopted the pro forma disclosure provisions of Statement
of Financial Accounting Standards ("SFAS No. 123"), "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost for the Company's stock option plans
been determined under SFAS No. 123, the Company's net income and earnings per
share would approximate the pro forma amounts presented below:

                                                      1998               1997
                                                  ------------        ----------
              Net Loss:

                      As reported                     $(17,777)       $(14,162)
                      Pro Forma                        (19,157)        (15,510)

              Per share information:
                      Net loss per share

                         (as reported):

                      Basic and diluted              $   (1.22)      $   (1.02)

              Net loss per share (pro forma):

                      Basic and diluted              $   (1.31)      $   (1.12)

       All outstanding options, except for 300,000, were non-qualified options.
In 1998 and 1997, the Company recognized $227,000 and $755,000, respectively, of
expense related to its issuance of stock options to certain consultants to the
Company and in consideration of certain loans made to the Company by certain of
its principal shareholders.

       At any time prior to the maturity date of the Benson Debenture, the
Company may, upon 30 days' prior written notice to Benson, exchange the Benson
Debenture for shares of its Common Stock at a ratio equal to the then principal
amount of the Benson Debenture, which, as of December 31, 1998, was $1,141,000,
divided by the average of the previous 20 days trading price of the Common
Stock. In the event that the average trading price of the Common Stock is 350%
or greater than $7.50, for a period in excess of 60 consecutive business days,
the holder of the Benson Debenture may, upon 30 days prior written notice to the
Company,


                                       34
<PAGE>

thereafter convert the Benson Debenture into Common Stock of the Company based
upon the above described ratios. In addition, the Benson Debenture affords the
holder thereof certain "piggyback" registration rights covering the Common Stock
into which the Benson Debenture may be convertible, (see Notes 8 and 13).

NOTE 15 - 401(K) EMPLOYEE SAVINGS PLANS:

       On December 28, 1994, Sterling Vision, Inc., Sterling Vision of
California, Inc. and VisionCare of California, each approved and adopted,
effective January 1, 1995, a 401(k) Employee Savings Plan (the "401(k) Plan") to
provide all qualified employees of these entities with retirement benefits.
Presently, each entity pays the administrative costs of each 401(k) Plan, but
does not provide any matching contributions to any participants in any of the
401(k) Plans. It is the opinion of management that the 401(k) Plans are in
compliance with all ERISA regulations.

NOTE 16 - SEGMENT INFORMATION:

       The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," at December 31, 1998. SFAS 131 establishes
annual and interim reporting standards for an enterprise's operating segments
and related disclosures about its products, services, geographic areas and major
customers. Segment information presented below.

       For the year ended December 31, 1998, the Company's operations were
classified into three principal industry segments:

       RETAIL OPTICAL: 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.

       INSIGHT LASER: The Insight Laser segment, whereby the Company owns and
operates a laser surgery center and provides access, for a fee, to affiliated
ophthalmologists into utilize Insight's excimer lasers in offering PRK, a
procedure performed with such laser for the correction of certain degrees of
myopia.

       AMBULATORY SURGERY CENTER: The Ambulatory Surgery Center segment, whereby
the Company owns substantially all of the assets of a full-service Ambulatory
Surgery Center located in Garden City, New York, which contains four (4)
surgical operating rooms.

       Prior to 1996, the Company's operations were limited to the retail
optical segment.

       Summarized financial information concerning the industry segments and
geographic areas in which the Company operated at December 31, 1998, 1997 and
1996 and for each of the years then ended is shown in the following tables (in
thousands):

                         OPERATIONS BY INDUSTRY SEGMENT

<TABLE>
<CAPTION>
                                                                                       Ambulatory
                                                  Retail               Insight           Surgery
                                                 Optical                Laser              Center        Total
                                                 -------               -------         ----------        -----
<S>                                              <C>               <C>                 <C>              <C>
1998

Revenues from sales                              $20,618               $1,964            $   581        $23,163
Other                                             11,964                 -                  -            11,964
                                                  ------           ----------          ---------         ------

Total Revenues                                    32,582                1,964                581         35,127
Operating Profit (Loss)                           (1,853)                 878                213           (762)
Identifiable Assets                               29,360                2,973              2,161         34,494
Capital Expenditures                                 587                   20                184            791
Depreciation and Amortization                      2,075                  847                 78          3,000

</TABLE>


                                       35
<PAGE>

<TABLE>
<CAPTION>
                                                                                      Ambulatory
                                                  Retail               Insight         Surgery
                                                 Optical                Laser           Center           Total
                                                 -------               -------        ----------         -----
<S>                                              <C>                <C>               <C>               <C>
1997

Revenues from sales                               21,603                  799               -            22,402
Other                                             13,590                  -                 -            13,590
                                                  ------            ---------         ----------         ------

Total Revenues                                    35,193                  799               -            35,992
Operating Profit (Loss)                           (1,657)                 790               -              (867)
Identifiable Assets                               41,734                4,109               -            45,843
Capital Expenditures                               1,916                   76               -             1,992
Depreciation and Amortization                      1,551                  759               -             2,310

1996

Revenues from sales                               26,966                  530               -            27,496
Other                                             11,866                  -                 -            11,866
                                                  ------            ---------          ---------         ------

Total Revenues                                    38,832                  530               -            39,362
Operating Profit (Loss)                             (109)                  54               -               (55)
Identifiable Assets                               41,999                4,270               -            46,269
Capital Expenditures                               3,724                1,883               -             5,607
Depreciation and Amortization                        991                  490               -             1,481

</TABLE>


       There were no intersegment sales for the calendar years ended December
31, 1996, 1997 and 1998. No single customer represented more than ten percent of
consolidated sales for the calendar years ended December 31, 1996, 1997 and
1998.

NOTE 17 - SIGNIFICANT FOURTH QUARTER ADJUSTMENTS:

       During the fourth quarter of fiscal 1998, the Company's management
continued to monitor and evaluate the collectibility and potential impairment of
its assets, in particular, accounts and notes receivable, and certain fixed
assets. In connection therewith, additional allowances for doubtful accounts of
$2,000,000 and write offs of certain notes receivable and fixed assets of
$1,840,000 were recorded in the fourth quarter. It is management's opinion that
these adjustments are properly recorded in the fourth quarter based upon the
facts and circumstances that became available in that period.

NOTE 18 - SUBSEQUENT EVENTS:

       On January 13, 1999 and March 26, 1999, certain of the holders of the
Company's Senior Convertible Preferred Stock exercised their right to convert an
aggregated $650,000 stated value of Preferred Stock into an aggregated 175,000
shares of the Company's Common Stock.

       In 1999, the Company, in accordance with the terms of the Singer
Agreement, paid the former shareholders thereof approximately $97,000, which
represented the difference between the selling price of their Common Stock (net
of commissions) and the revised, agreed upon price of $6.60 per share, from the
sale of approximately 30,000 shares of the Company's Common Stock.

       On January 14, 1999, the Company and the holders of its Senior
Convertible Preferred Stock entered into an Amendment Agreement to reduce the
conversion price, from $5.00 to $4.00, of all shares converted on or prior to
February 10, 1999, and to eliminate the price protection guaranty provision
contained in the Agreement. The reduction in the conversion price of such shares
of Senior Convertible Preferred Stock from $5.00 to $4.00.

       On March 4, 1999, effective as of February 11, 1999, the Company and each
of 4 remaining holders of the Senior Convertible Preferred Stock entered into a
further amendment to the original agreement to reduce the conversion price of
all outstanding shares of Senior Convertible Preferred Stock from $5.00 to
$3.00. To extend the date by which the Company is required to redeem all
outstanding Senior Convertible Preferred Stock, from February 17, 1999 to
February 17, 2000, eliminate the requirement that the Company pay dividends on
the Senior Convertible Preferred Stock from and after February 17, 1999, and to
reduce the exercise price of the outstanding 1998 Warrants from $5.00 to $4.00.
On March 8, 1999, 50,000 shares of Senior Convertible Preferred Stock were
converted to Common Stock.


                                       36
<PAGE>

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

       On or about April 15, 1998, the members of the Registrant's Executive and
Audit Committees considered the reappointment of Deloitte & Touche LLP
("Deloitte"), the Company's principal accountants which audited its financial
statements for the fiscal years ended December 31, 1995 through December 31,
1997, and determined it was in the best interest of the Company to select for
the 1998 fiscal year. In response to such determination, certain of the
Company's management team commenced their selection process by interviewing a
number of other firms of certified public accountants.

       On April 24, 1998, the Audit Committee recommended to the Board that it
select Arthur Andersen LLP ("Andersen") as such auditors, which recommendation
was so accepted by the Board. Also, on April 24, 1998, Deloitte notified the
Company, in writing, of its decision to resign as the Company's auditors,
effective immediately.

       Deloitte's report for the years ended December 31, 1997 and 1996 did not
contain an adverse opinion or a disclaimer of opinion, or was qualified or
modified as to uncertainty, audit scope or accounting principles.

       For the year ended December 31, 1997: (i) management and Deloitte
disagreed on the treatment, for financial accounting purposes, of the Company's
Convertible Debentures Due August 25, 1998, which was ultimately resolved to
Deloitte's satisfaction; and (ii) Deloitte advised management of a reportable
condition regarding inventory controls. The Company is addressing this issue
through the installation, in its Company operated stores, of a point-of-sale
computer system. In addition, Deloitte advised the Company that it is in
disagreement with the Company's proposed 1998 accounting treatment of its Senior
Convertible Preferred Stock.

       Neither the Board of Directors nor the Audit Committee discussed these
disagreements with Deloitte. The Company authorized Deloitte to respond fully to
the inquiries of Andersen concerning each of these disagreements.

       In 1998, the Company discussed the accounting treatment referred to in
(i) above with the Securities and Exchange Commission in connection with a 1998
transaction and has complied with the accounting treatment prescribed by the SEC
in its financial reporting.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

       The Board of Directors consists of six Directors. The Directors of the
Company are divided into two classes, designated as Class 1 and Class 2,
respectively. Directors of each Class will be elected at the Annual Meeting of
the Shareholders of the Company held in the year in which the term of such Class
expires, and will serve thereafter for two years. All Directors serve until
their respective successors are duly elected and qualified or until their
earlier resignation, removal from office, retirement or death. Mr. Jerry Lewis,
Mr. Edward Celano and Dr. Edward Cohen presently serve as Class 1 Directors and
are scheduled to hold office until the 2000 Annual Meeting of Shareholders. Drs.
Robert and Alan Cohen and Mr. Joel Gold presently serve as Class 2 Directors and
are scheduled to hold office until the 1999 Annual Meeting of Shareholders to be
held on July 2, 1999.

       Set forth below is certain information with respect to each of the
nominees for the office of Director, each Director and each other executive
officer of the Company (collectively, the "Named Executive Officers").

Directors and Executive Officers/Key Employees

       The Named Executive Officers and Directors of Sterling are as follows:

<TABLE>
<CAPTION>
Name                       Age   Position
<S>                        <C>   <C>
Robert Cohen, O.D.          55   Chairman of the Board of Directors
Alan Cohen, O.D.            48   Vice-Chairman of the Board of Directors, President, Chief
                                 Executive Officer and Chief Operating Officer
Jerry Lewis                 53   Director
William J. Young            49   Executive Vice President-Finance, Chief Financial Officer and Treasurer
Joseph Silver               53   Executive Vice President, Secretary and General Counsel
Jerry R. Darnell            48   Chief Operating Officer - Franchise Division
Edward Cohen, O.D.          60   Director
Joel L. Gold                57   Director
Edward Celano               61   Director
Nicholas Shashati, O.D.     38   President-VisionCare of California
Charles Raab                50   Chief Financial Officer - Insight Laser Centers, Inc.

</TABLE>

                                       37
<PAGE>

       Dr. Robert Cohen has served as Chairman of the Board of Directors of
Sterling Vision, Inc. ("Sterling") since its inception. He also served as Chief
Executive Officer of Sterling from inception until October 1995. His principal
office is located at the Company's executive offices in East Meadow, New York.
Dr. Robert Cohen and his brother, Dr. Alan Cohen, together with certain members
of their respective, immediate families, and Dr. Edward Cohen (collectively, the
"Cohen Family"), are the principal shareholders of Sterling. In addition, Dr.
Robert Cohen, together with his brother, Dr. Alan Cohen, are the sole members of
Meadows Management, LLC ("Meadows") which, in 1997, rendered consulting services
to the Company. From 1968 to the present, Dr. Robert Cohen has been engaged in
the retail and wholesale optical business. For more than 10 years, Dr. Cohen has
also served as the President and a director of Cohen Fashion Optical, Inc.
("CFO"), which currently maintains its principal offices in the building in
which the Company's executive offices are located. Dr. Cohen and his brother,
Dr. Alan Cohen, together with certain members of their and Dr. Edward Cohen's
respective, immediate families, also are the sole shareholders of CFO. CFO
engages in the operation and franchising of retail optical stores similar to
those operated and franchised by the Company. Dr. Cohen is a director of, and,
together with Dr. Alan Cohen and certain members of their respective immediate
families, is a shareholder of, Optical Dynamics Corporation, (f/k/a Fast Cast
Corporation and Rapid Cast). Dr. Cohen is also an officer and a director of
several management and real estate companies and numerous other businesses.

       Dr. Alan Cohen has served as a Director of Sterling since its inception
and as its President, Chief Executive Officer and Chief Operating Officer since
October, 1998. He also served as Chief Operating Officer of Sterling from 1992
until October, 1995, when he became Vice-Chairman of the Board of Directors of
Sterling. His principal office is located at the Company's executive offices in
East Meadow, New York. Dr. Alan Cohen and his brother, Dr. Robert Cohen,
together with certain members of their respective, immediate families, and Dr.
Edward Cohen, are the principal shareholders of Sterling. In addition, Dr. Alan
Cohen, together with his brother, Dr. Robert Cohen, are the sole members of
Meadows which, in 1997, provided consulting services to the Company. From 1974
to the present, Dr. Alan Cohen has been engaged in the retail and wholesale
optical business. For more than 10 years, Dr. Cohen has also been a director,
principal shareholder and officer of CFO. Dr. Cohen is a director of, and,
together with Dr. Robert Cohen and certain members of their respective,
immediate families, is a shareholder of Optical Dynamics Corporation. He is also
an officer and director of several management and real estate companies and
numerous other businesses.

       William J. Young joined the Company in March 1998 as its Executive Vice
President-Finance, Chief Financial Officer and Treasurer. From December 1987
through March 1998, Mr. Young served in various capacities with Sbarro, Inc., an
800 store restaurant chain, first, as its Director of Internal Audit,
thereafter, as its Controller, and, finally, as its Director of Corporate
Finance. Mr. Young has been a Certified Public Accountant for more than ten
years.

       Joseph Silver has served as Executive Vice President and Secretary of,
and General Counsel to, the Company since March 1992. From May 1985 to December
1991, Mr. Silver served as General Counsel to The Trump Organization, located in
New York, New York. Mr. Silver is a member of the New York State Bar, and
received a Juris Doctorate degree from Brooklyn Law School in 1969. In addition
to the services which Mr. Silver provides to the Company, he also provided legal
services to other persons or entities, including persons and entities which are
affiliates of the Company, although such legal services (except with respect to
one wholly-owned subsidiary of the Company and except for legal services
rendered for no consideration) ceased upon consummation of the Company's initial
public offering. Mr. Silver, together with his wife, are the principal
stockholders of RJL Optical, Inc., the franchisee of the Sterling Optical Center
located in Great Neck, New York, which is presently being managed by the
Company.

       Jerry Darnell has served as Sterling's Executive Vice President -
Franchising from July 1992 to September 1998, when he was appointed to the
position of Chief Operating Officer - Franchise Division. From February 1990
through December 1991, Mr. Darnell served as Director of Franchise Development
for Physicians Weight Loss Centers, Inc., located in Akron, Ohio. From July 1989
to February 1990, he was Senior Vice President of Formu-3 International, Inc., a
company operating company owned and franchised weight loss centers, located in
Canton, Ohio. From August 1988 to July 1989, Mr. Darnell was Vice President of
Franchise Development of Medicine Shoppe International, Inc., a company in the
business of franchising retail pharmaceutical stores, located in St. Louis,
Missouri, having first been associated with that company, as a consultant, in
November 1987. Mr. Darnell is a member of the International Franchise
Association, served as Chairman of its trade show exhibit committee and has
served as a franchise consultant to many franchise organizations where he has
been a seminar leader. He has also been a keynote speaker for national sales and
business organizations.

       Jerry G. Lewis has served as a director of Sterling since May 1997. He
also served as its President and Chief Operating Officer from May 1997 to
October 1998, and as its Chief Executive Officer from January 1998 to October
1998. He is currently Managing Director and U.K. Country Manager of Vision
Express U.K., a retail optical chain doing business in the United Kingdom. From
1990 through 1997, Mr. Lewis served as Managing Director of SpecSavers Optical
Superstores, a retail optical group doing business in the United Kingdom and
Ireland. Mr. Lewis is a qualified optician, and previously held senior
management positions with Bausch & Lomb, Inc. and American Optical, Inc., both
in the United States. During his twenty years with both companies, he worked in
most international markets and was responsible for individual country operations
for both sales and manufacturing. Mr. Lewis has belonged to several professional
organizations in Europe and has been a speaker at International Optical
Symposia. He also directed the Annual European Research Symposium on Contact
Lenses, for Bausch & Lomb, in 1984 and 1985.


                                       38
<PAGE>

       Dr. Edward Cohen has served as a Director of Sterling since July 1992. He
also served as Vice President of Sterling from July 1992 until October 1995. Dr.
Edward Cohen, together with and his brothers, Drs. Robert Cohen and Alan Cohen
and certain members of their respective, immediate families, are the principal
shareholders of Sterling. For approximately 17 years, until January 1999, Dr.
Edward Cohen was a shareholder of, and served as a director and officer of, CFO.
Dr. Cohen is also an officer and a director of several management and real
estate companies and numerous other businesses.

       Joel L. Gold has served as a Director of Sterling since December 1995. He
is currently a Director of Solid Capital Markets, an investment banking firm
located in New York City. From September 1997 to January 1999, he served as a
Senior Managing Director of Interbank Capital Group, LLC, an investment banking
firm located in New York City. From April, 1996 to September, 1997, Mr. Gold was
an Executive Vice President of LT Lawrence & Co., and from March, 1995 to April,
1996, a Managing Director of Fechtor, a representative of the underwriters for
the Company's initial public offering. Mr. Gold was a Managing Director of
Furman Selz Incorporated from January 1992 until March 1995. From April 1990
until January 1992, Mr. Gold was a Managing Director of Bear Stearns and Co.,
Inc. ("Bear Stearns"). For approximately 20 years before he became affiliated
with Bear Stearns, he held various positions with Drexel Burnham Lambert, Inc.
He is currently a director of Concord Camera Corp., a manufacturer and
distributor of cameras ("Concord"); Life Medical Sciences, a biotechnological
company ("Life"); BCAM Corporation, a provider of ergonometric services
("BCAM"); and PMCC Financial Corp., a specialty, consumer finance company. He
currently serves on the Compensation Committee of each of Concord, Life and
BCAM.

       Edward Celano has served as a Director of Sterling since October, 1998.
Mr. Celano has been involved in the banking and finance industry for the past
twenty-three years. Since May, 1996, he has been an Executive Vice President of
Atlantic Bank of New York where he heads the Corporate Business Group. From
November, 1984 through April 1996, Mr. Celano was employed by NatWest Bank,
N.S., first as a Senior Vice President of its Empire State Division, and then as
a Senior Vice President of its Corporate Financing Division. Mr. Celano is a
graduate of St. Francis College and received an M.B.A. from The City College of
New York in 1967.

       Dr. Nicholas Shashati has been the Director of Professional Services of
the Company since July, 1992 and, since March 1, 1998, President of VisionCare
of California ("VCC"). Dr. Shashati earned a Doctor of Optometry degree from
Pacific University of California in 1984, and received a Bachelor of Science
degree from Pacific University and a Bachelor of Science degree in Biology from
San Diego State University. Dr. Shashati is licensed as an optometrist in the
States of New York, California, Arizona and Oregon. He is Chairperson for the
Quality Assurance Committee of the Company, as well as a Practice Management
Consultant.

       Charles Raab has been employed by Insight Laser Centers, Inc. ("Insight")
since February, 1996, and, in March, 1996, was elected as its Chief Financial
Officer. Prior to joining Insight, Mr. Raab served as President of Empire Fiscal
Management, Inc., ("Empire"), since 1986. Prior to joining Empire, he held Chief
Financial Officer positions, over a twelve year period, with the Osteopathic
Hospital and Clinic located in Queens, New York and the New York Medical
College/Flower Fifth Avenue Hospital, located in New York City.

       All officers of the Company serve at the discretion of the Board of
Directors. Except for Drs. Robert Cohen, Alan Cohen and Edward Cohen being
brothers, there are no family relationships between any Director, Named
Executive Officer or other person nominated or chosen to become a Director or
officer.


                                       39
<PAGE>

Item 11.  Executive Compensation

Summary Compensation Table

       The following Summary Compensation Table sets forth the compensation of
Dr. Alan Cohen, the Chief Executive Officer, Chief Operating Officer and
President of the Company since October, 1998, and the other four most highly
compensated executive officers of the Company for the Company's last two (2)
completed fiscal years:

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                             Long Term
                                                                           Compensation
                                                                           -------------
Name and Principal           Fiscal       Annual Compensation                Securities
Position                      Year      Salary            Bonus       Underlying Stock Options    All Other Compensation
------------------           ------     ------            -----       ------------------------    ----------------------
<S>                          <C>        <C>               <C>         <C>                         <C>

Alan Cohen                   1998      $45,192              --               466,667 (3)               $16,447(4)
President, Chief Operating   1997          --               --               216,667 (2)               $ 8,050(4)
Officer, Chief Executive
Officer and Vice Chairman
of the Board of Directors(1)


Jerry Lewis                  1998      $217,730                               83,333 (6)               $17,324 (8)
President, Chief             1997      $156,801             --               250,000 (6)               $34,345 (7)
Executive Officer, Chief
Operating Officer and
Director   (5)

Jerry Darnell                1998      $197,965          $82,257 (10)        218,569                   $20,399 (11)
Chief Operating Officer -    1997      $159,600          $71,553 (10)        193,569                   $14,786 (11)
Franchise Division (9)

Joseph Silver                1998      $124,477          $15,000             218,569                  $150,795 (12)(13)
Executive Vice President,    1997      $100,800          $21,600             193,569                  $161,844 (12)(13)
Secretary and General
Counsel

William Young                1998       $93,681          $18,013              30,000                   $ 13,148 (15)
Executive Vice               1997         --                --                  --                         --
President-Finance, Chief
Financial Officer and
Treasurer (14)

</TABLE>

(1)    Alan Cohen was appointed to the positions of President, Chief Executive
       Officer and Chief Operating Officer as of October 15 1998.
(2)    Includes 66,667 options granted to Dr. Cohen in partial consideration of
       his making certain loans to the Company, and 150,000 additional options
       granted to Dr. Cohen, as a member of Meadows Management, LLC, a limited
       liability company previously retained to render consulting services to
       the Company.
(3)    Includes options referred to in "(2)" above.
(4)    Represents automobile lease payments made on behalf of Dr. Cohen and
       reimbursement of medical insurance deductions.
(5)    Mr. Lewis resigned from his positions as the Company's President, Chief
       Executive Officer and Chief Operating Officer, effective
       October 15, 1998.
(6)    As a result of Mr. Lewis' resignations (on October 15, 1998), 166,667 of
       the options previously granted to him expired.
(7)    Represents legal fees advanced by the Company in connection with
       Mr. Lewis' emigration to the United States, relocation expenses
       pertaining thereto, life and disability insurance premiums paid by the
       Company, car allowance payments made to and/or on behalf of Mr. Lewis,
       and reimbursement of medical insurance deductions.
(8)    Represents life and disability insurance premiums paid by the Company,
       car allowance payments made to and/or on behalf of Mr. Lewis, and
       reimbursement of medical insurance deductions.
(9)    Mr. Darnell was appointed to the position of Chief Operating Officer -
       Franchise Division on September 18, 1998.
(10)   Includes commissions paid to Mr. Darnell of $82,257 and $31,653 in 1998
       and 1997, respectively.
(11)   Represents car allowance payments made to Mr. Darnell, life
       insurance and disability insurance premiums paid by the Company
       and reimbursement of medical insurance deductions.
(12)   Includes $123,039 and $132,600 in legal fees paid by Sterling Vision of
       California, Inc. ("SVCI") in 1998 and 1997, respectively.
(13)   Includes car allowance payments made to and/or on behalf of Mr. Silver,
       life insurance and disability premiums paid by the Company and
       reimbursement of medical insurance deductions.
(14)   Mr. Young was appointed to these positions on March 16, 1998, and began
       employment on March 30, 1998.
(15)   Includes car allowance payments made to Mr. Young, life insurance and
       disability insurance premiums paid by the Company and reimbursement of
       medical insurance deductions.


                                       40
<PAGE>

Item 12.  Security Ownership of Certain Beneficial Owners and Management

       The following table sets forth certain information, as of May 17, 1999,
regarding the beneficial ownership of the Company's Common Stock by: (i) each
shareholder known by the Company to be the beneficial owner of more than five
percent of the outstanding shares of the Company's Common Stock; (ii) each
Director of the Company; (iii) each Named Executive Officer (as hereinafter
defined) of the Company; and (iv) all Directors and Named Executive Officers of
the Company as a group. Unless otherwise indicated, the Company believes that
the beneficial owners of the Common Stock listed below, based on information
provided by such owners, have sole investment and voting power with respect to
such shares. The address of Dr. Edward Cohen is c/o Talisman Company, 1500 San
Remo Avenue, Coral Gables, Florida 33146. The address of Jerry G. Lewis is 6
Highview Avenue, Kewworth, Nottingham, England, U.K. NG125EL. The address of
Edward Celano is c/o Atlantic Bank of New York, 960 Avenue of the Americas, New
York, New York 10001. The address of Joel Gold is c/o Solid Capital Markets, 592
Fifth Avenue, New York, New York 10111. The address of Lancer Group is 375 Park
Avenue, New York, New York 10152. The address of all persons listed below, other
than Dr. Edward Cohen and Messrs. Lewis, Celano and Gold, is 1500 Hempstead
Turnpike, East Meadow, New York 11554.

<TABLE>
<CAPTION>
                                                               Beneficial
     Name                                                      Ownership         Percent of Class
--------------                                                 ----------        ----------------
<S>                                                          <C>                 <C>
Dr. Robert Cohen                                               993,657 (1)             6.1%
Dr. Alan Cohen                                               1,406,990 (1)(2)(3)       8.7%
Dr. Edward Cohen                                               371,295 (5)             2.3%
Stefanie Cohen Rubin                                           743,992                 4.6%
Allyson Cohen                                                  743,992                 4.6%
Jeffrey Cohen                                                  743,994                 4.6%
Meryl Cohen a/c/f Gabrielle Cohen                            1,115,989                 6.9%
Meryl Cohen a/c/f Jaclyn Cohen                               1,115,989                 6.9%
Meryl Cohen                                                  2,231,978 (4)            13.8%
Joel Gold                                                       26,500 (6)              *
Jerry G. Lewis                                                  83,333 (7)              *
Joseph Silver                                                  194,373 (8)             1.2%
Jerry Darnell                                                  169,373 (9)             1.0%
Dr. Nicholas Shashati                                           10,000 (10)             *
Charles Raab                                                        -0-                -0-
William J. Young                                                15,000 (11)             *
Edward Celano                                                   10,000 (12)             *
Lancer Group                                                   970,877 (13)            6.0%
All Directors and Named Executive Officers as a
group (11)persons)                                           3,280,521 (14)           20.3%

</TABLE>


-------------------------
*      less than 1%

(1)    This number includes: (i) the right to acquire 66,667 shares of Common
       Stock upon the exercise of presently exercisable, outstanding options;
       and (ii) 125,000 presently exercisable options granted to each of Drs.
       Robert and Alan Cohen, as the designees of Meadows Management, LLC, a
       limited liability company owned by Drs. Robert and Alan Cohen. Excludes
       an additional 25,000 options granted to each of Drs. Robert and Alan
       Cohen which are subject to certain vesting requirements.

(2)    This number includes the right to acquire 83,333 shares of Common Stock
       upon the exercise of presently exercisable, outstanding options, but
       excludes an additional 166,667 options which are subject to certain
       vesting requirements.

(3)    This number excludes 2,231,978 shares of Common Stock beneficially owned
       by Meryl Cohen, the wife of Dr. Alan Cohen, as custodian for their
       children, Gabrielle and Jaclyn Cohen, of which shares Dr. Cohen disclaims
       beneficial ownership.

(4)    Meryl Cohen is deemed to be the beneficial owner of the shares of Common
       Stock held by her as custodian for her children, Gabrielle and Jaclyn
       Cohen.

(5)    This number includes the right to acquire 66,667 shares of Common Stock
       upon the exercise of presently exercisable, outstanding options.

(6)    This number represents 1,500 shares of Common Stock owned by Mr. Gold's
       children, the right to acquire 10,000 shares of Common Stock upon the
       exercise of presently exercisable, outstanding options and includes
       warrants to purchase 15,000 shares


                                       41
<PAGE>

       of Common Stock at $9.00 per share (the "Warrants"), which Warrants were
       part of the 220,000 warrants granted to the underwriters of the Company
       in connection with the Company's initial public offering (consummated in
       December, 1995) and were transferred to Mr. Gold on March 27, 1996. Such
       Warrants are exercisable at any time prior to December 26, 2000. At the
       time the Warrants were transferred to Mr. Gold, Mr. Gold was a Managing
       Director of Fechtor, Detwiler & Co., Inc. ("Fechtor"), which acted as an
       underwriter in connection with the Company's initial public offering.

(7)    This number represents the right to acquire 83,333 shares of Common Stock
       upon the exercise of presently exercisable, outstanding options.

(8)    This number represents the right to acquire 194,373 shares of Common
       Stock upon the exercise of presently exercisable, outstanding options,
       but excludes an additional 24,196 options which are subject to certain
       vesting requirements.

(9)    This number represents the right to acquire 169,373 shares of Common
       Stock upon the exercise of presently exercisable, outstanding options,
       but excludes an additional 49,196 options which are subject to certain
       vesting requirements.

(10)   This number represents the right to acquire 10,000 shares of Common Stock
       upon the exercise of presently exercisable, outstanding options, but
       excludes an additional 10,000 options which are subject to certain
       vesting requirements.

(11)   This number represents the right to acquire 15,000 shares of Common Stock
       upon the exercise of presently exercisable, outstanding options, but
       excludes an additional 55,000 options which are subject to certain
       vesting requirements.

(12)   This number represents the right to acquire 10,000 shares of Common Stock
       upon the exercise of presently exercisable, outstanding options.

(13)   This number includes and/or represents: (i) 550,172 shares of Common
       Stock owned by Lancer Partners, L.P., together with warrants to purchase
       an additional 68,200 shares of Common Stock; (ii) 320,705 shares of
       Common Stock owned by Lancer Offshore, Inc., together with warrants to
       purchase an additional 15,600 shares of Common Stock; (iii) the right of
       Lancer Voyager Fund to acquire 6,500 shares of Common Stock upon the
       exercise of warrants; and (iv) the right of Michael Lauer to acquire
       9,700 shares of Common Stock upon the exercise of Warrants.Excludes the
       right to acquire up to an additional 50,000 shares of Common Stock upon
       the exercise of additional warrants issuable(on a pro-rata basis) to each
       of the above entities and individual upon the exercise of the above
       described warrants within a specified period of time.

(14)   This number includes: (1) the right to acquire 1,040,413 shares of Common
       Stock upon the exercise of presently exercisable, outstanding options and
       warrants. In accordance with Rule 13d-3(d)(1) under the Securities
       Exchange Act of 1934, as amended, the 1,040,413 shares of Common Stock
       for which the Company's Directors and Named Executive Officers, as a
       group, hold currently exercisable options or warrants, have been added to
       the total number of issued and outstanding shares of Common Stock solely
       for the purpose of calculating the percentage of such total number of
       issued and outstanding shares of Common Stock beneficially owned by such
       Directors and executive officers as a group.

Item 13.  Certain Relationships and Related Transactions

Optical Dynamics

       Certain members of the families of Drs. Robert and Alan Cohen
collectively own an approximately 5% interest in Optical Dynamics Corporation
(f/k/a Fast Cast Corporation and Rapid Cast), of which Dr. Robert Cohen serves
as a director. Optical Dynamics sells equipment to produce ophthalmic lenses,
which lenses are made from a patented liquid monomer which must also be
purchased through Optical Dynamics. Until February 1, 1997, the Company operated
a laboratory at which ophthalmic lenses were manufactured, on Optical Dynamics
equipment, using such patented monomer (see "Transactions with Dura-Lab, Inc.").

Cohen Fashion Optical

       Drs. Robert and Alan Cohen are officers and directors of CFO and Real
Optical Purchasing Corp. ("REAL"). CFO, which has been in existence since 1978,
owns a chain of company-operated and franchised retail optical stores doing
business under the name "Cohen's Fashion Optical." As of April 15, 1999, CFO had
66 franchised stores and 26 company-owned stores (including one store operated
by an affiliate of CFO); and REAL, which has been in existence since 1984, had
five company-owned stores. In addition, CFO also licenses to retail optical
stores the right to operate under the name "Cohen's Kids Optical" or "Ultimate
Spectacle." As of April 15, 1999, there were 3 Ultimate Spectacle stores located
in the State of New York and one Cohen's Kids Optical store located in the State
of Florida. CFO and REAL stores are similar to the Company's retail optical
stores. CFO has been offering franchises since 1979 and currently has retail
optical stores in the states of Connecticut, Florida, New Hampshire,
Massachusetts, New Jersey and New York. In the future, Cohen's Fashion Optical,
Cohen's Kids Optical or Ultimate Spectacle stores may be located in additional
states. As of April 15, 1999, approximately 25 CFO stores were located in the
same shopping center or mall as, or in close proximity to, the


                                       42
<PAGE>

Company's retail optical stores. It is possible that one or more additional
Cohen's Fashion Optical stores, Cohen's Kids Optical stores or Ultimate
Spectacle stores may, in the future, be located near one or more of the
Company's retail optical stores, thereby competing directly with such of the
Company's stores. In addition, the Company's stores and certain of CFO's stores
jointly participate, as providers, under certain third party benefit plans
obtained by either Sterling or CFO, which arrangement is anticipated to continue
in the future.

       On April 9, 1997, the Independent Committee recommended, and the Board of
Directors (with Drs. Robert and Alan Cohen abstaining) approved, of the Company
entering into an eight and on-half (8 1/2) month consulting agreement with
Meadows Management, LLC, a limited liability company owned by Drs. Robert and
Alan Cohen ("MML"). Said agreement provided for compensation computed at the
rate of three hundred thousand ($300,000) dollars per annum, and for the
granting, to each of Drs. Robert and Alan Cohen, as the designees of MML, of
options, each having a term of five years, to each purchase 150,000 shares of
the Company's Common Stock at an exercise price equal to the closing price of
the Company's Common Stock as of the date of such approval ($8.9375). The
granting of said options was approved by the Company's shareholders at the 1997
Annual Meeting, were issued under the Company's 1995 Stock Incentive Plan and
will vest as follows: one-half (50%) immediately (April 9, 1997); and an
additional one-sixth (16.67%) on each of April 9, 1998, 1999 and 2000.

       On May 15, 1998, CFO subleased to the Company its retail optical store
located in Albany, New York (the "Albany Store"), including its furniture,
fixtures and equipment; and, in May 1999, the Company sold to CFO the assets of
one of its stores located in New York City (including the lease therefor) for
the assets of the Albany Store (including the lease therefor) and such sublease
was terminated.

Agreements and Transactions Between the Company and the Cohen Family

       In December, 1995, the Company entered into an agreement with CFO for
nominal monetary consideration, providing, among other things, that until the
earlier of: (i) three years from the date that the first Insight Laser Center
was opened; or (ii) the date that the Cohen Family shall cease to beneficially
own, directly or indirectly, an aggregate of 50% or more of the issued and
outstanding shares of Common Stock of either the Company or CFO, CFO will use
reasonable efforts to refer, and to cause its franchisees to refer, all of their
respective customers who are interested in photorefractive kerectectomy (a
procedure performed with an excimer laser to correct certain degrees of myopia;
hereinafter "PRK") exclusively to the Company's Insight Laser Centers, and will
not develop any managed eyecare centers offering PRK.

       In addition, such agreement provides that until the earlier of: (i) three
years from December 26, 1995; or (ii) the date that the Cohen Family shall cease
to beneficially own, directly or indirectly, an aggregate of 50% or more of the
issued and outstanding shares of Common Stock of either the Company or CFO, CFO
will grant to the Company a right of first refusal prior to its acquisition of
any new leaseholds or retail optical stores located outside of CFO's existing
areas of operations, as well as prior to its acquisition of any retail optical
store chain (four or more stores), wherever located; provided, however, that
such agreement will not apply to CFO's unaffiliated franchisees or licensees. In
connection with this agreement, the Company appointed the Right of First Refusal
Committee. During the fiscal year ended December 31, 1998, CFO, to the best of
the Company's knowledge, did not acquire any stores which were subject to the
Company's right of first refusal. See "Committees of the Board."

       In September, 1995, CFO assigned its rights to one excimer laser to the
Company for nominal consideration, although Sterling reimbursed CFO for all
lease payments previously made by CFO with respect to such excimer laser.

       During the fiscal year ended December 31, 1998, certain of CFO's
employees rendered certain real estate and construction supervisory services to
the Company in exchange for a fee paid by the Company. In addition, during the
fiscal year ended December 31, 1998, CFO purchased products fabricated from the
Company's poster reproduction system. The Company believes that the terms of
these transactions were as favorable to the Company as could have been obtained
from an unrelated party.

       An entity owned by Drs. Robert, Alan and Edward Cohen is the lessee of an
office building located in East Meadow, New York. In April, 1996, the Company
relocated all of its corporate offices to this building and initially subleased
approximately 22,000 square feet (approximately 60% of the building), on a "net
lease" basis, for a term of ten years at an aggregate base rental (in addition
to a pro rata share of the building's real estate taxes and costs of operations)
of $221,796 for the first three years, which amount increases gradually over the
remainder of the term of the sublease. In February, 1998, the Company and such
entity voluntarily agreed to reduce such space by approximately 2,500 square
feet and, in connection therewith, agreed on a pro-rata reduction of such
occupancy costs. The balance of the space not utilized by the Company is
subleased to CFO, an investment banking firm owned, in part, by Dr. Robert
Cohen's son-in-law, and an unrelated third party. The Company believes that the
Company's rent with respect to such space is equal to the fair market rental
value of such space. Such transaction was approved by the Independent Committee
on February 23, 1996.

       In November, 1998, Broadway Partners ("Broadway"), a New York partnership
owned by certain of Dr. Robert and Alan Cohen's children, accepted an offer to
purchase, from the holder thereof, the Company's Non-Negotiable Subordinated
Convertible


                                       43
<PAGE>

Debentures issued in connection with its acquisition of
substantially all of the retail optical assets of Benson Optical Co., Inc. and
its affiliates, for the approximate sum of $203,000.00.

       On October 14, 1998, the Board of Directors authorized the Company to
borrow up to $2 million from Broadway. The loans are payable, on demand,
together with interest, calculated at the rate of twelve (12%) percent per
annum, and are secured by a first lien upon, and security interest in, the
assets of the Company's ambulatory surgery center located in Garden City, New
York.

Matter Relating to Joel Gold

       In connection with the Company's issuance and private placement, in
February, 1997, of its Convertible Debentures, Due August 25, 1998, the Company
paid to L. T. Lawrence & Co., Inc. a fee of $480,000. Joel Gold, a Director of
the Company, was a Managing Director of L. T. Lawrence & Co., Inc. at such time.

Franchise Interest by Certain Members of Management and their Families

       Joseph Silver, together with his wife, are the shareholders of RJL
Optical, Inc. ("RJL"), the franchisee of the Sterling Optical Center located in
Great Neck, New York. In November, 1995, RJL entered into a management agreement
whereby the Company operates such store on behalf of RJL in exchange for the
payment to it of a fee, equal to 5% of the gross revenues of the store, subject
to such store generating sufficient cash flow proceeds to pay such amount. In
addition, RJL has agreed to sell the assets of, and the franchise for, its
Sterling Optical Center at a certain established, minimum purchase price.

Transactions with Dura-Lab, Inc.

       In February, 1997, the Company, in connection with the closing of its
Roslyn, New York laboratory facility, delivered and orally agreed to sublease to
Dura-Lab, Inc. ("Dura-Lab"), a company owned, in part, by Jeffrey Cohen, a
principal shareholder of the Company and the son of Dr. Robert Cohen, four of
its Optical Dynamics' lens manufacturing systems at a rental less than the
amount of rent payable by the Company under the equipment leases pursuant to
which the Company financed the cost of such systems, which lesser amount was
agreed to by the Company due to the age and condition of the systems delivered
to Dura-Lab.

       In addition to the foregoing, in March, 1997, the Company commenced
purchasing a portion of its ophthalmic lenses from Dura-Lab at prices which the
Company believes to be not more than those charged by other distributors of
similar type lenses.

Tax Indemnities

       In connection with the Company's initial public offering, the Company
agreed to indemnify the shareholders of the Company immediately prior to the
Company's initial public offering for any tax liability arising from a
determination, after consummation of the initial public offering, that the
Company's reported income was understated for any period prior to the
consummation of the initial public offering; provided that such indemnity is
limited to an adjustment equal to the amount by which the Company's deferred tax
liability is reduced as a result of such determination. Additionally, if and to
the extent any shareholder, who was a shareholder immediately prior to the
Company's initial public offering, receives a tax refund as a result of a
determination, after consummation of the initial public offering, that the
Company's reported income was overstated for any period prior to the
consummation of the initial public offering, such shareholder will be required
to pay such amount to the Company.


                                       44
<PAGE>

                                     PART IV

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

(a) The following documents are filed as a part of this Report:

1.      Financial Statements.

              Consolidated Balance Sheets as of December 31, 1998 and 1997

              Consolidated Statements of Income for the Years Ended December 31,
              1998 1997 and 1996

              Consolidated Statements of Shareholders' Equity for the Years
              Ended December 31, 1998, 1997 and 1996

              Consolidated Statements of Cash Flows for the Years Ended December
              31, 1998, 1997 and 1996

              Notes to Consolidated Financial Statements

2.      Financial Statement Schedules:

       All financial statement schedules have been omitted because they are not
applicable, are not required, or the information required to be set forth
therein is included in the Consolidated Financial Statements or Notes thereto.

3.      Exhibits

                                  EXHIBIT INDEX

Exhibit
Number

3.1    -   Amended and Restated Certificate of Incorporation of Sterling Vision,
           Inc., dated December 18, 1995 (incorporated by reference to Exhibit
           3.1 to the Company's Annual Report on Form 10K/A for the calendar
           year ended December 31, 1995, File No. 1-14128).

3.2    -   Amended and Restated By-Laws of Sterling Vision, Inc., dated
           December 18, 1995 (incorporated by reference to Exhibit 3.2 to the
           Company's Annual Report on Form 10K/A for the calendar year ended
           December 31, 1995, File No. 1-14128).

4.1    -   Specimen of Common Stock Certificate (incorporated by reference to
           Exhibit 4.1 to the Company's Registration Statement No. 33-98368).

4.2    -   Form of Convertible Debentures and Warrants Subscription Agreement
           (Incorporated by reference to Exhibit 4.2 of the Registrant's Current
           Report on Form 8-K, dated February 17, 1998).

10.1   -   Credit Agreement between Sterling Vision, Inc. and Chemical Bank,
           dated as of April 5, 1994 (the "Credit Agreement") (incorporated by
           reference to Exhibit 10.1 to the Company's Registration Statement No.
           33-98368).

10.2   -   Sterling Vision, Inc.'s 1995 Stock Incentive Plan (incorporated by
           reference to Exhibit 10.2 to the Company's Registration Statement No.
           33-98368).

10.3   -   Form of Sterling Vision, Inc.'s Franchise Agreement (incorporated by
           reference to Exhibit 10.3 to the Company's Registration Statement No.
           33-98368).

10.4   -   Settlement Agreement between Sterling Vision, Inc. and Neal Polan,
           dated as of August 31, 1994 (incorporated by reference to Exhibit
           10.4 to the Company's Registration Statement No. 33-98368)

10.5   -   Lease Agreements between Neptune Technology Leasing Corp. and
           Sterling Vision, Inc., Sterling Vision of California, Inc. and
           Sterling Vision, Inc., as successor in interest to CFO (incorporated
           by reference to Exhibit 10.5 to the Company's Registration Statement
           No. 33-98368).


                                       45
<PAGE>

10.6   -   Assignment and Assumption of Equipment Lease by and between Cohen
           Fashion Optical, Inc. and Sterling Vision, Inc. (incorporated by
           reference to Exhibit 10.6 to the Company's Registration Statement No.
           33-98368).

10.7   -   Form of Purchase Order between Summit Technology, Inc. and Sterling
           Vision, Inc. (incorporated by reference to Exhibit 10.7 to the
           Company's Registration Statement No. 33-98368).

10.8   -   Form of Summit Laser Patent License Agreement (incorporated by
           reference to Exhibit 10.8 to the Company's Registration Statement No.
           33-98368).

10.9   -   Lease of 10 Peninsula Blvd., Lynbrook, N.Y. (incorporated by
           reference to Exhibit 10.9 to the Company's Registration Statement No.
           33-98368).

10.10  -   Underwriters' Warrant Agreement, including form of Warrant
           (incorporated by reference to Exhibit 10.10 to the Company's
           Registration Statement No. 33-98368).

10.11  -   Referral Agreement between Cohen Fashion Optical, Inc. and Sterling
           Vision, Inc. (incorporated by reference to Exhibit 10.11 to the
           Company's Registration Statement No. 33-98368).

10.12  -   Robert Greenberg Promissory Notes, dated August 19, 1994, as amended,
           August 19, 1994, and August 31, 1994, respectively (incorporated by
           reference to Exhibit 10.12 to the Company's Registration Statement
           No. 33-98368).

10.13  -   Purchase Agreement between Sterling Vision, Inc. and RJL Optical,
           Inc. and Franchise Agreement related thereto (incorporated by
           reference to Exhibit 10.13 to the Company's Registration Statement
           No. 33-98368).

10.14  -   Purchase Agreement between Sterling Vision, Inc. and Dani-Marc
           Optical, Inc. and Franchise Agreement related thereto (incorporated
           by reference to Exhibit 10.14 to the Company's Registration Statement
           No. 33-98368).

10.15  -   Purchase Agreement between Sterling Vision, Inc. and Jeffrey Rubin,
           and Franchise Agreement and Management Agreement related thereto
           (incorporated by reference to Exhibit 10.15 to the Company's
           Registration Statement No. 33-98368).

10.16  -   Management Agreement, dated October 31, 1995, between Sterling
           Vision, Inc. and RJL Optical, Inc. (incorporated by reference to
           Exhibit 10.16 to the Company's Registration Statement No. 33-98368).

10.17  -   Amended and Restated Management Agreement, dated October 31, 1995,
           between Sterling Vision, Inc. and Jeffrey Rubin (incorporated by
           reference to Exhibit 10.17 to the Company's Registration Statement
           No. 33-98368).

10.18* -   Employment Agreement, dated November 27, 1995, between Sterling
           Vision, Inc. and Joseph Silver (incorporated by reference to Exhibit
           10.18 to the Company's Registration Statement No. 33-98368).

10.19* -   Employment Agreement, dated November 18, 1995, between Sterling
           Vision, Inc. and Kevin Cambra (incorporated by reference to Exhibit
           10.19 to the Company's Registration Statement No. 33-98368).

10.20* -   Employment Agreement, dated November 18, 1995, between Sterling
           Vision, Inc. and Sebastian Giordano (incorporated by reference to
           Exhibit 10.20 to the Company's Registration Statement No. 33-98368).

10.21* -   Employment Agreement, dated November 27, 1995, between Sterling
           Vision, Inc. and Jerry Darnell (incorporated by reference to Exhibit
           10.21 to the Company's Registration Statement No. 33-98368).

10.22* -   Employment Agreement, dated November 27, 1995, between Sterling
           Vision, Inc. and Robert Greenberg (incorporated by reference to
           Exhibit 10.22 to the Company's Registration Statement No. 33-98368).

10.23* -   Legal Fee Retainer Agreement, dated November 27, 1995, between
           Sterling Vision BOS, Inc. and Sterling Vision of California, Inc.,
           and Joseph Silver (incorporated by reference to Exhibit 10.23 to the
           Company's Registration Statement No. 33-98368).

10.24  -   Seventh Amendment to the Credit Agreement between Sterling Vision,
           Inc. Chemical Bank (incorporated by reference to Exhibit 10.24 to the
           Company's Registration Statement No. 33-98368).

--------
* Constitutes a management contract or compensatory plan or arrangement.

                                       46
<PAGE>

10.25      - Waiver, dated as of November 28, 1995, to the Credit Agreement,
           between Sterling Vision, Inc. and Chemical Bank (incorporated by
           reference to Exhibit 10.25 to the Company's Registration Statement
           No. 33-98368).

10.26  -   Sixth Amendment, dated as of October 24, 1995, to the Credit
           Agreement between Sterling Vision, Inc. and Chemical Bank
           (incorporated by reference to Exhibit 10.26 to the Company's
           Registration Statement No. 33-98368).

10.27  -   Fifth Amendment and Waiver, dated as of September 15, 1995, to the
           Credit Agreement between Sterling Vision, Inc. and Chemical Bank
           (incorporated by reference to Exhibit 10.27 to the Company's
           Registration Statement No. 33-98368).

10.28  -   Waiver, dated as of August 8, 1995, to the Credit Agreement between
           Sterling Vision, Inc. and Chemical Bank (incorporated by reference to
           Exhibit 10.28 to the Company's Registration Statement No. 33-98368).

10.29  -   Fourth Agreement and Waiver, dated as of April 25, 1995, to the
           Credit Agreement between Sterling Vision, Inc. and Chemical Bank
           (incorporated by reference to Exhibit 10.29 to the Company's
           Registration Statement No. 33-98368).

10.30  -   Third Amendment and Waiver, dated as of March 30, 1995, to the
           Credit Agreement between Sterling Vision, Inc. and Chemical Bank
           (incorporated by reference to Exhibit 10.30 to the Company's
           Registration Statement No. 33-98368).

10.31  -   Second Amendment and Waiver, dated as of September 30, 1994, to the
           Credit Agreement between Sterling Vision, Inc. and Chemical Bank
           (incorporated by reference to Exhibit 10.31 to the Company's
           Registration Statement No. 33-98368).

10.32 -    First Amendment and Waiver, dated as of July 26, 1994, to the
           Credit Agreement between Sterling Vision, Inc. and Chemical Bank
           (incorporated by reference to Exhibit 10.32 to the Company's
           Registration Statement No. 33-98368).

10.33  -   Schedule No. 2 to Master Lease Agreement No. 1580, dated as of August
           31, 1995, between BLT Leasing Corp. and Sterling Vision, Inc.
           (incorporated by reference to Exhibit 10.33 to the Company's
           Registration Statement No. 33-98368).

10.34  -   Order (1) Approving Sale of Assets and (2) Granting Related Relief in
           Re: OCA Acquisition, Inc. Case No. 395-35856-RCM 11 and Benson
           Optical Co., Inc. Case NO. 395-35857-SAF-11 and Superior Optical
           Company, Inc. Case No. 395-36572-SAF 11, Jointly Administered under
           Case No. 395-35856-RCM-11, filed November 6, 1995 in the Bankruptcy
           Court for the Northern District of Texas, Dallas Division
           (incorporated by reference to Exhibit 10.34 to the Company's
           Registration Statement No. 33-98368).

10.35  -   Asset Purchase Agreement, dated August 26, 1994, between Pembridge
           Optical Partners, Inc. and Sterling Vision, Inc. (incorporated by
           reference to Exhibit 10.35 to the Company's Registration Statement
           No. 33-98368).

10.36  -   Asset Purchase Agreement, dated October 24, 1995, between Sterling
           Vision BOS, Inc. and Benson Optical Co., Inc., OCA Acquisition, Inc.
           n/k/a Optical Corporation of America, and Superior Optical Company,
           Inc. (incorporated by reference to Exhibit 10.36 to the Company's
           Registration Statement No. 33-98368).

10.37  -   Convertible, Callable, Subordinated Debenture Due September 15, 2015,
           made by Sterling Vision, Inc. and payable to Benson Eyecare Corp.
           (incorporated by reference to Exhibit 10.37 to the Company's
           Registration Statement No. 33-98368).

10.38  -   Assignment, by Benson Eyecare Corp. to Sterling Vision, Inc., of that
           certain Security Agreement, dated October 20, 1994, between Benson
           Eyecare Corp. and OCA Acquisition, Inc., dated September 15, 1995
           (incorporated by reference to Exhibit 10.38 to the Company's
           Registration Statement No. 33-98368).

10.39  -   Assignment, dated September 15, 1995, by Benson Eyecare Corporation
           to Sterling Vision, Inc. of that certain Revolving Credit Note
           (incorporated by reference to Exhibit 10.39 to the Company's
           Registration Statement No. 33-98368).

10.40  -   Assignment, dated September 15, 1995, by Benson Eyecare Corporation
           to Sterling Vision, Inc. of that certain Subordinated Promissory Note
           made by OCA Acquisition Inc. (incorporated by reference to Exhibit
           10.40 to the Company's Registration Statement No. 33-98368).

10.41  -   Assignment, dated September 15, 1995, by Benson Eyecare Corporation
           to Sterling Vision, Inc. of Benson Eyecare Corporation's rights,
           title and interest in certain trade receivables (incorporated by
           reference to Exhibit 10.41 to the Company's Registration Statement
           No. 33-98368).

10.42  -   Note Purchase Agreement, dated September 15, 1995, between Benson
           Eyecare Corporation and Sterling Vision, Inc.


                                       47
<PAGE>

           (incorporated by reference to Exhibit 10.42 to the Company's
           Registration Statement No. 33-98368).

10.43* -   Employment Agreement, dated as of April 1, 1994, between VisionCare
           of California and Martin J. Shoman, as amended by a Letter Agreement,
           dated May 12, 1994 (incorporated by reference to Exhibit 10.44 to the
           Company's Registration Statement No. 33-98368).

10.44  -   Eighth Amendment and Waiver, dated as of December 19, 1995, to the
           Credit Agreement, between Sterling Vision, Inc. and Chemical Bank
           (incorporated by reference to Exhibit 10.45 to the Company's
           Registration Statement No. 33-98368).

10.45  -   Tax Agreement, dated as of December 19, 1995, between Sterling
           Vision, Inc. and the shareholders of Sterling Vision, Inc.
           (incorporated by reference to Exhibit 10.46 to the Company's
           Registration Statement No. 33-98368).

10.46  -   Form of Franchisee Stockholder Agreement to be entered into between
           Sterling Vision, Inc. and certain of its Franchisees (incorporated by
           reference to Exhibit 10.47 to the Company's Registration Statement
           No. 33-98368).

10.47  -   Non-Qualified Stock Option Agreement between Sterling Vision, Inc.
           and Neal Polan (incorporated by reference to Exhibit 10.48 to the
           Company's Registration Statement No. 33-98368).

10.48* -   Stock Purchase Agreement, dated as of December 18, 1995, between
           Sterling Vision, Inc. and Robert Cohen, Alan Cohen, Edward Cohen,
           Stefanie Cohen Rubin, Allyson Cohen, Jeffrey Cohen, Richard Cohen,
           Abby Cohen May, Jennifer Cohen, Meryl Cohen a/c/f Gabrielle Cohen and
           Meryl Cohen a/c/f Jaclyn Cohen (incorporated by reference to Exhibit
           10.49 to the Company's Registration Statement No. 33-98368).

10.50  -   Stock Purchase Agreement, dated as of December 18, 1995, between
           Sterling Vision, Inc. and Neal Polan (incorporated by reference to
           Exhibit 10.51 to the Company's Registration Statement No. 33-98368).

10.51  -   Multiple Franchise Agreement, dated February 7, 1996, between Leonard
           Vainio and the Company (incorporated by reference to Exhibit 10.51 to
           the Company's Annual Report on Form 10K/A for the calendar year ended
           December 31, 1995, File No. 1-14128).

10.52  -   Sublease, dated November 29, 1995, as amended, between Conopco, Inc.
           and the Company with respect to the Insight Laser Center to be
           located at 725 Fifth Avenue, New York, New York (incorporated by
           reference to Exhibit 10.52 to the Company's Annual Report on Form
           10K/A for the calendar year ended December 31, 1995, File No.
           1-14128).

10.53 -    Sublease, dated February 27, 1996, between 1500 Hempstead Tpke.,
           L.L.C. and the Company with respect to the Company's new office
           facilities to be located at 1500 Hempstead Turnpike, East Meadow, New
           York (incorporated by reference to Exhibit 10.53 to the Company's
           Annual Report on Form 10 K/A for the calendar year ended December 31,
           1995, File No. 1-14128).

10.54  -   Sales Agreement, dated January 31, 1996, between Insight Laser
           Centers, Inc. and VISX Incorporated, together with the form of VISX
           Patent and Software License Agreement to be entered into in
           connection therewith (incorporated by reference to Exhibit 10.54 to
           the Company's Annual Report on Form 10K/A for the calendar year ended
           December 31, 1995, File No. 1-14128).

10.55  -   Waiver, dated as of March 25, 1996, to the Credit Agreement between
           Sterling Vision, Inc. and Chemical Bank (incorporated by reference to
           Exhibit 10.55 to the Company's Annual Report on Form 10K/A for the
           calendar year ended December 31, 1995, File No. 1-14128).

10.56* -   Employment Agreement, dated March 8, 1996, between Sterling Vision,
           Inc. and Mr. Ali Akbar (incorporated by reference to Exhibit 10.56 to
           the Company's Quarterly Report on Form 10-Q for the quarter ended
           March 31, 1996, File No. 1-14128).

10.57  -   Employment Agreement, dated March 29, 1996, between Sterling Vision,
           Inc., Insight Laser Centers, Inc. and Dr. Francis A. L'Esperance,
           Jr., M.D. (Incorporated by reference to Exhibit 10.57 to the
           Company's Quarterly Report on Form 10-Q for the quarter ended March
           31, 1996, File No. 1-14128).

10.58  -   Laser Access Agreement, dated March 28, 1996, between Insight Laser
           Centers, Inc. and Nassau Ophthalmic Services, P.C. (incorporated by
           reference to Exhibit 10.58 to the Company's Quarterly Report on Form
           10-Q for the quarter ended March 31, 1996, File No. 1-14128).

--------
* Constitutes a management contract or compensatory plan or arrangement.


                                       48
<PAGE>

10.59  -   Assignment and Assumption of Lease Agreement ("VCA" Company Store
           Leases"), dated June 7, 1996, between VCA and certain of its
           affiliates and DKM (incorporated by reference to Exhibit 10.59 to the
           Company's Quarterly Report on Form 10-Q for the quarter ended June
           30, 1996, File No. 1-14128).

10.60  -   Assignment and Assumption of Lease Agreement ("VCA" Company Store
           Leases"), as amended by a Letter Agreement, dated June 10, 1996,
           between VCA and certain of its affiliates and DKM (incorporated by
           reference by to Exhibit 10.60 to the Company's Quarterly Report on
           Form 10-Q for the quarter ended June 30, 1996, File No. 1-14128).

10.61  -   Assignment and Assumption of Lease Agreement ("VCA Franchised Store
           Leases") as amended by a Letter Agreement, dated July 11, 1996
           (incorporated by reference to Exhibit 10.61 to the Company's
           Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
           File No. 1-14128).

10.62  -   Assignment, dated June 19, 1996, by Bank One Kentucky, N.A.
           (Assignor") to DKM, all of Assignor's right, title and interest in
           and to that certain Revolving Credit Loan Agreement and Security
           Agreement, dated January 10, 1992, between the Assignor and Duling
           Optical Corporation, et. al. (incorporated by reference to Exhibit
           10.62 to the Company's Quarterly Report on Form 10-Q for the quarter
           ended June 30, 1996, File No. 1-14128).

10.63  -   First Amendment to the Company's 1995 Stock Incentive Plan
           (incorporated by reference to Exhibit 10.63 to the Company's
           Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
           File No. 1-14128).

10.64  -   Purchase and Sale Agreement, dated September 30, 1996, between Eye
           Site (Ontario) Ltd. And the Company (incorporated by reference to
           Exhibit 10.64 to the Company's Quarterly Report on Form 10-Q for the
           quarter ended September 30, 1996 , File No. 1-14128).

10.65  -   Master Franchise Agreement, dated September 30, 1996, between Eye
           Site, Inc., and Eye Site (Ontario) Ltd. and the Company (incorporated
           by reference to Exhibit 10.65 to the Company's Quarterly Report on
           Form 10-Q for the quarter ended September 30, 1996, File No.
           1-14128).

10.66  -   Form of Promissory Notes, dated November 29, 1996, between the
           Company and each of Drs. Edward, Robert and Alan Cohen. (incorporated
           by reference to the Company's Annual Report on Form 10-K for the Year
           Ended December 31, 1996).

10.67  -   Ninth Amendment, dated November 29, 1996, to the Credit Agreement
           between the Company and Chase Manhattan Bank. (incorporated by
           reference to the Company's Current Report on Form 8-K, dated November
           29, 1996).

10.68  -   Tenth Amendment and Waiver, dated February 26, 1997, to the Credit
           Agreement between the Company and Chase Manhattan Bank. (incorporated
           by reference to the Company's Annual Report on Form 10-K for the Year
           Ended December 31, 1996).

10.69  -   Form of Convertible Debentures and Warrants Subscription Agreement,
           dated February 26, 1997 (incorporated by reference to Exhibit 4.1 to
           the Company's Current Report on Form 8-K, dated February 26, 1997).

16.1   -   Letter, dated March 4, 1996, from Janover Rubinroit LLC, the former
           independent certified public accountant for the Company (incorporated
           by reference to Exhibit 16 to the Company's Current Report on Form
           8-K dated March 7, 1996).

10.70  -   Eleventh Amendment and Waiver, dated April 1, 1997, to the Credit
           Agreement between the Company and Chase Manhattan Bank (incorporated
           by reference to Exhibit 10.70 to the Company's Current Report on Form
           8-K, dated April 7, 1997).

10.71  -   Agreement and Plan of Reorganization, dated February 19, 1997, as
           amended, among the Company and Messrs., David, Alan and Sidney Singer
           (incorporated by reference to Exhibit 10.71 to the Company's Current
           Report on Form 8-K, dated April 7, 1997).

10.72  -   Loan Agreement, dated June 30, 1997, between the Company and STI
           Credit Corporation (incorporated by reference to Exhibit 10.72 to the
           Company's Current Report on Form 8-K, dated June 30, 1997).

10.73  -   Letter Agreement, dated July 2, 1997, among the Company and Messrs.
           Sidney, Alan and David Singer (incorporated by referenced to Exhibit
           10.73 to the Company's Current Report on Form 8-K, dated June 30,
           1997).

10.74  -   Form of Non-Negotiable Judgment Note, dated July 1, 1997, among the
           Company and Messrs. Sidney, Alan and David


                                       49
<PAGE>

           Singer (incorporated by reference to Exhibit 10.74 to the Company's
           Current Report on Form 8-K, dated June 30, 1997).

10.75  -   First Amendment to Loan Agreement, dated October 9, 1997, between
           the Company and STI Credit Corporation (Incorporated by reference to
           Exhibit 10.75 to the Company's Current Report on Form 8-K, dated
           September 30, 1997).

10.76  -   Stock Option Recission Letters, dated August 13, 1997, from each of
           Drs. Robert, Alan and Edward Cohen and Mr. Jay Fabrikant
           (Incorporated by reference to Exhibit 10.76 to the Company's Current
           Report on Form 10-Q, dated September 30, 1997).

10.77  -   Waiver, dated April 14, 1998, to the Company's Loan Agreement, dated
           June 30, 1997, as previously amended on October 9, 1997.

10.78  -   Exchange Agreement, dated April 14, 1998, between the Registrant and
           the Original Holders of the Registrant's Convertible Debentures Due
           February 17, 1999 (Incorporated by reference to Exhibit 10.78 to the
           Company's Current Form on 8-K, dated April 14, 1998).

10.79  -   Contract of Sale, dated May 6, 1998, between Insight Laser Centers
           N.Y.I, Inc. and Nassau Center for Ambulatory Surgery, Inc.
           (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, between Insight AmSurg
           Centers, Inc. and Nassau Center for Ambulatory Surgery, Inc.
           (Incorporated by reference to Exhibit 10.80 to the Company's Current
           Report on Form 8-K, dated May 6, 1998).

10.81  -   Settlement Agreement, dated July 31, 1998, between the Registrant,
           Singer Specs, Inc. and Messrs. Sidney, Alan and David Singer
           (Incorporated by reference to Exhibit 10.83 to the Company's Current
           Report on Form 8-K, dated July 31, 1998).

10.82  -   Employment Agreement, dated as of March 2, 1998, between the Company
           and William J. Young (Incorporated by reference to Exhibit 10.82 of
           the Company's Quarterly Report on Form 10K/A for the Quarter Ended
           March 31, 1998).

10.83  -   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).

10.84  -   First Amendment to Convertible Preferred Stock and Warrants
           Subscription Agreement, dated January 4, 1999 (Incorporated by
           reference to Exhibit 10.78 to the Company's Current Report on Form
           8-K, dated January 4, 1999).

10.85  -   Second Amendment to Convertible Preferred Stock and Warrants
           Subscription Agreement, dated March 4, 1999 (Incorporated by
           reference to Exhibit 10.79 to the Company's Current Report on Form
           8-K, dated March 4, 1999).

10.86  -   Waiver, dated April 13, 1999, to the Registrant's Loan Agreement with
           STI Credit Corp., dated June 30, 1997, as previously amended on
           October 9, 1997 and April 14, 1998.

21         List of Subsidiaries.

27         Financial Data Schedule.

b.)  Reports on Form 8-K

           1)         On March 7, 1996, the Registrant filed a Report on Form
                      8-K with respect to the appointment of Deloitte & Touche
                      as principal accounting firm for SVI.

           2)         On May 30, 1996, the Registrant filed a Report on Form 8-K
                      with respect to the D&K Purchase.

           3)         On November 29, 1996, the Registrant filed a Report on
                      Form 8-K with respect to Cohen Loan and Ninth Amendment
                      and Waiver between Registrant and The Chase Manhattan
                      Bank.

           4)         On February 26, 1997, the Registrant filed a Report on
                      Form 8-K with respect to its Private Placement.

           5)         On April 7, 1997, the Registrant filed a Report on Form
                      8-K with respect to Singer Agreement and Plan of
                      Reorganization.


                                       50
<PAGE>

           6)         On June 30, 1997, the Registrant filed a Report on Form
                      8-K with respect to the Loan Agreement.

           7)         On August 11, 1997, the Registrant filed a Report on Form
                      8-K with respect to the Private Placement, the Singer
                      Transaction and the BEC Agreement.

           8)         On February 17, 1998, the Registrant filed a Report on
                      Form 8-K with respect to Debentures.

           9)         On April 14, 1998, the Registrant filed a Report on Form
                      8-K with respect to Exchange Agreement and Preferred
                      Stock.

           10)        On May 1, 1998, the Registrant filed a Report on Form 8-K
                      with respect to change of Auditors - Arthur Andersen LLP.

           11)        On May 6, 1998, the Registrant filed a Report on Form 8-K
                      with respect to Insight Laser Centers N.Y. I, Inc.'s
                      purchase of the assets of Nassau Center for Ambulatory
                      Surgery, Inc. and Contract of Sale between Nassau Center
                      for Ambulatory Surgery, Inc. and Insight AmSurg Centers,
                      Inc.

           12)        On May 13, 1998, the Registrant filed a Report on Form
                      8-K/A with respect to Form 8-K, dated May 1, 1998 and
                      letter from Deloitte & Touche LLP.

           13)        On July 31, 1998, the Registrant filed a Report on Form
                      8-K with respect to Settlement Agreement between Sterling
                      Vision, Inc., Singer Specs, Inc. and Messrs. Sidney, David
                      and Alan Singer.

           14)        On August 10, 1998, the Registrant filed a Report on Form
                      8-K with respect to the resignation of Jay Fabrikant as a
                      Director of Sterling Vision, Inc.

           15)        On September 18, 1998, the Registrant filed a Report on
                      Form 8-K with respect to the resignation of Jerry Lewis
                      and change of executive officers.

           16)        On January 14, 1999, the Registrant filed a Report on Form
                      8-K with respect to the First Amendment to its Convertible
                      Preferred Stock and Warrants Subscription Agreements.

           17)        On March 4, 1999, the Registrant filed a Report on Form
                      8-K with respect to the Second Amendment to its
                      Convertible Preferred Stock and Warrants Subscription
                      Agreement.


                                       51
<PAGE>

SIGNATURES

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

                                               STERLING VISION, INC.

                                               By: /s/ Alan Cohen
                                                   -----------------------------
                                                   Alan Cohen,

                                                   President and Chief Executive
                                                   Officer

                                               Date:  May 27, 1999

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

Signature                 Title                                 Date
---------                 -----                                 ----

/s/ Robert Cohen          Chairman of the Board                 May 27, 1999
---------------------     of Directors
Robert Cohen

/s/ Alan Cohen            Vice Chairman of the Board,           May 27, 1999
---------------------     President and Chief Executive
Alan Cohen                Officer


/s/ William J. Young      Chief Financial Officer               May 27, 1999
---------------------
William J. Young

/s/ Joel Gold             Director                              May 27, 1999
---------------------
Joel Gold

/s/ Edward Celano         Director                              May 27, 1999
---------------------
Edward Celano




                                       52