U.S. Securities and Exchange Commission

                             Washington, D.C. 20549

                                    FORM 10-K

              Annual Report Pursuant to Section 13 or 15 (d) of the
                      Securities and Exchange Act of 1934

                   For the fiscal year ended December 31, 2002

                         Commission File Number 1-14128

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

             NEW YORK                                       11-3096941
     (State of incorporation)                            (I.R.S. Employer
                                                      Identification Number)

                         100 Quentin Roosevelt Boulevard
                              Garden City, NY 11530
                        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:

                    Common Stock, par value $0.01 per share

     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. [ ]

     Indicate by check mark whether the  registrant is an  accelerated  filer as
defined in Rule 12b-2 of the Act.

                              Yes          No  X
                                  ---         ---

     The aggregate market value of the voting and non-voting  common equity held
by non-affiliates  computed by reference to the price at which the common equity
was last sold, as of June 30, 2002, was $1,084,878.

Number of shares outstanding as of March 24, 2003:

          29,890,620 shares of Common Stock, par value $0.01 per share


Documents incorporated by reference:  None

<PAGE>

                                     Part I

Item 1.  Business
-----------------

GENERAL

     Emerging   Vision,   Inc.  (the   "Registrant"   and,   together  with  its
subsidiaries,  hereinafter  the "Company" or  "Emerging")  is one of the largest
chains of retail optical stores and one of the largest  franchise optical chains
in the United States,  based upon management's  beliefs,  domestic sales and the
number  of  locations  of  Company-owned  and  franchised  stores  (collectively
referred to herein as "Sterling Stores").  The Registrant was incorporated under
the laws of the State of New York in January  1992 and, in July 1992,  purchased
substantially  all  of  the  assets  of  Sterling  Optical  Corp.,  a  New  York
corporation then a debtor-in-possession  under Chapter 11 of the U.S. Bankruptcy
Code.

     In March 2001, the Board of Directors decided that the Company should focus
its  efforts and  resources  on growing its retail  optical  business  and, as a
result, approved a plan to discontinue all other operations then being conducted
by the Company. In connection with this decision, the Company completed its plan
of disposal of  substantially  all of the net assets of Insight  Laser  Centers,
Inc. ("Insight Laser") - which operated three laser vision correction centers in
the  New  York  metropolitan  area;  Insight  Laser  Centers  N.Y.I,  Inc.  (the
"Ambulatory  Center")  - owner of the  assets of an  ambulatory  surgery  center
located in Garden City, New York; and the yet-to-be-developed  Internet Division
- which was to provide a web-based  portal being  designed to take  advantage of
business-to-business  opportunities  in the  optical  industry,  for  which  the
Company ceased further development and discontinued the operations thereof.


STORE OPERATIONS

     The Company and its  franchisees  operate  retail  optical stores under the
trade names  "Sterling  Optical,"  "Site For Sore Eyes,"  "Duling  Optical," and
"Singer  Specs,"  although most stores  (other than the Company's  Site for Sore
Eyes stores  located in Northern  California)  operate under the name  "Sterling
Optical."  The  Company  also  operates  VisionCare  of  California  ("VCC"),  a
specialized  health  care  maintenance  organization  licensed  by the  State of
California   Department  of  Managed   Health  Care,   which  employs   licensed
optometrists who render services in offices located immediately  adjacent to, or
within, most Sterling Stores located in California.

     Most  Sterling  Stores  offer  eye  care  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.

     Occasionally,  the Company sells the assets of certain of its Company-owned
stores to qualified franchisees, and, in certain instances, realizes a profit on
the conveyance of the assets of such stores. Through these sales, along with the
opening of new stores by qualified  franchisees,  the Company  seeks to create a
stream of royalty  payments based upon a percentage of the gross revenues of the
franchised locations,  and grow both the Sterling Optical and Site For Sore Eyes
brand names.  The Company  currently  derives its retail  optical store revenues
principally  from the sale of eye care  products and  services at  Company-owned
stores,  and ongoing  royalty fees based upon a percentage of the gross revenues
of its franchised stores.

     As of December  31,  2002,  there were 182  Sterling  Stores in  operation,
consisting  of 23  Company-owned  stores  (including 8 stores  being  managed by
franchisees), and 159 franchised stores. The Company currently seeks to focus on
expanding its franchised  store  operations.  Sterling  Stores are located in 23
states, the District of Columbia, Canada, and the U.S. Virgin Islands.


                                    Page -2-
<PAGE>

     The  following  chart  sets  forth  the  breakdown  of  Sterling  Stores in
operation as of December 31, 2002 and 2001:

                                                            December 31,
                                                     2002(*)            2001
                                                    --------          --------
  I.    COMPANY-OWNED STORES:
        --------------------

        Company-owned stores.........................  15                25
        Company-owned stores managed by franchisees..   8                 9
                                                      ----              ----

                              Total..................  23                34
                                                      ====              ====

     (*)Existing  store  locations:  California  (2), Iowa (1),  Minnesota  (1),
Nebraska (1), New York (14), North Dakota (1),  Pennsylvania  (1), and Wisconsin
(2).


   II.    FRANCHISED STORES:
          -----------------

          Franchised stores.......................... 159               168
          Franchised stores managed by the Company...   -                 1
                                                      ----              ----
                              Total.................. 159               169
                                                      ====              ====

     (*)Existing  store locations:  California (28),  Colorado (1),  Connecticut
(1),  Delaware (6),  Florida (1),  Illinois (2),  Kentucky (2),  Maryland  (17),
Massachusetts  (1),  Minnesota (1), Montana (1), Nevada (1), New Jersey (8), New
York (42),  North Dakota (5),  Ontario,  Canada (2),  Pennsylvania  (15),  South
Dakota (1), Texas (1),  Virginia (8),  Washington,  D.C. (2), West Virginia (1),
Wisconsin (10), and the U.S. Virgin Islands (2).


     Sterling  Stores  generally range in size from  approximately  1,000 square
feet to 2,000  square feet,  are 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,  with a limited  number of Sterling  Stores being
housed in  freestanding  buildings with adjacent  parking  facilities.  Sterling
Stores are generally  clustered within  geographic  market areas to maximize the
benefit  of  advertising   strategies  and  minimize  the  cost  of  supervising
operations.

     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 ophthalmic  frames.  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 system-wide preferred vendor discount for the product in
an effort to maximize system-wide sales and profits.


FRANCHISE SYSTEM

     An integral part of the Company's  franchise 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 marketing and promotional programs, as well
as assistance in obtaining managed care contracts.  Specifically,  the Company's
grand opening assistance helps to establish business plans and budgets, provides
preliminary  store  designs  and  plan  approval  prior  to  construction  of  a
franchised   store,  and  provides   training,   an  operations   manual  and  a
comprehensive  business  review to aid the  franchisee in attempting to maximize
its sales and profitability.  Further, on an ongoing basis, the Company provides
training  through  regional   seminars,   offers  assistance  in  marketing  and
advertising  programs and  promotions,  and consults with its  franchisees as to
their management and operational strategies and business plans.


                                    Page -3-
<PAGE>

     Preferred Vendor Network. With the collective buying power of Company-owned
and  franchised  Sterling  Stores,  the  Company  has  established  a network of
preferred  vendors (the  "Preferred  Vendors")  whose  products may be purchased
directly  by  franchisees  at group  discount  prices,  thereby  providing  such
franchisees  with the  opportunity for higher gross margins.  Additionally,  the
Company  negotiates  and  executes  cooperative  advertising  programs  with its
Preferred Vendors for the benefit of all Company-owned and franchised stores.

     Franchise  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,  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.  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.

     c. Ongoing Royalties.  Franchisees are obligated to pay the Company ongoing
royalties  in an  amount  equal  to a  percentage  (generally  8%) of the  gross
revenues  generated by 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 three
years of the term of the Franchise Agreement. In addition, most of the Franchise
Agreements  acquired  by the  Company  from  Singer  Specs,  Inc.  (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,  excluding refunds to customers,  sales taxes, a limited amount of bad
debts and, to the extent  required  by state law,  fees  charged by  independent
optometrists.

     d.  Advertising  Fund  Contributions.  Most  franchisees  must make ongoing
contributions  to an  advertising  fund  (the  "Advertising  Fund")  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.  Generally,  50% of these funds are
expended at the  direction of each  individual  franchisee  (for the  particular
Sterling  Store  in  question),   with  the  balance  being  expended  on  joint
advertising  campaigns for all franchisees  located within  specific  geographic
areas.

     e.  Financing.  In the past,  the  Company  has  financed a majority of the
acquisition  price of the assets (other than inventory) of Company-owned  stores
sold to  franchisees,  to be repaid over a period of seven years,  together with
interest 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.  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 Sterling Store in
question,  including subsequently 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 2002, ten
franchised  stores were closed,  and the assets of (as well as possession of) an
additional 4 franchise stores were reacquired by the Company.  Substantially all
of  the  assets  located  in  such  stores  were  voluntarily   surrendered  and
transferred  back to the  Company  in  connection  with the  termination  of the
related Franchise Agreements.  In such instances,  it is generally the Company's
intention to re-convey the assets of such a store to a new franchisee, requiring
the new  franchisee to enter into the  Company's  then current form of Franchise
Agreement.


                                    Page -4-
<PAGE>


MARKETING AND ADVERTISING

     The Company's marketing strategy emphasizes  professional eye examinations,
competitive   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.
Examinations by licensed  optometrists  are generally  available on the premises
of, or directly adjacent to, substantially all Sterling Stores.

     The   Company    continually    prepares   and   revises   its    in-store,
point-of-purchase  displays,  which  provide  various  promotional  messages  to
customers upon their 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 the Sterling  Store in  question.  The Company is also  continually
refining its interactive web site, which further markets the "Sterling  Optical"
and "Site for Sore Eyes"  brands in an effort to increase  traffic to its stores
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 system-wide  sales
for  advertising  and  promotional  expenditures.   Generally,  franchisees  are
obligated to contribute a percentage of their Sterling Store's gross revenues to
the Company's segregated advertising fund accounts,  which the Company maintains
for advertising,  promotional and public relations programs.  In most cases, the
Company permits each franchisee to direct the expenditure of  approximately  50%
of such contributions,  with the balance being expended to advertise and promote
all Sterling  Stores located within the geographic area of the Sterling Store in
question, and/or on national promotions and campaigns.


INSIGHT MANAGED VISION CARE

     Managed care is a  substantial  and growing  segment of the retail  optical
business.  Under the trade name  "Insight  Managed  Vision  Care,"  the  Company
promotes the use of its Sterling  Stores through the ongoing  development of its
managed  care  network.  The  Company,  through  Insight  Managed  Vision  Care,
contracts with payors (e.g. health maintenance organizations, preferred provider
organizations,  insurance companies, Taft-Hartley unions, and mid-sized to large
companies)  that offer eye care  benefits to their  covered  participants.  When
Sterling  Stores provide  services or products to a covered  participant,  it is
generally at a discount from the everyday  advertised  retail price.  Typically,
participants  will be eligible for greater eye care benefits at Sterling  Stores
than those offered at eye care providers that are not participating in a managed
care  program.  The  Company  believes  that  the  additional  customer  traffic
generated by covered participants,  along with purchases by covered participants
above and beyond their eye care  benefits,  more than offsets the reduced  gross
margins being realized on these sales.  The Company believes that convenience of
store  locations and hours of operation  are key factors in  attracting  managed
care  business.  As the Company  increases  its presence  within  markets it has
already entered as well as expands into new markets, it believes it will be more
attractive to managed care payors due to the  additional  Sterling  Stores being
operated by the Company and its franchisees.


COMPETITION

     The optical  business is highly  competitive  and includes chains of retail
optical stores,  superstores,  individual  retail outlets,  the operators of web
sites  and  a  large   number  of   individual   opticians,   optometrists   and
ophthalmologists  who  provide  professional  services  and 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 thereto, the Company generally offers the same or similar incentives to
its customers.

     The Company believes that the principal  competitive  factors in the retail
optical   business  are  convenience  of  location,   on-site   availability  of
professional eye examinations, rapid service, quality and consistency of product
and service, price, product warranties, a broad selection of merchandise and the
participation  in  third-party,  managed  care  provider  programs.  The Company
believes that it competes favorably in each of these areas.


                                    Page -5-
<PAGE>


GOVERNMENT REGULATION

     The Company and its operations are subject to extensive federal,  state and
local laws,  rules and  regulations  affecting  the health care industry and the
delivery of health care, 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 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  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 any such environmental regulations.  However, the
Company  is  subject  to  certain  regulations  promulgated  under  the  Federal
Environmental  Protection Act with respect to the grinding,  tinting, edging and
disposal of ophthalmic lenses and solutions, which the Company believes it is in
material compliance with.


EMPLOYEES

     As of March 24, 2003, the Company employed  approximately  160 individuals,
of which  approximately 77% were employed on a full-time basis. Except for those
individuals  employed at  Company-owned  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), of which there were none, no
employees  are  covered by any  collective  bargaining  agreement.  The  Company
considers its labor relations with its associates to be in good standing and has
not  experienced  any  interruption  of its  operations  due  to  disagreements.
Additionally,  the  Company  has an  employment  agreement  with  one of its key
executives.





                                    Page -6-
<PAGE>


Item 2.  Properties
-------------------

     The Company's headquarters,  consisting of approximately 7,000 square feet,
are located in an office building situated at 100 Quentin  Roosevelt  Boulevard,
Garden City,  New York 11530,  under a sublease  that expires in November  2006.
This  facility  houses the  Company's  principal  executive  and  administrative
offices.

     The Company leases the space occupied by all of its Company-owned  Sterling
Stores and the majority of its franchised  Sterling Stores. The remaining leases
for its  franchised  Sterling  Stores  are held in the  names of the  respective
franchisees thereof.

     Sterling Stores are generally located in commercial areas,  including major
shopping malls, strip centers,  freestanding buildings and other areas conducive
to retail trade.  Generally,  Sterling  Stores range in size from 1,000 to 2,000
square feet.










                                    Page -7-
<PAGE>


Item 3.  Legal Proceedings
--------------------------

     Information  with respect to the Company's  legal  proceedings  required by
Item 103 of Regulation S-K is set forth in Note 12 to the Consolidated Financial
Statements  included in Item 8 of this Report,  and is incorporated by reference
herein.

















                                    Page -8-

<PAGE>


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, 2002.

















                                    Page -9-

<PAGE>

                                     PART II

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

     The  Registrant's  Common Stock was listed on the OTC Bulletin  Board under
the trading symbol "ISEE.OB" as of August 23, 2001, and was previously listed on
the Nasdaq National Market System.  Over-the-counter  market quotations  reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions. The range of the high and low closing
sales prices for the Registrant's  Common Stock for each quarterly period of the
last two years, is as follows:

                             2002                       2001
                      ------------------         ------------------
  Quarter Ended:        High       Low             High       Low
  --------------      -------    -------         -------    -------

  March 31             $0.14      $0.07            $0.72     $0.22
  June 30              $0.11      $0.05            $0.37     $0.19
  September 30         $0.10      $0.04            $0.80     $0.13
  December 31          $0.10      $0.03            $0.14     $0.06


     The approximate  number of  shareholders of record of the Company's  Common
Stock as of March 24, 2003, was 300.

     There was one  shareholder  of record of the Company's  Senior  Convertible
Preferred Stock as of March 24, 2003.

     Historically,  the Company has not paid dividends on its Common Stock,  and
has no intention to pay dividends on its Common Stock in the foreseeable future.
It is the  present  policy  of the  Registrant's  Board of  Directors  to retain
earnings, if any, to finance the Company's operations and expansion.











                                   Page -10-

<PAGE>


Item 6.  Selected Financial Data
--------------------------------

               SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

     The  following  Selected  Financial  Data has been derived from the audited
consolidated  financial  statements  of  the  Company  and  should  be  read  in
conjunction  with those  statements,  which are  included  in this  Report.  The
consolidated  financial  statements have been examined and reported on by Arthur
Andersen LLP,  independent public  accountants,  with respect to the years ended
December 31, 2001,  2000, 1999 and 1998. The consolidated  financial  statements
for the year ended December 31, 2002 were audited by Miller Ellin & Company LLP,
independent public accountants.

<TABLE>
<CAPTION>
                                                                            (In thousands, except for per share data)
                                                                                    Year Ended December 31,
                                                             ----------------------------------------------------------------------
Statement of Operations Data:                                    2002          2001          2000           1999          1998
                                                             ------------- ------------- -------------- ------------- -------------
<S>                                                          <C>           <C>           <C>            <C>           <C>
System-wide sales (1)                                        $  104,448    $  124,589    $  128,775     $  140,321    $  147,402
                                                             ==========    ==========    ==========     ==========    ==========

Total revenues                                               $   17,425    $   20,619    $   23,058     $   29,580    $   32,582
                                                             ==========    ==========    ==========     ==========    ==========
Loss from continuing operations                              $   (4,721)   $   (5,088)   $  (14,628)    $   (2,691)   $  (16,016)
                                                             ==========    ==========    ==========     ==========    ==========
Income (loss) from discontinued operations                   $       74    $    1,312    $  (15,533)    $      430    $     (956)
                                                             ==========    ==========    ==========     ==========    ==========
Loss on disposal of discontinued operations                  $        -    $        -    $   (8,831)    $        -    $        -
                                                             ==========    ==========    ==========     ==========    ==========
Net loss                                                     $   (4,647)   $   (3,776)   $  (38,992)    $   (2,261)   $  (17,777)
                                                             ==========    ==========    ==========     ==========    ==========

Per Share Information - basic and diluted
-----------------------------------------
Loss from continuing operations                              $    (0.17)   $    (0.19)   $    (2.04)    $    (0.41)   $    (1.10)
                                                             ==========    ==========    ==========     ==========    ==========
Income (loss) from discontinued operations                   $     0.01    $     0.05    $    (0.66)    $     0.03    $    (0.07)
                                                             ==========    ==========    ==========     ==========    ==========
Loss on disposal of discontinued operations                  $        -    $        -    $    (0.37)    $        -    $        -
                                                             ==========    ==========    ==========     ==========    ==========
Net loss per share                                           $    (0.16)   $    (0.14)   $    (3.07)    $    (0.38)   $    (1.23)
                                                             ==========    ==========    ==========     ==========    ==========

Weighted-average common shares outstanding                       28,641        26,409        23,627         15,232        14,627
                                                             ==========    ==========    ==========     ==========    ==========

Balance Sheet Data:
-------------------
Working capital deficit                                      $   (4,632)   $   (1,011)   $   (3,987)    $   (4,795)   $   (3,351)
Total assets                                                      6,650        11,057        22,531         30,312        32,685
Total debt                                                        1,494         1,299           754          7,347         9,751
</TABLE>

<TABLE>
<CAPTION>
Quarterly Data:
---------------
                                          First Quarter          Second Quarter          Third Quarter          Fourth Quarter
                                         ---------------        ----------------        ---------------        ----------------
                                         2002      2001          2002      2001         2002        2001        2002      2001
                                         ----      ----          ----      ----         ----        ----        ----      ----
<S>                                   <C>        <C>          <C>        <C>          <C>        <C>         <C>        <C>
Net revenues                          $  4,802   $  5,464     $  3,936   $  5,288     $  4,807   $  5,006    $  3,880   $  4,895
Net loss from continuing
   operations                         $   (533)  $    (41)    $   (397)  $    (57)    $ (1,895)  $ (1,942)   $ (1,896)  $ (3,048)
Income (loss) from discontinued
   operations                         $      -   $    431     $   (120)  $  1,064     $    287   $   (657)   $    (93)  $    474
Net income (loss)                     $   (533)  $    390     $   (517)  $  1,007     $ (1,608)  $ (2,599)   $ (1,989)  $ (2,574)
</TABLE>


                                   Page -11-
<PAGE>

<TABLE>
<CAPTION>

Sterling Store Data:                                                    (In thousands, except for number of stores)
                                                                                   Year Ended December 31,
                                                             ---------------------------------------------------------------------
                                                                 2002          2001          2000          1999          1998
                                                             ------------- ------------- ------------- ------------- -------------
<S>                                                                 <C>           <C>           <C>           <C>           <C>
Company-owned stores bought, opened or reacquired                     4            15             3            11             6
Company-owned stores sold or closed                                 (14)          (10)          (13)          (16)          (21)
Company-owned stores at end of period                                15            25            20            30            35
Company-owned stores being managed by Franchisees at end
   of period                                                          8             9            12             6             6
Franchised stores being managed by Company at end of period           -             1             3             5            12
Franchised stores at end of period                                  159           169           201           218           251
</TABLE>

<TABLE>
<CAPTION>
<S>                                                          <C>           <C>           <C>           <C>           <C>
Average sales per store (2):
Company-owned stores                                         $      337    $      377    $      396    $      420    $      478
Franchised stores                                            $      591    $      564    $      546    $      495    $      475
Average franchise royalties per franchised store (2)         $       47    $       43    $       42    $       38    $       35
</TABLE>

     (1)  System-wide  sales  represent   combined  retail  sales  generated  by
Company-owned and franchised stores, as well as revenues generated by VCC.

     (2) 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 in operation, respectively, for each of the specified periods.
For periods of less than a year, the averages have been annualized.










                                   Page -12-

<PAGE>

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

     This Report  contains  certain  forward-looking  statements and information
relating  to the  Company  that  is  based  on  the  beliefs  of  the  Company's
management,  as well as assumptions made by, and information currently available
to, the Company's management.  When used in this Report, the words "anticipate",
"believe",  "estimate", "expect", and similar expressions, as they relate to the
Company or the Company's  management,  are intended to identify  forward-looking
statements. Such statements reflect the current view of the Company with respect
to future events,  are not guarantees of future  performance  and are subject to
certain  risks and  uncertainties.  These risks and  uncertainties  may include:
product demand and market acceptance  risks; the effect of economic  conditions;
the impact of competitive products,  services and pricing;  product development,
commercialization  and  technological  difficulties;  the outcome of current and
future  litigation;  and other risks described  elsewhere herein.  Should one or
more  of  these  risks  or  uncertainties  materialize,   or  should  underlying
assumptions  prove  incorrect,  actual  results may vary  materially  from those
described herein as anticipated,  believed,  estimated, or expected. The Company
does not intend to update these forward-looking statements.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

     Net sales for Company-owned stores,  including revenues generated by VCC, a
specialized  health  care  maintenance  organization  licensed  by the  State of
California Department of Managed Health Care, decreased by $1,742,000, or 15.0%,
to $9,906,000  for the year ended  December 31, 2002, as compared to $11,648,000
for the comparable period in 2001. The decrease in net sales was a direct result
of  management's  commitment to continue to close  non-profitable  Company-owned
stores.  There were 15 stores  being  operated by the Company as of December 31,
2002,  compared to 25 stores as of December 31, 2001. On a same store basis (for
stores that operated as a Company-owned store during the entirety of both of the
years ended  December  31, 2002 and 2001),  comparative  net sales  decreased by
$377,000,  or 8.2%,  to  $4,204,000  for the year ended  December 31,  2002,  as
compared to $4,581,000 for the comparable  period in 2001.  Management  believes
this decrease was primarily a result of the struggling  U.S.  economy,  combined
with continuing national threats that significantly  impacted the New York area,
in which most of our Company-owned stores operate.

     Franchise  royalties  decreased by $1,044,000,  or 13.3%, to $6,816,000 for
the year ended  December 31, 2002, as compared to $7,860,000  for the comparable
period in 2001.  This  decrease  was a result of the fact that  there were fewer
franchised  stores in operation  during 2002 as compared to 2001. As of December
31, 2002, there were 159 franchised  stores in operation,  as compared to 169 as
of  December  31,  2001.  Additional  factors  driving  the  decrease  were  the
struggling  U.S.  economy,  and certain  other out of the  ordinary  threats and
incidents  that took place in areas of the United States in which a large number
of our  franchise  stores  operate,  including  New  York,  Maryland,  Virginia,
Washington D.C., and California,  which significantly affected retail traffic in
those areas.

     Net gains on the conveyance of  Company-store  assets to  franchisees,  and
other franchise  related fees (which includes  initial  franchise fees,  renewal
fees and fees related to the transfer of store  ownership from one franchisee to
another) decreased by $69,000,  or 49.3%, to $71,000 for the year ended December
31,  2002,  as compared  to $140,000  for the  comparable  period in 2001.  This
decrease was a direct  result of a lower amount of initial  franchise,  transfer
and  renewal  fees for the year ended  December  31,  2002,  as  compared to the
comparable  period in 2001.  The Company did not convey the assets of any of its
Company-owned stores to franchisees during 2002 or 2001.

     Interest on franchise notes receivable decreased by $635,000,  or 67.1%, to
$312,000 for the year ended  December 31, 2002,  as compared to $947,000 for the
comparable  period  in  2001.  This  decrease  was  principally  due to  several
franchise  notes maturing  during 2002,  along with the fact that certain of the
Company's franchisees filed bankruptcy or experienced other significant personal
financial  difficulties,  leaving them unable to fulfill their  commitment under
their respective promissory notes to the Company.

     Other  income  increased  by  $262,000,  to  $320,000,  for the year  ended
December 31,  2002,  as compared to $58,000 for the  comparable  period in 2001.
This  increase  was  primarily  a result  of the sale of  certain  assets of the
Company  to  third  parties,  along  with the  settlement  of  certain  existing
liabilities at lesser amounts than anticipated.

     The Company's gross profit margin  increased by 3.4%, to 77.0% for the year
ended December 31, 2002, as compared to 73.6% for the comparable period in 2001.
This  increase  was a result  of  improved  inventory  management  and  control,
improved  purchasing  at lower average  product  costs,  and improved  discounts
obtained in 2002 from  certain of the  Company's  vendors.  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,  competitive pricing, and
promotional incentives.

                                   Page -13-
<PAGE>

     Selling,  general and administrative  expenses decreased by $1,797,000,  or
8.8%,  to  $18,564,000  for the year ended  December  31,  2002,  as compared to
$20,361,000  for the comparable  period in 2001. This decrease was primarily due
to management's continuing plans to reduce administrative expenses, and to close
non-profitable  Company-owned  stores.  Included were reductions in salaries and
related expenses of $2,216,000, facility and other overhead charges of $263,000,
and  depreciation  and  amortization  of $863,000.  These items were offset by a
$1,691,000  increase in the provision for doubtful  accounts  related to certain
franchise  receivables and notes that management  deemed  uncollectible  due to,
among other reasons,  certain of the Company's  franchisees filing bankruptcy or
experiencing  other significant  personal financial  difficulties,  leaving them
unable to fulfill their financial  obligations to the Company. A smaller portion
of this provision  related to certain managed care  receivables that were deemed
uncollectible.

     Provision for store  closings  decreased by $44,000,  to $920,000,  for the
year ended December 31, 2002, as compared to $964,000 for the comparable  period
in 2001. In 2002,  management made the decision to close an additional 15 of its
Company-owned stores. In connection therewith,  the Company recorded a provision
based on the  estimated  costs  (including  lease  termination  costs  and other
expenses) that will be incurred in the closing of the stores.

     Non-cash  charges for the issuance of warrants and induced  conversions  of
warrants decreased by $165,000, or 100.0%, for the year ended December 31, 2002,
from the comparable period in 2001. This decrease was due to the fact that there
were no non-cash charges related to warrants or induced conversions during 2002.
The Company does,  however,  have  outstanding  contingent  warrants that become
exercisable  upon the  achievement,  by the  Company,  of certain  predetermined
EBITDA  targets.  Due  to  these  contingencies,  the  future  valuation  of the
contingent warrants, if and when they become exercisable, will result in charges
to the Company's  results of operations in future periods.  The  significance of
these  charges,  if any,  will be  dependent  upon the fair market  value of the
Company's  common  stock at the time  that the  respective  EBITDA  targets  are
achieved.

     Loss  from the  operation  of  franchised  stores  managed  by the  Company
decreased by $167,000, or 100.0%, for the year ended December 31, 2002, from the
comparable  period in 2001.  The  Company did not manage any stores on behalf of
franchisees during 2002, and has no intention of doing so in the future.

     Interest expense increased by $130,000, or 168.8%, to $207,000 for the year
ended  December 31, 2002,  as compared to $77,000 for the  comparable  period in
2001.  This  increase was a direct  result of interest  paid,  during  2002,  in
connection with $2,000,000 in financing  arrangements obtained by the Company in
January 2002.


COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

     Net sales for Company-owned stores,  including revenues generated by VCC, a
specialized  health  care  maintenance  organization  licensed  by the  State of
California Department of Managed Health Care, decreased by $467,000, or 3.9%, to
$11,648,000 for the year ended December 31, 2001, as compared to $12,115,000 for
the  comparable  period in 2000. On a same store basis (for stores that operated
as a Company-owned store during the entirety of both of the years ended December
31, 2001 and 2000), comparative net sales decreased by $1,043,000,  or 14.5%, to
$6,129,000  for the year ended  December 31, 2001, as compared to $7,172,000 for
the comparable period in 2000. While, on average,  there were more Company-owned
stores in operation  during 2001 as compared to 2000, the Company  experienced a
decline in sales during the last quarter of 2001.  Management believes that this
decline was a direct result of the general  economic  downturn  experienced as a
result of the tragic  events of September  11, 2001,  especially in light of the
fact that the nearly  50% of  Company-owned  stores  operate in the State of New
York.

     Franchise  royalties  decreased by $1,217,000,  or 13.3%, to $7,860,000 for
the year ended  December 31, 2001, as compared to $9,077,000  for the comparable
period in 2000.  This  decrease  was a result of the fact that  there were fewer
franchised  stores in operation  during 2001 as compared to 2000. As of December
31, 2001, there were 169 franchised  stores in operation,  as compared to 201 as
of December 31, 2000.

     Net gains  and fees on the  conveyance  of  Company-owned  store  assets to
franchisees (which includes renewal fees and the fees related to the transfer of
store ownership from one franchisee to another) decreased by $158,000, or 53.0%,
to $140,000 for the year ended  December  31, 2001,  as compared to $298,000 for
the  comparable  period  in 2000.  This  decrease  was due to the fact  that the
Company did not convey to  franchisees  (and thus did not realize a gain on) any
assets of Company-owned stores during the year ended December 31, 2001. In 2000,
however,  the  Company  conveyed  the  assets of three  Company-owned  stores to
franchisees. The $140,000 reflected for the year ended December 31, 2001 relates
solely to transfer and renewal fees.

     Interest on franchise notes receivable decreased by $263,000,  or 21.7%, to
$947,000 for the year ended December 31, 2001, as compared to $1,210,000 for the
comparable  period in 2000.  This decrease was  principally due to the fact that
several franchise notes matured during 2001.

                                   Page -14-
<PAGE>

     Other income decreased by $300,000, or 83.8%, to $58,000 for the year ended
December 31, 2001,  as compared to $358,000 for the  comparable  period in 2000.
This  decrease  was  primarily  a result of a decrease in the amount of interest
income earned by the Company,  due to lower average cash balances on hand in its
banks during 2001, as compared to 2000.

     The Company's gross profit margin  increased by 5.5%, to 73.6% for the year
ended December 31, 2001, as compared to 68.1% for the comparable period in 2000.
This  increase  was a result  of  improved  inventory  management  and  control,
improved  purchasing  at lower  average  product  costs,  and  better  discounts
obtained in 2001 from  certain of the  Company's  vendors.  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,  competitive pricing, and
promotional incentives.

     Selling,  general and administrative expenses decreased by $11,870,000,  or
36.6%,  to  $20,361,000  for the year ended  December 31,  2001,  as compared to
$31,260,000  for the comparable  period in 2000. This decrease was primarily due
to the fact that the Company recorded  increased  charges of $10,260,000 for the
year ended  December 31, 2000,  related to the Company's  provision for doubtful
accounts  associated  with accounts and notes  receivable due from  franchisees,
along with certain  receivables  from  franchisees for advertising  expenditures
that the Company  incurred on their behalf,  while the Company  incurred no such
charges for the year ended  December 31, 2001.  As discussed in prior year,  the
increased  charges  in 2000  were a  direct  result  of a change  in  management
philosophy,  policy,  direction,  and related courses of action resulting from a
change in the Company's senior management  personnel  subsequent to December 31,
2000, to take back franchise stores and/or  reevaluate notes receivable due from
various  problem  franchisees.  During 2001,  the Company did not incur  similar
charges,  as  management  more  closely  monitored  and  managed  its  franchise
receivables and notes.  Additionally,  due to corporate  downsizing and improved
scheduling in its Company-owned  stores,  the Company reduced salary and related
expenses  by  approximately  $1,500,000.   Finally,  there  was  a  decrease  in
depreciation  and  amortization  of  approximately  $350,000  due  to  the  full
depreciation  in the  prior  year  of  certain  of the  Company's  property  and
equipment.

     Provision for store  closings was $964,000 for the year ended  December 31,
2001. No such  provision  was provided for the year ended  December 31, 2000. In
2001,  management made the decision to close 11 of its Company-owned  stores. In
connection therewith, the Company recorded a provision based on the expected net
proceeds, if any, to be generated from the disposition of the store's assets, as
compared to the carrying value (after  consideration  of impairment,  if any) of
such store's assets and the estimated costs (including lease  termination  costs
and other expenses) that will be incurred in the closing of the stores.

     Non-cash  charges  for  issuance  of warrants  and  induced  conversion  of
warrants  decreased  by  $201,000,  or 54.9%,  to  $165,000  for the year  ended
December  31,  2001,  from  $366,000  for the  comparable  period in 2000.  This
decrease was principally due to the fact that there were no induced  conversions
of warrants  during  2001.  The 2001  charges  relate  solely to the issuance of
common shares in consideration for consulting services. Furthermore, the Company
has  outstanding   contingent   warrants  that  become   exercisable   upon  the
achievement,  by the Company, of certain  predetermined  EBITDA targets.  Due to
these  contingencies,  the future valuation of the contingent  warrants,  if and
when they become exercisable, will result in charges to the Company's results of
operations in future periods. The significance of these charges, if any, will be
dependent  upon the fair market value of the Company's  common stock at the time
that the respective EBITDA targets are achieved.

     Loss  from the  operation  of  franchised  stores  managed  by the  Company
decreased by $460,000,  or 73.4%, to  approximately  $167,000 for the year ended
December  31, 2001,  as compared to  approximately  $627,000 for the  comparable
period in 2000.  As of  December  31,  2001,  there was only one store  that the
Company was managing on behalf of a  franchisee,  as opposed to the three stores
the Company was managing on behalf of franchisees as of December 31, 2000.

     Interest expense  decreased by $355,000,  or 82.2%, to $77,000 for the year
ended  December 31, 2001, as compared to $432,000 for the  comparable  period in
2000.  This decrease  resulted from a decrease in long-term debt during the year
ended December 31, 2001, as compared to the comparable period in 2000.


LIQUIDITY AND CAPITAL RESOURCES

     For the year ended  December  31,  2002,  cash flows  provided by investing
activities  were  $1,058,000,  principally  due to the proceeds  received on the
Company's  franchise  notes  receivable,  offset,  in part,  by limited  capital
expenditures made by the Company during 2002.

                                   Page -15-
<PAGE>

     For the year ended  December  31,  2002,  cash flows  provided by financing
activities  were  $323,000,  principally  due to an aggregate of  $2,141,000  of
proceeds  from  a  secured  note  from  an  independent  financial  institution,
borrowings  under the Company's  credit  facility with Horizons  Investors Corp.
("Horizons"),  a related party, and a loan from one of the Company's  directors.
These proceeds were offset by payments made against the secured note, the credit
facility,  the director loan,  and short-term  loans made at the end of 2001from
Horizons and Broadway Partners LLC ("Broadway"), also a related party.

     As of December  31, 2002  (exclusive  of net  liabilities  of  discontinued
operations),  the Company had negative working capital of $4,424,000 and cash on
hand of  $664,000.  During  2002,  the Company  used  $1,817,000  of cash in its
operating activities. The Company incurred a net loss from continuing operations
of $4,721,000 for the year ended  December 31, 2002.  The primary  components of
this loss were related to the provision for doubtful  accounts of  approximately
$1,829,000, along with a provision for store closings of $920,000. Additionally,
a majority of the cash used in operating  activities was a result of $775,000 of
costs  paid out  related to the  Company's  store  closure  plan (Note 8), a net
decrease of $430,000 in accounts payable and accrued liabilities that existed as
of December 31, 2002,  and $227,000  related to the  prepayment of certain other
business  expenses,  offset, in part, by a net decrease of $328,000 in franchise
and other receivables,  and a net decrease in inventories (due to the closure of
non-profitable  Company-owned  stores  and  improved  inventory  management)  of
$290,000.  Management  anticipates  that it will  continue  to make  significant
payments  against  liabilities  associated  with the  closure of  non-profitable
Company-owned  stores that are already  reflected  in the  Consolidated  Balance
Sheet as of December 31, 2002.

     The Company  plans to  continue  to improve  its cash flows  during 2003 by
improving store  profitability  through  increased  monitoring of store-by-store
operations, closing non-profitable Company-owned stores, continuing to implement
reductions of  administrative  overhead  expenses where  necessary and feasible,
actively  supporting  development  programs  for  franchisees,  and  adding  new
franchised  stores to the system.  Management  believes that with the successful
execution of the aforementioned  plans to improve cash flows, its existing cash,
the collection of outstanding receivables,  and the successful completion of its
shareholder  rights  offering  (Note  14),  there will be  sufficient  liquidity
available for the Company to continue in operation  through the first quarter of
2004.  However,  there  can be no  assurance  that the  Company  will be able to
successfully execute the aforementioned  plans, or that it will be successful in
completing its rights offering.


MANAGEMENT'S DISCUSSION OF CRITICAL ACCOUNTING POLICIES

     High-quality   financial   statements   require  rigorous   application  of
high-quality accounting policies.  Management believes that its policies related
to revenue recognition, legal contingencies,  allowances on franchise, notes and
other  receivables,  and  accruals  for store  closings and costs of disposal of
discontinued  operations  are  critical  to an  understanding  of the  Company's
consolidated  financial  statements  because their  application  places the most
significant demands on management's  judgment,  with financial reporting results
relying on estimation about the effect of matters that are inherently uncertain.


RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Debt Extinguishments and Accounting for Leases

     In April 2002, the Financial  Accounting  Standards  Board ("FASB")  issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 145,  "Rescission of
FASB  Statements  No. 4, 44, and 64,  Amendment  of FASB  Statement  No. 13, and
Technical Corrections." For most companies,  SFAS No. 145 will require gains and
losses  on  extinguishments  of debt to be  classified  as  income  or loss from
continuing  operations,  rather  than as an  extraordinary  item  as  previously
required.  Extraordinary  treatment will be required for certain extinguishments
as provided in Accounting  Principles Board ("APB") Opinion No. 30. SFAS No. 145
also amends SFAS No. 13 to require that certain  modifications to capital leases
be treated as a sale-leaseback, and to modify the accounting for sub-leases when
the  original  lessee  remains a secondary  obligor.  The Company is required to
adopt the provisions of SFAS No. 145 in the first quarter of 2003.


                                   Page -16-
<PAGE>


Costs to Exit an Activity

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated  with  Exit  or  Disposal   Activities,"  which  addresses  financial
accounting and reporting for costs associated with exit or disposal  activities,
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability  Recognition
for Certain  Employee  Termination  Benefits and Other Costs to Exit an Activity
(including  Certain Costs Incurred in a  Restructuring)."  SFAS No. 146 requires
that a liability  for a cost  associated  with an exit or  disposal  activity be
recognized  when the  liability is incurred.  The  requirements  of SFAS No. 146
apply  prospectively  to activities  that are initiated  after December 31, 2002
and, as a result, the Company cannot reasonably  estimate the impact of adopting
these new rules until and unless it  undertakes  relevant  activities  in future
periods.

Guarantee Disclosures

     In  November   2002,  the  FASB  issued   Interpretation   ("FIN")  No.  45
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect  Guarantees of  Indebtedness  of Others," which  clarifies the required
disclosures  to be made by a guarantor  in their  interim  and annual  financial
statements  about its obligations  under certain  guarantees that it has issued.
FIN No. 45 also  requires a guarantor  to  recognize,  at the  inception  of the
guarantee,  a liability  for the fair value of the  obligation  undertaken.  The
Company  is  required  to adopt the  disclosure  requirements  of FIN No. 45 for
financial  statements ending December 31, 2002. The Company is required to adopt
and  accordingly  has  adopted   prospectively   the  initial   recognition  and
measurement  provisions of FIN No. 45 for  guarantees  issued or modified  after
December 31, 2002 and, as a result,  the Company cannot reasonably  estimate the
impact of  adopting  these new rules  until and  unless it  undertakes  relevant
activities in future periods.

Stock Based Compensation

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation  - Transition  and Disclosure - an amendment of SFAS No. 123." This
Statement  amends SFAS No. 123,  "Accounting for Stock-Based  Compensation",  to
provide  alternative  methods of transition  for a voluntary  change to the fair
value based method of  accounting  for  stock-based  employee  compensation.  In
addition,  this Statement amends the disclosure  requirements of SFAS No. 123 to
require prominent  disclosures in both annual and interim  financial  statements
about the method of accounting for  stock-based  employee  compensation  and the
effect of the method used on reported  results.  The adoption of SFAS No. 148 is
not expected to have a material  impact on the Company's  financial  position or
results of operations.


Consolidation of Variable Interest Entities


     In January  2003,  the FASB  issued FIN No. 46,  Consolidation  of Variable
Interest  Entities,  which  clarifies the  application  of  Accounting  Research
Bulletin No. 51, Consolidated Financial Statements, relating to consolidation of
certain entities. First, FIN No. 46 will require identification of the Company's
participation  in variable  interests  entities  ("VIEs"),  which are defined as
entities with a level of invested  equity that is not  sufficient to fund future
activities  to permit them to operate on a stand alone  basis,  or whose  equity
holders lack certain  characteristics of a controlling  financial interest.  For
entities identified as VIEs, FIN No. 46 sets forth a model to evaluate potential
consolidation  based on an assessment of which party to the VIE, if any, bears a
majority  of the  exposure  to its  expected  losses,  or  stands to gain from a
majority of its expected returns. FIN No. 46 also sets forth certain disclosures
regarding interests in VIEs that are deemed  significant,  even if consolidation
is not  required.  As the  Company  does not  participate  in VIEs,  it does not
anticipate  that the provisions of FIN No. 46 will have a material impact on its
financial position or results of operations.


                                   Page -17-
<PAGE>

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk
--------------------------------------------------------------------

     The Company  presently has  outstanding  certain  equity  instruments  with
beneficial  conversion terms.  Accordingly,  the Company,  in the future,  could
incur non-cash charges to equity (as a result of the exercise of such beneficial
conversion  terms),  which  would  have a  negative  impact on future  per share
calculations.

     The Company is exposed to market risks from  potential  changes in interest
rates as they relate to the Company's  investments  in highly liquid  marketable
securities and borrowings  under its credit  facility and term loan. The Company
believes  that  the  level  of risk  related  to its  investments  and any  such
borrowings,  is not material to the Company's  financial condition or results of
operations.  The  Company  does not expect to use  interest  rate swaps or other
instruments to hedge its borrowings under its credit facility or term loan.






                                   Page -18-

<PAGE>


Item 8.  Financial Statements and Supplementary Data
----------------------------------------------------



                                TABLE OF CONTENTS


                                                                       PAGE

REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS                              20-21

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets as of December 31, 2002 and 2001            22

Consolidated Statements of Operations for the Years Ended
   December 31, 2002, 2001 and 2000                                     23

Consolidated Statements of Shareholders' Equity (Deficit) for the
   Years Ended December 31, 2002, 2001 and 2000                         24

Consolidated Statements of Cash Flows for the Years Ended
   December 31, 2002, 2001 and 2000                                     25

Notes to Consolidated Financial Statements                              26



     Information required by schedules called for under Regulation S-X is either
not applicable or is included in the consolidated  financial statements or notes
thereto.






                                   Page -19-

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS






To Emerging Vision, Inc.:


     We have audited the  accompanying  consolidated  balance  sheet of Emerging
Vision,  Inc. (a New York  corporation) and  subsidiaries  (the "Company") as of
December  31,  2002,  and the related  consolidated  statements  of  operations,
shareholders'  equity  (deficit)  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. The consolidated  financial  statements of the Company as of, and for
the two years ended,  December 31, 2001 were audited by other  auditors who have
ceased  operations  and  whose  report,   dated  April  8,  2002,  expressed  an
unqualified opinion on those financial statements.

     We conducted our audit in  accordance  with  auditing  standards  generally
accepted in the United States.  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 2002  financial  statements  referred to above present
fairly,  in all material  respects,  the financial  position of Emerging Vision,
Inc.  and  subsidiaries  as of  December  31,  2002,  and the  results  of their
operations  and their  cash  flows for the year then  ended in  conformity  with
accounting principles generally accepted in the United States.

     As discussed in Note 3 to the financial statements, the Company changed its
method of  accounting  for goodwill in 2002,  as required by the  provisions  of
Statement  of  Financial  Accounting  Standards  No.  142,  "Goodwill  and Other
Intangible Assets."



                                           /S/ Miller Ellin & Company LLP


New York, New York
March 28, 2003










                                   Page -20-
<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS






To Emerging Vision, Inc.:


     We have audited the  accompanying  consolidated  balance sheets of Emerging
Vision,  Inc. (a New York  corporation) and subsidiaries as of December 31, 2001
and 2000, and the related consolidated  statements of operations,  shareholders'
equity  and cash  flows for the three  years  ended  December  31,  2001.  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 audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States.  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 audits provide 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 Emerging Vision,  Inc. and
subsidiaries  as of  December  31,  2001  and  2000,  and the  results  of their
operations  and their cash flows for the three years ended  December 31, 2001 in
conformity with accounting principles generally accepted in the United States.



                                               /s/ Arthur Andersen LLP

Melville, New York
April 8, 2002






     THIS REPORT IS A COPY OF A PREVIOUSLY ISSUED ARTHUR ANDERSEN REPORT AND HAS
NOT BEEN REISSUED BY ARTHUR  ANDERSEN.  PURSUANT TO SEC RELEASE NO.  33-8070 AND
RULE 437A UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  EMERGING  VISION,  INC.
HAS NOT RECEIVED  WRITTEN  CONSENT AFTER  REASONABLE  EFFORT TO USE THIS REPORT.
BECAUSE  ARTHUR  ANDERSEN LLP HAS NOT CONSENTED TO THE INCLUSION OF THEIR REPORT
IN THIS  REPORT,  YOU WILL NOT BE ABLE TO RECOVER  AGAINST  ARTHUR  ANDERSEN LLP
UNDER SECTION 11 OF THE SECURITIES  ACT FOR ANY UNTRUE  STATEMENTS OF A MATERIAL
FACT CONTAINED IN THE FINANCIAL STATEMENTS AUDITED BY ARTHUR ANDERSEN LLP OR ANY
OMISSIONS TO STATE A MATERIAL FACT REQUIRED TO BE STATED THEREIN.


                                   Page -21-

<PAGE>
                     EMERGING VISION, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (In Thousands, Except Share Data)
<TABLE>
<CAPTION>
                                                                                                               December 31,
                                                                                                            2002          2001
                                                                                                       -------------- --------------
                                     ASSETS
<S>                                                                                                     <C>            <C>
Current assets:
     Cash and cash equivalents                                                                          $       664    $     1,053
     Franchise receivables, net of allowance of $1,063 and $3,095, respectively                               1,133          1,837
     Other receivables, net of allowance of $101 and $171, respectively                                         447            739
     Current portion of franchise notes receivable, net of allowance
        of $442 and $0, respectively                                                                            612          2,993
     Inventories                                                                                                456            783
     Prepaid expenses and other current assets                                                                  321             94
                                                                                                        -----------    -----------
                     Total current assets                                                                     3,633          7,499
                                                                                                        -----------    -----------

Property and equipment, net                                                                                     693          1,075
Franchise notes and other receivables, net of allowance of $1,486
   and $3,326, respectively                                                                                     781            862
Goodwill                                                                                                      1,266          1,266
Other assets                                                                                                    277            355
                                                                                                        -----------    -----------
                     Total assets                                                                       $     6,650    $    11,057
                                                                                                        ===========    ===========

                 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
     Current portion of long-term debt, net (Note 11)                                                   $       626    $       186
     Accounts payable and accrued liabilities (Note 9)                                                        5,945          6,375
     Accrual for store closings (Note 8)                                                                      1,109            964
     Related party borrowings (Notes 11 and 13)                                                                 377            750
     Net liabilities of discontinued operations                                                                 208            235
                                                                                                        -----------    -----------
                     Total current liabilities                                                                8,265          8,510
                                                                                                        -----------    -----------

Long-term debt, net (Note 11)                                                                                   260            363
                                                                                                        -----------    -----------
Related party borrowings (Notes 11 and 13)                                                                      231              -
                                                                                                        -----------    -----------
Franchise deposits and other liabilities                                                                      1,709          1,567
                                                                                                        -----------    -----------
Commitments and contingencies (Note 12)

Shareholders' equity (deficit):
     Preferred stock, $0.01 par value per share; 5,000,000 shares authorized:
        Senior Convertible Preferred Stock, $100,000 liquidation preference
        per share; 1 and 3 shares issued and outstanding, respectively                                           74            287
     Common stock, $0.01 par value per share; 150,000,000 shares authorized;
        29,922,957 and 27,187,309 shares issued, respectively, and 29,740,620
        and 27,004,972 shares outstanding, respectively                                                         299            272
     Treasury stock, at cost, 182,337 shares                                                                   (204)          (204)
     Additional paid-in capital                                                                             120,345        119,926
     Accumulated deficit                                                                                   (124,329)      (119,664)
                                                                                                        -----------    -----------
                     Total shareholders' equity (deficit)                                                    (3,815)           617
                                                                                                        -----------    -----------
                     Total liabilities and shareholders' equity (deficit)                               $     6,650    $    11,057
                                                                                                        ===========    ===========

                 The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>

                                   Page -22-
<PAGE>
                     EMERGING VISION, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
                                                                                            For the Year Ended December 31,
                                                                                     -----------------------------------------------
                                                                                          2002            2001            2000
                                                                                     --------------- --------------- ---------------
<S>                                                                                   <C>             <C>             <C>
Revenues:
    Net sales                                                                         $     9,906     $    11,648     $    12,115
    Franchise royalties                                                                     6,816           7,860           9,077
    Net gains from the conveyance of Company-store assets to franchisees, and
       other franchise related fees                                                            71             140             298
    Interest on franchise notes receivable                                                    312             947           1,210
    Other income                                                                              320              58             358
                                                                                      -----------     -----------     -----------
                                                                                           17,425          20,653          23,058
                                                                                      -----------     -----------     -----------
Costs and expenses:

    Cost of sales                                                                           2,282           3,077           3,870
    Selling, general and administrative expenses                                           18,564          20,361          31,260
    Loss from franchised stores operated under management agreements                            -             167             627
    Provision for store closings (Note 8)                                                     920             964               -
    Charges related to long-lived assets                                                      173             930           1,131
    Non-cash charges for issuance of common stock, warrants and induced
       conversions of warrants                                                                  -             165             366
    Interest expense                                                                          207              77             432
                                                                                      -----------     -----------     -----------
                                                                                           22,146          25,741          37,686
                                                                                      -----------     -----------     -----------

Loss from continuing operations before provision for income taxes                          (4,721)         (5,088)        (14,628)
Provision for income taxes                                                                      -               -               -
                                                                                      -----------     -----------     -----------
Loss from continuing operations                                                            (4,721)         (5,088)        (14,628)
                                                                                      -----------     -----------     -----------
Discontinued operations (Note 2):
     Income (loss) from discontinued operations                                                74           1,312         (15,533)
     Loss on disposal of discontinued operations                                                -               -          (8,831)
                                                                                      -----------     -----------     -----------
          Income (loss) from discontinued operations                                           74           1,312         (24,364)
                                                                                      -----------     -----------     -----------
Net loss                                                                              $    (4,647)    $    (3,776)    $   (38,992)
                                                                                      ===========     ===========     ===========

Per share information - basic and diluted (Note 4):

    Loss from continuing operations                                                   $     (0.17)    $     (0.19)    $     (2.04)
    Income (loss) from discontinued operations                                               0.01            0.05           (0.66)
    Loss on disposal of discontinued operations                                                 -               -           (0.37)
                                                                                      -----------     -----------     -----------
       Net loss per share                                                             $     (0.16)    $     (0.14)    $     (3.07)
                                                                                      ===========     ===========     ===========

Weighted-average number of common shares outstanding - basic and diluted                   28,641          26,409          23,627
                                                                                      ===========     ===========     ===========

                   The accompanying notes are an integral part of these consolidated statements.
</TABLE>

                                   Page -23-
<PAGE>

<TABLE>
<CAPTION>
                     EMERGING VISION, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                        (In Thousands, Except Share Data)

                                                                 Series B Convertible    Senior Convertible
                                                                   Preferred Stock        Preferred Stock        Common Stock
                                                                 Shares        Amount    Shares    Amount   Shares       Amount
                                                                 ------        ------    ------    ------  ----------   --------


<S>                                                            <C>           <C>         <C>      <C>      <C>          <C>
BALANCE - DECEMBER 31, 1999................................         -        $   -           21   $2,417   16,676,630   $   167
Issuance of common shares upon induced conversion
     of Senior Convertible Preferred Stock.................         -            -          (18)  (2,130)   2,468,334        25
Exercise of stock options and warrants.....................         -            -            -        -    2,048,460        20
Issuance of common shares for consulting services..........         -            -            -        -    1,010,000        10
Issuance of Series B Convertible Preferred Stock...........     1,677,570        -            -        -            -         -
Issuance of warrants in connection with
     Series B Convertible Preferred Stock..................         -            -            -        -            -         -
Accretion of dividends on Series B Convertible
     Preferred Stock.......................................         -         11,743          -        -            -         -
Issuance of common shares upon conversion of Series B
     Convertible Preferred Stock...........................    (1,677,570)   (11,743)         -        -    3,355,140        34
Issuance of common shares to franchisees...................         -            -            -        -          667         -
Issuance of warrants and options for consulting services...         -            -            -        -            -         -
Equity contribution related to extinguishment of
     debt to related party.................................         -            -            -        -            -         -
Acquisition of treasury shares.............................         -            -            -        -            -         -
Net loss...................................................         -            -            -        -            -         -
                                                               -----------   -------     ------   ------   ----------   --------
BALANCE - DECEMBER 31, 2000................................         -            -            3      287   25,559,231       256
Issuance of common shares for consulting services (Note 14)         -            -            -        -    1,628,078        16
Acquisition of treasury shares (Note 14)...................         -            -            -        -            -         -
Net loss...................................................         -            -            -        -            -         -
                                                               -----------   -------     ------   ------   ----------   --------
BALANCE - DECEMBER 31, 2001................................         -            -            3      287   27,187,309       272
Issuance of warrrants in connection with financing
   arrangements (Note 11)..................................         -            -            -        -            -         -
Exercise of stock warrants (Note 15).......................         -            -            -        -    2,500,000        25
Issuance of common shares upon conversion of Senior
   Covertible Preferred Stock (Note 14)....................         -            -           (2)    (213)     235,648         2
Net loss...................................................         -            -            -        -            -         -
                                                               -----------   -------     ------   ------   ----------   --------
BALANCE - DECEMBER 31, 2002................................         -        $   -            1   $   74   29,922,957    $  299
                                                               ===========   =======     ======   ======   ==========   ========


                        The  accompanying  notes  are an  integral  part of these consolidated statements.
</TABLE>

<TABLE>
<CAPTION>
                     EMERGING VISION, INC. AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) - (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                        (In Thousands, Except Share Data)

                                                                Treasury Stock,     Additional                   Total
                                                                    at cost          Paid-In   Accumulated    Shareholders'
                                                               Shares      Amount    Capital     Deficit    Equity (Deficit)
                                                               ------      -----     --------   ---------      --------
<S>                                                            <C>         <C>       <C>        <C>            <C>
BALANCE - DECEMBER 31, 1999.................................         -     $   -     $ 55,023   $ (43,446)     $ 14,161
Issuance of common shares upon induced conversion
     of Senior Convertible Preferred Stock..................         -         -       23,812     (21,707)            -
Exercise of stock options and warrants......................         -         -        7,672           -         7,692
Issuance of common shares for consulting services...........         -         -        9,798           -         9,808
Issuance of Series B Convertible Preferred Stock............         -         -        6,239           -         6,239
Issuance of warrants in connection
      with Series B Convertible Preferred Stock.............         -         -        4,379           -         4,379
Accretion of dividends on Series B Convertible
     Preferred Stock........................................         -         -            -     (11,743)            -
Issuance of common shares upon conversion of Series B
     Convertible Preferred Stock............................         -         -       11,709           -             -
Issuance of common shares to franchisees....................         -         -            -           -             -
Issuance of warrants and options for consulting services....         -         -           94           -            94
Equity contribution related to extinguishment of
     debt to related party..................................         -         -          727           -           727
Acquisition of treasury shares..............................   177,001      (203)           -           -          (203)
Net loss....................................................         -         -            -     (38,992)      (38,992)
                                                               -------     -----     --------   ---------      --------
BALANCE - DECEMBER 31, 2000                                    177,001      (203)     119,453    (115,888)        3,905
Issuance of common shares for consulting services (Note 14)          -         -          473           -           489
Acquisition of treasury shares (Note 14)...................      5,336        (1)           -           -            (1)
Net loss...................................................          -         -            -      (3,776)       (3,776)
                                                               -------     -----     --------   ---------      --------
BALANCE - DECEMBER 31, 2001................................    182,337      (204)     119,926    (119,664)          617
Issuance of warrrants in connection with financing
   arrangements (Note 11)..................................          -         -          190           -           190
Exercise of stock warrants (Note 15).......................          -         -            -           -            25
Issuance of common shares upon conversion of Senior
   Covertible Preferred Stock (Note 14)....................          -         -          229         (18)            -
Net loss...................................................          -         -            -      (4,674)       (4,674)
                                                               -------     -----     --------   ---------      --------
BALANCE - DECEMBER 31, 2002................................    182,337     $(204)    $120,345   $(124,329)      $(3,815)
                                                               =======     =====     ========   =========      ========

                        The  accompanying  notes  are an  integral  part of these consolidated statements.
</TABLE>

                                   Page -24-

<PAGE>
                     EMERGING VISION, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
                                                                                              For the Year Ended December 31,
                                                                                      ----------------------------------------------
                                                                                           2002            2001            2000
                                                                                      -------------- ---------------- --------------
<S>                                                                                    <C>            <C>              <C>
Cash flows from operating activities:
     Net loss from continuing operations                                               $    (4,721)   $    (5,088)     $   (14,628)
     Adjustments to reconcile net loss from continuing operations
        to net cash used in operating activities:
           Depreciation and amortization                                                       489          1,351            1,440
           Provision for doubtful accounts                                                   1,829            138            6,967
           Provision for store closings                                                        920            964                -
           Provision for inventories                                                             -            100                -
           Net gains from the conveyance of Company-owned store assets to
              franchisees                                                                        -              -             (298)
           Amortization of excess of fair value of assets acquired over cost                     -           (317)            (348)
           Non-cash compensation charges related to options and warrants                        87            165               94
           Charges related to long-lived assets                                                173            930            1,131
     Changes in operating assets and liabilities:
           Franchise and other receivables                                                     328          1,007              (35)
           Inventories                                                                         290            150              880
           Prepaid expenses and other current assets                                          (227)           381               95
           Other assets                                                                         78             15              330
           Accounts payable and accrued liabilities                                           (430)        (5,365)           2,788
           Franchise deposits and other liabilities                                            142           (134)             (32)
           Accrual for store closings                                                         (775)             -             (299)
                                                                                       -----------    -----------      -----------
Net cash used in operating activities                                                       (1,817)        (5,703)          (1,915)
                                                                                       -----------    -----------      -----------
Cash flows from investing activities:
     Franchise notes receivable issued                                                         (71)             -             (582)
     Proceeds from franchise and other notes receivable                                      1,409          1,961            2,030
     Purchases of property and equipment                                                      (280)          (345)          (1,579)
                                                                                       -----------    -----------      -----------
Net cash provided by (used in) investing activities                                          1,058          1,616             (131)
                                                                                       -----------    -----------      -----------
Cash flows from financing activities:
     Proceeds from the exercise of stock options and warrants                                   25              -            7,692
     Proceeds from borrowings                                                                2,141            750                -
     Payments on borrowings                                                                 (1,843)          (205)          (6,594)
     Net proceeds from the issuance of Series B Convertible Preferred Stock                      -              -           10,618
     Acquisition of treasury shares                                                              -             (1)            (203)
                                                                                       -----------    -----------      -----------
Net cash provided by financing activities                                                      323            544           11,513
                                                                                       -----------    -----------      -----------
Net cash (used in) provided by continuing operations                                          (436)        (3,543)           9,467
                                                                                       -----------    -----------      -----------
Net cash provided by (used in) discontinued operations                                          47           (619)          (4,360)
                                                                                       -----------    -----------      -----------
Net (decrease) increase in cash and cash equivalents                                          (389)        (4,162)           5,107
Cash and cash equivalents - beginning of year                                                1,053          5,215              108
                                                                                       -----------    -----------      -----------
Cash and cash equivalents - end of year                                                $       664    $     1,053      $     5,215
                                                                                       ===========    ===========      ===========

Supplemental disclosures of cash flow information:
     Cash paid during the year for:
        Interest                                                                       $       118    $        49      $       324
                                                                                       ===========    ===========      ===========
        Taxes                                                                          $        75    $        69      $        28
                                                                                       ===========    ===========      ===========
     Non-cash investing and financing activities:
        Franchise store assets reacquired                                              $         -    $       501      $       416
        Issuance of common shares for consulting services                                        -            165                -
        Issuance of common shares to settle vendor payable related to
           discontinued operations                                                               -            324                -
        Extinguishment of related party debt                                                     -              -              727


                   The accompanying notes are an integral part of these consolidated statements.
</TABLE>

                                   Page -25-
<PAGE>
                     EMERGING VISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - ORGANIZATION AND BUSINESS:

Business
--------

     Emerging  Vision,  Inc. and  subsidiaries  (the  "Company"),  is one of the
largest chains of retail optical stores and one of the largest franchise optical
chains in the United States, based upon management's beliefs, domestic sales and
the number of locations of  Company-owned  and franchised  stores  (collectively
referred to herein as "Sterling Stores"). The Company was incorporated under the
laws of the State of New York in  January  1992  and,  in July  1992,  purchased
substantially  all  of  the  assets  of  Sterling  Optical  Corp.,  a  New  York
corporation then a debtor-in-possession  under Chapter 11 of the U.S. Bankruptcy
Code.

     On March 28, 2001,  the Board of Directors  decided that the Company should
focus its efforts and resources on growing its retail optical business and, as a
result, approved a plan to discontinue all other operations then being conducted
by the Company  (Note 2). In connection  with this  decision,  during 2001,  the
Company completed its plan of disposal of substantially all of the net assets of
Insight Laser  Centers,  Inc.  ("Insight  Laser") - which  operated  three laser
vision  correction  centers in the New York  metropolitan  area,  Insight  Laser
Centers N.Y.I,  Inc. (the  "Ambulatory  Center") - the owner of the assets of an
ambulatory  surgery  center  located in Garden City,  New York, and its Internet
Division  - which was to  provide a  web-based  portal  being  designed  to take
advantage of business-to-business opportunities in the optical industry.

     As of December  31,  2002,  there were 182  Sterling  Stores in  operation,
consisting  of 23  Company-owned  stores  (including 8 stores  being  managed by
franchisees),  and 159  franchised  stores.  As discussed in Note 8, the Company
anticipates closing 11 of its non-profitable Company-owned stores during 2003.

Basis of Presentation
---------------------

     The  Consolidated  Financial  Statements  reflect  the  operations  of  the
Company's retail optical store division as continuing operations. The results of
operations  and cash  flows of  Insight  Laser,  the  Ambulatory  Center and the
Internet  Division are reflected as  discontinued  operations in accordance with
Accounting  Principles  Board ("APB") Opinion No. 30,  "Reporting the Results of
Operations - Reporting  the Effects of Disposal of a Segment of a Business,  and
Extraordinary,  Unusual and Infrequently Occurring Events and Transactions". The
remaining net liabilities of those segments of the Company's  business have been
separately stated on the accompanying  Consolidated Balance Sheets as net assets
or liabilities of discontinued operations, and are classified depending on their
expected realization and/or settlement date.

Management's Liquidity Plans
----------------------------

     As of December  31, 2002  (exclusive  of net  liabilities  of  discontinued
operations),  the Company had negative working capital of $4,424,000 and cash on
hand of  $664,000.  During  2002,  the Company  used  $1,817,000  of cash in its
operating activities. The Company incurred a net loss from continuing operations
of $4,721,000 for the year ended  December 31, 2002.  The primary  components of
this loss were related to the provision for doubtful  accounts of  approximately
$1,829,000, along with a provision for store closings of $920,000. Additionally,
a majority of the cash used in operating  activities was a result of $775,000 of
costs  paid out  related to the  Company's  store  closure  plan (Note 8), a net
decrease of $430,000 in accounts payable and accrued liabilities that existed as
of December 31, 2002,  and $227,000  related to the  prepayment of certain other
business  expenses,  offset, in part, by a net decrease of $328,000 in franchise
and other receivables,  and a net decrease in inventories (due to the closure of
non-profitable  Company-owned  stores  and  improved  inventory  management)  of
$290,000.  Management  anticipates  that it will  continue  to make  significant
payments  against  liabilities  associated  with the  closure of  non-profitable
Company-owned  stores that are already  reflected  in the  Consolidated  Balance
Sheet as of December 31, 2002.

     The Company  plans to  continue  to improve  its cash flows  during 2003 by
improving store  profitability  through  increased  monitoring of store-by-store
operations, closing non-profitable Company-owned stores, continuing to implement
reductions of  administrative  overhead  expenses where  necessary and feasible,
actively  supporting  development  programs  for  franchisees,  and  adding  new
franchised  stores to the system.  Management  believes that with the successful
execution of the aforementioned  plans to improve cash flows, its existing cash,
the collection of outstanding receivables,  and the successful completion of its
shareholder  rights  offering  (Note  14),  there will be  sufficient  liquidity
available for the Company to continue in operation  through the first quarter of
2004.  However,  there  can be no  assurance  that the  Company  will be able to
successfully execute the aforementioned  plans, or that it will be successful in
completing its rights offering.

                                   Page -26-
<PAGE>

NOTE 2 - DISCONTINUED OPERATIONS:

     As discussed  in Note 1, in March 2001,  the  Company's  Board of Directors
decided  to  discontinue  the  operations  of the  Internet,  Insight  Laser and
Ambulatory  Center  divisions.  The Company  successfully  completed its plan of
disposal of the assets of these  segments in 2001.  Accordingly,  the  remaining
results  of  operations  and cash  flows  have been  reflected  as  discontinued
operations in the accompanying consolidated financial statements. As of December
31, 2002,  there were  approximately  $159,000 of expenses  associated  with the
Company's  disposal of these divisions  accrued as part of accounts  payable and
accrued liabilities on the accompanying Consolidated Balance Sheet. The majority
of this amount (of which  $195,000  was  provided  for during  2002)  relates to
certain  potential  ongoing  liabilities that the Company agreed to guarantee in
connection with the Company's sale of the Ambulatory Center (Note 12).

     In August 2002, the Company received  approximately  $342,000 in connection
with the Pillar Point Partners Antitrust and Patent  Litigation,  a class action
lawsuit to which  Insight  Laser was a plaintiff.  This amount was  reflected as
income from discontinued  operations on the accompanying  Consolidated Statement
of  Operations   for  the  year  ended   December  31,  2002,   and  offset  the
aforementioned costs associated with the Ambulatory Center guarantee.


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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 the
disclosure  of  contingent  assets  and  liabilities  as of the  dates  of  such
financial  statements,  and the reported amounts of revenues and expenses during
the  reporting  periods.  Actual  results  could  differ  from those  estimates.
Significant  estimates  made by  management  include,  but are not  limited  to,
allowances on  franchise,  notes and other  receivables,  and accruals for store
closings and costs of disposal of discontinued operations.

Principles of Consolidation
---------------------------

     The  Consolidated  Financial  Statements  include the  accounts of Emerging
Vision, Inc. and its operating subsidiaries,  all of which are wholly-owned. All
intercompany balances and transactions have been eliminated in consolidation.

Company-Managed Stores
----------------------

     The Company  accounts for the results of operations  of certain  franchised
Sterling  Stores  operated  by  the  Company  under  management   agreements  in
accordance   with  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  accordance  with  EITF  97-2,  the  results  of
operations  of  Company-managed  stores  are  shown  on a  net  basis,  and  are
classified as a loss from franchised stores operated under management agreements
in the accompanying Consolidated Statements of Operations.

     For the years ended December 31, 2001 and 2000, the Company managed 1 and 3
Sterling  Stores,  respectively,  for franchisees,  under management  agreements
entered into with each such franchisee.  These management  agreements  generally
provided for the  operation of the Sterling  Store in question,  by the Company,
with all operating  decisions  primarily being made by the Company.  The Company
owned the inventory at these locations and was responsible for the collection of
all revenues  and the payment of all  associated  expenses.  For the years ended
December  31, 2001 and 2000,  these  stores  generated  revenues of $216,000 and
$1,382,000, respectively, and net losses of $167,000 and $627,000, respectively.
The Company did not manage any stores on behalf of franchisees  during 2002, and
has no intention of doing so in the future.

Revenue Recognition
-------------------

     The Company generally charges franchisees a nonrefundable initial franchise
fee.  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 a  percentage  of the gross
revenues  generated  by each  franchised  location  and are  recorded as earned,
subject to meeting all of the requirements of SAB 101 described below.

                                   Page -27-
<PAGE>

     The Company derives its revenues from the following four principal sources:

     Net sales - Represents sales from eye care products and related services;

     Franchise  royalties - Represents  continuing  franchise  fees based upon a
percentage of the gross revenues generated by each franchised location;

     Net gains from the conveyance of Company-store  assets to franchisees,  and
other  franchise  related  fees -  Represents  the net  gains  from  the sale of
Company-owned  store assets to  franchisees;  and certain fees  collected by the
Company under the terms of franchise agreements (including,  but not limited to,
initial franchise fees, transfer fees and renewal fees).

     Interest on franchise  notes - Represents  interest  charged to franchisees
pursuant  to  promissory   notes  issued  in  connection   with  a  franchisee's
acquisition  of the assets of a Sterling  Store or a qualified  refinancing of a
franchisee's obligations to the Company.

     The Company  recognizes  revenues in accordance  with SEC Staff  Accounting
Bulletin No. 101,  "Revenue  Recognition in Financial  Statements"  ("SAB 101").
Accordingly,  revenues are recorded when  persuasive  evidence of an arrangement
exists,  delivery has occurred or services  have been  rendered,  the  Company's
price to the buyer is fixed or determinable,  and  collectibility  is reasonably
assured.  To the extent that  collectibility  of  royalties  and/or  interest on
franchise notes is not reasonably  assured,  the Company recognizes such revenue
when the cash is received.

     The Company  also  follows  the  provisions  of Emerging  Issues Task Force
("EITF")  Issue  01-09,  "Accounting  for  Consideration  Given by a Vendor to a
Customer  (Including  Reseller  of the  Vendor's  Products)"  and,  accordingly,
accounts  for  discounts,  coupons  and  promotions  (that  are  offered  to its
customers) as a direct reduction of sales.

Cash and Cash Equivalents
-------------------------

     Cash  represents cash on hand at  Company-owned  stores and cash on deposit
with  financial  institutions.  All highly liquid  investments  with an original
maturity  (from date of purchase) of three months or less are  considered  to be
cash  equivalents.  The  Company's  cash  equivalents  are  invested  in various
investment-grade, money market accounts.

Fair Value of Financial Instruments
-----------------------------------

     As of December 31, 2002,  the carrying  values of the  Company's  financial
instruments,  such as cash and cash  equivalents,  accounts and notes receivable
and long-term debt,  approximated  their fair values,  based on their short-term
maturities and the nature of these instruments.

Inventories
-----------

     Inventories  are stated at the lower of cost 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, less accumulated  depreciation
and  amortization.  Depreciation is recorded on a  straight-line  basis over the
estimated useful lives of the respective classes of assets.

Goodwill
--------

     Through December 31, 2001, goodwill was being amortized, on a straight-line
basis, over its estimated useful life of 20 years, and accumulated  amortization
on goodwill was approximately $1,275,000 as of December 31, 2001.

     In 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of  Financial  Accounting  Standards  ("SFAS")  No.  142,  "Goodwill  and  Other
Intangible  Assets." This Statement provided that goodwill and intangible assets
with indefinite lives should no longer be amortized,  but should be reviewed, at
least annually, for impairment. In accordance with the adoption of SFAS No. 142,
beginning  January 1, 2002,  the Company  ceased  amortizing  its  existing  net
goodwill of $1,266,000,  resulting in the exclusion of approximately $268,000 of
amortization expense for the year ended December 31, 2002.  Management performed
a review of its existing  goodwill and determined  that it is not impaired as of
December 31, 2002.

                                   Page -28-
<PAGE>

Impairment of Long-Lived Assets
-------------------------------

     The Company  follows the  provisions of SFAS No. 121,  "Accounting  for the
Impairment  of Long Lived Assets and for  Long-Lived  Assets to be Disposed Of".
This  Statement  requires  that  long-lived  assets  and  certain   identifiable
intangibles   be  reviewed  for  impairment   whenever   events  or  changes  in
circumstances  indicate  that  the  carrying  amount  of the  assets  may not be
recoverable,  but  amends  the prior  accounting  and  reporting  standards  for
segments of a business to be disposed of. The Company periodically evaluates its
long-lived assets (on a store-by-store basis) 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.  For the  years  ended
December 31, 2002 and 2001, the Company  recorded  impairment  charges of $0 and
$574,000,  respectively,  for stores it will continue to operate,  and wrote off
$173,000 and $356,000, respectively, of long-lived assets related to stores that
management  has made the decision to close (Note 8). For the year ended December
31, 2000,  the Company  recorded  impairment  charges of  $1,131,000  related to
certain  corporate  long-lived  assets that it no longer had use for, along with
the  capitalized web  development  costs  associated with the development of the
website for its 1-800  Anylens  business  (Note 13).  All of the  aforementioned
amounts are reflected in the Consolidated Statements of Operations for the years
ended December 31, 2002, 2001 and 2000,  respectively,  and a new basis, if any,
for the impaired assets was established.

Advertising Costs
-----------------

     The Company expenses  advertising costs as incurred.  Advertising costs for
Company-owned stores aggregated  approximately  $364,000,  $536,000 and $500,000
for the years ended December 31, 2002, 2001 and 2000, respectively.

Comprehensive Income
--------------------

     The  Company   follows  the   provisions   of  SFAS  No.  130,   "Reporting
Comprehensive   Income,"   which   establishes   rules  for  the   reporting  of
comprehensive income and its components.  For the years ended December 31, 2002,
2001 and 2000, the Company's operations did not give rise to items includible in
comprehensive  loss that were not already included in net loss.  Therefore,  the
Company's  comprehensive  loss  is the  same  as its net  loss  for all  periods
presented.

Income Taxes
------------

     The Company  accounts  for income  taxes in  accordance  with SFAS No. 109,
"Accounting for Income Taxes". Under the asset and liability method specified by
SFAS No.  109,  the  deferred  income tax amounts  included in the  Consolidated
Balance Sheets are  determined  based on the  differences  between the financial
statement  and tax basis of assets and  liabilities,  as measured by the enacted
tax rates,  that will be in effect when these differences  reverse.  Differences
between assets and liabilities  for financial  statement and tax return purposes
are principally related to inventories and the depreciable lives of assets.

Stock-Based Compensation
------------------------

     The Company follows the provisions of Accounting  Principles  Board ("APB")
Opinion  No.  25,   "Accounting   for  Stock  Issued  to  Employees"   and  FASB
Interpretation  No. 44  "Accounting  for Certain  Transactions  Involving  Stock
Compensation  (an  Interpretation  of APB Opinion No.  25)" in  connection  with
stock-based  compensation granted to employees and directors of the Company. The
Company provides the required pro forma disclosures, as if the fair value method
of SFAS No. 123,  "Accounting for Stock Based  Compensation,"  was adopted (Note
15).  Stock-based  compensation  granted to non-employees is accounted for using
the provisions of SFAS No. 123.

Concentration of Credit Risk
----------------------------

     The Company operates retail optical stores in North America,  predominantly
in the United States,  and its receivables are primarily from  franchisees  that
also operate retail optical stores in the United States.

Segment Information
-------------------

     SFAS No. 131,  "Disclosures  about  Segments of an  Enterprise  and Related
Information,"   establishes  annual  and  interim  reporting  standards  for  an
enterprise's  operating  segments,  and related  disclosures about its products,
services, geographic areas and major customers. For the years ended December 31,
2002,  2001 and 2000, the Company's  continuing  operations were classified into
one principal  industry  segment - retail  optical (Note 1). All other  segments
have been reflected as  discontinued  operations.  Accordingly,  the disclosures
required by SFAS No. 131 have not been provided.

                                   Page -29-
<PAGE>

Reclassifications
-----------------

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

New Accounting Pronouncements
-----------------------------

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No.  4,  44,  and  64,  Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections." For most companies,  SFAS No. 145 will require gains and losses on
extinguishments  of debt to be  classified  as income  or loss  from  continuing
operations,  rather  than  as an  extraordinary  item  as  previously  required.
Extraordinary treatment will be required for certain extinguishments as provided
in APB Opinion  No. 30.  SFAS No. 145 also  amends  SFAS No. 13 to require  that
certain  modifications to capital leases be treated as a sale-leaseback,  and to
modify  the  accounting  for  sub-leases  when the  original  lessee  remains  a
secondary  obligor.  The Company is required to adopt the provisions of SFAS No.
145 in the first quarter of 2003.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated  with  Exit  or  Disposal   Activities,"  which  addresses  financial
accounting and reporting for costs associated with exit or disposal  activities,
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability  Recognition
for Certain  Employee  Termination  Benefits and Other Costs to Exit an Activity
(including  Certain Costs Incurred in a  Restructuring)."  SFAS No. 146 requires
that a liability  for a cost  associated  with an exit or  disposal  activity be
recognized  when the  liability is incurred.  The  requirements  of SFAS No. 146
apply  prospectively  to activities  that are initiated  after December 31, 2002
and, as a result, the Company cannot reasonably  estimate the impact of adopting
these new rules until and unless it  undertakes  relevant  activities  in future
periods.

     In  November   2002,  the  FASB  issued   Interpretation   ("FIN")  No.  45
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect  Guarantees of  Indebtedness  of Others," which  clarifies the required
disclosures  to be made by a guarantor  in their  interim  and annual  financial
statements  about its obligations  under certain  guarantees that it has issued.
FIN No. 45 also  requires a guarantor  to  recognize,  at the  inception  of the
guarantee,  a liability  for the fair value of the  obligation  undertaken.  The
Company  is  required  to adopt the  disclosure  requirements  of FIN No. 45 for
financial  statements ending December 31, 2002. The Company is required to adopt
and  accordingly  has  adopted   prospectively   the  initial   recognition  and
measurement  provisions of FIN No. 45 for  guarantees  issued or modified  after
December 31, 2002 and, as a result,  the Company cannot reasonably  estimate the
impact of  adopting  these new rules  until and  unless it  undertakes  relevant
activities in future periods.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation  - Transition  and Disclosure - an amendment of SFAS No. 123." This
Statement  amends SFAS No. 123,  "Accounting for Stock-Based  Compensation",  to
provide  alternative  methods of transition  for a voluntary  change to the fair
value based method of  accounting  for  stock-based  employee  compensation.  In
addition,  this Statement amends the disclosure  requirements of SFAS No. 123 to
require prominent  disclosures in both annual and interim  financial  statements
about the method of accounting for  stock-based  employee  compensation  and the
effect of the method used on reported  results.  The adoption of SFAS No. 148 is
not expected to have a material  impact on the Company's  financial  position or
results of operations.

     In January  2003,  the FASB  issued FIN No. 46,  Consolidation  of Variable
Interest  Entities,  which  clarifies the  application  of  Accounting  Research
Bulletin No. 51, Consolidated Financial Statements, relating to consolidation of
certain entities. First, FIN No. 46 will require identification of the Company's
participation  in variable  interests  entities  ("VIEs"),  which are defined as
entities with a level of invested  equity that is not  sufficient to fund future
activities  to permit them to operate on a stand alone  basis,  or whose  equity
holders lack certain  characteristics of a controlling  financial interest.  For
entities identified as VIEs, FIN No. 46 sets forth a model to evaluate potential
consolidation  based on an assessment of which party to the VIE, if any, bears a
majority  of the  exposure  to its  expected  losses,  or  stands to gain from a
majority of its expected returns. FIN No. 46 also sets forth certain disclosures
regarding interests in VIEs that are deemed  significant,  even if consolidation
is not  required.  As the  Company  does not  participate  in VIEs,  it does not
anticipate  that the provisions of FIN No. 46 will have a material impact on its
financial position or results of operations.


NOTE 4 - PER SHARE INFORMATION:

     In accordance with SFAS No. 128,  "Earnings Per Share",  basic net loss per
common share ("Basic EPS") is computed by dividing the net loss  attributable to
common shareholders by the weighted-average number of common shares outstanding.
Diluted net loss per common  share  ("Diluted  EPS") is computed by dividing the
net loss attributable to common shareholders by the  weighted-average  number of
common shares and dilutive common share  equivalents and convertible  securities
then  outstanding.  SFAS No. 128 requires the presentation of both Basic EPS and
Diluted EPS on the face of the Company's Consolidated  Statements of Operations.
There were  9,222,657,  10,350,322  and  9,267,966  stock  options and  warrants


                                   Page -30-
<PAGE>

excluded from the  computation  of Diluted EPS for the years ended  December 31,
2002, 2001 and 2000, respectively, as their effect on the computation of Diluted
EPS would have been  anti-dilutive.  Additionally,  for the years ended December
31, 2002, 2001 and 2000, respectively,  there were 0.74, 2.51 and 2.51 shares of
our Senior  Convertible  Preferred Stock  outstanding,  convertible into 98,519,
334,167 and 334,167  shares of the  Company's  Common  Stock.  Similarly,  these
preferred  shares were not "assumed  converted" as the effect on the computation
of Diluted EPS would also have been anti-dilutive.

     The  following  table sets forth the  computation  of basic and diluted per
share information:
<TABLE>
<CAPTION>
                                                                                                    (In thousands)
                                                                                   -------------------------------------------------
                                                                                        2002             2001             2000
                                                                                   -------------------------------------------------
Numerator:
---------
<S>                                                                                 <C>              <C>              <C>
     Loss from continuing operations                                                $    (4,721)     $    (5,088)     $   (14,628)
     Induced conversion of Senior Convertible Preferred Stock                               (18)               -          (21,707)
     Accretion of dividends on Series B Convertible Preferred Stock                           -                -          (11,743)
                                                                                    -----------      -----------      -----------
       Numerator for basic and diluted loss per share -
          loss attributable to common shareholders                                       (4,739)          (5,088)         (48,078)
                                                                                    -----------      -----------      -----------
Basic and Diluted:

     Loss attributable to common shareholders                                            (4,739)          (5,088)         (48,078)
     Income (loss) from discontinued operations                                              74            1,312          (15,533)
     Loss on disposal of discontinued operations                                              -                -           (8,831)
                                                                                    -----------      -----------      -----------
        Net loss attributable to common shareholders                                $    (4,665)     $    (3,776)     $   (72,442)
                                                                                    ===========      ===========      ===========
Denominator:
-----------

     Denominator for basic and diluted per share information -
        weighted-average shares outstanding                                              28,641           26,409           23,627
                                                                                    ===========      ===========      ===========

Basic and Diluted Per Share Information:
---------------------------------------

     Loss attributable to common shareholders                                        $    (0.17)      $    (0.19)      $    (2.04)
     Income (loss) from discontinued operations                                            0.01             0.05            (0.66)
     Loss on disposal of discontinued operations                                              -                -            (0.37)
                                                                                     ----------       ----------       ----------
        Net loss attributable to common shareholders                                 $    (0.16)      $    (0.14)      $    (3.07)
                                                                                     ==========       ==========       ==========
</TABLE>

NOTE 5 - FRANCHISE NOTES RECEIVABLE

     Franchise  notes held by the Company  consist  primarily of purchase  money
notes related to  Company-financed  conveyances of Company-owned store assets to
franchisees,  and certain franchise notes receivable  obtained by the Company in
connection with acquisitions in prior years. 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 franchisee.  As of
December 31, 2002,  these notes  provided for interest at various  rates ranging
from 8% to 12%.

     Scheduled  maturities of notes  receivable as of December 31, 2002,  are as
follows (in thousands):

                            2003                                      $   1,054
                            2004                                            599
                            2005                                            485
                            2006                                            400
                            2007                                            187
                            Thereafter                                      596
                                                                      ---------
                                                                          3,321
                            Less: allowance for doubtful accounts        (1,928)
                                                                      ---------
                                                                      $   1,393
                                                                      =========

                                   Page -31-
<PAGE>

NOTE 6 - VALUATION AND QUALIFYING ACCOUNTS:

     Franchise  receivables (such as royalties and rents receivable),  franchise
notes receivable,  and other Company receivables,  are shown on the Consolidated
Balance  Sheets net of  allowances  for doubtful  accounts.  The  following is a
breakdown, by major component, of the change in those allowances, along with the
accruals for store closings and discontinued operations:
<TABLE>
<CAPTION>
                                                                                                    (In thousands)
                                                                                                  As of December 31,
                                                                                   ---------------- ---------------- ---------------
                                                                                         2002             2001             2000
                                                                                   ---------------- ---------------- ---------------
<S>                                                                                 <C>              <C>              <C>
Franchise Receivables:

     Balance, beginning of year                                                     $    3,095       $    3,521       $    2,443
          Charged to expense                                                               484              138            2,994
          Reductions, including write-offs                                              (4,293)            (564)          (1,916)
          Additions                                                                      1,777                -                -
                                                                                    ----------       ----------       ----------
     Balance, end of year                                                           $    1,063       $    3,095       $    3,521
                                                                                    ==========       ==========       ==========

Franchise Notes Receivables:

     Balance, beginning of year                                                     $    3,326       $    3,019       $      400
          Charged to expense                                                             1,195                -            3,650
          Reductions, including write-offs                                              (2,788)               -           (1,031)
          Additions                                                                        195              307                -
                                                                                    ----------       ----------       ----------
     Balance, end of year                                                           $    1,928       $    3,326       $    3,019
                                                                                    ==========       ==========       ==========

Other Company Receivables:

     Balance, beginning of year                                                     $      171       $      323       $        -
          Charged to expense                                                               150                -              323
          Reductions, including write-offs                                                (249)            (152)               -
          Additions                                                                         29                -                -
                                                                                    ----------       ----------       ----------
     Balance, end of year                                                           $      101       $      171       $      323
                                                                                    ==========       ==========       ==========

Accrual for Store Closings:

     Balance, beginning of year                                                     $      964       $        -       $      299
          Charged to expense                                                               920              964                -
          Reductions                                                                      (775)               -             (299)
                                                                                    ----------       ----------       ----------
     Balance, end of year                                                           $    1,109       $      964       $        -
                                                                                    ==========       ==========       ==========

Accrual for Costs of Disposal of Discontinued Operations:

     Balance, beginning of year                                                     $      141       $    4,719       $        -
          Charged to expense                                                               268              425           11,919
          Reductions                                                                      (250)          (5,003)          (7,200)
                                                                                    ----------       ----------       ----------
     Balance, end of year                                                           $      159       $      141       $    4,719
                                                                                    ==========       ==========       ==========
</TABLE>

                                   Page -32-
<PAGE>

NOTE 7 - PROPERTY AND EQUIPMENT, NET:

     Property and equipment, net, consists of the following:
<TABLE>
<CAPTION>
                                                                                                                       Estimated
                                                                                           (In thousands)                Useful
                                                                                         As of December 31,              Lives
                                                                                  ------------------------------      ------------
                                                                                       2002               2001
                                                                                  ------------------------------
<S>                                                                               <C>                <C>               <C>
Furniture and fixtures                                                            $      327         $      275          5 years
Machinery and equipment                                                                1,358              1,580        3-5 years
Leasehold improvements                                                                   998              1,105         10 years*
                                                                                  ----------         ----------
                                                                                       2,683              2,960
      Less: accumulated depreciation                                                  (1,990)            (1,885)
                                                                                  ----------         ----------
                   Property and equipment, net                                    $      693         $    1,075
                                                                                  ==========         ==========
</TABLE>

     * Based  upon the  lesser of the  assets'  useful  lives or the term of the
lease of the related property.

     The net book value of assets held under capital leases included in property
and equipment  aggregated $68,000 and $139,000 (net of accumulated  depreciation
of  $29,000  and  $129,000)  as of  December  31,  2002 and 2001,  respectively.
Depreciation  expense for the years ended December 31, 2002,  2001 and 2000, was
$463,000, $885,000 and $1,172,000, respectively.


NOTE 8 - PROVISION FOR STORE CLOSINGS:

     The Company follows the provisions of EITF 94-3 "Liability  Recognition for
Certain Employee  Termination Benefits and Other Costs to Exit an Activity," and
in  accordance  therewith,  the  Company  provides  for  losses  it  anticipates
incurring with respect to those Company-owned  stores that it has identified for
future  closure,  at the time that management  makes a formal  commitment to any
such plan of closure. The provision is recorded at the time the determination is
made to close a particular  store and is based on the expected net proceeds,  if
any, to be generated from the disposition of the store's assets,  as compared to
the carrying value (after  consideration of impairment,  if any - see Note 3) of
such store's assets and the estimated costs (including lease  termination  costs
and other  expenses)  that are  anticipated to be incurred in the closing of the
store in question.  For the years ended  December 31, 2002 and 2001, the Company
recorded  a  provision  for 15 and 11  store  closings,  respectively,  totaling
approximately  $920,000  (comprised of $792,000 in lease  termination  costs and
$128,000 for other associated  expenses) and $964,000  (comprised of $766,000 in
lease   termination   costs  and  $198,000  for  other   associated   expenses),
respectively,  and such  provision  is  separately  stated  in the  accompanying
Consolidated  Statements of Operations  for the years ended 2002 and 2001. As of
December  31,  2002,  11 stores  remained to be closed and  $1,109,000  remained
accrued as accrual for store closings on the accompanying  Consolidated  Balance
Sheet. The Company  anticipates closing all of the remaining stores during 2003,
4 of which were already closed subsequent to December 31, 2002. No provision for
store closings was provided for during the year ended December 31, 2000.


NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:

     Accounts  payable  and accrued  liabilities  consist of the  following  (in
thousands):
<TABLE>
<CAPTION>
                                                                                 As of December 31,
                                                              -------------------------------------------------------
                                                                         2002                        2001
                                                              -------------------------------------------------------
<S>                                                                    <C>                         <C>
Accounts payable                                                       $  2,889                    $  3,798
Accrued payroll and fringe benefits                                         540                         621
Accrual for costs of disposal of discontinued operations
(Note 2)                                                                    159                         141
Accrued professional fees                                                   220                         306
Accrued advertising                                                         987                         612
Other accrued expenses                                                    1,150                         897
                                                                       --------                    --------
                                                                       $  5,945                    $  6,375
                                                                       ========                    ========
</TABLE>

                                   Page -33-
<PAGE>

NOTE 10 - INCOME TAXES:

     The Company's  effective tax rate differs from the statutory Federal income
tax rate of 34%, primarily due to the impact of recording a valuation  allowance
to offset the potential  future tax benefit  resulting  from net operating  loss
carry-forwards for all years presented.

     As  of  December   31,  2002  and  2001,   net  deferred  tax  assets  were
approximately  $17,600,000 and $20,600,000,  respectively,  resulting  primarily
from the future tax benefit of net operating loss carry-forwards.  In accordance
with SFAS No. 109, the Company has provided a full valuation  allowance  against
its net  deferred  tax  assets as of  December  31,  2002 and  2001,  due to the
uncertainty as to their future  realizability.  The valuation  allowance against
the net deferred tax assets decreased by  approximately  $3,000,000 and $700,000
during the years ended December 31, 2002 and 2001,  respectively,  and increased
by approximately $10,200,000 during the year ended December 31, 2000.

     As of December 31, 2002, the Company had net operating loss  carry-forwards
totaling approximately $44,000,000 available to offset future taxable income for
federal  income tax purposes.  The net operating loss  carry-forwards  expire in
varying  amounts  through 2022 and may be limited in accordance with Section 382
of the Internal  Revenue Code of 1986, as amended,  based on certain  changes in
ownership that have occurred.


NOTE 11 - LONG-TERM DEBT (INCLUDING RELATED PARTY BORROWINGS):

     As of December 31, 2002,  principal payments due on the Company's long-term
debt (which includes capital leases) and related party borrowings are as follows
(in thousands):

                 Capital            Related Party              Other
                 Leases               Borrowings           Long-Term Debt
Year               (1)                 (2) (3)                  (4)
----            ----------          --------------         --------------
2003            $      221           $      377            $      500
2004                   154                   93                    83
2005                    23                   39                     -
2006                     8                   43                     -
2007                     -                   47                     -
Thereafter               -                    9                     -
                ----------           ----------            ----------
                $      406           $      608            $      583
                ==========           ==========            ==========

     1) Total  capital lease  obligations  as of December 31, 2002 and 2001 were
$406,000 and $549,000, respectively. Capital leases are recorded at the lower of
the  present  value of the  minimum  lease  payments  or the  fair  value of the
underlying  assets,  and are  payable in  monthly  installments,  together  with
interest at various rates  ranging from 6.47% to 14.60%.  These leases mature at
various dates through April 2006.

     2) On December 31, 2002, the Company  refinanced  certain past due amounts,
owed to CFO,  in an effort to  improve  its  current  cash flow  position.  As a
result, the Company signed a 5-year,  $200,000 promissory note, in favor of CFO,
bearing  interest at a rate of 10% per annum.  The first monthly  payment on the
note was due on March 1, 2003.

     3) On January 23, 2002, the Company entered into an agreement with Horizons
to borrow up to a maximum of $1,000,000.  This credit facility bears interest at
the prime rate plus 1% (5.75% as of December 31, 2002),  provided for an initial
advance of $300,000,  requires minimum incremental advances of $150,000, matures
on January 22, 2004, requires ratable monthly principal and interest payments of
each  borrowing,  is amortizable  through the maturity date of the facility,  is
fully  collateralized  by a  pledge  of  certain  of  the  Company's  qualifying
franchise  notes,  and  requires  the payment of a facility fee of 2% per annum,
payable monthly, on the unused portion of the credit facility.

     On August 8, 2002,  the Company  obtained an  additional  advance under the
credit  facility  of  $300,000,  the  proceeds  of which  were  used to repay an
outstanding  related  party  borrowing  (Note 13). As of December 31, 2002,  the
Company  owed  approximately  $408,000  under the credit  facility.  The Company
anticipates that all amounts outstanding under the credit facility with Horizons
will be paid in full with the proceeds of the shareholder  rights offering (Note
14).


                                   Page -34-
<PAGE>

     4) On January 23,  2002,  the Company  entered into a secured term note for
$1,000,000 with an independent financial institution. This note was repayable in
24 equal monthly installments of $41,666, and bears interest,  as defined at the
inception  of the note (4.95% per annum,  and  subsequently  amended on April 1,
2002 to 3.95%). The note is fully collateralized by a $1,000,000  certificate of
deposit posted by Horizons, a related party, at the same financial  institution.
As of December 31, 2002, the Company owed approximately  $583,000 on the secured
term note,  which is reflected net of a debt discount.  The Company  anticipates
that all amounts  outstanding  under the secured  term note will be paid in full
with the proceeds of the shareholder rights offering (Note 14).

     Simultaneous  with the  aforementioned  financing,  the Company  repaid its
outstanding related party borrowings totaling $750,000, plus interest (Note 13).
In  consideration  for providing  access to the credit facility and guaranteeing
the term note, the Company granted Horizons an aggregate of 2,500,000  warrants,
the fair value of which was $234,000  (Note 15). The net proceeds  received were
allocated  based on the  relative  fair  values  of the  debt and the  warrants.
Accordingly,  $810,000 was allocated to the debt,  and $190,000 was allocated to
the warrants as a discount to the debt to be amortized as interest  expense over
the  term  of the  note (2  years).  For  the  year  ended  December  31,  2002,
approximately  $87,000 of such discount was amortized and recognized as interest
expense in the accompanying Consolidated Statement of Operations.  Additionally,
the remaining  amount owed under the secured term note, as of December 31, 2002,
is reflected on the accompanying Consolidated Balance Sheet net of the remaining
unamortized discount of $103,000.


NOTE 12 - COMMITMENTS AND CONTINGENCIES:

Operating Lease Commitments
---------------------------

     The Company leases locations for the majority of both its Company-owned and
franchised  stores, as well as its executive and administrative  offices.  As of
December 31, 2002,  minimum future rental payments for Company-owned  stores and
the Company's executive and administrative offices, as well as for stores leased
by the Company and subleased to  franchisees,  in the aggregate,  are as follows
(in thousands):

               ------------------- ----------------- ----------------------
                   Total Lease          Sublease           Net Company
                   Obligations          Rentals            Obligations
               ------------------- ----------------- ----------------------

2003             $     7,458         $     6,697         $       761
2004                   6,602               5,979                 623
2005                   5,632               5,075                 557
2006                   4,266               3,825                 441
2007                   3,153               2,953                 200
Thereafter             5,920               5,452                 468
                 -----------         -----------         -----------
                 $    33,031         $    29,981         $     3,050
                 ===========         ===========         ===========

     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 common area
maintenance  expenses and real estate taxes,  as well as  percentage  rent based
upon the sales  volume  of the store in  question.  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 $1,740,000, $2,048,000, and $3,444,000, net of sublease rentals of
approximately  $7,676,000,  $8,443,000,  and  $8,997,000,  for the  years  ended
December 31, 2002, 2001 and 2000, respectively.

Employment Agreement
--------------------

     The  Company has an  employment  agreement  with one of its key  employees,
which extends  through  February  2005. The  employment  agreement  provides for
certain base  compensation  and other  miscellaneous  benefits.  The  employment
agreement  also  provides  for an  incentive  bonus  based  upon  the  Company's
achievement  of certain  EBITDA  targets,  as defined.  In connection  with this
employment agreement, the Company granted an aggregate of 150,000 employee stock
options at an exercise price of $0.075 (which was equal to the fair market value
of the  Company's  Common  Stock on the date of  grant),  which  options  vested
immediately. Subsequent to December 31, 2002, the employee exercised all of such
options. Additionally, the 50,000 options previously granted to the employee (on
July 16, 2001), in connection  with his previous  employment  agreement,  became
immediately vested. These options, which have an exercise price of $0.26 and are
still outstanding,  expire 10 years from the date of grant. The aggregate future


                                   Page -35-
<PAGE>

annual base  compensation  relating to this  employment  agreement for the years
ending December 31, 2003, 2004 and 2005, is approximately $182,000, $182,000 and
$21,000, respectively.

Contingencies
-------------

     In 1999,  Apryl  Robinson  commenced an action in Kentucky  against,  among
others,  the  Company,  seeking an  unspecified  amount of damages and  alleging
numerous claims, including fraud and misrepresentation.  The claims that are the
subject of this  action  were  subsequently  tried in an action in New York that
resulted in a judgment in favor of the Company, and against Ms. Robinson and Dr.
Larry Joel, a co-defendant  in such action.  Subsequently,  Ms. Robinson and Dr.
Joel filed for  bankruptcy in Kentucky,  and the Company is proceeding  with its
efforts to enforce its judgment against Ms. Robinson and Dr. Joel.

     In 1999, Berenter Greenhouse and Webster, the advertising agency previously
utilized by the Company,  commenced an action,  against the Company,  in the New
York State Supreme  Court,  New York County,  for amounts  alleged to be due for
advertising and related fees. The amounts claimed by the plaintiff are in excess
of $200,000.  In response to this action,  the Company  filed  counterclaims  of
approximately $500,000,  based upon estimated overpayments allegedly made by the
Company pursuant to the agreement  previously  entered into between the parties.
As of the date hereof, this action was still in the discovery stage.

     In April 2000, the Company  commenced an action in the Supreme Court of the
State of New Jersey against  Preit-Rubin,  Inc. and Cumberland Mall  Associates,
the landlord of the former  Sterling  Optical Store located in Cumberland  Mall,
Vineland,  New Jersey,  seeking damages of approximately $200,000 as a result of
the defendants  alleged wrongful eviction of the Company from this location.  In
response  thereto,  the  defendants  asserted   counterclaims  of  approximately
$100,000  plus legal fees based upon the Company's  alleged  breach of the lease
pursuant to which it occupied  such store.  Thereafter,  the  defendant  filed a
motion for summary judgment seeking a dismissal of the Company's  claims,  which
motion was  decided by the Court,  in a favor of the  defendant.  As of the date
hereof,  it is anticipated  that a trial of this action will take place in April
2003.

     In July 2001,  the  Company  commenced  an  Arbitration  Proceeding  in the
Ontario  Superior  Court  of  Justice,  against  Eye-Site,  Inc.  and  Eye  Site
(Ontario),  Ltd.,  as the  makers  of two  promissory  notes  (in the  aggregate
original  principal  amount of  $600,000)  made by one or more of the  makers in
favor of the Company,  as well as against  Mohammed Ali, as the guarantor of the
obligations of each maker under each note. The notes were issued, by the makers,
in connection with the makers'  acquisition of a Master Franchise  Agreement for
the Province of Ontario, Canada, as well as their purchase of the assets of, and
a Sterling  Optical Center  Franchise for, four of the Company's  retail optical
stores  then  located  in  Ontario,   Canada.   In  response,   the   defendants
counterclaimed for damages, in the amount of $1,500,000, based upon, among other
items,  alleged  misrepresentations  made by  representatives  of the Company in
connection  with  these  transactions.  The  Company  believes  that  it  has  a
meritorious  defense  to  each  counterclaim.  As  of  the  date  hereof,  these
proceedings were in the discovery stage.

     In February 2002, Kaye Scholer,  LLP, the law firm  previously  retained by
the Company as its outside  counsel,  commenced  an action in the New York State
Supreme Court seeking  unpaid legal fees of  approximately  $122,000.  As of the
date hereof,  the Company has answered the Complaint in such action. The Company
believes that it has a meritorious defense to such claim.

     In May 2002, a class action was commenced in the California Superior Court,
Los Angeles County,  against the Company and VisionCare of California ("VCC"), a
wholly  owned  subsidiary  of the Company,  by Consumer  Cause,  Inc.  seeking a
preliminary  and  permanent  injunction  enjoining  the  defendants  from  their
continued alleged violation of the California Business and Professions Code (the
"California  Code"), and restitution based upon the defendants'  alleged illegal
charging of dilation fees during the four year period immediately  preceding the
date of the  plaintiff's  commencement  of such action.  In its  complaint,  the
plaintiff alleged that VCC's employment of licensed optometrists, as well as its
operation  (under  the  name  Sterling  VisionCare)  of  optometric  offices  in
locations which are usually  situated  adjacent to the Company's  retail optical
stores located in the State of California,  violates  certain  provisions of the
California  Code and was seeking to  permanently  enjoin VCC from  continuing to
operate in such manner.  EVI and VCC intend to vigorously defend this action and
believe  that they have  meritorious  defenses to the  plaintiff's  allegations,
which  defenses will include.  On motion of the Company,  which included a claim
that VCC is a specialized  Health Care  Maintenance  Organization  that has been
specifically licensed,  under the California Knox Keene Health Care Service Plan
Act of 1975, to provide the identical services that the plaintiff was seeking to
enjoin,  the court has  dismissed  this  action,  with  prejudice,  and  without
liability to the Company.

     In  August  2002,  Sterling  Advertising,  Inc.  ("SAI"),  a  wholly  owned
subsidiary  of the Company,  commenced  an action in the New York State  Supreme
Court,  Nassau  County,  against  Harvey Herman  Associates,  Inc.  ("HHA"),  an
advertising agency previously retained by SAI, seeking damages, in the estimated
amount of $150,000,  as a result of HHA's alleged  failure to provide certain of
the  services  otherwise  required  of it  pursuant  to the  terms of a  certain
Client-Agency  Agreement,  dated July 9, 2001, between SAI and HHA.  Thereafter,
HHA, on August 6, 2002, commenced an action in the New York State Supreme Court,
New York County, against the Company,  seeking damages in the approximate amount
of $90,000,  based upon one or more additional agreements allegedly entered into

                                   Page -36-
<PAGE>

between  HHA and the  Company,  which,  in the opinion of SAI,  required  HHA to
perform  certain  services which were already  included  within the scope of the
services required to be performed,  by HHA, under such Client-Agency  Agreement.
As of the date hereof,  the parties have agreed,  in  principal,  to settle such
litigation without the payment of any additional compensation.

     In October 2002, an action was commenced against the Company and its wholly
owned subsidiary, Sterling Vision of Eastland, Inc. (the "Tenant"), in the North
Carolina General Court of Justice, in which Charlotte Eastland Mall, LLC, as the
Landlord of the Tenant's  former  Sterling  Optical Center located in Charlotte,
North Carolina, is seeking,  among other things, damages against the Company, in
the approximate  amount of $81,000,  under its Limited  Guaranty of the Tenant's
obligations under the Lease for such Center.  The Company believes that it has a
meritorious  defense to such action.  As of the date hereof,  these  proceedings
were in the discovery stage.

     In December 2002, Pyramid Champlain Company ("Pyramid") commenced an action
against the  Company,  in the Supreme  Court of the State of New York,  Onondaga
County,  in which  Pyramid,  as the Landlord of the  Company's  former  Sterling
Optical Center located in Plattsburg,  New York, is seeking, among other things,
damages against the Company,  in the approximate  amount of $230,000,  under the
Lease for such Center. The Company believes that it has a meritorious defense to
such action. As of the date hereof,  there is pending a motion,  by Pyramid,  to
grant Pyramid partial  summary  judgment on certain of its claims raised in said
action.

     On or about January 15, 2003, Wells Fargo Financial Leasing, Inc. commenced
an action  against the Company,  in the United States  District  Court,  Eastern
District of New York, as the lessor of certain office equipment allegedly leased
to the Company, and is seeking therein,  among other things, damages against the
Company,  in the  approximate  amount of $100,000,  in respect of claims arising
under such lease. The Company believes that it has a meritorious defense to such
action.  As of the date hereof,  the Company's  time to answer the complaint has
not expired.

     In  addition  to the  foregoing,  the  Company  is a  defendant  in certain
lawsuits  alleging  various claims  incurred in the ordinary course of business,
certain of which claims are covered by various  insurance  policies,  subject to
certain  deductible  amounts  and  maximum  policy  limits.  In the  opinion  of
management,  the  resolution of these claims should not have a material  adverse
effect,  individually  or in the  aggregate,  upon  the  Company's  business  or
financial  condition.  Other than as set forth above,  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, in the opinion of management,  will have a material adverse effect on the
Company.

     In connection with the Company's sale of the Ambulatory  Center in May 2001
(Note 2), the  Company  agreed to  guarantee  certain of the  potential  ongoing
liabilities of the Ambulatory  Center.  During the years ended December 31, 2002
and 2001, the Company recognized expense of approximately $195,000 and $120,000,
respectively,  for such guaranteed liabilities, based on information provided by
the owner. Such expenses were included in income from discontinued operations on
the  accompanying  Consolidated  Statements  of  Operations  for the years ended
December 31, 2002 and 2001,  respectively.  As of December  31, 2002,  there was
$159,000   included  in  accounts   payable  and  accrued   liabilities  on  the
accompanying Consolidated Balance Sheet, representing amounts still owed related
to 2002, along with estimated cash flow losses of the Ambulatory  Center through
the first quarter of 2003. Although the term of the Company's guarantee (of such
liabilities)  will not expire until April 2008, its exposure there under may, in
the  future,  be  reduced,  on a pro-rata  basis,  based upon the ability of the
current  owner to attract  additional  investors who agree to guarantee all or a
portion thereof.  However,  there can be no assurance that such liabilities will
be so reduced  and,  as a result,  the Company  could in the future  continue to
incur further costs associated with such guarantee should the Ambulatory  Center
continue to generate cash flow losses.

     As of December 31, 2002,  the Company was a guarantor of certain  leases of
Sterling Stores franchised and subleased to its franchisees.  In the case all of
such franchisees  defaulted on their  subleases,  the Company would be obligated
for aggregate lease obligations of approximately $7,465,000.


NOTE 13 - RELATED PARTY TRANSACTIONS:

     During the first quarter of 2000,  Broadway  Partners LLC  ("Broadway"),  a
partnership  owned by  certain  of the  children  of  certain  of the  Company's
principal  shareholders  and  directors,  accepted from the Company its $550,000
offer to purchase a certain  non-interest  bearing  debenture payable in full on
September  15, 2015  (previously  issued by the Company in  connection  with its
acquisition of  substantially  all of the assets of Benson Optical Co., Inc. and
affiliates,  and subsequently  purchased by Broadway),  having a then discounted
present value of  approximately  $1,277,000.  The resulting gain of $727,000 was
reflected  as a capital  contribution,  as it was  shareholder  related,  in the
accompanying Consolidated Statements of Shareholders' Equity.


                                   Page -37-
<PAGE>

     On  November  30,  2000,  the  Company  sold  and  transferred  to  Anylens
Acquisition,  LLC, a Delaware limited liability company owned by the children of
certain of the principal  shareholders and directors of the Company,  all of the
assets (including certain federally  registered  trademarks) then comprising the
proposed mail order,  contact lens business  previously  being  developed by the
Company,  together  with all of the  Company's  equity  interests  in two of its
wholly owned subsidiaries, 1-800-Anylens, Inc. and 1-800 Any Lens of Boca Raton,
Inc.,  which were then the  lessees  of  certain  real  property  and  equipment
previously  intended  to be  utilized  by the  Company  in  connection  with the
operation of the aforementioned business.

     In June 2001, due to the  significant  losses being incurred by the Company
in  connection  with the  operation  thereof,  the Company  subleased  its store
(together  with  certain of the assets  located  therein) in Nyack,  New York to
General Vision Services LLC ("GVS"),  a retail optical chain owned by certain of
the principal  shareholders  and directors of the Company,  and members of their
respective  immediate  families.  In connection with this transfer,  the Company
agreed to provide a rent subsidy of $2,500 per month through June 30, 2003.

     On December 3, 2001 and  December  20, 2001,  respectively,  the  Company's
Board of Directors  authorized the Company to borrow  $150,000 and $300,000 from
Horizon Investors Corp. ("Horizon"), a New York corporation principally owned by
a director and  principal  shareholder  of the Company.  The loan was payable on
demand, together with interest calculated at the prime rate plus 1%. The Company
repaid these loans (which aggregated $450,000 as of December 31, 2001), in full,
on January 23, 2002 (Note 11).

     On  December 6, 2001,  the  Company's  Board of  Directors  authorized  the
Company  to borrow  $300,000  from  Broadway.  The loan was  payable  on demand,
together with interest  calculated at the prime rate plus 1%. The Company repaid
this loan ($300,000 as of December 31, 2001), in full, on January 23, 2002 (Note
11).

     During 2002 and 2001,  the Company  purchased from City Lens,  Inc.  ("City
Lens"), an ophthalmic lens laboratory owned, directly or indirectly,  by certain
of the  principal  shareholders  and  directors  of the Company,  together  with
certain members of their immediate families,  ophthalmic lenses and certain lens
refinishing services for its Company-owned  stores. For the years ended December
31,  2002 and 2001,  respectively,  the total cost of such  lenses and  services
purchased from City Lens, was approximately  $228,000 and $243,000.  The Company
believes  that the cost of such lenses and  services  were as  favorable  to the
Company as those which could have been obtained from an unrelated third party.

     In April 2002, the Company sold  substantially  all of the assets of one of
its stores  located in New York City,  together with all of the capital stock of
its wholly-owned subsidiary, Sterling Vision of 125th Street, Inc., which is the
tenant under the master lease for such store, to GVS, for the sum of $55,000.

     On July 23, 2002, the Board  authorized the Company to borrow $300,000 from
one of its principal shareholders and directors.  The loan was payable on August
10,  2002,  together  with  interest in an amount  equal to 1% of the  principal
amount of such loan.  The Company  repaid this loan,  in full, on August 8, 2002
(Note 11).

     On December 31, 2002, the Company refinanced certain past due amounts, owed
to CFO, in an effort to improve its current cash flow position. As a result, the
Company  signed a 5-year,  $200,000  promissory  note, in favor of CFO,  bearing
interest at a rate of 10% per annum.  The first monthly  payment on the note was
due on March 1, 2003.

     Until January 10, 2002,  the Company  subleased,  from a limited  liability
company owned by certain of the  Company's  principal  shareholders,  and shared
with CFO and  others,  an office  building  located  in East  Meadow,  New York.
Occupancy costs were  appropriately  allocated based upon the applicable  square
footage  leased by the respective  tenants of the building.  For the years ended
December  31,  2001 and  2000,  the  Company  paid  approximately  $440,000  and
$420,000,  respectively,  for rent and  related  charges for these  offices.  On
January 10, 2002, the Company  relocated to an office building located in Garden
City,  New York,  and entered into a sublease with CFO for one of the two floors
then being subleased to CFO.  Occupancy  costs are being  allocated  between the
Company and CFO based upon the respective  square footages being  occupied.  For
the year ended  December 31, 2002, the Company paid  approximately  $158,000 for
rent and related charges under this new sublease.  Management believes that such
sublease is at fair market value.

     During the ordinary  course of  business,  largely due to the fact that the
entities  occupy office space in the same  building,  and in an effort to obtain
savings with respect to certain  administrative  costs, the Company and CFO will
at times share in the costs of minor  expenses.  Management  believes that these
expenses have been appropriately accounted for by herein.

     In the opinion of the Company's  management,  all of the above transactions
were conducted at "arms-length."


                                   Page -38-
<PAGE>

NOTE 14 - SHAREHOLDERS' EQUITY:

Conversion of Senior Convertible Preferred Stock
------------------------------------------------

     In April 1998,  the Company  issued a series of its  Preferred  Stock,  par
value $0.01 per share (the "Senior Convertible Preferred Stock"),  together with
warrants (all of which expired in February 2001) to acquire shares of its Common
Stock.  Each  share of Senior  Convertible  Preferred  Stock  had a  liquidation
preference of $100,000,  and was originally  convertible  into Common Stock at a
price of $5.00 per share. In December 1999, the conversion  price was reduced to
$0.75 per share for all of the remaining holders of Senior Convertible Preferred
Stock.

     On June 8, 2002,  one of the remaining two holders of the Company's  Senior
Convertible  Preferred  Stock  exercised  its right to convert an  aggregate  of
approximately  $177,000 stated value of Senior Convertible Preferred Stock, into
an aggregate of 235,648 shares of the Company's Common Stock.

     As of December 31,  2002,  there were  approximately  0.74 shares of Senior
Convertible  Preferred Stock  outstanding  with a stated value of  approximately
$74,000,  convertible  into Common Stock at a rate of $0.75.  The sole remaining
holder of the  Company's  Senior  Convertible  Preferred  Stock has the right to
vote, as a single class, with the Common Stock, on an as-converted basis, on all
matters on which the holders of the Company's Common Stock are entitled to vote.

Series B Convertible Preferred Stock
------------------------------------

     During the first quarter of 2000, the Company completed a private placement
pursuant to which it sold an aggregate of 1,677,570  units (the  "Units"),  each
Unit  consisting  of one share of the Company's  Series B Convertible  Preferred
Stock,  par value $0.01 per share,  with a  liquidation  preference of $7.00 per
share (the "Series B Preferred Stock"), and one warrant (the "Series B Warrant")
to purchase one-half share of Series B Preferred Stock at an exercise price, per
one-half share, equal to $7.59, exercisable from and after the expiration of the
six-month  period  following  the date of the first  issuance  of such  Series B
Warrants, for a period of 5 years thereafter.

     Each share of Series B Preferred Stock was automatically converted into two
shares of the Company's  Common Stock upon the Company's  filing of an amendment
to its Certificate of Incorporation (the "Amendment")  increasing its authorized
Common Stock from  28,000,000  to  50,000,000  shares,  which was subject to the
Company's  receipt of the  approval  of a  majority  of its  shareholders.  This
approval  was obtained on April 17,  2000.  Each Series B Warrant was  initially
exercisable for one-half share of Series B Preferred  Stock;  however,  upon the
automatic  conversion  of the Series B Preferred  Stock into Common  Stock,  the
Series B Warrants (to the extent not previously  exercised) became  exercisable,
at the same exercise price of $7.59, for one full share of Common Stock.

     In accordance with EITF Issue 98-05, "Accounting for Convertible Securities
with  Beneficial  Conversion  Features  or  Contingently  Adjustable  Conversion
Ratios,"  the net  proceeds  received  in the private  placement  (approximately
$10,618,000)  were  allocated  based on the relative fair values of the Series B
Preferred Stock and the Series B Warrants. Accordingly, approximately $6,239,000
was allocated to the Series B Preferred  Stock and  $4,379,000  was allocated to
the Series B Warrants.  The approximately  $11,743,000  liquidation value of the
1,677,570  shares of Series B Preferred Stock was recorded net of issuance costs
of approximately $1,125,000,  and net of a full discount, of which approximately
$4,379,000 was attributable to the fair value of the Series B Warrants issued in
connection  therewith,  and  approximately  $6,239,000 was  attributable  to the
beneficial  conversion  feature embodied in the Series B Preferred  Stock.  This
discount was accreted in its entirety as preferred  dividends  through April 17,
2000,  the  date on which  all of the  Series B  Preferred  Stock  automatically
converted  into shares of the Company's  Common Stock (as described  above) at a
ratio of 1 to 2. In connection with the private placement, the Company issued to
the placement  agents an aggregate of 500,000 warrants to purchase shares of the
Company's  Common Stock at an exercise  price of $7.59.  The fair value of these
warrants, which expire on February 13, 2005, was treated as part of the issuance
costs of the Units.

Treasury Stock Purchases
------------------------

     On October 31,  2000,  the Company  announced a program to  repurchase,  in
accordance with the applicable  requirements  of the Securities  Exchange Act of
1934,  as amended,  up to  1,000,000  shares of its Common  Stock at  prevailing
prices  in  open  market  transactions   effected  during  the  one-year  period
commencing  November 1, 2000. As of December 31, 2002,  the Company had acquired
182,337 shares of its Common Stock pursuant to such program.


                                   Page -39-
<PAGE>

Issuance of Common Stock for Consulting Services
------------------------------------------------

     In February 2000, the Company issued  1,000,000  shares of its Common Stock
to Rare Medium Group and Rare Medium, Inc. (collectively,  "Rare"),  pursuant to
the  terms  of an  agreement  entered  into  between  Rare  and the  Company  in
connection  with the  development  of the Company's  anticipated  Internet-based
portal  business  for its  Internet  Division  (Note 2). Under the terms of this
agreement,  Rare was to provide  professional  services  to assist the  Internet
Division with its web-based  business  strategy,  including the  development  of
multiple web sites,  operations  planning and other services related to building
the  Internet   business.   The  terms  of  the   Agreement   afforded   Rare  a
price-protection guarantee on any such shares sold in the open market at a price
of less  than  $3.00 per  share,  and  contained  certain  "lock-up"  provisions
regarding  the  ability  to  sell  such  shares  prior  to  certain  dates.  The
Consolidated  Statement of Operations  for the year ended  December 31, 2000 was
charged as a result of this  transaction.  These charges were  reflected in loss
from discontinued operations.  On July 5, 2001, the Company issued an additional
1,000,000  unregistered  shares of its Common Stock (the fair value of which was
approximately  $325,000) to Rare as part of a settlement  whereby the  Company's
dispute with Rare,  regarding their respective  obligations  under the Company's
various agreements with Rare, were settled.

     On January 16, 2001,  the Company  entered  into an  agreement  with Goldin
Associates,   L.L.C.   ("Goldin")  whereby  Goldin  agreed  to  provide  interim
management  services  to the  Company,  for an initial  six-month  period,  with
respect to its Sterling  Optical,  Insight Laser and Ambulatory Center divisions
(collectively,  the "Divisions"), all at the direction of the Board of Directors
of the  Company  or its  Chairman  or  other  officers,  pursuant  to  delegated
authority.  The fee for such services was $50,000 per month,  plus an additional
fee comprised of unregistered  shares  totaling 1.65% of the outstanding  Common
Stock of the Company as of January 22,  2001,  and warrants to purchase up to an
aggregate of 3.35% of the outstanding Common Stock of the Company.  As a result,
the Company  issued  418,719  unregistered  shares of its Common Stock (the fair
value  of  which  was  approximately   $108,000  and  was  charged  directly  to
operations)  to Goldin,  along with  warrants to  purchase  up to an  additional
850,126 shares of Common Stock,  all at an exercise  price of $0.01,  subject to
the Company  achieving  certain  earnings  targets  (the  "Incentive  Fee").  In
connection with the shares issued, Goldin was granted certain limited piggy-back
registration rights.

     The  terms of the  Incentive  Fee  provide  that the  warrants  may only be
exercised according to the following schedule:  (1) warrants to purchase 279,146
shares of the Company's Common Stock  immediately  following a year in which the
Divisions  shall realize  earnings  before  interest,  taxes,  depreciation  and
amortization  ("EBITDA")  of at least  $1,000,000;  (2)  warrants to purchase an
additional 279,146 shares of the Company's Common Stock immediately  following a
year in which the Divisions shall realize EBITDA of at least $2,000,000; and (3)
warrants to purchase an additional  291,834 shares of the Company's Common Stock
immediately  following a year in which the Divisions  shall realize EBITDA of at
least  $3,000,000.  These  warrants  become  exercisable  only if the applicable
EBITDA   targets  are  achieved  prior  to  December  31,  2004.  Due  to  these
contingencies,  the future valuation of these warrants,  if and when they become
exercisable,  will result in charges to the  Company's  results of operations in
future periods. Any warrants that vest will expire on January 22, 2008.

     On April 26, 2001, the Company's  Board of Directors  approved the terms of
an  agreement  whereby  it agreed  to issue to  Balfour  Investors  Incorporated
("Balfour"), in exchange for certain advisory services rendered to the Company's
Board of Directors,  209,359  unregistered  shares of its Common Stock (the fair
value  of  which  was   approximately   $57,000  and  was  charged  directly  to
operations),  together with warrants to purchase up to 425,063 additional shares
of Common Stock at an exercise  price of $0.01.  In  connection  with the shares
issued, Balfour was granted certain limited piggy-back  registration rights. The
warrants  will become  exercisable  according  to the  following  schedule:  (1)
warrants to purchase  139,573 shares of the Company's  Common Stock  immediately
following  a year in  which  the  Divisions  shall  realize  EBITDA  of at least
$1,000,000;  (2)  warrants  to  purchase  an  additional  139,573  shares of the
Company's Common Stock immediately following a year in which the Divisions shall
realize  EBITDA  of at  least  $2,000,000;  and  (3)  warrants  to  purchase  an
additional 145,917 shares of the Company's Common Stock immediately  following a
year in which  the  Divisions  shall  realize  EBITDA  of at  least  $3,000,000.
Further, these warrants become exercisable only if the applicable EBITDA targets
are achieved prior to December 31, 2004. Due to these contingencies,  the future
valuation of these warrants, if and when they become exercisable, will result in
charges to the Company's  results of operations in future periods.  Any warrants
that vest will expire on April 26, 2008.

Delisting of Common Stock
-------------------------

     On August 23, 2001,  the Company  notified The Nasdaq  Stock  Market,  Inc.
("Nasdaq")  of its Board of  Directors'  intention  not to  effect,  in the near
future,  a reverse stock split of its  outstanding  shares of Common  Stock.  In
response to this  decision,  on August 24, 2001,  Nasdaq  delisted the Company's
Common Stock from the Nasdaq National Market System ("Nasdaq-NMS"),  pursuant to
Marketplace  Rule No.  4310(c)(8)(B),  due to its  failure  to  comply  with the
minimum bid price ($1.00) requirement for the continued listing of its shares of
Common Stock on the Nasdaq-NMS,  all set forth in Nasdaq's  Marketplace Rule No.
4450(a)(5).  As a result,  the  Company's  Common  Stock  now  trades on the OTC
Bulletin Board under the symbol ISEE.OB.


                                   Page -40-
<PAGE>

Increase in Authorized Number of Shares of Common Stock
-------------------------------------------------------

     On  April  29,  2002,  the  Board  unanimously  voted to  recommend  to the
shareholders  that the  Company's  Certificate  of  Incorporation  be amended to
increase the number of authorized  shares of its Common Stock from 50,000,000 to
150,000,000 shares, and to increase the total number of authorized shares of its
capital stock from  55,000,000 to  155,000,000.  On July 11, 2002, the Company's
shareholders  approved  of such  amendment,  which was  thereafter  filed by the
Company.

Shareholder Rights Offering
---------------------------

     On  April  29,  2002,  the  Board  unanimously  approved  of the  Company's
initiation of a shareholder rights offering (the "Rights Offering),  whereby the
Company would attempt to raise  approximately  $2,000,000 of gross proceeds.  On
February 10, 2003, the Company  released the final terms of the Rights  Offering
and filed an  amended  registration  statement  (which  was  declared  effective
February  12, 2003) with the  Securities  and  Exchange  Commission.  The Rights
Offering consists of 50,000,000 units, with each unit consisting of one share of
the Company's  Common Stock and a warrant,  having a term of twelve  months,  to
purchase  one  additional  share of Common  Stock at an exercise  price equal to
$0.05,  unless the average of the last reported sales price of its Common Stock,
as quoted on the OTC Bulletin Board, during the fifteen trading days immediately
preceding, and including, April 7, 2003 is $0.125 or more and the average number
of shares traded during each of those fifteen trading days is 50,000 or more, in
which  case the  exercise  price will be equal to $0.06,  or if the same  volume
conditions  are met but the average of the last reported  sales prices is $0.195
or more, in which case the exercise price will be equal to $0.07.

     Each shareholder will be granted approximately 1.67 non-transferable rights
for every share of Common Stock owned as of February 25, 2003,  the record date.
Each right will be exercisable for one unit at a price of $0.04, the proceeds of
which will be used to repay the amounts outstanding under the Company's existing
credit   facility   and  term  loan  (Note  11),  to  fund  its  plan  to  close
non-profitable  stores (Note 8) and for general  corporate  and working  capital
purposes.  The Rights Offering  commenced on February 27, 2003 and will continue
until 5:00 p.m. on April 14, 2003.

     In  addition,   an  oversubscription   privilege  was  included,   allowing
shareholders  to subscribe  for  additional  units not  subscribed  for by other
shareholders,  pro rata,  based on the number of units purchased under the basic
subscription  privilege.  No fractional  rights will be issued,  but the Company
will round the number of rights its  shareholders  receive  down to the  nearest
whole number.


NOTE 15 - STOCK OPTIONS AND WARRANTS:

Sterling Stock Option Plan
--------------------------

     In April 1995, the Company adopted a Stock Incentive Plan (the "Plan") that
permits the  issuance of options to selected  employees  and  directors  of, and
consultants to, the Company. The Plan, as amended,  reserves 7,000,000 shares of
Common Stock for grant and provides that the term of each award be determined by
the Compensation  Committee of the 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.  Additionally,  certain options  previously  issued
under the Plan provide that  notwithstanding  the  termination  of the Company's
employment of any such employee/holder, he/she will retain the right to exercise
those options that have previously  vested in his/her favor until such time that
the options expire in accordance with the terms of the original grant.


                                   Page -41-
<PAGE>

     A summary of the options  previously  issued under the Plan is presented in
the table below:
<TABLE>
<CAPTION>
                                                          2002                         2001                        2000
                                                -------------------------   ---------------------------   -----------------------
                                                               Weighted                      Weighted                   Weighted
                                                                Average                       Average                   Average
                                                               Exercise                      Exercise                   Exercise
                                                  Shares         Price          Shares         Price       Shares        Price
                                                -------------------------   ---------------------------   -----------------------
<S>                                             <C>           <C>           <C>              <C>          <C>          <C>
Options outstanding, beginning of period         5,398,133    $     4.07      5,590,966      $     6.54   3,571,624    $     5.52
     Granted                                       150,000    $     0.08      2,194,000      $     0.32   3,207,500    $     7.32
     Exercised                                           -    $        -              -      $        -    (855,657)   $     5.44
     Canceled, forfeited or expired             (1,277,665)   $     3.90     (2,386,833)     $     6.39    (332,501)   $     6.24
                                                 ---------    ----------     ----------      ----------   ---------    ----------
Options outstanding, end of period               4,270,468    $     3.98      5,398,133      $     4.07   5,590,966    $     6.54
                                                 =========    ==========     ==========      ==========   =========    ==========
Options exercisable, end of period               4,118,809    $     4.12      4,320,300      $     4.80   2,823,466    $     6.24
                                                 =========    ==========     ==========      ==========   =========    ==========
</TABLE>

     Of the total  options  outstanding  as of  December  31,  2002,  there were
533,334  held  by  current  employees  of the  Company,  and  3,737,134  held by
directors of the Company, outside consultants and former employees. Of the total
options  granted during 2002,  150,000 were granted to employees of the Company.
There  were  no  grants  during  2002  to  directors  of  the  Company,  outside
consultants and former employees.

     The following table summarizes  information about stock options outstanding
and exercisable as of December 31, 2002:
<TABLE>
<CAPTION>
                                                Options Outstanding                                     Options Exercisable
                            ----------------------------------------------------------         ------------------------------------
                                                     Weighted-             Weighted-                                    Weighted-
                                                      Average               Average                                      Average
       Range of                                      Remaining              Exercise                                    Exercise
    Exercise Prices          Outstanding         Contractual Life            Price              Exercisable               Price
   ----------------         -------------       ------------------       -------------         -------------         ---------------
    <C>                        <C>                       <C>               <C>                    <C>                  <C>
    $0.08 to $0.12               150,000                 9.12              $    0.08                150,000            $    0.08
    $0.21 to $0.32               925,000                 4.90              $    0.25                925,000            $    0.25
    $0.33 to $0.50               553,334                 8.32              $    0.33                401,675            $    0.33
    $1.78 to $2.67                 5,000                 6.83              $    1.88                  5,000            $    1.88
    $2.68 to $4.02               608,000                 6.07              $    3.25                608,000            $    3.25
    $4.03 to $6.05               860,467                 3.67              $    5.94                860,467            $    5.94
    $6.06 to $8.25             1,168,667                 6.89              $    8.10              1,168,667            $    8.10
</TABLE>

     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:

                                  2002              2001             2000
                                 ------            ------           ------
Expected life (years)               1                5                 5
Interest rate                     2.21%            4.80%             6.13%
Volatility                        114%              114%             108%
Dividend yield                      -                -                 -



                                   Page -42-
<PAGE>

     The Company has adopted  the pro forma  disclosure  provisions  of SFAS No.
123.  Accordingly,  no  compensation  cost has been recognized for those options
issued,  under the Plan, to employees.  Had compensation  cost for the Company's
Plan been determined under SFAS No. 123, the Company's net loss and net loss per
share would approximate the pro forma amounts presented below (in thousands):
<TABLE>
<CAPTION>
                                                                          2002                    2001                    2000
                                                                      -------------           -------------           -------------
<S>                                                                      <C>                    <C>                     <C>
Net loss attributable to common shareholders:
         As reported                                                     $  (4,665)             $  (3,776)              $ (72,442)
         Pro forma                                                       $  (8,318)             $  (8,916)              $ (82,501)

Net loss per share - basic and diluted:
         As reported                                                     $   (0.17)             $   (0.14)              $   (3.07)
         Pro forma                                                       $   (0.29)             $   (0.34)              $   (3.49)
</TABLE>

     In 2000, the Company  recognized $94,000 of expense related to its issuance
of stock  options  and  warrants  to  certain  non-employee  consultants  to the
Company. The Company incurred no such expenses in 2002 or 2001.

     As  discussed  in Note 3, in December  2002,  the FASB issued SFAS No. 148,
which provides  alternative  methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation.  In
addition,  SFAS No. 148 amends the  disclosure  requirements  of SFAS No. 123 to
require prominent  disclosures in both annual and interim  financial  statements
about the method of accounting for  stock-based  employee  compensation  and the
effect of the method used on  reported  results.  The  Company is  adopting  the
provisions of SFAS No. 148 prospectively from January 1, 2003.

Stock Purchase Warrants
-----------------------

     In December 1999, the Company issued 2,500,000 warrants to MY2000,  LLC, an
entity acting as an  independent  advisor to the Company in connection  with its
planned Internet business and strategy (Note 2), to purchase 2,500,000 shares of
the Company's  Common Stock at a price of $2.00 per share, the fair value on the
date of issuance.  In 1999, the Company recognized  approximately  $2,000,000 in
expense  representing  the fair value of the  warrants  granted.  A principal of
MY2000,  LLC,  was also an  executive of the entity the Company had retained and
paid,  in cash and stock,  to develop  and launch its  business-to-business  web
sites and  related  strategy.  During  the first  quarter of 2000,  MY2000,  LLC
exercised 1,000,000 of these warrants, the remaining 1,500,000 being unexercised
as of December 31, 2001, and expire on December 2, 2004.

     In January 2001, the Company  issued 850,126  warrants to Goldin (Note 14).
These  warrants are only  exercisable  upon the  achievement  of certain  EBITDA
targets by the Company, and expire on January 22, 2008.

     In April 2001, the Company  issued  425,063  warrants to Balfour (Note 14).
These  warrants are only  exercisable  upon the  achievement  of certain  EBITDA
targets by the Company, and expire on April 26, 2008.

     On  January  23,  2002,   in  connection   with   obtaining  its  financing
arrangements (Note 11), the Company granted Horizons,  an aggregate of 2,500,000
warrants  (1,750,000  of which were  immediately  exercisable,  with the balance
vesting in quarterly increments of 250,000, beginning April 22, 2002, subject to
any amounts then  remaining  unpaid  under the secured  term note and/or  credit
facility).  The warrants had a five-year term and provided for an exercise price
of  $0.01  per  share.  The  fair  value of these  warrants  (valued  using  the
Black-Scholes model) was approximately  $234,000.  On May 1, 2002, July 22, 2002
and October 22, 2002,  respectively,  Horizons exercised 2,000,000,  250,000 and
250,000 of such warrants.


NOTE 16 - 401(K) EMPLOYEE SAVINGS PLANS:

     Emerging  Vision,  Inc. and VisionCare of California,  Inc., each sponsor a
401(k)  Employee  Savings  Plan (the  "401(k)  Plan") to provide  all  qualified
employees  of  these  entities  with   retirement   benefits.   Presently,   the
administrative  costs of each  401(k) Plan are paid  entirely by such  qualified
employees, no matching contributions having been provided by the Company.


                                   Page -43-
<PAGE>

NOTE 17 - FOURTH QUARTER CHARGES:

     In the fourth  quarter  of 2002,  the  Company  recognized  provisions  for
doubtful  accounts  of  approximately  $1,105,000  related  to  certain  of  its
franchise receivables and notes that management deemed uncollectible for various
reasons,   along  with  certain  managed  care   receivables  that  were  deemed
uncollectible. The Company also recorded fourth quarter charges of approximately
$303,000  related to estimated  closure  costs of certain  Company-owned  stores
(Note 8), and $668,000 for certain legal contingencies.











                                   Page -44-

<PAGE>


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

     On April 29,  2002,  the Audit  Committee  of the Board of  Directors  (the
"Board") of Emerging Vision,  Inc. (the "Company")  recommended that the Company
discontinue the retention of Arthur Andersen LLP  ("Andersen") for future audits
of its  financial  statements  and,  on June  18,  2002,  the  Company  formally
dismissed Andersen as its independent public accountants.

     Andersen's report on the Company's  financial  statements for either of the
past two fiscal years contained no adverse opinion or disclaimer of opinion, and
was not  qualified  or modified  as to  uncertainty,  audit scope or  accounting
principles.

     During the Company's two most recent fiscal years and any subsequent period
through June 18, 2002, there was no disagreement  with Andersen on any matter of
accounting principles or practices,  financial statement disclosure, or auditing
scope or procedure,  which  disagreement if not resolved to the  satisfaction of
Andersen  would have  caused it to make  reference  thereto in its report on the
Company's  consolidated  financial  statements,  and  there  were no  reportable
events, as defined in Regulation S-K Item 304(a)(1)(v).

     During the Company's two most recent fiscal years and any subsequent period
through June 18, 2002, the Company had not consulted with any independent public
accountants  regarding either (i) the application of accounting  principles to a
specified  transaction,  either  completed  or  proposed;  or the  type of audit
opinion that might be rendered on the Company's financial statements, in respect
of which either a written  report was provided to the Company or oral advice was
provided;  or (ii) any matter that was either the subject of a disagreement,  as
that term is defined in Item  304(a)(1)(iv)  of  Regulation  S-K and the related
instructions to Item 304 of Regulation S-K, or a reportable event.

     On August 5, 2002,  the Audit  Committee  recommended  to the Board that it
select Miller Ellin & Company LLP ("Miller Ellin") as its new independent public
accountants,  which  recommendation  was accepted and unanimously  passed by the
Board and,  on August 7,  2002,  the  Company  engaged  Miller  Ellin as its new
independent public accountants for the year ended December 31, 2002.

     During the Company's two most recent fiscal years and any subsequent period
through  August 7,  2002,  the  Company  had not  consulted  with  Miller  Ellin
regarding  either (i) the  application  of accounting  principles to a specified
transaction,  either  completed or proposed;  or the type of audit  opinion that
might be rendered on the  Company's  financial  statements,  in respect of which
either a written  report was provided to the Company or oral advice was provided
that Miller Ellin concluded was an important factor considered by the Company in
reaching a decision as to the accounting, auditing or financial reporting issue;
or (ii) any matter that was either the subject of a  disagreement,  as that term
is defined in Item 304(a)(1)(iv) of Regulation S-K and the related  instructions
to Item 304 of  Regulation  S-K, or a  reportable  event (as  described  in Item
304(a)(1)(v) of Regulation S-K).



                                   Page -45-

<PAGE>
                                    PART III

Item 10. Directors and Executive Officers of the Registrant
------------------------------------------------------------

     The Board presently  consists of four directors,  not including Mr. William
F. Stasior and Mr. Robert S.  Hillman,  who resigned as of September 1, 2002 and
May 30, 2002, respectively. The directors of Emerging Vision, Inc. ("EVI" or the
"Company")  are divided  into two  classes,  designated  as Class 1 and Class 2,
respectively.  Directors of each Class are elected at the Annual  Meeting of the
Shareholders  of EVI held in the year in which the term of such  Class  expires,
and serve  thereafter for two years,  or until their  respective  successors are
duly elected and  qualified or their earlier  resignation,  removal from office,
retirement  or  death.  Mr.  Benito  R.  Fernandez  presently  serves as Class 1
Director  and is  scheduled  to hold  office  until the 2004  Annual  Meeting of
Shareholders.  Drs. Robert and Alan Cohen, and Mr. Joel L. Gold, presently serve
as Class 2 Directors  and are  scheduled  to hold  office  until the 2003 Annual
Meeting of Shareholders.


             INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS

     The directors and executive officers of EVI are as follows:

Name                      Age         Position

Alan Cohen, O.D.          52          Chairman of the Board of Directors
Robert Cohen, O.D.        59          Director
Benito R. Fernandez       61          Director
Joel L. Gold              61          Director
Christopher G. Payan      28          Co-Chief Operating Officer, Chief
                                      Financial Officer, Senior Vice President,
                                      Secretary and Treasurer
Samuel Z. Herskowitz      33          Co-Chief Operating Officer and Chief
                                      Marketing Officer
Myles Lewis               35          Co-Chief Operating Officer and Senior Vice
                                      President - Business Development
Dr. Nicholas Shashati     43          President - VisionCare of California,
                                      Inc. ("VCC")

     Dr. Alan Cohen has served as a director of the Company since its inception;
and,  as of May  31,  2002,  became  the  Company's  Chairman  of the  Board  of
Directors.  He also served as Chief  Operating  Officer of the Company from 1992
until October 1995, when he became Vice Chairman of the Board of Directors,  and
as the Company's President,  Chief Executive Officer and Chief Operating Officer
from  October  1998  through  April 17,  2000,  when he became  President of the
Company's retail optical store division,  which position Dr. Cohen resigned from
on January 9, 2001. Dr. Cohen,  together with his brother,  Dr. Robert Cohen, is
the owner of Meadows  Management,  LLC ("Meadows"),  which, until April 9, 2000,
rendered 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 Cohen  Fashion  Optical,  Inc.  and its  affiliates  ("CFO"),  which
currently  maintains its principal  offices in Garden City, New York; and, since
January 15, 2001, as President of General Vision  Services,  LLC ("GVS"),  which
currently  maintains its principal  offices in New York City.  Dr. Cohen and his
brother,  Dr. Robert Cohen, are also shareholders of CFO and members of GVS. CFO
and GVS each engage in the operation  (and, in the case of CFO,  franchising) of
retail  optical  stores similar to those operated and franchised by the Company.
Dr. Cohen is also an officer and a director of several privately held management
and real estate  companies and other  businesses.  Dr. Cohen  graduated from the
Pennsylvania  School  of  Optometry  in 1972,  where  he  received  a Doctor  of
Optometry degree.

     Dr.  Robert  Cohen  served as  Chairman  of the Board of  Directors  of the
Company from its inception  through April 7, 2000, when he resigned as Chairman,
but not as a director.  He also served as Chief Executive Officer of the Company
from its inception until October 1995. Dr. Cohen, together with his brother, Dr.
Alan  Cohen,  is the owner of  Meadows,  which,  until  April 9, 2000,  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 President and a director of CFO; and, since
January 15,  2001,  as the Chief  Executive  Officer of GVS.  Dr.  Cohen and his
brother,  Dr. Alan Cohen,  are also  shareholders of CFO and members of GVS. Dr.
Cohen is also an officer and a director of several privately held management and
real  estate  companies  and other  businesses.  Dr.  Cohen  graduated  from the
Pennsylvania  School  of  Optometry  in 1968,  where  he  received  a Doctor  of
Optometry degree.

                                   Page -46-
<PAGE>

     Benito R.  Fernandez  was appointed as a director of the Company as of June
12, 2001. Since 1986, Mr. Fernandez has been the President of Horizons,  located
in Albany,  New York,  an entity  which owns,  develops  and manages real estate
properties,  and which also acts as agent for  various  companies  in the health
field, as well as the President of Horizons  Hotels Corp.,  located in San Juan,
Puerto Rico, which owns and manages hotel properties.  In addition,  since 1980,
Mr.  Fernandez  has been the President of the Brooklyn  Manor Group,  located in
Brooklyn,  New York, an entity which owns and manages a health care facility and
acts as a consultant to various health related facilities;  and, since 1973, has
been the  President  of Typhoon  Fence of L.I.,  Inc.,  the  operator of a fence
construction company located in Long Island, New York. Mr. Fernandez,  who was a
former member of the Federal Reserve Bank of New York Advisory  Council of Small
Business and Agriculture,  graduated from the City University of the City of New
York in 1966,  where he received his B.A..  In 1999, he received The South Bronx
Board of Trades and The Somos Uno Foundation Award for outstanding  professional
leadership in economic development;  in 1995, he received the Bedford Stuyvesant
Y.M.C.A.  Man of the Year Award;  and, in 1990,  he received  the New York State
Puerto  Rican/Hispanic   Legislator  Task  Force  Conference  Center  Award  for
excellence in advancing business opportunities for Puerto Ricans and Latinos.

     Joel L. Gold has served as a director of the Company since  December  1995.
He is currently  Executive Vice  President of Investment  Banking of Berry Shino
Securities,  Inc.,  an  investment  banking firm located in New York City.  From
January 1999 until  December  1999, he was an Executive  Vice President of Solid
Capital Markets,  an investment banking firm also 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 also 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 Detwiler & Co., Inc., 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,  and serves on the  Compensation  Committee of, PMCC
Financial Corp. ("PMCC"), a publicly held specialty, consumer finance company.

     Christopher G. Payan joined the Company as its Vice President of Finance in
July 2001. In October 2001, he was appointed as its Senior Vice President, Chief
Financial  Officer,  Secretary  and  Treasurer;  and,  on April  29,  2002,  was
appointed as one of its Chief Operating  Officers.  From March 1995 through July
2001,  Mr. Payan was employed by Arthur  Andersen  LLP, at the time,  one of the
world's largest  professional  services firms,  where he provided various audit,
accounting,  consulting  and advisory  services to various  small and  mid-sized
companies in various industries.  Mr. Payan is a certified public accountant and
holds a Bachelors of Science  degree,  graduating cum laude,  with honors,  from
C.W. Post - Long Island University.

     Samuel Z.  Herskowitz  joined the  Company in January  1996 and,  effective
April 29, 2002, was appointed as one of its Chief Operating Officers, as well as
its Chief Marketing  Officer.  From 1996 to April 1997, Mr. Herskowitz served as
the Director of Operations of EVI's then wholly-owned subsidiary,  Insight Laser
Centers, Inc. In April 1997, Mr. Herskowitz became responsible for the Company's
corporate  communications and, in January 1998, was appointed to the position of
Director of  Marketing  and  Advertising  of the Company,  in which  position he
served until April 1999, when he became the Company's Vice President - Marketing
and Advertising.  From 1993 to December 1996, Mr. Herskowitz was the Director of
Public  Relations  for  Rosenblum  Eye  Centers  located in New York  City.  Mr.
Herskowitz received a Masters in Business  Administration from Baruch College of
the City University of New York in May 1995.

     Myles  Lewis  joined the  Company in October  1999 as its Vice  President -
Managed  Care  and,  effective  April  29,  2002,  was  appointed  as one of the
Company's  Chief  Operating  Officers  and its Senior Vice  President - Business
Development.  From  October  1998 to  September  1999,  Mr. Lewis served as Vice
President of Managed Care for Vista  Eyecare,  Inc.,  located in  Lawrenceville,
Georgia,  as well as  President  of  ProCare  Eye  Exam,  Inc.,  Vista's  health
maintenance  organization located in the State of California.  From January 1993
to  September  1998,  Mr. Lewis was  employed by New West  Eyeworks,  located in
Tempe,  Arizona,  in various  executive  capacities,  including Vice President -
Managed Care,  President of Vista Eyecare  Network,  LLC, a managed care company
owned by New West Eyeworks,  and Director of Strategic  Projects and Operations.
Mr. Lewis graduated from Arizona State  University in 1991,  where he received a
Bachelors of Science degree in Management.

     Dr. Nicholas Shashati has been the Director of Professional Services of the
Company since July 1992 and, since March 1, 1998, the President of the Company's
wholly owned  subsidiary,  VCC. Dr. Shashati earned a Doctor of Optometry degree
from Pacific University of California in 1984, and received a Bachelor of Visual
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.

                                   Page -47-
<PAGE>

      COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

     Section 16(a) of the Securities Exchange Act of 1934, as amended,  requires
EVI's  executive  officers  and  directors,  and  persons  who own more than ten
percent of a  registered  class of EVI's equity  securities,  to file reports of
ownership and changes in ownership with the  Securities and Exchange  Commission
(the  "SEC").  Executive  officers,  directors  and  greater  than  ten  percent
shareholders are required, by SEC regulation,  to furnish EVI with copies of all
Section 16(a) forms they may file.

     Based  solely on a review of the copies of such forms  furnished to EVI, or
written representations that no Forms 5 were required, EVI believes that, during
the year  ended  December  31,  2002,  all  Section  16(a)  filing  requirements
applicable  to its  executive  officers,  directors and greater than ten percent
beneficial owners were complied with, except that Mr. Fernandez filed certain of
his Forms 4 after the required deadlines.





















                                   Page -48-

<PAGE>

Item 11. Executive Compensation
-------------------------------

     The following Summary  Compensation Table sets forth the compensation,  for
the three years ended December 31, 2002,  of: (i) each  individual who served as
the Chief Executive  Officer of EVI during the year ended December 31, 2002; and
(ii) each of the Company's four most  highly-compensated  executive officers who
were serving as executive  officers of the Company and/or VCC as of December 31,
2002 (collectively, the "Named Executive Officers"):

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

=================================    ======   ==========================   =============   ========================
                                                                            Long-Term
                                                                           Compensation
                                                                            Securities
                                     Fiscal       Annual Compensation       Underlying           All Other
Name and Principal Position           Year       Salary         Bonus      Stock Options        Compensation
---------------------------------    ------   --------------------------   -------------   ------------------------
<S>                                   <C>      <C>            <C>           <C>              <C>
Robert S. Hillman,                    2002     $115,000 (2)   $    -              -          $  27,000 (5)
Former President and Chief            2001     $115,000 (3)   $    -        500,000 (4)      $  22,000 (6)
Executive Officer (1)
---------------------------------    ------   --------------------------   -------------   ------------------------
Christopher G. Payan,                 2002     $169,000 (8)   $    -        150,000 (10)     $   6,000 (12)
Senior Vice President, Co-Chief       2001     $ 57,000 (9)   $    -         50,000 (11)     $       -
Operating Officer, Chief
Financial Officer, Treasurer and
Secretary (7)
---------------------------------    ------   --------------------------   -------------   ------------------------
Myles S. Lewis,                       2002     $156,000 (13)  $    -              -          $   3,000 (16)
Co-Chief Operating Officer and        2001     $118,000 (14)  $    -         50,000 (15)     $   1,000 (17)
Senior Vice President - Business      2000     $150,000 (13)  $    -              -          $  13,000 (18)
Development (12)
---------------------------------    ------   --------------------------   -------------   ------------------------
Samuel Z. Herskowitz,                 2002     $125,000 (20)  $    -                         $  11,000 (22)
Co-Chief Operating Officer and        2001     $110,000 (20)  $    -              -          $   8,000 (22)
Chief Marketing Officer (19)          2000     $ 98,000 (20)  $    -         37,500 (21)     $  10,000 (22)
---------------------------------    ------   --------------------------   -------------   ------------------------
Dr. Nicholas Shashati,                2002     $102,000 (23)  $    -              -          $  24,000 (25)
President - VisionCare of             2001     $102,000 (23)  $    -        100,000 (24)     $  24,000 (25)
California                            2000     $102,000 (23)  $    -              -          $   6,000 (25)
=================================    ======   ==========================   =============   ========================
</TABLE>

     (1) Mr. Hillman became the President,  Chief Executive Officer and Chairman
of the Board of  Directors  of the Company on July 2, 2001,  which  positions he
resigned from on May 30, 2002.
     (2)  Represents  salary paid to Mr.  Hillman for the period from January 1,
2002 through May 30, 2002.
     (3) Represents  salary paid to Mr. Hillman for the period from July 2, 2001
through December 31, 2001.
     (4) All of  these  options  were  cancelled  as a result  of Mr.  Hillman's
resignation from the Company on May 30, 2002.
     (5) Represents automobile lease payments made on behalf of Mr. Hillman, the
costs of insuring such automobile,  and corporate  apartment lease payments made
on behalf of Mr.  Hillman,  for the period from  January 1, 2002 through May 30,
2002.
     (6) Represents automobile lease payments made on behalf of Mr. Hillman, the
costs of insuring such automobile,  and corporate  apartment lease payments made
on behalf of Mr. Hillman,  for the period from July 2, 2001 through December 31,
2001.
     (7) Mr. Payan  became Vice  President of Finance of the Company on July 16,
2001, Senior Vice President, Chief Financial Officer, Treasurer and Secretary of
the Company in October 2001, and one of the Company's Chief  Operating  Officers
on April 29, 2002.
     (8)  Represents  salary paid to Mr.  Payan for the year ended  December 31,
2002.
     (9)  Represents  salary paid to Mr. Payan for the period from July 16, 2001
through December 31, 2001.
     (10) All of these options were exercised on February 20, 2003.
     (11) All of these options are fully vested and exercisable.


                                   Page -49-
<PAGE>

     (12) Mr. Lewis was  originally  employed as the  President of the Company's
Insight  Managed  Care  Division  for the period from  October 12, 1999  through
January 19, 2001,  when he resigned  from the Company.  Mr. Lewis was rehired on
April 30, 2001 as the Company's Vice President - Business Development.  On April
29, 2002, Mr. Lewis became one of the Company's Chief Operating Officers and its
Senior Vice President - Business Development.
     (13) Represents salary paid to Mr. Lewis.
     (14)  Represents  salary paid to Mr.  Lewis for the period from  January 1,
2001  through  January 19,  2001 and for the period from April 30, 2001  through
December 31, 2001.
     (15)  Two-thirds  of these  options  are fully  vested;  and an  additional
one-third will vest on April 26, 2004, provided that, at that time, Mr. Lewis is
still employed by the Company.
     (16) Represents car allowance payments made to Mr. Lewis.
     (17) Represents  health insurance  payments made on behalf of Mr. Lewis for
the period from January 1, 2001 through January 19, 2001 and for the period from
April 30, 2001 through December 31, 2001.
     (18)  Represents  car  allowance  payments  made to Mr.  Lewis  and  health
insurance payments made on behalf of Mr. Lewis.
     (19) Mr.  Herskowitz served as Director of Marketing and Advertising of the
Company  until  January 2, 2001,  when he became Vice  President - Marketing and
Advertising. On April 29, 2002, Mr. Herskowitz became one of the Company's Chief
Operating Officers and its Chief Marketing Officer.
     (20) Represents salary paid to Mr. Herskowitz.
     (21)  One-third  of these  options  are  fully  vested;  and an  additional
one-third  will vest on each of April 26, 2003 and 2004,  provided that, at that
time, Mr. Herskowitz is still employed by the Company.
     (22) Represents car allowance payments made to Mr. Herskowitz.
     (23) Represents salary paid to Dr. Shashati by VCC.
     (24)  One-third  of these  options  are  fully  vested;  and an  additional
one-third  will  vest on each of April  26,  2003 and  2004,  provided  that Dr.
Shashati is then still employed by the Company.
     (25)  Includes  car  allowance  payments  made to Dr.  Shashati  by VCC and
additional salary paid to Dr. Shashati by the Company.


                        OPTION GRANTS IN LAST FISCAL YEAR

     On February  11,  2002,  EVI's  Compensation  Committee  (the  "Committee")
granted to Christopher G. Payan, its, at the time, Senior Vice President,  Chief
Financial  Officer,  Secretary  and  Treasurer,  additional  options to purchase
150,000 shares of EVI's Common Stock, each of which had a term of ten (10) years
and  provided for an exercise  price equal to the closing  price of EVI's Common
Stock, as quoted on the OTC Bulletin Board (the "Closing  Price") on the date of
grant, and each of which vested immediately.  This was the sole option grant, by
the  Committee,  to a Named  Executive  Officer  during  the  fiscal  year ended
December 31, 2002.

     The  following  table sets forth  information  concerning  the sole  option
granted, during 2002, to a Named Executive Officer of the Company:
<TABLE>
<CAPTION>

                      Number of     % of Total                                Potential Realizable Value of
                        Shares        Options                                 Assumed Annual Rates of Stock
                      Underlying    Granted to    Exercise                         Price Appreciation
                       Options     Employees in     Price      Expiration            for Option Term
Name                   Granted      Fiscal Year   Per Share       Date               5%          10%
--------------------  ----------  -------------  -----------  ------------   ------------------------------
<S>                    <C>             <C>          <C>         <C>                <C>         <C>
Christopher G. Payan   150,000         100%         $0.075      2/11/12(*)         $7,000      $18,000

     (*) All options were exercised on February 20, 2003.
</TABLE>

     Reference is made to Note 15 to the Consolidated  Financial  Statements for
more detailed information regarding the Company's equity compensation plans. The
following  provides  certain  information  with respect to the Company's  equity
compensation plans as of December 31, 2002:
<TABLE>
<CAPTION>
                                             (A)                            (B)                             (C)
                                                                                                   Number of securities
                                  Number of securities to be                                   available for future issuance
                                   issued upon exercise of      Weighted-average exercise        under equity compensation
                                   outstanding options and     price of outstanding options       plan (exludes securities
        Plan Category                     warrants                     and warrants               reflected in column (A)
-------------------------------   --------------------------   ----------------------------   -------------------------------
<S>                                     <C>                             <C>                          <C>
Authorized by shareholders              4,270,468                       $3.98                        2,729,532
Not authorized by shareholders          2,775,189                       $1.08                                -
-------------------------------   --------------------------   ----------------------------   -------------------------------
</TABLE>

                                   Page -50-

<PAGE>

                 AGGREGATE OPTIONS EXERCISED IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
    <C>                          <C>         <C>          <C>                             <C>
                                  Shares                       Number of Securities
                                 Acquired                     Underlying Unexercised       Value of Unexercised In-the-Money
                                    on          Value         Options at FY-End (#)             Options at FY-End ($)*
               Name              Exercise     Realized
                                    (#)          ($)        Exercisable/Unexercisable          Exercisable/Unexercisable
    --------------------------- ------------ ------------ ------------------------------- ------------------------------------
    Christopher G. Payan             -       $     -               200,000/-0-                        $0.00/$0.00
    --------------------------- ------------ ------------ ------------------------------- ------------------------------------
    Myles S. Lewis                   -       $     -              33,334/16,666                       $0.00/$0.00
    --------------------------- ------------ ------------ ------------------------------- ------------------------------------
    Samuel Z. Herskowitz             -       $     -              42,500/25,000                       $0.00/$0.00
    --------------------------- ------------ ------------ ------------------------------- ------------------------------------
    Dr. Nicholas Shashati            -       $     -              73,334/66,666                       $0.00/$0.00
    --------------------------- ------------ ------------ ------------------------------- ------------------------------------
</TABLE>

     * Based on the OTC Bulletin  Board  closing price for the last business day
of the fiscal year  ($0.05).  The stock options  granted to the Named  Executive
Officers have exercise prices as follows:  Christopher G. Payan: 150,000 options
at $0.075, and 50,000 options at $0.26; Myles S. Lewis: 50,000 options at $0.33;
Samuel Z.  Herskowitz:  37,500 options at $0.33,  20,000  options at $6.31,  and
10,000 options at $3.25;  and Dr. Nicholas  Shashati:  100,000 options at $0.33,
20,000 options at $6.31, 10,000 options at $3.25, and 10,000 options at $7.50.


Compensation Committee Interlocks and Insider Participation

     The current members of the  Compensation  Committee (the  "Committee")  are
Benito R. Fernandez,  Dr. Alan Cohen and Joel L. Gold.  Additionally,  Robert S.
Hillman served on the Committee until May 30, 2002.


                              EMPLOYMENT CONTRACTS

     Effective  February  11,  2002,  the Company and Mr.  Christopher  G. Payan
entered  into  a  three-year  employment  agreement  pursuant  to  which  he was
appointed as the Company's Senior Vice President,  Co-Chief  Operating  Officer,
Chief Financial Officer, Secretary and Treasurer. Pursuant to the agreement, Mr.
Payan will  initially be paid an annual base salary of $175,000  per year,  will
receive a monthly  automobile  allowance  of $600,  and is entitled to an annual
bonus in an amount equal to 5% by which the  earnings  before  interest,  taxes,
depreciation and amortization ("EBITDA"), as defined, exceeds $2,000,000, in any
year ending December 31st.

     In addition, pursuant to the terms of said agreement, Mr. Payan was granted
150,000 employee stock options,  all of which were immediately vested (and which
Mr. Payan subsequently  exercised on February 20, 2003), and the 50,000 employee
stock options granted to Mr. Payan on July 16, 2001 became immediately vested.


                       OPERATION OF THE BOARD OF DIRECTORS

     During the fiscal year ended December 31, 2002, the Board held two meetings
in person, held two additional meetings  telephonically,  and acted by unanimous
written consent three times. Each director (including Messrs.  Robert S. Hillman
and William F. Stasior,  who resigned as directors on May 30, 2002 and September
1, 2002,  respectively)  attended at least 75% of the meetings held by the Board
during the period in which such director served,  including the meetings held by
the Committees on which such director served.


Committees of the Board

     The standing committees of the Board include the Executive  Committee,  the
Audit Committee, the Compensation Committee and the Independent Committee.


                                   Page -51-

<PAGE>

     The Executive  Committee,  whose members are currently Benito R. Fernandez,
Robert Cohen and Joel L. Gold (and whose  members,  from time to time during the
2002 fiscal year,  also included  Robert S. Hillman) is generally  authorized to
exercise  the  powers  of the Board in  connection  with the  management  of the
Company;  provided,  however,  that the  Executive  Committee  does not have the
authority to submit to shareholders any action that needs  shareholder  approval
under law, fill vacancies in the Board or in any Committee, fix the compensation
of directors for serving on the Board or on any  Committee,  amend or repeal the
By-Laws  of the  Company  or adopt  new  by-laws  of the  Company,  or amend the
Company's Certificate of Incorporation.  The Executive Committee was established
in December 1995 and, during the year ended December 31, 2002,  acted four times
by unanimous written consent.

     The Audit Committee,  whose members  currently are Robert Cohen,  Benito R.
Fernandez and Joel L. Gold (and whose members, from time to time during the 2002
fiscal year, also included William F. Stasior),  recommends the selection of the
Company's independent auditors,  receives reports from such independent auditors
on any  material  recommendations  made to  management,  and  reviews,  with the
auditors,  any  material  questions or problems  with respect to the  accounting
records, procedures or operations of the Company which have not been resolved to
their satisfaction after having been brought to the attention of management. The
Audit  Committee,  which was  established  in December  1995, met once in person
during the year ended December 31, 2002 and five times telephonically.

     The Compensation Committee,  whose members currently are Alan Cohen, Benito
R. Fernandez and Joel L. Gold (and whose  members,  from time to time during the
2002 fiscal year, also included Robert S. Hillman)  administers EVI's 1995 Stock
Incentive  Plan and  recommends  to the Board the  salaries  and  bonuses of the
executive officers of the Company. The Compensation Committee was established in
December 1995 and,  during the year ended December 31, 2002,  acted two times by
unanimous written consent.

     The Independent Committee,  whose members currently are Benito R. Fernandez
and Joel L. Gold (and whose  members,  from time to time  during the 2002 fiscal
year, also included William F. Stasior),  is generally  authorized to review any
transaction  (or  series of  transactions)  involving  more than  $10,000 in any
single instance,  or more than $50,000 in the aggregate (other than compensation
matters which are determined by the Compensation  Committee) between the Company
and: (i) any of its directors,  officers,  principal shareholders and/or each of
their  respective  affiliates;  or (ii) any employee of, or  consultant  to, the
Company who also renders  services to CFO and/or GVS,  retail optical  companies
owned, in part, by certain directors and shareholders of the Company, whether or
not for compensation. The Independent Committee was established in December 1995
and,  during the year ended December 31, 2002,  acted once by unanimous  written
consent.


                              DIRECTOR COMPENSATION

     Directors  who are not employees or executive  officers of the Company,  or
associated with the Company, receive $1,000 for each Board and Committee meeting
attended  in person,  and $250 for each  Board and  Committee  meeting  attended
telephonically.  Further,  all directors are reimbursed for certain  expenses in
connection with their attendance at Board and Committee meetings.

     Other than with respect to the reimbursement of expenses, directors who are
employees  or  executive  officers  of the Company  will not receive  additional
compensation for serving as a director.  Item 12. Security  Ownership of Certain
Beneficial Owners and Management


                                   Page -52-

<PAGE>

I.      COMMON STOCK:
        ------------

     The following table sets forth certain  information,  as of March 24, 2003,
regarding the beneficial  ownership of the 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 EVI's Common  Stock;  (ii) each  director of the Company;
(iii) each Named Executive Officer of the Company (as said term is defined under
the  caption  "Executive  Compensation"  above);  and  (iv)  all  directors  and
executive officers of the Company as a group. The percentages in the "Percent of
Class"  column  do not  give  effect  to  shares  included  in  the  "Beneficial
Ownership"  column as a result of the  ownership of options or warrants.  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
Benito R. Fernandez is 2830 Pitkin Avenue, Brooklyn, New York 11208. The address
of Joel L. Gold is c/o Berry Shino Securities,  45 Broadway,  New York, New York
10006. The address of Nicholas Shashati is c/o Sterling VisionCare,  9663 Tierra
Grande Street,  San Diego,  California  92126.  The address of all other persons
listed below is 100 Quentin Roosevelt Boulevard, Garden City, New York 11530.


--------------------------- ----------------------- ----------------------------
        Name                  Beneficial Ownership       Percent of Class
--------------------------- ----------------------- ----------------------------
Robert S. Hillman (c)                      - (1)                        *
--------------------------- ----------------------- ----------------------------
Christopher G. Payan (b)             261,500 (2)                        *
--------------------------- ----------------------- ----------------------------
Myles S. Lewis (b)                    33,334 (3)                        *
--------------------------- ----------------------- ----------------------------
Samuel Z. Herskowitz (b)              42,500 (4)                        *
--------------------------- ----------------------- ----------------------------
Dr. Nicholas Shashati (b)             73,334 (5)                        *
--------------------------- ----------------------- ----------------------------
Dr. Alan Cohen (a)                 1,589,490 (6)                     5.2%
--------------------------- ----------------------- ----------------------------
Dr. Robert Cohen (a)               1,389,490 (7)                     4.5%
--------------------------- ----------------------- ----------------------------
Benito R. Fernandez (a)            6,301,075 (8)                    21.1%
--------------------------- ----------------------- ----------------------------
Joel L. Gold (a)                     121,500 (9)                        *
--------------------------- ----------------------- ----------------------------
All current directors and
  executive officers as a
  group (d)                        9,812,223 (10)                   31.1%
--------------------------- ----------------------- ----------------------------
______________________
     * less than 1%
     (a) Director
     (b) Executive officer
     (c) Former director and executive officer
     (d) Includes all  individuals  listed in the table above with the exception
of Robert S. Hillman.

     (1) This  number  excludes  the right to acquire  500,000  shares of Common
Stock pursuant to options previously granted to Mr. Hillman,  each of which were
cancelled as a result of Mr.  Hillman's  resignation from the Company on May 30,
2002.
     (2) This number includes the right to acquire 50,000 shares of Common Stock
upon the exercise of presently exercisable, outstanding options.
     (3) This number  represents  the right to acquire  33,334  shares of Common
Stock upon the  exercise of  presently  exercisable,  outstanding  options,  but
excludes an  additional  16,666  options  which are  subject to certain  vesting
requirements.
     (4) This number  represents  the right to acquire  42,500  shares of Common
Stock upon the  exercise of  presently  exercisable,  outstanding  options,  but
excludes an  additional  25,000  options  which are  subject to certain  vesting
requirements.
     (5) This number  represents  the right to acquire  73,334  shares of Common
Stock upon the  exercise of  presently  exercisable,  outstanding  options,  but
excludes an  additional  66,666  options  which are  subject to certain  vesting
requirements.


                                   Page -53-
<PAGE>

     (6) This  number  includes  the right to acquire  650,000  shares of Common
Stock upon the  exercise of  presently  exercisable,  outstanding  options,  but
excludes an additional:  (i) 100,000  shares owned by Meryl Cohen,  as custodian
for each of Erica and Nicole  Cohen,  the children of Alan and Meryl  Cohen,  to
which Dr. Cohen disclaims beneficial ownership;  and (ii) 10,000 shares owned by
Dr. Cohen,  as custodian for each of Erica and Nicole Cohen,  to which Dr. Cohen
also disclaims beneficial ownership.
     (7) This  number  includes  the right to acquire  650,000  shares of Common
Stock upon the exercise of presently exercisable, outstanding options.
     (8) This  number  represents  shares  of  Common  Stock  owned by  Horizons
Investors Corp.  ("Horizons"),  a New York corporation  principally owned by Mr.
Fernandez.
     (9) This number  includes  1,500 shares of Common Stock owned by Mr. Gold's
children  and the right to  acquire  120,000  shares of  Common  Stock  upon the
exercise  of  presently  exercisable,   outstanding  options,  but  excludes  an
additional  5,000 shares of Common Stock owned by Mr.  Gold's wife, to which Mr.
Gold disclaims beneficial ownership.
     (10) This number  includes:  (1) the right to acquire  1,619,168  shares of
Common Stock upon the exercise of presently exercisable, outstanding options. In
accordance with Rule 13d-3(d)(1)  under the Securities  Exchange Act of 1934, as
amended,  the 1,619,168 shares of Common Stock for which the Company's directors
and executive officers,  as a group, hold currently  exercisable  options,  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.


                       SENIOR CONVERTIBLE PREFERRED STOCK:

     Set forth below is the name,  address,  stock ownership and voting power of
each person or group of persons  known by the Company to  beneficially  own more
than 5% of the outstanding shares of EVI's Senior Convertible Preferred Stock:

---------------------------------------------------------
                            Beneficial       Percent of
          Name              Ownership          Class
---------------------------------------------------------
Rita Folger
1257 East 24th Street
Brooklyn, NY 11210           0.74 (1)          100%
---------------------------------------------------------

     (1) These shares are  convertible  into an  aggregate  of 98,519  shares of
Common  Stock;  and the holder  thereof  will be entitled to cast that number of
votes at any meeting of shareholders.



                                   Page -54-


<PAGE>

Item 13. Certain Relationships and Related Transactions
-------------------------------------------------------

Cohen's Fashion Optical

     Drs.  Robert and Alan Cohen are  officers and  directors  of Cohen  Fashion
Optical,  Inc. ("CFO"),  including its affiliate,  Real Optical,  LLC. ("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 March 24,  2003,  CFO had 72  franchised  stores and 15
company-owned  stores (including one store operated by an affiliate of CFO under
the name "Cohen's  Optical").  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 March 24,  2003,  there were two  Ultimate  Spectacle  stores
located  in the State of New York;  and REAL,  as of such date,  operated  three
stores (under the name "Cohen's Fashion Optical"),  all of which were located in
New York State.  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 March 24, 2003,  approximately  15 CFO stores were located in the
same  shopping  center  or mall as, or in close  proximity  to,  certain  of the
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 Company
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 the Company or CFO,  which  arrangement is anticipated to continue in the
future.

     In January 2002, the Company  subleased from CFO, for a term of five years,
a portion  of the space then  being  leased by CFO in a building  located at 100
Quentin Roosevelt Boulevard, Garden City, New York and, in connection therewith,
relocated its principal executive offices to such premises.  Occupancy costs are
being  allocated  between the Company and CFO based upon the  respective  square
footages being occupied. The Company believes that its rent with respect to such
premises is equal to the fair market rental value of such space.

     On December 31, 2002, the Company refinanced certain past due amounts, owed
to CFO, in an effort to improve its current cash flow position. As a result, the
Company  signed a 5-year,  $200,000  promissory  note, in favor of CFO,  bearing
interest at a rate of 10% per annum.  The first monthly  payment on the note was
due on March 1, 2003.

     During the ordinary  course of  business,  largely due to the fact that the
entities  occupy office space in the same  building,  and in an effort to obtain
savings with respect to certain  administrative  costs, the Company and CFO will
at times share in the costs of minor  expenses.  Management  believes that these
expenses have been appropriately accounted for by herein.


General Vision Services

     In January 2001,  General Vision Services,  LLC ("GVS"), a Delaware limited
liability company located in New York City and beneficially  owned, in principal
part,  by Drs.  Robert and Alan Cohen and  certain  members of their  respective
immediate families  (collectively,  the "Cohen Family"),  acquired substantially
all of the assets of General  Vision  Services,  Inc. As of March 24, 2003,  GVS
operated  approximately  24  retail  optical  stores  located  in the  New  York
metropolitan  area,  which  stores  are  similar to the  retail  optical  stores
operated  and  franchised  by  the  Company.  In  addition,   GVS  solicits  and
administers third party benefit programs similar to those being  administered by
the Company.  It is possible that a GVS store,  or another  retail optical store
which provides third party benefit plans  administered by GVS, may now or in the
future be located near one or more of the Company's  retail  optical  stores and
may be competing directly with such store.

     Furthermore,  the Company, CFO and GVS jointly participate in certain third
party benefit plans, and certain of the Company's  retail optical stores,  CFO's
stores and GVS' stores  participate as providers under third party benefit plans
obtained by either the Company, CFO or GVS and, in all likelihood, will continue
to do so in the future.

     In June 2001,  the Company  subleased to GVS its retail  optical store (and
the furniture,  fixtures and equipment located  therein),  located in Nyack, New
York,  at a rent per month equal to the rent and  additional  rent payable under
the Master Lease for such store,  less a monthly  rental  credit,  until May 31,
2003,  of $2,500.  Pursuant to the terms of such  sublease,  the Company will be
required to transfer and convey to GVS all of such store's  furniture,  fixtures
and equipment from and after June 15, 2003,  provided GVS is not then in default
in performing its obligations under such sublease.

     Further,  in  April  2002,  EVI  sold  to  GVS,  for  the  sum of  $55,000,
substantially  all of the assets of one of its stores  located in New York City,
together with all of the capital stock of its wholly-owned subsidiary,  Sterling
Vision of 125th  Street,  Inc.,  which is the tenant  under the Master Lease for
such store.

                                   Page -55-
<PAGE>

     During 2002, the Company  purchased from City Lens, Inc. ("City Lens"),  an
ophthalmic  lens  laboratory  owned by GVS,  ophthalmic  lenses and certain lens
refinishing services for its Company-owned  stores. For the years ended December
31, 2002,  the total cost of such lenses and services  purchased  from City Lens
was  approximately  $228,000.  The Company believes that the cost of such lenses
and  services  were as  favorable  to the Company as those which could have been
obtained from an unrelated third party.


Additional Agreements and Transactions Between the Company and the Cohen Family

     On December 6, 2001,  the Company  borrowed  from  Broadway  Partners,  LLC
("Broadway"),  a New York  partnership  owned by certain of Dr.  Robert and Alan
Cohen's  children,  the sum of  $300,000,  which loan,  together  with  interest
thereon,  calculated  at 1% above  the prime  rate of  interest,  was  repaid to
Broadway, in full, on January 23, 2002.

     On July 23, 2002, the Board  authorized the Company to borrow $300,000 from
Dr.  Robert  Cohen.  The loan was  payable on August  10,  2002,  together  with
interest  in an amount  equal to 1% of the  principal  amount of such loan.  The
Company repaid this loan, in full, on August 8, 2002.


Horizons Investors Corp. and Matters Relating to Benito R. Fernandez

     On December 3, 2001 and  December  20,  2001,  the  Company  borrowed  from
Horizons the sums of $150,000 and $300,000,  respectively,  each of which loans,
together with  interest  thereon,  calculated  at 1% above the prime rate,  were
repaid by the Company, in full, on January 23, 2002.

     On January 23,  2002,  the Company and  Horizons  entered  into a series of
agreements  pursuant to which Horizons  established,  in favor of the Company, a
credit  facility,  in the  maximum  amount  of  $1,000,000  and,  in  connection
therewith, the Company obtained from Horizons an initial advance thereunder,  in
the amount of $300,000. Loans under such credit facility, which bear interest at
the rate of 1% above  the  prime  rate  and  must be in  increments  of at least
$150,000,  are secured by a pledge, to Horizons, of a substantial portion of the
Company's franchise notes receivable,  and must be fully amortized (repaid) over
the then remaining term of the facility,  which will expire on January 23, 2004.
In addition, pursuant to the terms of such agreements with Horizons, the Company
is  required to pay, to  Horizons,  a facility  fee equal to 2% per annum of the
average daily principal  balance of the unused portion of the facility from time
to time outstanding.

     EVI is also required to pay, to Horizons, an interest rate differential fee
equal to the  difference  between the rate of  interest  actually  paid,  by the
Company,  to North Fork Bank on its  $1,000,000  term loan from such Bank (which
loan was secured by Horizon's pledge,  to the Bank, of a $1,000,000  certificate
of deposit) and 1% above the prime rate.

     In  connection  with the  above  financing  arrangements,  EVI  issued,  to
Horizons,  five-year warrants to purchase up to 2,500,000 shares of EVI's Common
Stock at an exercise  price of $0.01 per share.  Horizons  exercised  2,000,000,
250,000 and 250,000 of such  warrants on May 1, 2002,  July 22, 2002 and October
22,  2002,  respectively.



                                   Page -56-

<PAGE>


Item 14.  Controls and Procedures
---------------------------------

a)       Evaluation of Disclosure Controls and Procedures

     Based  on  their  evaluation  of  the  Company's  disclosure  controls  and
procedures  as of a date  within  90 days of the  filing  of  this  Report,  the
Co-Chief  Operating Officers (one of which is also the Company's Chief Financial
Officer) have concluded that such controls and procedures are effective.

b)       Changes in Internal Controls

     There were no significant changes in the Company's internal controls, or in
other factors,  that could significantly  affect such controls subsequent to the
date of their evaluation.







                                   Page -57-


<PAGE>


                                     PART IV


Item 15.  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, 2002 and 2001

              Consolidated Statements of Operations for the Years Ended
                 December 31, 2002, 2001 and 2000

              Consolidated Statements of Shareholders' Equity (Deficit) for the
                 Years Ended December 31, 2002, 2001 and 2000

              Consolidated Statements of Cash Flows for the Years Ended
                 December 31, 2002, 2001 and 2000

              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 Restated  Certificate of Incorporation of Sterling Vision,  Inc., filed
on December 20, 1995  (incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1995)

     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 10-K/A for the year ended December 31, 1995)

     3.3 *  Certificate  of Amendment of the  Certificate  of  Incorporation  of
Sterling Vision, Inc., filed on January 26, 2000

     3.4 Form of Certificate of Amendment of the Certificate of Incorporation of
Sterling Vision,  Inc., filed on February 8, 2000  (incorporated by reference to
Exhibit 10.94 to the Company's  Current  Report on Form 8-K,  dated  February 8,
2000)

     3.5 Form of Certificate of Amendment of the Certificate of Incorporation of
Sterling Vision,  Inc., filed on February 10, 2000 (incorporated by reference to
Exhibit 10.96 to the Company's  Current  Report on Form 8-K,  dated  February 8,
2000)

     3.6 *  Certificate  of Amendment of the  Certificate  of  Incorporation  of
Sterling Vision, Inc., filed on April 17, 2000

     3.7 *  Certificate  of Amendment of the  Certificate  of  Incorporation  of
Emerging Vision, Inc., filed on July 15, 2002

     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  Warrant,  dated  December  16,  1999,  issued to  MY2000,  LLC
(incorporated  by reference to Exhibit 10.93 to the Company's  Current Report on
Form 8-K/A, dated December 16, 1999)

                                   Page -58-
<PAGE>

     4.3 Form of Warrant issued to Purchasers in the Company's Private Placement
of Units  consisting  of Series B  Convertible  Preferred  Stock and Warrants to
purchase Common Stock (incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement No. 333-37160)

     4.4 Form of Warrant  issued to Placement  Agents  (and/or their  respective
designees) in connection with the Company's Private  Placement  (incorporated by
reference to Exhibit 4.3 to the Company's Registration Statement No. 333-37160)

     4.5  Warrant  Certificate  and  Agreement,  dated as of January  16,  2001,
between  Emerging  Vision,  Inc. and Goldin  Associates,  LLC  (incorporated  by
reference to Exhibit 10.117 to the Company's  Quarterly  Report on Form 10-Q for
the quarter ended June 30, 2001)

     4.6 Warrant Certificate and Agreement,  dated as of April 26, 2001, between
Emerging  Vision,  Inc.  and Balfour  Investors  Incorporated  (incorporated  by
reference to Exhibit 10.118 to the Company's  Quarterly  Report on Form 10-Q for
the quarter ended June 30, 2001)

     4.7 Form of Warrant issued to Subscribers in connection  with the Company's
Rights  Offering  (incorporated  by  reference  to Exhibit 4.5 to the  Company's
Registration Statement No. 333-100697)

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

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

     10.3 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)

     10.4 First Amendment to Sterling  Vision,  Inc.'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)

     10.5 Exchange Agreement,  dated April 14, 1998, between the Company 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

     10.6  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)

     10.7  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)

     10.8  Third   Amendment  to  Convertible   Preferred   Stock  and  Warrants
Subscription  Agreement,  dated December 7, 1999  (incorporated  by reference to
Exhibit 10.90 to the Company's  Current  Report on Form 8-K,  dated  December 7,
1999)

     10.9 Form of  Settlement  Agreement,  dated as of April 24,  2001,  between
Emerging  Vision,  Inc.  and Sara V.  Traberman  (incorporated  by  reference to
Exhibit  10.113 to the Company's  Quarterly  Report on Form 10-Q for the quarter
ended March 31, 2001)

     10.10 Asset  Purchase  Agreement,  dated as of May 31,  2001,  by and among
Insight Laser Centers  N.Y.I,  Inc.,  Insight  Amsurg  Centers,  Inc.,  Emerging
Vision, Inc. and Amsurg Acquisition Corp.  (incorporated by reference to Exhibit
10.114 to the Company's Current Report on Form 8-K, dated June 13, 2001)

     10.11 Employment Agreement,  effective as of July 2, 2001, between Emerging
Vision, Inc. and Robert S. Hillman  (incorporated by reference to Exhibit 10.115
to the Company's Current Report on Form 8-K, dated July 2, 2001)

     10.12  Settlement  Agreement and Mutual Release,  dated as of July 5, 2001,
between Emerging Vision,  Inc. and Rare Medium Group,  Inc. and Rare Medium Inc.
(incorporated by reference to Exhibit 10.116 to the Company's  Current Report on
Form 8-K, dated July 2, 2001)

                                   Page -59-
<PAGE>

     10.13 Form of Term Note, dated January 23, 2002, executed by the Company in
favor of North Fork Bank  (incorporated  by reference  to Exhibit  10.119 to the
Company's Current Report on Form 8-K, dated January 23, 2002)

     10.14 Form of Loan Agreement and Exhibits,  dated January 23, 2002, between
Emerging Vision, Inc. and Horizon Investors Corp.  (incorporated by reference to
Exhibit  10.120 to the Company's  Current  Report on Form 8-K, dated January 23,
2002)

     10.15 Form of Settlement  Agreement and General Release,  dated as of April
1, 2002,  between  Emerging  Vision,  Inc. and each of V.C.  Enterprises,  Inc.,
Bridget Licht, Sitescope,  Inc.,  Eyemagination Eyeworks, Inc. and Susan Assael,
including  the  form of Area  Representation  Agreement  annexed  thereto  as an
Exhibit  (incorporated  by reference to Exhibit  10.37 to the  Company's  Annual
Report on Form 10-K for the year ended December 31, 2001)

     10.16 Warrant  Agreement,  dated February 10, 2003, by and between Emerging
Vision,  Inc. and Mellon  Investor  Services LLC  (incorporated  by reference to
Exhibit 10.38 to the Company's Registration Statement No. 333-100697)

     10.17 * Employment  Agreement,  effective as of February 11, 2002,  between
Emerging Vision, Inc. and Christopher G. Payan

     21.1 * List of Subsidiaries

     23.1 * Consent of Independent Public Accountants

     99.1  *  Certifications  of  Principal  Executive  Officers  and  Principal
Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


     * Exhibit being filed herewith


b)  Reports on Form 8-K

     1. On October 23, 2002,  the Company  filed a Report on Form 8-K  regarding
the  issuance  of  a  press  release,  on  February  23,  2002,  announcing  its
shareholder rights offering.

     2. On February 11, 2003,  the Company  filed a Report on Form 8-K regarding
the  issuance  of  a  press  release,  on  February  10,  2003,   regarding  the
announcement of the final terms of its shareholder rights offering.






                                   Page -60-

<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.

                                             EMERGING VISION, INC.


                                             By: /s/ Christopher G. Payan
                                                ------------------------------
                                                Christopher G. Payan
                                                Senior Vice President,
                                                Co-Chief Operating Officer and
                                                Chief Financial Officer

                                             Date:  March 28, 2003


     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.
<TABLE>
<CAPTION>

<C>                                 <C>                                           <C>
Signature                           Title                                         Date
---------                           -----                                         ----


/s/ Christopher G. Payan            Senior Vice President, Co-Chief Operating     March 28, 2003
---------------------------         Officer and Chief Financial Officer
Christopher G. Payan                (Co-Principal Executive Officer and
                                    Principal Financial Officer)

/s/ Samuel Z. Herskowitz            Co-Chief Operating Officer and                March 28, 2003
---------------------------         Chief Marketing Officer
Samuel Z. Herskowitz                (Co-Principal Executive Officer)

/s/ Myles S. Lewis                  Co-Chief Operating Officer and                March 28, 2003
---------------------------         Senior Vice President - Business Development
Myles S. Lewis                      (Co-Principal Executive Officer)

/s/ Brian P. Alessi                 Corporate Controller                          March 28, 2003
---------------------------         (Principal Accounting Officer)
Brian P. Alessi

/s/ Dr. Alan Cohen                  Chairman of the Board of Directors            March 28, 2003
---------------------------
Dr. Alan Cohen

/s/ Dr. Robert Cohen                Director                                      March 28, 2003
---------------------------
Dr. Robert Cohen

/s/ Benito R. Fernandez             Director                                      March 28, 2003
---------------------------
Benito R. Fernandez

/s/ Joel L. Gold                    Director                                      March 28, 2003
---------------------------
Joel L. Gold
</TABLE>


                                   Page -61-
<PAGE>


I, Christopher G. Payan, certify that:

     1. I have  reviewed  this annual  report on Form 10-K of  Emerging  Vision,
Inc.;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the period presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report ( the "Evaluation Date"); and

     c) presented in this annual report our conclusion  about the  effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee of the  registrant's  board of directors  (or persons  performing  the
equivalent function):

     a) all  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date:  March 28, 2003


  /s/ Christopher G. Payan
--------------------------------
Christopher G. Payan
Co-Chief Operating Officer and
Chief Financial Officer




                                   Page -62-
<PAGE>


I, Myles S. Lewis, certify that:

     1. I have  reviewed  this annual  report on Form 10-K of  Emerging  Vision,
Inc.;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the period presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report ( the "Evaluation Date"); and

     c) presented in this annual report our conclusion  about the  effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee of the  registrant's  board of directors  (or persons  performing  the
equivalent function):

     a) all  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date:  March 28, 2003


  /s/ Myles S. Lewis
-------------------------------
Myles S. Lewis
Co-Chief Operating Officer



                                   Page -63-
<PAGE>


I, Samuel Z. Herskowitz, certify that:

     1. I have  reviewed  this annual  report on Form 10-K of  Emerging  Vision,
Inc.;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the period presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report ( the "Evaluation Date"); and

     c) presented in this annual report our conclusion  about the  effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee of the  registrant's  board of directors  (or persons  performing  the
equivalent function):

     a) all  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date:  March 28, 2003


  /s/ Samuel Z. Herskowitz
---------------------------------
Samuel Z. Herskowitz
Co-Chief Operating Officer


                                   Page -64-
<PAGE>

                                                                     Exhibit 3.3


                         CERTIFICATE OF AMENDMENT OF THE
                          CERTIFICATE OF INCORPORATION
                            OF STERLING VISION, INC.
                Under Section 805 of the Business Corporation Law
                -------------------------------------------------

     FIRST:  The  name  of  the  corporation  is  Sterling  Vision,   Inc.  (the
"Company"), and the Company was formed under the name Sterling Acquisition, Inc.


     SECOND:  The Certificate of Incorporation of the Company was filed with the
Department of State of the State of New York on January 15, 1992.


     THIRD: The Certificate of Incorporation of the Company is hereby amended to
amend and  restate  certain  of the terms and  provisions  of the  series of the
Company's  Preferred Stock, par value $.01 per share,  previously  designated as
Senior Convertible  Preferred Stock and created by the Company's  Certificate of
Amendment  to its  Certificate  of  Incorporation  filed with the New York State
Department of State on April 15, 1998, which was previously  created pursuant to
Article 4 of the  Certificate  of  Incorporation  of the Company;  and Article 4
shall be further amended to restate,  in its entirety,  the terms and provisions
of the Senior Convertible Stock previously created by the Company, as follows:


     Article 1. Designation, Issuance, Rank, Dividends and Redemption/Resale.
                -------------------------------------------------------------

     Section 1.1  Designation,  Issuance and Rank. The designation of the series
of Preferred Stock  authorized by this Resolution  shall be "Senior  Convertible
Preferred Stock" (the  "Convertible  Preferred  Stock" or the  "Security").  The
maximum number of shares of Convertible Preferred Stock issuable hereunder shall
be thirty-five  (35),  which shares may be issued from time to time.  Subject to
compliance  with applicable  protective  voting rights which have been or may be
granted  to  the  Preferred  Stock  of the  Company  or any  series  thereof  in
Certificates of Designation or in the Company's Certificate of Incorporation, as
amended  and  as  hereafter  may  be  amended  ("Protective  Provisions"),   but
notwithstanding  any other rights of the  Preferred  Stock of the Company or any

<PAGE>


series thereof,  the rights and  preferences of the Convertible  Preferred Stock
shall  rank  pari  passu  with  (including,  without  limitation,  inclusion  in
provisions with respect to liquidation and acquisition  preferences,  redemption
and/or approval of matters by vote or written consent), or senior to any present
or future  class or series of  Preferred  Stock or common  stock of the Company.
Subject  to  compliance  with  applicable  Protective  Provisions,  the Board of
Directors is also  authorized  to decrease  the number of shares of  Convertible
Preferred Stock,  prior or subsequent to the issue of that series, but not below
the number of shares of the  Convertible  Preferred Stock then  outstanding.  In
case the  number of shares  of any  series  shall be so  decreased,  the  shares
constituting  such  decrease  shall resume the status that they had prior to the
adoption  of the  resolution  originally  fixing  the  number  of shares of such
series.  The rights,  preferences,  privileges and restrictions  granted to, and
imposed on, the Convertible  Preferred Stock are set forth below in this Article
1.

     Section 1.2 Payment of Dividends.
                 ---------------------

     (a) The  holder  of the  Convertible  Preferred  Stock or their  registered
assigns (each a "Holder") shall be entitled to receive  dividends on the "Stated
Value" of each  share of  Convertible  Preferred  Stock  through  and  including
February 17, 1999, only, whether or not such dividends are declared by the Board
of Directors. Dividends shall accrue from February 17, 1998 notwithstanding that
the Convertible Preferred Stock was issued after such date, and shall be payable
through and including  February 17, 1999, only  (including,  but not limited to,
all accrued and unpaid dividends on such portion, if any, of the Stated Value of
the  Convertible  Preferred  Stock  as may have  been  previously  converted  or
redeemed  pursuant  to the  provisions  hereof)  subject  to the  provisions  of
Subsection 1.2(d) below, in United States Dollars, quarter-annually, in arrears,
on the 17th day of each of May,  August and November,  1998 and February,  1999,
commencing May 17, 1998 (each a "dividend payment date").

     (b) The  "Stated  Value"  of each  share  of  Convertible  Preferred  Stock
(regardless of its par value), shall be One Hundred Thousand ($100,000) Dollars,
which  shall  be   increased  or   decreased   proportionately   for  any  stock
consolidation  or  stock  split,  respectively,  of the  outstanding  shares  of
Convertible Preferred Stock.

     (c) Dividends on the Convertible  Preferred Stock shall be equal to the sum
of: (i) ten (10% percent of the Stated Value of such share;  plus (ii) ten (10%)
percent of the Unpaid  Dividend  Amount (as  defined  below) as of the  previous
dividend  accrual date. The Unpaid Dividend Amount with respect to each share of
Convertible  Preferred  Stock shall be equal to the  aggregate of all  dividends
that the Holder of such share  shall have  become  entitled  to receive for such
share,  but  that  shall  not  have  been  paid by the  Company  for any  reason
whatsoever.  Nothing in this Section shall limit any other rights or remedies of
the Holder on account of the Company's failure to pay any dividends hereunder.

     (d)  Notwithstanding  the provisions of Subsection 1(a) above,  the Company
shall have the right, in its sole and absolute discretion,  to pay any dividends
then due on the Convertible  Preferred Stock in shares of its Common Stock,  par
value $.01 per share (the "Common  Stock") which may then be resold  pursuant to
the Registration Statement (as hereinafter defined) based upon a price per share
equal to the average closing price of the Company's Common Stock (as reported on


                                      -2-

<PAGE>


the Nasdaq  National  Market System or the Nasdaq Small Cap Market) for the five
(5)  trading  days  immediately  preceding  the date on which any such  dividend
became due.

     (e) In the event the  Registration  Statement  (referred to in Article 4 of
the Agreement,  as said term is hereinafter  defined) is not declared  effective
within  one  hundred  fifty  (150)  days after the  Closing  (as  defined in the
Agreement),  the Security,  or any portion thereof outstanding on and after such
date, shall thereafter  accrue dividends (until the date that such  Registration
Statement  shall be  declared  effective)  at a rate per annum equal to eighteen
(18%)  percent.  Such dividends  shall:  (i) include (but not be limited to) all
accrued and unpaid  dividends  on such  portion,  if any, of the Stated Value of
this Security as may have been previously  converted  pursuant to the provisions
hereof; and (ii) be due and payable on each dividend payment date.


     Section 1.3 Intentionally Deleted.
                 ----------------------

     Article 2. Liquidation Preference.
                -----------------------

     Section 2.1 In the event of any  liquidation,  dissolution or winding up of
the Company,  either  voluntary or  involuntary,  the Holders of the Convertible
Preferred  Stock shall be entitled to  receive,  prior or in  preference  to any
payment or distribution and setting apart (for payment or  distribution)  any of
the assets or surplus  funds of the Company to the  holders of the Common  Stock
and/or  to  the  holders  of  any  other  equity  securities,   an  amount  (the
"Liquidation Amount") for each share of Convertible Preferred Stock then held by
them,  the sum of  $100,000,  plus any  declared  but  unpaid  dividends  on the
Convertible  Preferred  Stock. If, upon the occurrence of such event, the assets
and  funds  thus  distributed  among  the  Holders  of  the  entire,   aggregate
Liquidation  Amounts  payable to the  Holders  of  Convertible  Preferred  Stock
pursuant to this  Section 2.1,  then the entire  assets and funds of the Company
legally available for distribution shall be distributed among the Holders of the
Convertible  Preferred  Stock pro rata on the  basis of the  number of shares of
Convertible Preferred Stock then held by each of them.

     Section  2.2 All  payments  for which this  Article 2 provides  shall be in
cash,   property  (valued  at  its  fair  market  value,  as  determined  by  an
independent,  nationally  recognized  investment  banking firm) or a combination
thereof.  After  payment of the full amount of the  Liquidation  Amount to which
each Holder is entitled,  such Holders of shares of Convertible  Preferred Stock
will not be entitled to any further  participation  in any  distribution  of the
assets of the Company.

     Article 3. Conversion.
                -----------

     Section 3.1 Conversion Privilege.
                 ---------------------

     (a) Subject to the terms and conditions of the Security,  the Holder of the
Security shall have the right,  prior to redemption by the Company,  exercisable
at one or more times, at its option, to convert all or a portion of the Security
into the Common  Stock of the  Company  at the times  hereafter  specified.  The
number of shares of Common Stock  issuable  upon the  conversion of the Security


                                      -3-
<PAGE>


shall be  determined  by dividing the Stated Value of the shares of  Convertible
Preferred  Stock to be  converted,  by the  Conversion  Price in  effect  on the
conversion  date, and rounding the result to the nearest 1/100th of a share. The
effectiveness of said Registration Statement shall not be condition precedent to
any such  conversion.  The "Conversion  Price" for each conversion shall be: (i)
Four ($4.00)  dollars with  respect to all  Securities  converted on or prior to
February  10,  1999;  and (ii)  Seventy-Five  Cents  ($0.75) with respect to all
Securities converted from and after February 10, 1999.

     (b) Notwithstanding anything contained herein to the contrary, the Security
shall not be  convertible  by a Holder to the extent  that,  and so long as, the
Common Stock which would be acquired upon such conversion,  when aggregated with
any other shares of Common Stock at the time of conversion beneficially owned by
such Holder and not  theretofore  sold by the Holder,  would aggregate more than
4.9% of the then  outstanding  shares of Common Stock of the  Company.  For this
purpose,  "beneficial  ownership"  shall be calculated  in  accordance  with the
provisions of Section 13(d) of the Securities  Exchange Act of 1934, as amended,
and the  rules  and  regulations  promulgated  thereunder.  The  opinion  of the
Holder's  counsel  shall be conclusive in  calculating  the Holder's  beneficial
ownership.

     Section 3.2 Conversion Procedure.
                 ---------------------

     (a) To convert  the  Security  into  Common  Stock,  the Holder  must:  (i)
complete,  sign and  deliver to the Company  the Notice of  Conversion  attached
hereto,  together with an affidavit  that it is the then Holder of the Security.
Except as otherwise  provided  herein,  the date upon which the Company receives
the  completed   Notice  of  Conversion  (by  recognized,   overnight   courier,
hand-delivery or facsimile, followed by hand-delivery or courier delivery within
two (2) business  days  thereafter)  is the  conversion  date.  Within seven (7)
business days after its receipt of the Notice of Conversion,  as aforesaid,  the
Company  shall  deliver a  certificate  for the number of full  shares of Common
Stock  issuable upon such  conversion,  and a check for any fraction of a share.
The person in whose name the certificate  representing shares of Common Stock is
to be registered  shall be treated as a  shareholder  of record on and after the
conversion  date.  Upon surrender of a Security that is to be converted in part,
the  Company  shall issue to the Holder a new  Security,  equal in number to the
unconverted portion of the Security surrendered.

     (b)  Notwithstanding  the provisions of Subsection  3.2(a) above,  from and
after the date that the Registration  Statement (referred to in Article 4 of the
Agreement)  shall become and thereafter  remain  effective,  the Company,  if so
requested by the Holder, shall, within three (3) business days after its receipt
of the Notice of Conversion (as required  pursuant to Subsection  3.2(a) above),
whether or not the Company has then  received the  original of such  Convertible
Preferred  Stock from the Holder,  serve  written  instructions  on its transfer
agent to "DWAC" the shares of Common Stock to be issued upon any such conversion
of the Security,  it being  understood  that no further  documentation  shall be
required of a Holder in connection therewith.


                                      -4-
<PAGE>


     Section 3.3  Fractional  Shares.  The Company  shall not issue a fractional
share of Common Stock upon the conversion of all or any portion of the Security.
Instead,  the Company shall pay, in lieu of any fractional share, the cash value
thereof at the  Conversion  Price of the Common Stock as determined  pursuant to
Section 3.1 above.

     Section 3.4 Taxes on  Conversion.  The Company  shall pay any  documentary,
stamp or similar  issue or transfer tax due on the issuance of Common Stock upon
the  conversion of the  Security.  The Holder,  however,  shall pay any such tax
which is due because such shares are issued in a name other than its name.

     Section 3.5 Company to Reserve Stock.  The Company shall reserve out of its
authorized but unissued Common Stock for issuance as herein  provided,  a number
of shares of Common Stock into which the Security may be  converted.  All shares
of Common Stock which may be issued upon the conversion of the Security shall be
fully paid and nonassessable.

     Section 3.6  Restrictions  on  Transfer.  The Security and the Common Stock
issuable upon the  conversion  thereof will not have been  registered  under the
Securities  Act of 1933,  as amended (the "Act") and will be sold pursuant to an
exemption  under the Act. The  Security,  and each  certificate  evidencing  the
Security,  may  not  be  pledged,  transferred  or  resold  except  pursuant  to
registration under, or an exemption from, the Act. Each certificate representing
shares of Convertible  Preferred Stock,  and each  certificate  representing any
shares of Common  Stock  issued  thereunder,  shall  bear a  restrictive  legend
similar to the legend set forth below:

     THE  SECURITIES  REPRESENTED  HEREBY  HAVE NOT BEEN  REGISTERED  UNDER  THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),  NOR UNDER ANY STATE  SECURITIES
LAW, AND SUCH  SECURITIES MAY NOT BE PLEDGED,  SOLD,  ASSIGNED,  HYPOTHECATED OR
OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE  UNDER THE ACT AND ANY  APPLICABLE  STATE  SECURITIES  LAW, OR (2) THE
COMPANY  RECEIVES  AN OPINION OF COUNSEL TO THE COMPANY OR COUNSEL TO THE HOLDER
OF SUCH SECURITEIS,  WHICH COUNSEL AND OPINION ARE REASONBLY SATISFACTORY TO THE
COMPANY,  THAT SUCH SECURITIES MAY BE PLEDGED,  SOLD, ASSIGNED,  HYPOTHECATED OR
TRANSFERRED  WITHOUT  AN  EFFECTIVE  REGISTRATION  STATEMENT  UNDER  THE ACT AND
APPLICABLE STATE SECURITIES LAWS.

     Article 4. Recapitalization, Mergers, etc.
                -------------------------------

     Section  4.1  Recapitalization  Generally.  In case the  Company,  prior to
February 17, 2000, shall: (i) subdivide its outstanding  Common Stock (including
by means of a dividend or  distribution  on the Common  Stock  payable in Common
Stock);  (ii)  combine its  outstanding  Common  Stock into a smaller  number of


                                      -5-

<PAGE>


shares;  or (iii) issue, by capital  reorganization or  reclassification  of its
Common Stock (other than a subdivision  or combination of its shares as provided
for above, a  reorganization,  merger,  consolidation or sale of assets provided
for  elsewhere  in this Article 4, or the issuance of any shares of Common Stock
in  connection  with the  acquisition  of assets or the  repayment  of debt) the
Conversion  Price in effect  thereafter  shall be  adjusted  so that it shall be
adjusted to reflect such action.  An adjustment made pursuant to this subsection
shall become effective,  retroactively,  immediately after the effective date in
the case of a subdivision, combination or reclassification.

     Section 4.2 Mergers.  Until the Security is redeemed or has been  converted
into Common Stock,  the Company shall not consolidate or merge into, or transfer
all or substantially all of its assets to, any person,  unless the terms of such
consolidation,  merger of transfer  include the  preservation of the Convertible
Preferred  Stock.  Any  reference  herein  to the  Company  shall  refer to such
surviving or transferee corporation.  If the Company merges or consolidates with
another  corporation,  or sells or  transfers  all or  substantially  all of its
assets to another  person,  and the holders of the Common  Stock are entitled to
receive stock,  securities or property in respect of, or in exchange for, Common
Stock, then, as a condition of such merger, consolidation, sale or transfer, the
Company and any such successor, purchaser or transferee shall amend the Security
to provide that it may  thereafter  be converted on the terms and subject to the
conditions  set forth above into the stock,  securities  or property  receivable
upon  such  merger,  consolidation,  sale or  transfer  by a holder of shares of
Common  Stock into which the  Security  might  have been  converted  immediately
before such  merger,  consolidation,  sale or  transfer,  entity in such merger,
consolidation,  sale or transfer. In any such case, appropriate adjustment shall
be made in the  application  of the provisions of this Article 4 with respect to
the  rights  of a Holder  upon and after  such  merger,  consolidation,  sale or
transfer to the end that the provisions of this Article 4 (including  adjustment
of the Conversion  price then in effect and the number of shares of Common Stock
issuable upon conversion of the Security)  shall be applicable  after that event
as nearly  equivalently  as may be  practicable.  Except as  otherwise  provided
herein,  the  Conversion  Price shall be the same as the  applicable  Conversion
Price  set  forth in  Subsection  3.l(b)  above,  as the same is to be  adjusted
pursuant to Subsection 4.1 above.

     Article 5. Failure to Perform.
                -------------------

     Section 5.1 Failure to Perform Certain Covenants.  In the event the Company
breaches its  obligation to deliver  certificates  for Common Stock  pursuant to
Section 3.2 above,  the Company  shall be required to make payment to the Holder
of the Security,  within five (5) business days after each demand by the Holder,
of an amount equal to One Thousand ($1,000) Dollars per day with respect to each
One Hundred Thousand ($100,000) Dollars (or the pro rata portion thereof) Stated
Value of the Security outstanding during such period as such breach continues.

     Section  5.2 Rights and  Remedies.  The rights and  remedies  provided to a
Holder  under  Section  5.1 and 5.2 above  shall not limit any other  rights and
remedies afforded by law to a Holder.


                                      -6-
<PAGE>


     Article 6.  Reports.  The Company will mail to each Holder of the Security,
at its address as shown on the Register (as defined in Section 8.2 below) a copy
of any annual, quarterly or current report that it files with the Securities and
Exchange Commission promptly after the filing thereof, and a copy of any annual,
quarterly or other report or proxy  statement that it gives to its  shareholders
generally, at the time such report or statement is sent to shareholders.

     Article 7. Registered Securities.
                ----------------------

     Section 7.1 Series. The Securities to be issued hereunder shall be one of a
numbered  series of Securities  issued to the Holders and  designated as "Senior
Convertible  Preferred  Stock." Such  Securities  are  collectively  referred to
herein as the "Securities."

     Section 7.2 Record Ownership.  The Company shall maintain a register of the
Holders of the Securities (the "Register") showing their names and addresses and
the serial numbers and the Stated Value of Securities  issued to, or transferred
of  record  by,  them from  time to time.  The  Register  may be  maintained  in
electronic,  magnetic or other form.  The Company may treat the person  named as
the Holder of a Security in the Register as the sole owner of such Security. The
Holder of the  Security  shall be the  person  exclusively  entitled  to receive
notifications  with respect to such  Security,  convert it into Common Stock and
otherwise exercise all of the rights and powers as the absolute owner thereof.

     Section 7.3  Registration  of  Transfer.  Transfers  of the Security may be
registered on the books of the Company  maintained for such purpose  pursuant to
Section 7.2 above (i.e.,  the Register).  Transfers shall be registered when the
Security is  presented  to the Company  with a request to register  the transfer
thereof and the Security is duly endorsed by the Holder,  reasonable  assurances
are given that the  endorsements  are  genuine  and  effective,  the Company has
received a certificate  from the Holder that it owns the Security free and clear
of all claims, liens and/or encumbrances, and the Company has received evidence,
satisfactory  to it, that such transfer is rightful and in  compliance  with all
applicable laws,  including tax laws and State and Federal securities laws. When
the Security is presented for transfer and duly transferred hereunder,  it shall
be  canceled  and  one  or  more  new  Securities  showing  the  name(s)  of the
transferee(s) as the Holder(s) thereof shall be issued in lieu thereof. When the
Security is presented  to the Company  with a reasonable  request to exchange it
for an equal  Stated Value of  Securities  of other  denominations,  the Company
shall make such  exchange  and shall  cancel  the  Security  and issue,  in lieu
thereof, Securities having a total Stated Value equal to the Stated Value of the
Security, in the denominations requested by the Holder.

     Section 7.4 Worn and Lost Securities. If the Security becomes worn, defaced
or mutilated but is still substantially intact and recognizable,  the Company or
its agent may issue a new Security in lieu thereof upon its surrender. Where the
Holder of a Security  claims  that such  Security  has been lost,  destroyed  or
wrongfully  taken,  the  Company  shall  issue a new  Security  in  place of the
original  Security if the Holder so  requests  by written  notice to the Company
(provided such notice is actually  received by the Company before it is notified
that such  Security has been acquired by a bona fide  purchaser)  and the Holder
has delivered to the Company an indemnity bond in such amount and issued by such
surety as the Company  deems  satisfactory,  together  with an  affidavit of the
Holder  setting  forth the facts  covering  such loss,  destruction  or wrongful


                                      -7-
<PAGE>


taking  and  such  other  information,  in such  form  and  with  such  proof or
verification, as the Company may request.

     Article 8. Voting Rights.  Except as specifically set forth in the Business
Corporation  Act of the State of New York,  the Holders of shares of Convertible
Preferred  Stock shall not be entitled to any voting  rights with respect to any
matters voted upon by shareholders of the Company.

     Article 9. Notices.  All notices and other  communications  provided for or
permitted hereunder shall be made in writing by hand delivery,  registered first
class mail, overnight courier, or telecopied, initially to the address set forth
below,  and  thereafter  at such  other  address,  notice  of  which is given in
accordance with the provisions of this Article 9.

     All notices to Holders are to be directed to each Holder at such address as
is listed for such Holder in the Register.

     All notices to the Company are to be directed to:

                  Sterling Vision, Inc.
                  1500 Hempstead Turnpike
                  East Meadow, New York 11554
                  Attn:  General Counsel
                  Telephone:  (516) 390-2100
                  Telecopier:  (516) 390-2150

                  with a copy (which shall not constitute notice) to:

                  Camhy, Karlinsky & Stein, LLP
                  1740 Broadway
                  16th Floor
                  New York, New York  10019
                  Attn:  Robert S. Matlin, Esq.
                  Telephone:  (212) 977-6600
                  Telecopier:  (212) 977-8389

     All such  notices  and  communications  shall be  deemed  to have been duly
given, when delivered by hand, if personally delivered;  three (3) business days
after being deposited in the mail, postage prepaid, if mailed; the next business
day after  being  deposited  with an  overnight  courier,  if  deposited  with a
nationally   recognized,   overnight   courier  service;   or  when  receipt  is
acknowledged, if telecopied.

     Article 10.  Times.  Where this  Certificates  authorizes  or requires  the
payment of money or the  performance of a condition or obligations on a Saturday
or Sunday or a public holiday, or authorizes or requires the payment of money or
the performance of a condition or obligation within, before or after a period of
time computed from a certain date, and such period of time ends on a Saturday, a
Sunday or a public holiday,  such payment may be made or condition or obligation
performed  on the next  succeeding  business  day,  and if the period  ends at a
specific hour, such payment may be made or condition performed, at or before the


                                      -8-
<PAGE>


same hour of such next  succeeding  business day, with the same force and effect
as if made or performed in accordance with the terms of this Certificate.

     Article 11. Rules of  Construction.  Herein,  unless the context  otherwise
requires,  words in the singular  number  include the plural,  and in the plural
include the singular, and words of the masculine gender include the feminine and
the  neuter,  and when the sense so  indicates,  words of the neuter  gender may
refer to any gender.  The numbers and titles of Articles and Sections  contained
herein are inserted for  convenience of reference  only, and they neither form a
part of this Certificate, a determination of the Company is required or allowed,
such determination  shall be made by a majority of the Board of Directors of the
Company,  and if it is made in good faith,  it shall be  conclusive  and binding
upon the Company and the Holder of the Security.


     FOURTH:  Thirty-five  (35) shares of the  unissued  Preferred  Stock of the
Company,  par value $0.1,  have been  designated  Senior  Convertible  Preferred
Stock, the terms of which are stated above in Article THIRD hereof.


     FIFTH:  Pursuant to the  authority  under Article 4 of the  Certificate  of
Incorporation  of  the  Company  and  Sections  502  and  805  of  the  Business
Corporation Law of the State of New York, the Board of Directors of the Company:
(i) by  Unanimous  Written  Consent,  dated April 9, 1998,  adopted a Resolution
creating  a  series  of  Preferred  Stock  of  the  Company,  designated  Senior
Convertible  Preferred  Stock;  and (ii) by  Resolution  adopted by its Board of
Directors  on  December  7,  1999,  amended  certain of the  provisions  of such
previously  created series of Senior  Convertible  Preferred Stock, the terms of
which have been restated in Article THIRD hereof.



                                      -9-

<PAGE>



     IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment to
the Certificate of  Incorporation of the Company to be signed by the Chairman of
its Board of Directors  and the  Secretary  of the Company,  who affirm that the
statements  made herein are true and correct under the penalties of perjury,  on
this 20th day of January, 2000.


                                                STERLING VISION, INC.


                                                By:  /s/ Dr. Robert Cohen
                                                   -------------------------
                                                Name:  Dr. Robert Cohen
                                                Title: Chairman of the Board


                                                By:  /s/ Joseph Silver
                                                   -------------------------
                                                Name:  Joseph Silver
                                                Title: Secretary







                                      -10-
<PAGE>

                                                                     Exhibit 3.6



                         CERTIFICATE OF AMENDMENT OF THE
                          CERTIFICATE OF INCORPORATION
                            OF STERLING VISION, INC.

                Under Section 805 of the Business Corporation Law
                            of the State of New York


     FIRST:  The  name  of  the  corporation  is  Sterling  Vision,   Inc.  (the
"Company"), and the Company was formed under the name Sterling Acquisition, Inc.


     SECOND:  The Certificate of Incorporation of the Company was filed with the
Department  of State of the  State of New York on  January  15,  1992  under the
original name of Sterling Acquisition,  Inc., which Certificate of Incorporation
was restated, in its entirety, on December 20, 1995.


     THIRD:  The Certificate of  Incorporation  of the Company,  as amended (the
"Amended and Restated Certificate of Incorporation"),  is hereby further amended
to change the name of the Company to Emerging Vision, Inc.; and Article 1 of the
Certificate of Incorporation of the Company is hereby restated, in its entirety,
to read as follows:

     "FIRST:  That the name of the  corporation  is Emerging  Vision,  Inc. (the
"Company") and that the Company was formed under the name Sterling  Acquisition,
Inc., which was subsequently changed to Sterling Vision, Inc."


     FOURTH:  The Certificate of  Incorporation of the Company is hereby further
amended to increase  the  authorized  number of shares of the  Company's  Common
Stock, par value $.01 pr share, from 28,000,000 shares to 50,000,000 shares; and
the first  paragraph of Article 4 of the  Certificate  of  Incorporation  of the
Company is hereby restated, in its entirety, to read as follows:

     "FOURTH:  The  Company  is  authorized  to issue two  classes  of shares of
capital stock,  to be designated,  respectively,  as Preferred  Stock and Common
Stock.  The total  number  of  shares  of  capital  stock  that the  Company  is
authorized  to issue is  55,000,000.  The total number of shares of Common Stock
which the Company shall have the authority to issue is  50,000,000  shares,  par
value $.01 per share.  The total number of shares of  Preferred  Stock which the
Company  shall have the authority to issue is 5,000,000  shares,  par value $.01
per share."


     FIFTH:   The  foregoing   amendments  to  the  Company's   Certificate   of
Incorporation were authorized by: (i) the Unanimous Written Consent of the Board
of Directors of the Company,  dated February 3, 2000;  (ii) all of the Directors
of the Company at a Meeting of the Company's  Board of Directors duly called and
held on March 30, 2000; in each case followed by (iii) the  affirmative  vote of


<PAGE>


the  holders  of a  majority  of the votes  entitled  to be cast  thereon by the
holders of the  outstanding  shares of the Company's  capital stock at a Special
Meeting of Shareholders duly called and held on April 17, 2000.


     IN  WITNESS  WHEREOF,  the  undersigned,  President  and  Secretary  of the
Company,  have each executed  this  Amendment of the  Company's  Certificate  of
Incorporation as of April 17, 2000, and each hereby affirms, under the penalties
of perjury, that the statements contained herein are true.



                                                      /s/  Alan Cohen
                                                     --------------------------
                                                     Alan Cohen, President



                                                      /s/  Joseph Silver
                                                     --------------------------
                                                     Joseph Silver, Secretary







                                      -2-

<PAGE>

                                                                     Exhibit 3.7

                            CERTIFICATE OF AMENDMENT
                                     OF THE
                          CERTIFICATE OF INCORPORATION
                                       OF
                              EMERGING VISION, INC.

                Under Section 805 of the Business Corporation Law

     FIRST: The name of the corporation is Emerging Vision, Inc. (the "Company")
and the Company was formed under the name Sterling Acquisition, Inc.


     SECOND:  The Certificate of Incorporation of the Company was filed with the
Department  of State of the  State of New York on  January  15,  1992  under the
original name of Sterling Acquisition,  Inc., which Certificate of Incorporation
was amended on June 4, 1992, restated, in its entirety, on December 20, 1995 and
amended on April 15 1998, January 26, 2000,  February 8, 2000, February 10, 2000
and April 17, 2000 (as  restated  and  amended,  hereinafter  referred to as the
"Certificate of Incorporation").


     THIRD:  The  Certificate  of  Incorporation  is hereby  further  amended to
increase the  authorized  number of shares of the Company's  Common  Stock,  par
value $0.01 per share,  from  50,000,000  shares to  150,000,000  shares and the
first  paragraph  of Article 4 of the  Certificate  of  Incorporation  is hereby
restated, in its entirety, to read as follows:

     "FOURTH:  The  Company  is  authorized  to issue two  classes  of shares of
capital stock,  to be designated,  respectively,  as Preferred  Stock and Common
Stock.  The total  number  of  shares  of  capital  stock  that the  Company  is
authorized to issue is  155,000,000.  The total number of shares of Common Stock
which the Company shall have the authority to issue is 150,000,000  shares,  par
value $0.01 per share.  The total number of shares of Preferred  Stock which the
Company shall have the authority to issue is 5,000,000  shares,  par value $0.01
per share."


     FOURTH:  The foregoing  amendment to the Certificate of  Incorporation  was
authorized by: (i) the unanimous  affirmative  vote of the Board of Directors of
the Company at a meeting of the directors duly called and held on April 29, 2002
and (ii) the affirmative vote of the holders of a majority of the votes entitled
to be cast  thereon by the holders of the  outstanding  shares of the  Company's
capital stock at the Annual Meeting of the Shareholders  duly called and held on
July 11, 2002.


                  [Remainder of page intentionally left blank]

<PAGE>


     IN WITNESS WHEREOF, the undersigned, Chairman of the Board and Secretary of
the Company, have each executed this Certificate of Amendment of the Certificate
of  Incorporation  of the Company as of July 11, 2002, and each hereby  affirms,
under the penalties of perjury, that the statements contained herein are true.


                                             /s/  Alan Cohen, O.D.
                                           -------------------------------
                                           Name:  Alan Cohen, O.D.
                                           Title: Chairman of the Board


                                             /s/  Christopher G. Payan
                                           -------------------------------
                                           Name:  Christopher G. Payan
                                           Title: Co-Chief Operating  Officer,
                                                  Senior Vice President, Chief
                                                  Financial  Officer, Secretary
                                                  and Treasurer








                                      -2-

<PAGE>

                                                                   Exhibit 10.17


                              EMPLOYMENT AGREEMENT


     THIS  AGREEMENT,  dated as of the 11th day of  February,  2002,  is between
Emerging Vision,  Inc., a New York  corporation  having an office at 100 Quentin
Roosevelt  Boulevard,  Garden City, New York 11530 ("EVI"),  and  Christopher G.
Payan, an individual residing at 612 White Avenue, New Hyde Park, New York 11040
(the "Employee").

                              W I T N E S S E T H:
                              -------------------

     WHEREAS,  on July 2, 2001,  effective  July 16, 2002,  EVI and the Employee
entered  into that  certain  Employment  Agreement  (the  "Original  Agreement")
pursuant to which EVI agreed to employ the  Employee  for a period of two years,
commencing  July 16, 2001;  and  WHEREAS,  EVI desires to continue to employ the
Employee,  on its own  behalf and on behalf of each of its  existing  and future
subsidiaries,   whether   partially  or  wholly  owned  (each  a   "Subsidiary";
collectively,   the   "Subsidiaries";   and,  together  with  EVI,   hereinafter
collectively  referred  to as the  "Company"),  and the  Employee  desires to be
employed by EVI upon the terms and conditions hereinafter set forth.

     NOW,   THEREFORE,   in   consideration   of  the  mutual   agreements   and
understandings set forth herein, and for other good and valuable  consideration,
the receipt and adequacy of which are hereby acknowledged,  EVI and the Employee
hereby agree as follows:

     1. Term of Employment.  EVI hereby employs the Employee to render  services
to the Company in the  executive  positions  and with the  executive  duties and
responsibilities described in Section 3 hereof, commencing as of the date hereof
(the "Effective Date") and continuing thereafter until February 10, 2005, unless
earlier  terminated in accordance with the provisions of Sections 2 or 5 hereof,
or extended by EVI in accordance  with the  provisions of Section 2 hereof.  For
purposes of this Agreement, the "Term of Employment" shall be the three (3) year
period  commencing  on  the  Effective  Date,  subject  to  earlier  termination
(pursuant to the provisions of Sections 2 or 5 hereof), or extension and renewal
(pursuant to the provisions of Section 2 hereof).

     2. Renewal Term. It is expressly  understood and agreed that EVI shall have
the  sole  right  and  option  to  extend  the  Term of  Employment  for two (2)
additional,  successive periods of one (1) year each, by written notice given to
the Employee not less than one hundred eighty (180) days prior to the expiration
of the then current Term of  Employment,  it being  specifically  understood and
agreed that in the event EVI does not so notify the Employee, in writing, of its
election to renew the then  current Term of  Employment,  this  Agreement  shall
expire as of the expiration  date of the then current Term of  Employment.  With
respect to the foregoing,  it is specifically understood and agreed that, in the
event EVI  shall so elect to renew  the then  current  Term of  Employment,  the
Employee  may, at any time  during such  renewal  Term of  Employment,  elect to
terminate  this  Agreement  by  serving  upon EVI not less than sixty (60) days'
prior written notice thereof.

     3. Position, Duties, Responsibilities.

     (a) Position.  The Employee  hereby  accepts such  employment and agrees to
serve: (i) as a Senior Vice President and Co-Chief  Operating Officer of EVI, as
well as EVI's Chief  Financial  Officer,  Secretary and  Treasurer;  (ii) as the

<PAGE>


Senior Vice President,  Chief Financial Officer, Secretary and Treasurer of each
of EVI's  Subsidiaries  (other than its  Subsidiary,  VisionCare of California);
and/or  (iii)  from time to time,  in such  other  and/or  additional  executive
position(s)  as the Board of Directors  (the "Board") of EVI, at any time and/or
from time to time, may designate;  provided, however, that the duties associated
with such other and/or  additional  position(s)  shall be of an executive nature
and substantially the same as those duties  contemplated to be rendered pursuant
to this  Agreement.  The Employee shall devote his best,  good faith efforts and
his  full  business  time  and  attention  to the  performance  of the  services
customarily  incidental  to such  offices  and to  such  other  services,  of an
executive  nature,  as may be  reasonably  requested  by the Board.  EVI (acting
through its Board)  shall retain full  direction  and control over the means and
methods  by which the  Employee  shall  perform  the above  services  and of the
place(s) at which such services are to be rendered;  provided,  however, that it
is expressly  understood and agreed that the Employee:  (i) shall be required to
report to the members of the Executive  Committee of the Board,  until such time
as the Board shall  appoint/elect a new President and/or Chief Executive Officer
of EVI,  after which time the  Employee  shall report to such  President  and/or
Chief  Executive  Officer;  and (ii) shall not be  required  to (but may, at his
option)  relocate his personal  residence  outside of the New York  metropolitan
area; provided,  however, that it is specifically  understood and agreed that in
the  event  EVI,  at any time  during  the Term of  Employment,  in its sole and
absolute  discretion,  shall,  by  written  notice  given to the  Employee  (the
"Relocation Notice"),  require the Employee to permanently perform substantially
all of the services  (required of him hereunder) at an alternate  location which
is in excess of  thirty-five  (35)  driving  miles  (taking the  shortest  route
possible) from his existing residence (located in New Hyde Park, New York) then,
and in such  event,  the  Employee,  within a maximum  period of sixty (60) days
after his receipt of such  Relocation  Notice,  shall have the right to elect to
terminate this Agreement, by written notice given to EVI.

     (b) Other  Activities.  Except upon the prior written consent of the Board,
and except for passive  investments in  non-optical  related  businesses  and/or
ventures, the Employee, during the Term of Employment,  will not: (i) accept any
other employment;  (ii) serve on the board of directors of any other corporation
(including,  but  not  limited  to,  any  civic,  professional,  educational  or
charitable  organization or governmental entity or trade association);  or (iii)
engage,  directly or indirectly,  in any other business activity (whether or not
pursued  for   remuneration,   consideration,   compensation   and/or  pecuniary
advantage)  including,   but  not  limited  to,  the  rendering  of  consulting,
accounting and/or financial services.

     4. Salary, Benefits, Expenses.

     (a) Salary. In consideration of the services to be rendered hereunder,  the
Employee,  commencing as of February 11, 2002 and continuing throughout the Term
of  Employment,  shall be paid a  salary  computed  at the  rate of One  Hundred
Seventy  Five  Thousand  Dollars  (U.S.)   ($175,000)  per  annum,   payable  in
substantially equal, semi-monthly installments.

     (b) Benefits and Other Arrangements. In addition to the salary set forth in
Subsection  4(a) hereof,  the Bonus, if any, set forth in Subsection 4(h) below,
and the other  compensation  and/or  benefits  to be  provided  to the  Employee
hereunder,   the  Employee  shall  be  entitled  to  participate  in  any  plan,
arrangement  or policy of EVI  providing  for medical  and/or  dental  insurance
benefits,  401(k)  plan  benefits,  pension  plan  benefits  and  sick  leave on
substantially  the same terms as are then  generally made available to the other
executives of EVI.


                                       2
<PAGE>


     (c)  Vacation.  The  Employee  shall be entitled to a three (3) week,  paid
vacation  during  each  year of the Term of  Employment  (as well as the Term of
Employment,  through  and  including  February  10,  2002,  under  the  Original
Agreement),  such  vacation  to:  (i)  accrue at the rate of 1.25 days per month
during  each year of such  Terms of  Employment;  and (ii) be  subject  to EVI's
general  policies,  as the  same may be  amended  from  time to time;  provided,
however, that the Employee shall submit to any member of the Executive Committee
of the Board all  requests  for  vacation  time,  which  shall be subject to the
approval  of at least one (1) member  thereof,  and (iii) the  Employee,  unless
otherwise  agreed to, in  writing,  by the members of such  Committee,  shall be
required to use (take) such  vacation in the year  earned,  commencing  with the
2003 calendar year.  With respect to the foregoing,  it is understood and agreed
that in the event the  employment of the Employee shall cease at a time when the
Employee has earned, but has not used, vacation days, compensation, in an amount
equal to the  vacation  pay to which the  Employee  shall be entitled  hereunder
(including those vacation days to which the Employee is entitled pursuant to the
Original  Agreement),  shall be paid,  by EVI to the  Employee  (based  upon the
salary then payable to the Employee pursuant to Subsection 4(a) hereof),  within
ten (10) business days  thereafter.  This provision shall survive the expiration
or sooner termination of this Agreement.

     (d) Automobile Allowance. In addition to the salary set forth in Subsection
4(a)  above,  EVI shall  pay to the  Employee,  each  month  during  the Term of
Employment, an automobile allowance, in the amount of Six Hundred ($600) Dollars
per month (or the pro-rata portion thereof, if less than a full month).

     (e) Expenses.  The Employee shall be entitled to prompt  reimbursement from
EVI (and EVI  hereby  agrees to pay) for all  ordinary  and  necessary  business
expenses incurred in the performance of his duties  hereunder,  subject to EVI's
receipt of reasonable  substantiation and/or reasonable  documentation  thereof.
This  provision  shall  survive the  expiration  or sooner  termination  of this
Agreement.

     (f)  Acceleration  of Vesting  Schedule  of  Existing  Options.  In partial
consideration  of the  Employee  entering  into  this  Agreement,  EVI  and  the
Employee,  simultaneously  with the  execution  hereof,  shall  enter  into that
certain  Amendment No. 1 to Non-Qualified  Stock Option Agreement annexed hereto
as Exhibit A, pursuant to which the vesting schedule,  as presently contained in
the Non-Qualified Stock Option Agreement between EVI and the Employee,  dated as
of July 16, 2001, shall be accelerated.

     (g) Option  Grant.  In further  partial  consideration  for the  Employee's
execution  and  delivery of this  Agreement,  EVI is,  simultaneously  herewith,
granting  to the  Employee  additional  stock  options,  under  its  1995  Stock
Incentive  Plan,  to purchase up to an aggregate of one hundred  fifty  thousand
(150,000)  shares of EVI's Common Stock,  par value $0.01 per share (the "Common
Stock"),  at a price per share  equal to the  composite  closing  price of EVI's
Common Stock on February 11, 2002 ($0.075), all in accordance with the terms set
forth in the form of Stock Option Agreement,  annexed hereto as Exhibit B, to be
executed and delivered by the Employee and EVI simultaneously with the execution
hereof.


                                       3
<PAGE>


     (h) Bonus.

     (i) In addition to the salary to become payable to the Employee pursuant to
Subsection  4(a)  hereof,  the  Employee,  subject  to the terms and  conditions
hereof,  shall also be  entitled to receive  from EVI a bonus for each  calendar
year or portion thereof  included  within the Term of Employment,  equal to five
percent (5%) of the Company's  consolidated EBITDA (as hereinafter  defined) for
each  such  calendar  year  or  portion  thereof  included  within  the  Term of
Employment (the "Bonus"); provided, however, that: (x) no Bonus shall be payable
under this  Subsection  4(h)(i) with respect to any such  calendar year in which
the  Company's  EBITDA  is less  than  Two  Million  Dollars  ($2,000,000)  (the
"Threshold  Amount"),  which Threshold  Amount shall be pro-rated  (reduced) for
periods of less than a full year;  (y) if the  Company's  EBITDA with respect to
any calendar year (or the pro rata portion thereof, if less than a full calendar
year) during the Term of  Employment  is equal to or greater than the  Threshold
Amount,  the Bonus shall be calculated from the first dollar of EBITDA in excess
of the Threshold  Amount; it being understood that, with respect to any calendar
year not falling  entirely within the Term of Employment,  the Threshold  Amount
shall be a pro rata portion of the Threshold  Amount based on: (x) the number of
full quarterly  periods (ending March 31, June 30, September 30 and December 31)
actually  falling  within  the  Term of  Employment;  plus  (y) the  immediately
succeeding quarterly period (e.g., the quarterly period during which the Term of
Employment shall expire or terminate;  hereinafter  collectively  referred to as
the "Stub Period").

     (ii) For  purposes  hereof,  the term  "EBITDA"  shall  mean the  Company's
consolidated earnings from continuing  operations,  before all interest,  taxes,
depreciation,  amortization,  non-cash equity compensation  charges and non-cash
impairment and similar charges for the year in question (or, if less than a full
calendar  year, the number of full quarterly  periods  included  within the Stub
Period) determined in accordance with generally accepted  accounting  principles
consistently  applied, as audited and reported upon, with respect to full years,
or reviewed, with respect to less than full year periods, as the case may be, by
the independent  certified public accountants of EVI, except that the net profit
or loss of any entity,  substantially  all of the assets or equity  interests of
which are hereafter acquired by EVI or any Subsidiary, in any manner, accrued or
realized by any such entity prior to the date of each such acquisition by EVI or
any of its Subsidiaries, shall be excluded.

     (iii) For  purposes  hereof,  with  respect  to the  calendar  year  ending
December 31, 2002, the Company's  EBITDA shall be determined for the period from
April 1, 2002 until December 31, 2002.

     (iv) For purposes  hereof,  with respect to the calendar year in which this
Agreement  shall expire or terminate  (the  "Termination  Year"),  the Company's
EBITDA shall be determined for the period from the first day of the  Termination
Year until the last day of the Stub Period.

     (v) The Bonus  shall be  payable,  in a lump sum,  promptly  following  the
determination  of the amount  thereof,  if any,  but not later than one  hundred
(100) days  following  December 31 of each year with respect to which a Bonus is
payable; provided, however, that with respect to the Termination Year, the Bonus
shall be  payable,  in a lump sum,  within a maximum  period of thirty (30) days
following the date that such Term of Employment  shall  terminate or expire (the
"Termination Date") or, if later, ten (10) days following the filing date of the


                                       4
<PAGE>


SEC periodic report of the Company  relating to the final full quarterly  period
occurring  within the Stub Period  but,  in no event,  more than sixty (60) days
from the last date (including any available extensions) that EVI was required to
file,  with the SEC,  any such  report;  and this  provision  shall  survive the
expiration or sooner termination of this Agreement.


     (vi) With  respect to each  calendar  year for which a Bonus may be payable
hereunder,  EVI  covenants  and agrees  that,  in the event it shall  change its
accounting year end, such year end shall, for purposes  hereof,  nevertheless be
deemed to be December 31.

     4. Termination.

     (a) The  employment  of the Employee  hereunder may be terminated by EVI on
not less than  thirty  (30) days' prior  written  notice to the  Employee in the
event that the Employee is determined  to be  permanently  disabled.  As used in
this Section,  the Employee shall be deemed to be "permanently  disabled" if the
Employee has been  substantially  unable to discharge his duties and obligations
hereunder, by reason of illness, accident or disability,  for a period of thirty
(30) or more  consecutive  days. In the event the  employment of the Employee is
terminated because of a permanent disability, the Employee shall receive (net of
all benefits  payable to the Employee  under any policy of disability  insurance
provided  to the  Employee)  compensation  (including,  but not  limited to, the
salary,  automobile  allowance and Bonus,  if any,  accrued and payable,  to the
Employee,  pursuant to the  provisions of Section 4 hereof) until the date which
is three (3) months after the date on which the Employee first became  disabled,
payable at the rate and on the terms  provided  for herein as if he had not been
terminated. With respect to the foregoing, it is expressly understood and agreed
that  in  the  event  the  payor  of  any  such  disability  insurance  benefits
(including,  but not  limited  to,  the Sate of New York)  shall  refuse  and/or
decline to pay such benefits to the Employee,  EVI shall, promptly following its
receipt of written notice thereof,  from such payor,  reimburse the Employee for
all such benefits not otherwise  required to be paid, to the Employee,  pursuant
to the provisions of this Subsection 5(a).

     (b) The  employment of the Employee  hereunder may be terminated by EVI for
"Cause," at any time during the Term of Employment,  upon the Employee's receipt
of written notice from EVI documenting that: (i) the Employee has been convicted
of, or pleaded no lo contendre  to, a felony or other  serious  crime or a crime
involving moral turpitude;  (ii) the Employee has stolen and/or  misappropriated
Company assets and/or property (other than  unsubstantial or inadvertent  acts);
(iii) the Employee has used illegal substances and/or has been intoxicated while
performing  his  duties  hereunder  more  than one (1) time  during  the Term of
Employment;  (iv) the Employee has assaulted or sexually abused another employee
of the  Company;  (v) the  Employee has  intentionally  falsified  any report or
expense  reimbursement  form  submitted  by him to EVI;  (vi) the  Employee  has
breached any of the terms and/or  provisions of this  Agreement and such default
shall have continued for a period in excess of twenty (20) days from the date of
the Employee's  receipt of written notice thereof;  or (vii) in the opinion of a
majority  of  the  members  of  EVI's  Board,   the  Employee  shall  have:  (x)
intentionally  and/or  willfully  refused or failed to perform,  or demonstrated
gross  negligence in the performance of, his assigned  duties  hereunder,  other
than any such failure resulting from the Employee's incapacity due to illness or
injury;  or (y)  committed an  intentional,  wrongful  disclosure  of any of the
Company's  trade secrets and/or  confidential  information;  or (z) breached his
fiduciary duties to EVI and/or any of its Affiliates.


                                       5
<PAGE>

     With respect to the foregoing,  it is expressly  understood  that no act or
failure to act on the part of the  Employee  shall  give rise to EVI's  right to
terminate  this Agreement  (pursuant to this  Subsection  5(b)),  if such act or
failure to act was due primarily to an error in judgment and/or  negligence (but
not gross negligence) on the part of the Employee.

     (c) The  employment  of the Employee  hereunder  may be  terminated by EVI,
without cause and for any reason  whatsoever,  on not less than thirty (30) days
prior written notice to the Employee.

     (d) The employment of the Employee hereunder shall  automatically be deemed
terminated on the date of the Employee's death.

     (e) The  employment  of the Employee  hereunder may be  terminated,  by the
Employee,  on not less than sixty (60) days' prior written notice to EVI, in the
event:  (i) EVI  shall  elect  to  renew  the then  current  Term of  Employment
(pursuant to the provisions of Section 2 hereof);  or (ii) EVI shall require the
Employee to perform  the duties  (required  of him  hereunder)  at an  alternate
location situated more than 35 miles away form his present  residence  (pursuant
to the provisions of Subsection 3 (a) hereof).

     (f) The  employment  of the Employee  hereunder may be  terminated,  by the
Employee,  on not less than sixty (60) days' prior  written  notice given to EVI
within a maximum  period of ninety (90) days after a "change of control of EVI",
it being  understood  that,  for  purposes of this  Subsection  5(f),  the term,
"change of control of EVI", shall be defined as:

     (i) The acquisition:  (x) by any individual not presently,  and/or then, an
officer,  director or  shareholder of EVI; or (y) by any entity or group (within
the meaning of subsection 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange  Act"),  none of the officers,  directors and/or
shareholders  of which are, as of the date hereof  (and/or are then) an officer,
director  or  shareholder  of EVI (each such  individual,  entity or group being
hereinafter  referred  to as a "Person")  of  beneficial  ownership  (within the
meaning  of Rule 13D-3  promulgated  under the  Exchange  Act) of 51% or more of
either  (A) the then  outstanding  shares  of  Common  Stock of EVI,  or (B) the
combined  voting  power of the then  outstanding  voting  securities  of the EVI
entitled to vote generally in the election of directors; provided, however, that
for purposes of this Subsection  5(f)(i),  the following  acquisitions shall not
constitute a change of control of EVI: (1) any  acquisition  directly  from EVI;
(2) any  acquisition  by the  Company;  or (3) any  acquisition  by any employee
benefit plan (or related trust) sponsored or maintained by the Company; or

     (ii) The  consummation  of a merger and/or  consolidation  with or into, or
sale or other transfer of all or substantially  all of the assets of the Company
to, a Person.

     (g) If the  Employee's  employment  is terminated by EVI (as opposed to the
expiration of the Term of Employment  pursuant to, and in accordance  with,  the
provisions of Sections 1 or 2 hereof):


                                       6
<PAGE>


     (i) pursuant to Subsection 5(a) hereof,  the Employee shall be entitled to,
and  EVI's  obligation  hereunder  shall  be  limited  to,  the  payment  of all
compensation  (including,  but not limited to, salary and Bonus, if any) accrued
under each of the provisions of Section 4 hereof, to the date specified therein;

     (ii) pursuant to Subsection 5(b) hereof, the Employee shall be entitled to,
and  EVI's  obligation  hereunder  shall  be  limited  to,  the  payment  of all
compensation  accrued  under each of the  provisions  of Section 4 hereof  other
than, and expressly excluding,  the provisions of Subsection 4(h) hereof, to the
effective date of any such termination;

     (iii)  pursuant to Subsections  5(c) or 5(f) hereof,  the Employee shall be
entitled to, and EVI's obligation  hereunder shall be limited to, the payment of
: (x) all compensation (including, but not limited to, salary and Bonus, if any)
accrued under each of the  provisions  of Subsection 4 hereof,  to the effective
date of any such  termination;  plus (y) an amount equal to the salary otherwise
payable, to the Employee, pursuant to the provisions of Subsection 4 (a) hereof,
for the  ensuing  one (1) year  period or such  lesser  period of time (from and
after the effective  date of any such  termination)  as may then be remaining on
the then current  Term of  Employment  but, in any event,  not less than six (6)
months (the "Severance Amount"),  which Severance Amount shall be paid by EVI to
the  Employee,   without  interest,  in  six  (6)  equal,   consecutive  monthly
installments  commencing  on the first day of the month  following  the month in
which the effective date, of any such  termination,  shall occur (the "Severance
Payment Period");

     (iv) pursuant to Subsections  5(d) or Subsection 5(e) hereof,  the Employee
shall be entitled to, and EVI's  obligation  hereunder  shall be limited to, the
payment of all compensation (including, but not limited to, salary and Bonus, if
any) accrued under each of the provisions of Section 4 hereof,  to the effective
date of any such termination.

     6. Confidentiality.

     (a) The Employee  shall not,  during the Term of  Employment or at any time
thereafter,  use (other than in the performance of his duties to the Company) or
disclose to any person,  firm or corporation  (except as required by law or with
the prior written approval of EVI) any confidential  information  concerning the
business,  inventions,  discoveries,  clients, affairs or other trade secrets of
the Company  that he may have  acquired in the course of, or as an incident  to,
his employment by EVI.

     (b) The obligations of confidentiality  and non-use set forth in Subsection
6(a) above shall not apply to information:  (i) which is or becomes published in
any written  document  or  otherwise  is or becomes a part of the public  domain
without breach of the aforementioned  obligation by the Employee; (ii) which the
Employee  can  establish  was  already in his  possession  and not  subject to a
secrecy obligation at the time he encountered such information in the course of,
or as an incident to, his  employment by EVI; or (iii) was generally  available,
to the  public,  prior to the date  hereof.  Specific  information  shall not be
deemed  published or otherwise in the public domain,  or in the Employee's prior
possession,  merely  because  it is  encompassed  by  some  general  information
published, or in the public domain, or in the Employee's prior possession.


                                       7
<PAGE>


     (c) As a material  inducement to EVI in entering into this  Agreement,  and
expressly in partial  exchange for the  performance of EVI's  obligations  under
this Agreement,  the Employee hereby covenants and agrees that,  during the Term
of Employment and for a period of twelve (12) months  following the  termination
thereof:  (x) for any reason,  other than by EVI,  pursuant to the provisions of
Subsection  5(c) or 5(f) hereof;  or (y) by EVI,  pursuant to the  provisions of
Subsection 5(c) or 5(f) hereof,  then, provided EVI shall not then be in default
in the performance of its obligation to make the payments to be made pursuant to
the provisions of Subsection  5(g) (iii) hereof,  he will not, either on his own
account,  or  directly or  indirectly  in  conjunction  with or on behalf of any
person,  firm or entity (other than by reason of the Employee's equity ownership
in any publicly traded firm or corporation,  provided that such equity ownership
shall not confer upon the  Employee the right or ability to influence or direct,
directly or  indirectly,  the  management of the business  and/or affairs of any
such firm or corporation):

     (i) Solicit or employ,  directly or  indirectly,  any person who is then or
has, within the six (6) month period prior thereto, been an officer, director or
employee of the  Company,  whether or not such a person would commit a breach of
his or her contract of  employment,  if any, by reason of leaving the service of
the Company;

     (ii) Solicit the business of any person,  firm or company which is then, or
has been,  at any time during the  preceding  six (6) month period prior to such
solicitation, a customer, client, contractor,  supplier or agent of the Company;
or

     (iii) Provided the employment of the Employee has been terminated for cause
pursuant  to  Subsection  5(b)  hereof,  carry on or be  engaged,  concerned  or
interested  in, or devote  any  material  time to the  affairs  of, any trade or
business engaged in, by the Company, as of the effective date of the termination
of such employment, for a period of six (6) months from and after such effective
date of termination.

     7.  Notices.  Any notice,  request,  claim,  demand or other  communication
hereunder to any party shall be  effective  upon receipt (or refusal of receipt)
and shall be in  writing  and  delivered  personally  (including  deliveries  by
express,  overnight  courier  service) or sent by certified or registered  mail,
return receipt requested, postage prepaid, as follows:

     (a) If to EVI,  addressed  to EVI's  principal  executive  offices,  to the
attention of its General Counsel, with a copy to be simultaneously  delivered to
the Chairman of its Board; or

     (b) If to the Employee,  to him at the address set forth above, with a copy
to be simultaneously  delivered to Steven J. Kuperschmid,  Esq., Certilman Balin
Adler & Hyman, 90 Merrick Avenue, East Meadow, New York 11554; or

     (c) At any such other  address as either  party  shall  have  specified  by
written notice given to the other as herein provided.

     8. Entire Agreement.  The terms of this Agreement and the specific portions
of the Original  Agreement  specified herein are intended by the parties,  as of
the date hereof,  to be the final  expression of their agreement with respect to
the employment of the Employee by EVI, and may not be  contradicted  by evidence


                                       8
<PAGE>


of any prior or  contemporaneous  agreement.  All respective  obligations of the
Company and the Employee  hereunder  which,  by their terms,  are required to be
performed and/or observed following the expiration or sooner termination of this
Agreement, shall survive such expiration or termination.

     9.  Amendments;  Waivers.  This  Agreement may not be modified,  amended or
terminated  except by an instrument,  in writing,  signed by the Employee and by
EVI's  Chairman  of the  Board,  Chief  Executive  Officer or  President.  By an
instrument in writing similarly  executed,  either party may waive compliance by
the other party with any provision of this  Agreement  that such other party was
or is obligated to comply with or perform;  provided,  however, that such waiver
shall not  operate as a waiver of, or  estoppel  with  respect  to, any other or
subsequent  failure.  No failure to exercise,  and no delay in  exercising,  any
right,  remedy or power hereunder  shall operate as a waiver thereof,  nor shall
any single or partial exercise of any right,  remedy or power hereunder preclude
any other or further exercise thereof or the exercise of any other right, remedy
or power provided for herein, or by law, or in equity.

     10. Severability;  Enforcement.  If any provision of this Agreement, or the
application  thereof to any person,  place or  circumstance,  shall be held by a
court of  competent  jurisdiction  to be  invalid,  unenforceable  or void,  the
remainder of this  Agreement and such  provisions,  as applied to other persons,
places and circumstances, shall remain in full force and effect.

     11. Assignability.

     (a) Subject to the provisions  hereof, in the event that EVI shall merge or
consolidate with any other  corporation,  partnership or business entity, or all
or  substantially  all of EVI's business or assets shall be transferred,  in any
manner, to any other corporation, partnership or business entity, such successor
shall thereupon succeed to, and be subject to, all rights, interests, duties and
obligations  of, and shall  thereafter be deemed for all purposes  hereof to be,
EVI hereunder.

     (b) This  Agreement is personal in nature,  and none of the parties  hereto
shall,  without the prior written consent of the other,  assign or transfer this
Agreement  or any of its or his  rights  or  obligations  hereunder,  except  by
operation of law or pursuant to the terms of this Section 11.

     (c) Nothing  expressed or implied  herein is intended or shall be construed
to confer upon, or give to any person, other than the parties hereto, any right,
remedy or claim under, or by reason of, this Agreement, or of any term, covenant
or condition hereof.

     12.  Restrictive  Covenant.  To  the  extent  that a  restrictive  covenant
contained  herein may, at anytime,  be more restrictive than permitted under the
laws of any  jurisdiction  where  this  Agreement  may be  subject to review and
interpretation, the terms of such restrictive covenant shall be those allowed by
law, and the covenant shall be deemed to have been revised accordingly.

     13,  Governing  Law.  The  validity,  interpretation,   enforceability  and
performance of this  Agreement  shall be governed by, and construed and enforced
in accordance  with, the internal laws of the State of New York,  without regard
to principles of conflict of laws.


                                       9
<PAGE>


     14.  Employee's  Representation  and  Acknowledgment.  This Employee hereby
represents  that he is free to enter  into this  Agreement  and is not under any
contractual  restraint which would prohibit him from  satisfactorily  performing
his duties to the Company hereunder. The Employee also acknowledges: (i) that he
has  consulted  with or has had the  opportunity  to  consult  with  independent
counsel of his own choice concerning this Agreement,  and has been advised to do
so by EVI; and (ii) that he has read and understands  this  Agreement,  is fully
aware of its legal  effects and has entered  into it freely,  based upon his own
judgment.

     15.  Arbitration.  Any  controversy  between the  Employee  and EVI, or any
employee,  director  or  stockholder  of  EVI,  involving  the  construction  or
application  of any of the terms,  provisions or conditions of this Agreement or
otherwise  arising out of, or related to,  this  Agreement,  shall be settled by
arbitration (to be conducted in either the Nassau County or New York City office
of the American  Arbitration  Association)  in accordance  with the then current
commercial arbitration rules of the American Arbitration  Association,  and: (i)
judgment  on the award  rendered by the  arbitrator  may be entered by any court
having jurisdiction thereof; and (ii) the substantially prevailing party, in any
such  proceeding,  shall be  entitled  to  reimbursement  of its/his  reasonable
attorneys'  fees,  costs  and/or  expenses   actually   incurred  in  connection
therewith.

     16.   Termination   of   Original   Agreement.   Simultaneously   with  the
effectiveness  hereof,  the Original Agreement shall be deemed to be null, valid
and of no  further  force  or  effect  except  with  respect  to the  respective
obligations and/or liabilities,  of each of the parties thereto,  arising and/or
accruing prior to such effective date hereof.


     IN WITNESS  WHEREOF,  the parties hereto have duly executed this Employment
Agreement as of the date first written above.


                                          EMERGING VISION, INC.


                                          By: /s/ Dr. Alan Cohen
                                             ----------------------------
                                             Name:  Dr. Alan Cohen
                                             Title: Chairman of the Board


                                          EMPLOYEE:


                                          By:  /s/ Christopher G. Payan
                                             ----------------------------
                                             Christopher G. Payan





                                       10


<PAGE>

                                                                    Exhibit 21.1

LIST OF SUBSIDIARIES:

                        STERLING ADVERTISING, INC.
                        STERLING VISION OF MAIN PLACE, INC.
                        STERLING VISION OF HEMPSTEAD, INC.
                        STERLING VISION OF NORTHWAY MALL, INC.
                        STERLING VISION OF BATAVIA, INC.
                        STERLING VISION OF REGO PARK, INC.
                        STERLING VISION OF NORTH SHORE MART, INC.
                        STERLING VISION OF BAY STREET, INC.
                        STERLING VISION OF BRAMALEA, INC.
                        STERLING VISION OF HAMILTON, INC.
                        STERLING VISION OF LIME RIDGE, INC.
                        STERLING VISION OF KINGSTON, INC.
                        STERLING VISION OF BLUE HEN MALL, INC.
                        STERLING VISION OF LANDOVER, INC.
                        STERLING VISION OF MONDAWMIN, INC.
                        STERLING VISION OF PADDOCK MALL, INC.
                        STERLING VISION OF METRO NORTH, INC.
                        STERLING VISION OF FRANKLIN MALL, INC.
                        STERLING VISION OF TINLEY PARK, INC.
                        STERLING VISION OF EAU CLAIRE, INC.
                        STERLING VISION OF SENECA, INC.
                        STERLING ROSLYN CORP.
                        STERLING VISION OF WALDEN, INC.
                        STERLING VISION OF INDEPENDENCE, INC.
                        STERLING VISION OF ROTTERDAM, INC.
                        STERLING VISION OF FRANKLIN MILLS, INC.
                        STERLING VISION OF NEWBURGH, INC.
                        STERLING VISION OF BAY RIDGE, INC.
                        STERLING VISION OF WESTPORT, INC.
                        STERLING VISION OF DUNKIRK, INC.
                        STERLING VISION U.S.A., INC.
                        STERLING VISION OF CALIFORNIA, INC.
                        SITE FOR SORE EYES SACRAMENTO, INC.
                        SITE FOR SORE EYES ADVERTISING, INC.
                        STERLING VISION OF POTOMAC MILLS, INC.
                        STERLING VISION OF WHEATON PLAZA, INC.
                        STERLING VISION OF MID RIVERS, INC.
                        SVCI REAL ESTATE, INC.
                        STERLING VISION OF EAST ROCKAWAY, INC.
                        STERLING VISION OF NEWPARK, INC.
                        STERLING VISION OF NANUET, INC.
                        STERLING VISION OF DELAFIELD, INC.
                        STERLING VISION OF TOMS RIVER, INC.


                                       1
<PAGE>


LIST OF SUBSIDIARIES (Continued):

                        STERLING MANAGEMENT SERVICES, INC.
                        OPTI-PLEX OF NEW YORK, INC.
                        STERLING VISION OF ISLANDIA, INC.
                        STERLING VISION OF HAWTHORNE CENTER, INC.
                        STERLING VISION OF LEVITTOWN, INC.
                        STERLING VISION OF CHARLESTOWN, INC.
                        STERLING VISION OF SYOSSET, INC.
                        STERLING VISION OF CAPITOLA, INC.
                        STERLING VISION OF FOX RUN, INC.
                        STERLING VISION OF METRO N.Y., INC.
                        STERLING VISION OF ROSYLN, INC.
                        INSIGHT LASER CENTERS, INC.
                        INSIGHT LASER CENTERS, N.Y.I, INC.
                        INSIGHT LASER CENTERS NEW YORK II, LTD.
                        INSIGHT LASER CENTER N.C. II, INC.
                        STERLING VISION OF EAST MADISON, INC.
                        STERLING VISION OF HAGERSTOWN, INC.
                        STERLING BRYANT II CORP.
                        VISIONCARE OF CALIFORNIA, INC.
                        STERLING VISION OF WHITE FLINT, INC.
                        STERLING VISION OF CAMBRIDGE SQUARE, INC.
                        STERLING VISION OF CAPE GIRARDEAU, INC.
                        STERLING VISION OF EDISON, INC.
                        STERLING VISION OF NAPA, INC.
                        STERLING VISION OF LOS GATOS, INC.
                        STERLING VISION OF PRINCE GEORGES PLAZA, INC.
                        STERLING VISION OF TRACY, INC.
                        STERLING VISION OF COLUMBUS MILLS, INC.
                        STERLING VISION OF ONTARIO MILLS, INC.
                        STERLING VISION OF GREEN ACRES, INC.
                        STERLING VISION OF M.V., INC.
                        STERLING VISION OF SOUTHPARK, INC.
                        STERLING VISION OF NORTHPARK, INC.
                        STERLING VISION OF BREA, INC.
                        STERLING VISION OF BLASDELL, INC.
                        STERLING VISION OF SOUTHDALE, INC.
                        STERLING VISION OF WESTMINSTER, INC.
                        STERLING VISION OF FAIR OAKS, INC.
                        STERLING VISION OF NEWPORT BEACH, INC.
                        STERLING VISION OF FULTON ST., INC.
                        STERLING VISION DKM ADVERTISING, INC.
                        720 MARKET STREET REALTY CORPORATION
                        STERLING VISION OF SACRAMENTO, INC.
                        STERLING VISION OF FARGO, INC.


                                       2
<PAGE>


LIST OF SUBSIDIARIES (Continued):

                        STERLING VISION OF ANAHEIM, INC.
                        STERLING VISION OF EASTLAND, INC.
                        STERLING VISION OF GASTONIA, INC.
                        STERLING VISION OF KIRKWOOD MALL, INC.
                        STERLING VISION OF BLUEFIELD, INC.
                        STERLING VISION OF GREEN BAY, NC.
                        STERLING VISION OF KENNEDY BLVD., INC.
                        STERLING VISION OF WEST BEND, INC.
                        STERLING VISION OF WEST MADISON, INC.
                        STERLING VISION DKM OF SHEBOYGAN, INC.
                        STERLING VISION OF KENOSHA, INC.
                        STERLING VISION OF HAMPTON, INC.
                        STERLING VISION OF FORESTVILLE, INC.
                        STERLING VISION OF FOND DU LAC, INC.
                        STERLING VISION OF FNR, INC.
                        STERLING LABORATORIES, INC.
                        STERLING VISION OF BASHFORD MANOR, INC.
                        STERLING VISION OF RIVERSIDE, INC.
                        STERLING VISION OF PALISADES, INC.
                        STERLING VISION OF DULLES, INC.
                        STERLING VISION OF LIGHT STREET, INC.
                        STERLING VISION OF PENN CENTER, INC.
                        SINGER SPECS ADVERTISING, INC.
                        STERLING VISION OF COLLINGTON PLAZA, INC.
                        INSIGHT TOTAL MANAGED CARE, INC.
                        STERLING VISION OF 78TH STREET, INC.
                        STERLING VISION OF DENVER, INC.
                        INSIGHT IPA OF NEW YORK, INC.
                        INSIGHT AMSURG CENTERS, INC.
                        STERLING VISION OF JERSEY GARDENS, INC.
                        STERLING VISION OF SHOPPINGTOWN, INC.
                        STERLING VISION OF CAMP HILL, INC.
                        STERLING VISION OF GREAT NORTHERN, INC.
                        STERLING VISION OF THE FALLS, INC.
                        STERLING VISION OF OWINGS MILLS, INC.
                        STERLING VISION OF MACARTHUR CENTER, INC.
                        STERLING VISION OF MONTGOMERY, INC.
                        STERLING VISION OF CONCORD MILLS, INC.
                        STERLING VISION OF JAMESTOWN MALL, INC.
                        STERLING VISION OF ORLANDO, INC.
                        STERLING VISION OF BEAVER DAM, INC.
                        STERLING VISION OF APPLETON, INC.
                        STERLING VISION OF COLUMBIA MALL, INC.



                                       3
<PAGE>


LIST OF SUBSIDIARIES (Continued):

                        STERLING VISION OF 794 LEXINGTON, INC.
                        INSIGHT LASER CENTERS OF BAY TERRACE, INC.
                        STERLING VISION OF SEACLIFF VILLAGE, INC.
                        INSIGHT LASER CENTERS OF KING OF PRUSSIA, INC.
                        STERLING VISION OF ANNAPOLIS, INC.
                        STERLING VISION OF APACHE, INC.
                        STERLING VISION OF MAMARONECK, INC.



















                                       4
<PAGE>

                                                                    Exhibit 23.1





                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS




     As independent public  accountants,  we hereby consent to the incorporation
of our  report  included  in  this  Form  10-K,  into  Emerging  Vision,  Inc.'s
previously  filed  Registration  Statements File Nos.  333-33355,  333-41400 and
333-100697.



                                           /s/  Miller Ellin & Company LLP




New York, New York
March 28, 2003

<PAGE>



                                                                    Exhibit 99.1


 Certifications of Principal Executive Officers and Principal Financial Officer
           Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
--------------------------------------------------------------------------------


                              (Company Letterhead)



           Certification of Principal Executive and Financial Officer
                           Pursuant to 18 U.S.C. 1350
                 (Section 906 of the Sarbanes-Oxley Act of 2002)



     I,  Christopher G. Payan,  Co-Chief  Operating  Officer and Chief Financial
Officer  (co-principal  executive  officer and principal  financial  officer) of
Emerging  Vision,  Inc.  (the  "Registrant"),  certify  that  to the  best of my
knowledge,  based upon a review of the  Annual  Report on Form 10-K for the year
ended December 31, 2002 of the Registrant (the "Report"):

     (1) The Report fully  complies  with the  requirements  of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
Registrant.


         /s/ Christopher G. Payan
        ---------------------------------
Name:   Christopher G. Payan
Date:   March 28, 2003



<PAGE>


                              (Company Letterhead)



                  Certification of Principal Executive Officer
                           Pursuant to 18 U.S.C. 1350
                 (Section 906 of the Sarbanes-Oxley Act of 2002)


     I, Myles S.  Lewis,  Co-Chief  Operating  Officer  (co-principal  executive
officer) of Emerging Vision, Inc. (the  "Registrant"),  certify that to the best
of my  knowledge,  based upon a review of the Annual Report on Form 10-K for the
year ended December 31, 2002 of the Registrant (the "Report"):

     (1) The Report fully  complies  with the  requirements  of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
Registrant.


         /s/ Myles S. Lewis
        ---------------------------------
Name:   Myles S. Lewis
Date:   March 28, 2003



<PAGE>


                              (Company Letterhead)



                  Certification of Principal Executive Officer
                           Pursuant to 18 U.S.C. 1350
                 (Section 906 of the Sarbanes-Oxley Act of 2002)


     I, Samuel Z. Herskowitz, Co-Chief Operating Officer (co-principal executive
officer) of Emerging Vision, Inc. (the  "Registrant"),  certify that to the best
of my  knowledge,  based upon a review of the Annual Report on Form 10-K for the
year ended December 31, 2002 of the Registrant (the "Report"):

     (1) The Report fully  complies  with the  requirements  of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
Registrant.


         /s/ Samuel Z. Herskowitz
        ----------------------------------
Name:   Samuel Z. Herskowitz
Date:   March 28, 2003