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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

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

                                   FORM 10-K

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998    COMMISSION FILE NUMBER: 000-22977

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

                            VISION TWENTY-ONE, INC.
             (Exact name of Registrant as specified in its charter)

<TABLE>
<S>                                              <C>
                    FLORIDA                                        59-3384581
           (State or jurisdiction of                            (I.R.S. employer
        incorporation or organization)                         identification no.)

             7360 BRYAN DAIRY ROAD
                   SUITE 200
                LARGO, FLORIDA                                        33777
   (Address of principal executive offices)                        (Zip code)
</TABLE>

       Registrant's telephone number, including area code: (727) 545-4300

          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 $.001
                                (Title of Class)

     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 [ ]  No [X]

     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 definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant on May 31, 1999, was $30,063,904 based upon the closing price of
such shares on such date on the Nasdaq Stock Market's National Market. As of May
31, 1999, there were 15,147,588 shares outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's definitive Proxy Statement to be used in
connection with the Registrant's 1999 Annual Meeting of Shareholders, which was
filed with the Commission on April 30, 1999, are incorporated by reference in
Part III, Items 10-13 of this Form 10-K. Except with respect to information
specifically incorporated by reference in this Form 10-K, the Proxy Statement is
not deemed to be filed as a part hereof.
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                            VISION TWENTY-ONE, INC.
                        1998 ANNUAL REPORT ON FORM 10-K

                               TABLE OF CONTENTS

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                                                                        PAGE
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<S>       <C>                                                           <C>
ITEM 1.   BUSINESS....................................................    1
ITEM 2.   PROPERTIES..................................................    7
ITEM 3.   LEGAL PROCEEDINGS...........................................    8
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........    8
ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS.........................................    9
ITEM 6.   SELECTED FINANCIAL DATA.....................................   10
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS...................................   11
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
          RISK........................................................   23
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................   25
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
          AND DISCLOSURE..............................................   54
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........   54
ITEM 11.  EXECUTIVE COMPENSATION......................................   54
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT..................................................   54
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............   54
ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
          FORM 8-K....................................................   55
</TABLE>

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                                     PART I

ITEM 1.  BUSINESS

GENERAL.

     Vision Twenty-One, Inc. (the "Company") develops and manages local area eye
care delivery systems ("LADS(SM)") in 40 markets. LADS involve contractual
affiliations with local optometrists and ophthalmologists (the "Affiliated
Providers") to provide primarily vision care and refractive surgery at
independent or company-owned clinics and surgery centers. Additionally, the
Company develops retail distribution channels for its LADS through owning or
affiliating with retail optical chains, and develops managed care distribution
channels for its LADS through contracting with local health plans and other
third party payors.

     The Company's LADS operation revenue is primarily derived through a wide
range of services earned at and through ownership interests in, or strategic
affiliations at eye care clinics, refractive surgery centers ("RSCs"), retail
optical locations and ambulatory surgical centers ("ASCs") and or management
agreements with select Affiliated Providers ("Managed Providers"). The Company
also earns revenue by entering into capitated managed care contracts with
third-party insurers and payors and by administering indemnity fee-for-service
plans. As of March 31, 1999, the Company had managed care contracts and discount
fee-for-service plans covering approximately 5.2 million exclusively contracted
patient lives.

     The Company initially grew in establishing its local delivery systems with
primary focus on integration of optometry and ophthalmology practices into the
system with correlated practice management services. While the Company continues
to provide these services and considers its management relationships key to its
delivery systems, the Company is now focused on leveraging the benefits of its
delivery system in order to take advantage of the rapidly growing vision care
sector, principally through its refractive care programs and development of
surgery centers.

     Vision Twenty-One, Inc. was incorporated in Florida on May 9, 1996. Its
principal operating subsidiaries consist of Vision 21 Managed Eye Care of Tampa
Bay, Inc. ("Vision 21 MCO"), Vision 21 Physician Practice Management Company,
Inc. ("Vision 21 PPMC") and BBG-COA, Inc. and its subsidiaries ("Block Vision").
Vision 21 PPMC and Vision 21 MCO were merged with the Company in November 1996.
In the merger, all of the outstanding shares of stock of Vision 21 PPMC and
Vision 21 MCO which were owned by certain executive officers and directors of
the Company, were exchanged for Common Stock of the Company. The principal
executive office of the Company is located at 7360 Bryan Dairy Road, Suite 200,
Largo, Florida 33777, and its telephone number is (727) 545-4300.

THE VISION TWENTY-ONE LOCAL AREA DELIVERY SYSTEM ("LADS")

     The Company's goal is to enable each of its LADS to capture the leading
market share of fee-for-service patients and managed care members. To achieve
its goal, the Company is focused on the following strategies: (i) developing
LADS in order to provide for a complete continuum of easily accessible, high
quality and affordable eye care services; (ii) leveraging its LADS delivery
system to increase patient revenue and cost efficiencies for each LADS through
refractive care, managed care and other related vision care development
initiatives; and (iii) expanding into select new markets to create regional
networks of LADS.

     The Company's primary focus is in vision care with a particular emphasis on
refractive initiatives. This continuum of eye care services begins with primary
eye care services provided by optometrists practicing at free-standing clinics,
optometrists located in retail optical locations and primary care
ophthalmologists. In order to provide greater access for patients seeking
primary eye care, the Company affiliates with both optometrists and retail
optical centers.

     Once patients have initially accessed a LADS to obtain primary eye care
services, they are positioned to move within the LADS to the next appropriate
level of eye care. Refractive care and related vision care will be important
elements of these services. The Company affiliates with ophthalmologists that
provide refractive surgery, cataract surgery and medical surgical care, with
subspecialty ophthalmologists that provide tertiary eye care, with ASCs and with
RSCs providing facility services. LADS are attractive to managed care

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companies because the Company's Affiliated Providers are able to deliver all
levels of eye care to the managed care plan's members.

     The Company's refractive surgery program will be key in the Company
strategy to increase patient revenues. Thus far, the Company has instituted its
refractive program in only four of its forty markets. The introduction has been
successful and the Company goal is to accelerate the roll-out of this program.
Additionally, managed care initiatives are implemented for each LADS to enable
the Affiliated Providers to gain incremental market share and increased patient
visits. In conjunction with its affiliated retail optical centers and affiliated
optometrists, the Company jointly markets regional primary eye care networks to
manage vision plans. In addition, the Company markets regional networks of
affiliated ophthalmologists, ASCs and RSCs to managed care plans for the
provision of medical and surgical eye care. More importantly, the Company is
able to market each of its LADS to managed care plans seeking to contract with
integrated networks of optometrists, ophthalmologists, retail optical centers
and ASCs that can offer all primary, secondary and tertiary eye care services
pursuant to comprehensive "carve out" eye care plans.

     The Company intends to continue expanding its LADS model to new markets.
The Company seeks to enter select markets where the Company will be in a
position to leverage its future network to successfully roll-out in that market
its vision care initiatives including the Company's refractive surgery program,
and/or (i) the Company has a strategic affiliation with a leading corporate
retail optical provider and/or (ii) there is an existing network of optometrists
and ophthalmologists that the Company can affiliate with, and/or (iii) the
Company is able to obtain a managed care contract that provides an initial
patient base. Other considerations include an analysis of the competitive
environment, the legal and regulatory environment as it pertains to the delivery
of eye care services and the level of managed care penetration. The Company also
intends to leverage existing managed care relationships to expand into new
markets where such managed care providers have established a significant
presence.

LADS LOCATIONS

     The Company has grown its LADS to forty markets in various stages of
development located throughout the United States.

STRATEGIC DEVELOPMENTS

     The Company has concentrated on developing its LADS since late 1997. It is
currently analyzing its mix of business units within such LADS and assessing the
long-term strategic value of each existing component. The Company is also
rapidly increasing its overall business mix with an emphasis on high growth
opportunities existing in the eye care sector such as refractive surgery in
which to add additional complementary business to its LADS. The Company sold its
buying group division (which provided billing and collection services to
suppliers of optical goods) in June 1999. The Company seeks to focus its future
investments and efforts on businesses that are able to complement and leverage
the benefits of its LADS, in particular its vision care initiatives including
the Company's refractive surgery programs.

MANAGEMENT AGREEMENTS

     In certain select markets where the Company cannot by law employ the
professional, the Company enters into long-term management agreements
("Management Agreements") with professional associations or corporations (the
"Managed Professional Associations") pursuant to which the Company is the sole
provider of comprehensive management, business and administrative services for
the non-professional aspects of the professional practices. Each Managed
Provider maintains full authority, control and responsibility over the provision
of professional care and services to its patients. The Company does not provide
professional care to patients nor does the Company employ any of the
ophthalmologists or optometrists, or any other professional health care provider
personnel, of the Managed Professional Association. Additionally, as health care
governmental regulations and their interpretations change in the future, the
Company may have to revise terms in its Management Agreements to comply with the
regulatory changes.

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     The Company enters into Management Agreements with professional
associations managed by the Company, the initial term of which is typically 40
years. Under the majority of the Company's Management Agreements, the management
fee ranges from 20% to 37% of the Managed Professional Associations' net
revenues after deducting from such revenues all expenses of the clinic other
than those related to shareholders of the Managed Professional Associations.
This type of arrangement is usually utilized in management relationships with
ophthalmology practices. Additionally, the Company has Management Agreements
with management fees ranging from 50% to 87% of net revenues of a practice and
the Company is required to pay generally all the expenses at the clinic with the
exception of professional salaries and benefits. Such arrangements are typically
utilized in management relationships with optometrists. The practice management
fees earned by the Company pursuant to these Management Agreements fluctuate
depending on variances in revenues and expenses of the Managed Professional
Associations.

     The Management Agreements are terminable by either party if the other party
materially defaults in the performance of any of its obligations under the
Management Agreement and such default continues for a certain period of time
after notice, if the other party files a petition for bankruptcy or upon the
occurrence of other similar events. The Management Agreements may also be
terminated by mutual agreement in writing.

MANAGED CARE

     As an increasing percentage of the population is covered by managed care
organizations, the Company believes that its success will be, in part, dependent
upon its ability to negotiate managed care contracts with HMOs, health insurance
companies and other third-party payors pursuant to which services will be
provided on a risk-sharing or capitated basis. The Company also has contracts
for the provision of certain financial and administrative services related to
its indemnity insurance and fee-for-service plans. Managed care contracts are
typically for one year terms that renew automatically and the contracts are
terminable by either party on sixty days notice.

     The Company's typical contracts with third-party health benefits payors
(insurance companies and HMOs) provide that the Company will arrange and pay for
eye care services that are needed by the payor's members in exchange for a fixed
amount per patient per month or a percentage of the premiums paid on behalf of
the patient, without regard to the volume of services that the patient requires.
Under these arrangements, the Company accepts the risk that the cost and
utilization of services may exceed expectations in exchange for its ability to
profit if cost and utilization are kept below expected levels. The Company can
directly benefit by effectively managing costs and utilizing its relationships
with its Affiliated Providers. Because the Company assures the credentials of
the providers, establishes quality and utilization control systems and
implements payment arrangements with the providers, third-party payors are able
to use their limited resources in other areas where they have greater expertise.

RETAIL OPTICAL LOCATIONS AND AFFILIATIONS

     In some states, the Company owns retail optical locations. In other states,
the Company has utilized strategic affiliations and/or management agreements in
connection with retail optical for its LADS. The Company believes relationships
with select leading retail optical chains within a LADS are important because of
the retail chains' market position, name recognition, quality of service,
accessibility through extended hours, geographic distribution, and compatibility
of management and facilities with the Company's primary eye care objectives.

BUYING GROUP

     The Company's buying group division provided billing and collection
services to suppliers of optical goods. The business arrangements are terminable
at any time by the Company or its customers. As recently disclosed the Company
sold this division in June 1999 in order to focus more on business units which
complement its LADS operations.

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1998 TRANSACTIONS

     During 1998, the Company completed the acquisition of the business assets
of 54 optometry clinics, nine ophthalmology clinics, 40 optical dispensaries,
two RSCs and one ASC located in Arizona, Florida, Minnesota, New Jersey, Nevada,
Texas, and Wisconsin. Business assets consist of certain non-medical and
non-optometric assets, including accounts receivable, leases, contracts,
equipment and other tangible and intangible assets. Concurrently with these
acquisitions, the Company entered into long-term Management Agreements with the
related professional associations employing 65 optometrists and five
ophthalmologists. These acquisitions were accounted for by recording assets and
liabilities at fair value and allocating the remaining costs to the related
Management Agreements. Additionally, the Company closed the acquisition of all
of the outstanding stock of The Complete Optical Laboratory, Ltd., Corp.,
located in New Jersey which services the New Jersey optometry clinics acquired
by the Company and the Company closed the acquisition of substantially all of
the business assets of a managed care company located in Florida servicing more
than 82,700 patient lives. These acquisitions were accounted for under the
purchase method of accounting.

     In September 1998, the Company completed the acquisition of American
SurgiSite Centers, Inc., ("American SurgiSite") an ambulatory surgery center
developer, management and consulting company located in New Jersey. American
SurgiSite manages eight ambulatory surgery facilities. In June 1998, the Company
completed the acquisition of Vision World, Inc., a retail optical chain located
in Minneapolis, Minnesota. Vision World, Inc. consists of 38 retail clinics and
30 optometrists.

     In March 1998, the Company completed a transaction with EyeCare One Corp.
("EyeCare One") and Vision Insurance Plan of America, Inc. ("VIPA"). EyeCare One
was the parent company of Stein Optical which operates 16 optometric retail
locations in Milwaukee, Wisconsin. VIPA holds a single service insurance license
and delivers vision care benefits to approximately 19,000 patient lives in
Wisconsin. These transactions were accounted for by the Company as a pooling of
interests.

GOVERNMENTAL AND STATE REGULATIONS

  General Overview

     The health care industry is highly regulated, and there can be no assurance
that the regulatory environment in which the Company operates will not change
significantly and adversely in the future. In general, regulation of health care
providers and companies is increasing.

     There are currently several federal and state initiatives designed to amend
regulations relating to the provision of health care services, the access to
health care, the costs of health care and the manner in which health care
providers are reimbursed for their services. However, it is not possible to
predict whether any such initiatives will be enacted as legislation or, if
enacted, what their form, effective dates or impact on the Company will be.

     Every state imposes licensing requirements on ophthalmologists,
optometrists and opticians ("Practitioners") and on their facilities and
services. In addition, many states require regulatory approval, including
certificates of need, before establishing certain types of health care
facilities, offering certain services or making expenditures in excess of
statutory thresholds for health care equipment, facilities or programs.

     Much of the Company's revenue is derived from payments made by
government-sponsored health care programs (principally Medicare). These programs
are subject to substantial regulation. Any change in reimbursement regulations,
policies, practices, interpretations or statutes that places material
limitations on reimbursement amounts or practices could adversely affect the
operations of the Company. Increasing budgetary pressures at both the federal
and state level and the rapidly escalating costs of health care and
reimbursement programs have led, and may continue to lead, to significant
reductions in government reimbursements for certain medical charges and
elimination of coverage for certain individuals under these programs. Federal
legislation could result in a reduction of Medicare funding. The Company cannot
predict at this time whether or when any of such proposals will be adopted or,
if adopted and implemented, what effect such proposals would have on the
Company.

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     The following is a description of some of the various laws that affect the
Company's business.

     Corporate Practice of Optometry and Ophthalmology.  The laws of many states
prohibit corporations that are not owned entirely by eye care professionals from
employing eye care professionals, having control over clinical decision-making,
or engaging in other activities that are deemed to constitute the practice of
optometry and ophthalmology. The Company contracts with professional
associations (which are owned by one or more licensed optometrists or
ophthalmologists), which in turn employ or contract with other licensed
optometrists or ophthalmologists to provide professional services. The Company
performs only non-professional services, does not represent to the public or its
customers that it provides professional eye care services, and is not exercising
influence or control over the practices of the eye care practitioners employed
by the professional associations.

  Fee-Splitting and Anti-kickback Laws

     Most states have anti-kickback laws prohibiting paying or receiving any
remuneration, direct or indirect, that is intended to induce referrals for
health care products or services. In addition, federal law prohibits a physician
or optometrist from referring Medicare or Medicaid patients to an entity
providing "designated health services" in which they have a financial interest.
Many states also prohibit "fee-splitting" by eye care professionals with any
party except other eye care professionals in the same professional corporation
or practice association. In most cases, these laws apply to the paying of a fee
to another person for referring a patient or otherwise generating business, and
do not prohibit payment of reasonable compensation for facilities and services
(other than the generation of business), even if the payment is based on a
percentage of the practice's revenues.

     In Florida, the Florida Board of Medicine has issued an order determining
that a management fee charged by a publicly held national management company
based upon a percentage of revenue constitutes illegal fee-splitting which has
been stayed and is currently on appeal to a Florida district court of appeals.
The case before the Board involved arrangements that are different from the
Company's arrangements in certain respects, including the fact the management
fee was based on a percentage of the increase in net revenues of the practice
after the management arrangement commenced. If the Board's order is allowed to
stand without clarification, there is a risk that the Company's arrangements
with physicians in the State of Florida could be determined to be in violation
of the fee-splitting statute which could have a material adverse effect on the
Company's results of operations if they cannot be restructured to obtain
substantially similar financial benefits. Since the same statute applies to
optometrists, the same risk exists with respect to the Company's arrangements
with optometrists.

     The federal anti-kickback law prohibits the offer, payment, solicitation or
receipt of any form of remuneration in return for the referral of patients
covered by federally funded health care programs such as Medicare and Medicaid,
or in return for purchasing, leasing, ordering or arranging for the purchase,
lease or order of any item or service that is covered by a federal program.

     False Claims Laws.  Federal and state laws prohibit any person from
knowingly and willfully making any false statement or misrepresentation of a
material fact in seeking payment for items or services. Federal laws impose
civil monetary penalties for filing claims that the filing party "should know"
are not appropriate under rules applicable to federally funded health care
programs. The federal False Claims Act allows a private person, as well as the
government, to bring a civil action (in the name of the government) for
violation of its provisions. While the Company believes that its procedures are
in compliance with such laws, there can be no assurance that the Company will
not be deemed to be in violation.

     Certificate of Need and Facilities Licensing.  Some states require a
certificate of need ("CON") to be obtained prior to the construction or
expansion of an ambulatory surgical center, the acquisition of major equipment
or the introduction of certain new services. There can be no assurance that the
Company will be able to obtain CONs which could affect our ability to develop
ASCs. In addition, some states may require us to obtain certain licenses to
operate facilities including refractive surgical centers. While the Company has
no reason to believe that it will be unable to obtain necessary facilities
licenses without unreasonable expense or delay, there can be no assurance that
it will be able to obtain any required license.
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     Insurance Licensure.  Most states impose strict licensure requirements on
health insurance companies, HMOs, and other companies that engage in the
business of insurance. In the event that the Company is required to become
licensed under these laws, the licensure process can be lengthy and time
consuming and, unless the regulatory authority permits the Company to continue
to operate while the licensure process is progressing, the Company could
experience a material adverse change in its business while the licensure process
is pending. In addition, many of the licensing requirements mandate strict
financial and other requirements which the Company may not immediately be able
to meet. Once licensed, the Company would be subject to continuing oversight by
and reporting to the respective regulatory agency.

     Limited Health Service Plans and Third Party Administration
Licensing.  Some states permit managed care networks that assume insurance risk,
but only as to a limited class of health services, to be licensed as limited
health service plans, and thereby avoid the need to be licensed as an insurer or
HMO even if its arrangements are with individual subscribers or self-insured
employers. Additionally, some states require licensing for companies providing
administrative services in connection with managed care business. The Company
intends to seek such licenses in those states where it is available for eye care
networks. However, the Company may not be able to meet such requirements in all
cases and should this result in the loss of any material business (individually
or in the aggregate) it could have a material adverse effect on the Company's
business and operating results.

     Physician Incentive Plans.  Medicare regulations impose certain disclosure
requirements on managed care networks that compensate eye care providers in a
manner that is related to the volume of services provided to Medicare patients
(other than services personally provided by the provider). If such incentive
payments exceed 25 percent of the provider's potential payments, the network is
also required to show that the providers have certain "stop loss" financial
projections and to conduct certain Medicare enrollee surveys.

     "Any Willing Provider" Laws.  Some states have adopted, and others are
considering, legislation that requires managed care networks to include any
provider who is willing to abide by the terms of the network's contracts and/or
prohibit termination of providers without cause. Such laws would limit the
ability of the Company to develop effective managed care networks in such
states.

     Antitrust Laws.  The Company's business is also subject to a range of
antitrust laws that prohibit anti-competitive conduct, including price fixing,
concerted refusals to deal and divisions of markets. Among other things, these
laws limit the ability of the Company to enter into business arrangements with
separate practice groups that compete in the same geographic market.

     The several laws described above have civil, criminal and administrative
penalties and have been subject to limited judicial and regulatory
interpretation. They are enforced by regulatory agencies that are vested with
broad discretion in interpreting their meaning. While the Company believes that
its agreements and activities are in compliance with these laws, the Company's
agreements and activities have not been examined by federal or state authorities
under these laws and regulations. For these reasons, there can be no assurance
that review of the Company's business arrangements will not result in
determinations that adversely affect the Company's operations or that certain
agreements between the Company and eye care providers or third party payors will
not be held invalid and unenforceable. In addition, these laws and their
interpretation vary from state to state. The regulatory framework of certain
jurisdictions may limit the Company's expansion into, or ability to continue
operations within, such jurisdictions if the Company is unable to modify its
operational structure to conform with such regulatory framework. Any limitation
on the Company's ability to expand could have an adverse effect on the Company.

COMPETITION

  General

     The health care industry is highly competitive and subject to continual
changes in the method in which services are provided and the manner in which
health care providers are selected and compensated. The Company believes that
the economies of private and public reforms in the health care industry
emphasizing cost containment and accountability will result in an increasing
shift of eye care from highly fragmented, small

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providers to larger providers or other eye care delivery services. Companies in
other health care industry segments, some of which have financial and other
resources greater than those of the Company, may become competitors. Increased
competition could have a material adverse effect on the Company's financial
condition and results of operations. The basis for competition includes service,
price, strength of the Company's delivery network (where applicable),
experience, reputation, strength of operational systems, strength of
informational systems, the degree of cost efficiencies and synergies, marketing
strength, managed care expertise, patient access and quality assessments and
assurances programs. The future success of the Company will be directly related
to its ability to expand the managed eye care delivery network geographically,
attract reputable providers, expand the scope of services offered by associated
practices, and dedicate resources to an active sales team focused exclusively on
the Company's sales effort.

  Refractive Surgery

     The market for providing access to refractive surgery through utilization
of excimer lasers is highly competitive. The Company competes with laser centers
operated by local operators and eye surgeons who have purchased their own laser.
The Company also competes with several other companies, including at least two
manufacturers of laser equipment, in providing access to excimer lasers in the
U.S. Other companies are currently in the process of gaining FDA approval for
their lasers, and these companies may elect to enter the laser center business.
Other companies which have indicated they intend to operate or already operate
laser centers in the U.S. are Clear Vision Laser Centers, Inc., LCA Vision,
Inc., NovaMed Eyecare Management, LLC, Omega Health Systems, Inc., Physicians
Resource Group, Inc., TLC The Laser Center, Inc. and Laser Vision Centers, Inc.
The services and equipment we offer also compete with other forms of treatment
for refractive disorders, including eyeglasses, contact lenses, radial
keratotomy, corneal rings and other technologies currently under development.

SEASONALITY

     The Company does not experience significant seasonal fluctuations in its
business.

SERVICE MARKS

     The Company believes that its trademarks and service marks are important
and accordingly it has registered "Vision 21," Vision Twenty-One" with its
design logo, "Eye Care for the 21st Century," "A Different Point of View," and
"LADS," with the United States Patent and Trademark Office and has acquired
through its Vision World Acquisition several state registrations, "Vision
World", "Amalfi Ochialli" and "Polythin."

EMPLOYEES

     At May 31, 1999, the Company had approximately 2,250 employees, of which
121 were employed at the Company's headquarters, 63 were employed at Block
Vision's office and 2,066 were employed by the Company at Managed Provider
practices. The Company believes that its relationship with its employees is
good.

ITEM 2.  PROPERTIES

     The Company recently relocated its corporate headquarters to new office
space in Largo, Florida consisting of approximately 25,700 square feet. The
lease on the former location expired and the new lease is for a term through
September 15, 2004. The Company believes that such facility is adequate for its
current needs.

     The Company leases 10,586 square feet of office space in Boca Raton,
Florida for Block Vision's corporate office under a lease expiring May 31, 2001.
The Company believes that the facility is adequate for Block Vision's current
needs.

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     The Company leases or subleases the clinic locations it manages pursuant to
the Management Agreements with the Managed Professional Associations. The
Company anticipates that expanded facilities will be needed as the Managed
Professional Associations grow. The Company also expects to enter into leases
and subleases in the future as it acquires the allowable assets of certain
Affiliated Providers and enters into Management Agreements.

     The Company also leases and subleases the ASC and RSC facilities it
manages. The Company does not expect that the current ASCs and RSCs will need to
be expanded. However, the Company does anticipate that it will enter into leases
and subleases as it acquires additional ASC and RSC facilities.

     The Company also leases minimal but adequate facilities in certain business
regions for regional support.

ITEM 3.  LEGAL PROCEEDINGS

     Except as described below, the Company is not a party to any material
litigation and is not aware of any threatened material litigation:

          The Company, certain of its executive officers who are also directors
     and a former officer are named as defendants in several purported class
     action lawsuits filed in the United States District Court for the middle
     District of Florida, Tampa Division. The complaints allege, principally,
     that the Company and the other defendants issued materially false and
     misleading statements related to the Company's integration of its
     acquisitions, in violation of Sections 10(b) and 20(a) of the Securities
     Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The plaintiffs
     seek to certify their complaints as class actions on behalf of all
     purchasers of the Company's common stock in the period between December 5,
     1997 and November 5, 1998, and seek and award of an unspecified amount of
     monetary damages to all of the members of the purported class. The
     purported class action lawsuit were as follows: (i) Tad McBride against
     Vision Twenty-One, Inc., Theodore N. Gillette, Richard T. Welch, and
     Michael P. Block (filed on January 22, 1999); (ii) Robert Rosen v. Vision
     Twenty-One, Inc., Theodore N. Gillette and Richard T. Welch (filed on
     January 27, 1999); (iii) Charles Murray against Vision Twenty-One, Inc.,
     Theodore N. Gillette, Richard T. Welch and Michael P. Block (filed on
     January 29, 1999); and (iv) Sam Cipriano, on behalf of himself and all
     others similarly situated v. Vision Twenty-One, Inc., Theodore N. Gillette,
     Richard T. Welch and Michael P. Block.

          On April 20, 1999, pursuant to a motion and order, these complaints
     were consolidated into one case captioned: Tad McBride, Plaintiff, v.
     Vision Twenty-One, Inc., Theodore N. Gillette, Richard T. Welch and Michael
     Block and the lead plaintiff's group is required to file and serve an
     amended complaint within forty-five days from May 31, 1999. The case is
     still uncertified and as of June 11, 1999 the Company had not been served
     with an amended complaint. While it is impossible to predict the outcome or
     impact of such litigation, management believes this litigation is without
     merit and intends to vigorously defend the lawsuit.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                        8
<PAGE>   11

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

     The Common Stock of the Company has been trading publicly under the symbol
"EYES" on the Nasdaq National Market since the Company's initial public offering
on August 18, 1997. Prior to the Company's initial public offering, there was no
active trading market for the Company's Common Stock. The following table sets
forth the high and low closing sale price of the Company's Common Stock as
reported in the Nasdaq National Market (rounded up to the nearest whole cent)
for the periods indicated:

<TABLE>
<CAPTION>
                                                               HIGH     LOW
                                                              ------   -----
<S>                                                           <C>      <C>
1997
Third Quarter (beginning August 18, 1997)...................  $14.63   $9.00
Fourth Quarter..............................................   14.38    7.25
1998
First Quarter...............................................   11.75    8.25
Second Quarter..............................................   11.63    6.38
Third Quarter...............................................    7.00    4.63
Fourth Quarter..............................................    7.13    3.63
</TABLE>

HOLDERS

     On May 31, 1999, the last reported sales price of the Company's Common
Stock as reported by the Nasdaq National Market was $3.44 per share and there
were 245 stockholders of record. The number of record holders was determined
from the records of the Company's transfer agent and does not include beneficial
owners of Common Stock whose shares are held in the names of various securities
brokers, dealers and registered clearing agencies.

DIVIDENDS

     The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain all cash for use in the operation and expansion of
the Company's business and does not anticipate paying any cash dividends in the
near future. In addition, the Company's existing bank credit agreement restricts
the declaration or payment of cash dividends on its Common Stock.

SALES OF UNREGISTERED SECURITIES

     The Company issued equity securities during 1998 in the following private
transactions not previously included in a quarterly report which were exempt
from the registration requirements of the Securities Act pursuant to Section
4(2).

     In October 1998, the Company issued 15,217 shares and 10,870 shares of its
Common Stock to Charles J. Crane and Bernard C. Spier in connection with an
amended and restated Management Agreement with Northern New Jersey Eye
Institute.

     In October 1998, the Company issued 235,366 shares of Common Stock in
connection with the acquisition of American SurgiSite, Inc.

                                        9
<PAGE>   12

ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                  ------------------------------------------------
                                                   1994      1995      1996      1997       1998
                                                  -------   -------   -------   -------   --------
                                                        (IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                               <C>       <C>       <C>       <C>       <C>
STATEMENT OF OPERATIONS DATA (1):
Revenues:
  LADS operations, net..........................  $11,306   $11,636   $13,662   $43,521   $109,478
  Managed care..................................    1,224     3,229     8,192    18,762     54,980
  Buying group..................................       --        --        --     7,261     58,959
                                                  -------   -------   -------   -------   --------
          Total revenue.........................   12,530    14,865    21,854    69,544    223,417
                                                  -------   -------   -------   -------   --------
Operating expenses:
  LADS operating expenses.......................    8,309     9,163    10,476    35,139     86,277
  Medical claims................................      863     3,350     9,475    14,090     42,159
  Cost of buying group sales....................       --        --        --     6,883     55,926
  General & administrative......................    2,610     2,632     4,876     9,579     27,665
  Depreciation & amortization...................      387       390       487     2,196      6,984
  Special items:................................
     Restructuring and other charges............       --        --        --        --      6,463
     Start-up and software development costs....       --        --        --        --        932
     Merger costs...............................       --        --        --        --        718
     Business development.......................       --        --     1,927        --         --
                                                  -------   -------   -------   -------   --------
          Total operating expenses..............   12,169    15,535    27,241    67,887    227,124
                                                  -------   -------   -------   -------   --------
Income (loss) from operations...................      361      (670)   (5,387)    1,657     (3,707)
Amortization of loan fees.......................       --        --        --       178        314
Interest expense................................        4       146       260     1,073      5,065
                                                  -------   -------   -------   -------   --------
Income (loss) before income taxes...............      357      (816)   (5,647)      406     (9,086)
Income taxes....................................       --        --        --        --     (2,450)
                                                  -------   -------   -------   -------   --------
Income (loss) before extraordinary charge.......      357      (816)   (5,647)      406     (6,636)
Extraordinary charge -- early extinguishment of
  debt..........................................       --        --        --       323      1,319
                                                  -------   -------   -------   -------   --------
Net income (loss)...............................  $   357   $  (816)  $(5,647)  $    83   $ (7,955)
                                                  =======   =======   =======   =======   ========
Loss before extraordinary charge per common
  share.........................................            $ (0.24)  $ (1.42)  $  0.05   $  (0.46)
Extraordinary charge per common share...........                 --        --   $ (0.04)     (0.09)
                                                            -------   -------   -------   --------
Net earnings (loss) per common share............            $ (0.24)  $ (1.42)  $  0.01   $  (0.55)
                                                            =======   =======   =======   ========
Weighted average number of common shares
  outstanding...................................              3,434     3,978     8,571     14,385
                                                            =======   =======   =======   ========
</TABLE>

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                  ------------------------------------------------
                                                   1994     1995      1996       1997       1998
                                                  ------   -------   -------   --------   --------
                                                        (IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                               <C>      <C>       <C>       <C>        <C>
BALANCE SHEET DATA (1):
Working capital (deficit).......................  $ (131)  $(1,237)  $(2,303)  $  4,868   $  7,134
Total assets....................................   3,690     3,485    20,576    119,380    191,677
Long-term debt and capital lease obligations,
  including current maturities..................   1,612     1,690     9,097     27,283     84,374
Total stockholders' equity (deficit)............     697      (289)    3,624     67,731     73,722
</TABLE>

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

(1) Data has been restated for the acquisitions of EyeCare One Corp. and Vision
    Insurance Plan of America, Inc. on March 31, 1998 which was accounted for as
    a pooling of interests.

                                       10
<PAGE>   13

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

GENERAL OVERVIEW

     Vision Twenty-One, Inc. (the "Company") develops and manages local area eye
care delivery systems ("LADS(SM)") in 40 markets. LADS involve contractual
affiliations with local optometrists and ophthalmologists (the "Affiliated
Providers") to provide primarily vision care and refractive surgery at
independent or company-owned clinics and surgery centers. Additionally, the
Company develops retail distribution channels for its LADS through owning or
affiliating with retail optical chains, and develops managed care distribution
channels for its LADS through contracting with local health plans and other
third party payors.

     The Company began operations in 1984, providing services to seven
optometrists practicing at eight clinic locations. The Company currently
provides its services to 40 LADS located in 27 states through which
approximately 5,800 Affiliated Providers deliver eye care services. Of these
Affiliated Providers, 218 are Managed Providers, consisting of 170 optometrists
and 48 ophthalmologists practicing at 175 clinic locations, 12 ASCs and six
RSCs. In addition, the Company has over 7,000 eye care professionals available
for potential managed care business in future markets. The Company's Affiliated
Providers, in conjunction with select national retail optical chains, deliver
eye care services under the Company's 103 managed care contracts and 12 discount
fee-for-service plans covering approximately 5.2 million exclusively contracted
patient lives.

     Through the third quarter of 1998, the Company's primary focus had been on
aggressively developing LADS and expanding LADS to new markets through
acquisitions in order to provide for a complete continuum of easily accessible,
high quality and affordable eye care services. This strategy of growth through
acquisitions positioned the Company in its principal markets and the Company is
now the largest full service eye care company in the United States. The Company
now believes that there are significant internal growth and development
opportunities available within existing LADS and as a result, in the last
quarter of 1998 and thus far in 1999, the Company has slowed down its
acquisition pace. Among other things, the Company plans to focus on vision care
including opening new de novo clinics and surgery centers and expanding managed
care initiatives with a primary focus on expanding its refractive surgery
programs to take advantage of the significantly increased demand for refractive
surgery. Furthermore, the Company will focus on completing the integration of
systems, processes and management with the goal of achieving significant cost
savings in the future.

     The Company has concentrated on developing its LADs since late 1997. It is
currently analyzing certain business units within such LADS and assessing the
long-term strategic value of each existing component. The Company is also
evaluating high growth opportunities existing in the vision care sector with
special emphasis on refractive surgery in which to add additional complementary
business to its LADs. In connection with these strategies, the Company recently
sold its Buying Group Division, the proceeds of which were used for repayment of
a portion of its bank debt.

ADDITIONAL OVERVIEW

     The Company enters into long-term management agreements ("Management
Agreements") with the professional associations or corporations ("Managed
Professional Associations") pursuant to which the Company is the sole provider
of comprehensive management, business and administrative services for the non-
professional aspects of the professional practices which obligate the Company to
provide certain facilities, equipment, accounting services, purchasing,
assistance in managed care, contract negotiations, management and clinical
personnel information systems, training and billing and collection services.
Under substantially all of the Company's management Agreements, management fees
utilized in management relationships (i) with ophthalmology practices range from
20% to 37% of the Managed Professional Association's net revenues after
deducting from such revenues all expenses of the clinic other than those related
to shareholders of the Managed Professional Associations, and (ii) with
optometrists range from 50% to 87% of net revenues of a practice and the Company
is required to pay generally all of the expenses at the clinic with the
exception of professional salaries and benefits. The practice management fees
earned by the Company pursuant to these Management Agreements fluctuate
depending on variances in clinic revenues and expenses of the Managed
Professional Association. The Managed Professional Association derive their
revenues from fees received for the use of ASCs, RSCs and sales of optical
goods. The Managed Professional Associations currently receive

                                       11
<PAGE>   14

revenues from a combination of sources, including capitation payments from
managed care companies and government funded reimbursements (Medicare and
Medicaid).

     The Company recognizes as managed care revenue certain fixed payments
received pursuant to its managed care contracts on a capitated or risk-sharing
basis. The Company also recognizes fees received for the provision of certain
financial and administrative services related to its indemnity fee-for-service
plans. The Company manages risk of capitated managed care contracts by
monitoring utilization of each Affiliated Provider and comparing their
utilization to national averages, expected utilization at the time the contract
was bid, utilization of other providers and historical utilization of the
Affiliated Provider. Abnormal utilization of an Affiliated Provider results in a
medical chart review by the Company and further counseling on appropriate
clinical protocols. To further manage the risk of capitated managed care
contracts, the Company, in certain instances enters into agreements to pay
Affiliated Providers a fixed per member per month fee for eye care services
rendered or a pro rata share of managed care capitated payments received (as
determined by the number of eye care procedures performed relative to other
Affiliated Providers). The Company targets these payments at a range of 80% to
90% of total payments received pursuant to the Company's capitated managed care
contracts. Pursuant to its capitated managed care contracts, the Company
receives a fixed payment per member month for a predetermined benefit level of
eye care services, as negotiated between the Company and the payor.
Profitability of the Company's capitated managed care contracts is directly
related to the specific terms negotiated, utilization of eye care services by
member patients and the effectiveness of administering the contracts. The
Company receives a percentage of collected medical billings for administering
indemnity fee-for-service plans for its Affiliated Providers. Although the terms
and conditions of the Company's managed care contracts vary considerably, they
are typically over a one-year term.

     In June 1999, the Company completed the sale of its Buying Group division.
The Company applied the cash portion of the purchase price primarily to repay a
portion of outstanding borrowings under its credit facility. The sale of the
Buying Group will reduce the Company's revenues, but will be beneficial to the
Company's overall operating margins.

1998 ACQUISITIONS

     In addition to the acquisitions described below, the Company completed the
acquisition of the business assets of 54 optometry clinics, nine ophthalmology
clinics, one ambulatory surgical center, two refractive centers and 21 optical
dispensaries located in Texas, Arizona, New Jersey, Florida, Nevada, Minnesota
and Wisconsin. Business assets consist of certain non-medical and non-optometric
assets, including accounts receivable, leases, contracts, equipment and other
tangible and intangible assets. Concurrently with these acquisitions, the
Company entered into long-term management agreements ("Management Agreements")
with the related professional associations employing 65 optometrists and five
ophthalmologists. These acquisitions were accounted for by recording assets and
liabilities at fair value and allocating the remaining costs to the related
Management Agreements. Additionally, the Company closed the acquisitions of all
of the outstanding stock of The Complete Optical Laboratory, Ltd., Corp.,
located in New Jersey which services the New Jersey optometry clinics acquired
by the Company, and the Company closed the acquisition of substantially all of
the business assets of a managed care company located in Florida servicing more
than 82,700 patient lives. These acquisitions were accounted for under the
purchase method of accounting. Such acquisitions are collectively referred to
herein as the "1998 Acquisitions." In connection with these acquisitions, the
Company provided aggregate consideration of approximately $20.1 million,
consisting of approximately 1.0 million shares of Common Stock and approximately
$13.5 million in cash and promissory notes in the aggregate principal amount of
$1.3 million, subject to closing adjustments. In addition, the Company is
required to provide additional contingent consideration consisting of 282,185
shares of Common Stock and up to $2.1 million in cash, to be paid to certain
sellers if certain post-acquisition performance targets are met. On a pro forma
basis, had the 1998 Acquisitions occurred at the beginning of 1997, the Company
would have recorded $35.7 million and $16.1 million in additional revenue for
1997 and 1998, respectively.

     The Company completed the acquisition of American SurgiSite Centers, Inc.,
("American SurgiSite") an ambulatory surgery center developer, management and
consulting company located in New Jersey, effective September 1, 1998. American
SurgiSite manages eight ambulatory surgery facilities. In connection
                                       12
<PAGE>   15

with this transaction, the Company paid $1.5 million in cash and issued 235,366
shares of Common Stock. In addition, the Company is required to provide
additional contingent consideration of up to $3.1 million if certain post
acquisition performance targets are met. On a pro forma basis, had this
acquisition occurred at the beginning of 1997, the Company would have recorded
$4.8 million and $3.2 million in additional revenue for 1997 and 1998,
respectively.

     The Company completed the acquisition of Vision World, Inc. ("Vision
World"), a retail optical chain located in Minneapolis, Minnesota, effective
June 30, 1998. Vision World consists of 38 retail clinics and 30 optometrists.
In connection with this transaction, the Company paid $16.1 million in cash, net
of cash acquired. In addition, the Company is required to provide additional
contingent consideration of up to $600,000 in cash if certain post-acquisition
performance targets are met. On a pro forma basis, had this acquisition occurred
at the beginning of 1997, the Company would have recorded $27.0 million and
$13.5 million in additional revenue for 1997 and 1998, respectively.

     In March 1998, the Company completed a transaction with EyeCare One Corp.
("EyeCare One") and Vision Insurance Plan of America, Inc. ("VIPA"). EyeCare One
was the parent company of Stein Optical which operates 16 optometric retail
locations in Milwaukee, Wisconsin. VIPA holds a single service insurance license
and delivers vision care benefits to approximately 19,000 patient lives in
Wisconsin. These transactions were accounted for by the Company as a pooling of
interests. The costs of approximately $718,000 incurred in connection with these
transactions were charged to expense. In connection with these transactions, the
Company issued 1,109,806 shares of Common Stock, valued at approximately $10.5
million.

     In January 1998, the Company completed the acquisition of The Eye DRx, a
retail optical chain of 19 retail clinics located in Bloomfield, New Jersey. In
connection with this transaction, the Company paid $7.2 million in cash and
issued 522,600 shares of Common Stock. In addition, the Company is required to
provide additional contingent consideration of 19,398 shares of Common Stock if
certain post acquisition performance targets are met. In conjunction with this
acquisition, the Company entered into Management Agreements with the Managed
Professional Associations' stockholders. On a pro forma basis, had this
transaction occurred at the beginning of 1997, the Company would have recorded
$19.1 million in additional revenue for 1997.

1997 ACQUISITIONS

     During 1997, the Company also completed the acquisition of the business
assets of one optometry clinic, 19 ophthalmology clinics, nine optical
dispensaries and five ASCs. Concurrently with these acquisitions, the Company
entered into long-term Management Agreements with the related professional
associations employing nine optometrists and 29 ophthalmologists. These
acquisitions were accounted for by recording assets and liabilities at fair
value and allocating the remaining costs to the related Management Agreements.
Additionally, the Company acquired all of the issued and outstanding stock of
BBG-COA, Inc. ("Block Vision") (the "Block Acquisition"), LSI Acquisition, Inc.
("LSI") and MEC Health Care, Inc. ("MEC"), (LSI and MEC are collectively
referred to herein as the "LaserSight Acquisitions"). The Company also completed
the acquisition of substantially all the business assets of a managed care
company servicing two capitated managed care contracts covering over 134,000
patient lives. Excluding the Block and LaserSight Acquisitions, such
acquisitions are collectively referred to herein as the "1997 Acquisitions." In
connection with the 1997, Block and LaserSight Acquisitions, the Company
provided aggregate consideration of $68.1 million, consisting of 2,758,572
shares of Common Stock, $38.8 million in cash and $364,000 in promissory notes.
Additionally, the Company is required to provide additional contingent
consideration, consisting of approximately 393,654 shares of Common Stock and
approximately $821,000 in cash, and approximately $467,000 in shares of Common
Stock, to be paid to certain sellers if post-acquisition performance targets are
met. In connection with the 1997 and 1998 Acquisitions, the Company expects to
issue approximately 105,000 additional shares of Common Stock and approximately
$463,000 in cash in 1999.

1996 ACQUISITIONS

     In December 1996, the Company completed the acquisition of the business
assets of 22 optometry clinics, nine ophthalmology clinics, 15 optical
dispensaries and one ASC. Concurrently, the Company entered into

                                       13
<PAGE>   16

Management Agreements with the related professional associations employing 34
optometrists and 13 ophthalmologists (the "1996 Acquisitions"). These
acquisitions were accounted for by recording the assets and liabilities at fair
value and allocating the remaining costs to the related Management Agreements.
Additionally, the Company acquired substantially all the business assets of a
managed care company servicing four capitated managed care contracts covering
over 100,000 patient lives, which was accounted for under the purchase method of
accounting. In connection with the 1996 Acquisitions, the Company provided
aggregate consideration of $11.2 million, consisting of 2.1 million shares of
Common Stock, promissory notes in the aggregate principal amount of $1.9 million
and $800,000 in assumed debt. Additionally, the Company agreed to provide
aggregate contingent consideration of $316,000, consisting of 79,805 shares of
Common Stock in connection with the 1996 Acquisitions if certain
post-acquisition performance targets were met. As a result of certain of the
post-acquisition targets being met, the Company issued contingent consideration
in the aggregate of 56,356 shares of common stock in 1997 and 6,209 shares of
common stock in 1998. The Company does not expect any of the remaining
contingent consideration in connection with the 1996 Acquisitions to be paid.
The Company recorded a one-time charge in the fourth quarter of 1996 for
expenses associated with the planned acquisition of the business assets of
certain Affiliated Providers at the time of the 1996 acquisitions which the
Company chose not to continue to pursue.

RESTRUCTURING PLAN AND CERTAIN ACCOUNTING MATTERS

     The Company recognized various accounting impacts in the fourth quarter of
1998 relative to a restructuring plan announced in 1998 (the "Restructuring
Plan"). The Restructuring Plan initiatives, which are comprised of a number of
specific projects, are designed to position the Company to take full operational
and economic advantage of various key acquisitions, allow the Company to
complete the consolidation and deployment of necessary infrastructure for the
future, and optimize and integrate certain acquired assets. The Company expects
to achieve savings up to $8.0 million annually in connection with such
restructuring program once it is fully implemented, which is expected to be
accomplished by the end of 1999. The total restructuring and other charges and
business integration costs recorded in 1998 were $8.9 million. (See Note 15 --
Restructuring Plan to the Consolidated Financial Statements). The Restructuring
Plan resulted in the accrual of a reserve for restructuring costs at December
31, 1998 in the amount of approximately $2.8 million. These initiatives include:
a) the integration of managed care service centers and business lines, b) the
consolidation of retail back office functions, and c) the consolidation of
certain corporate functions. As provided for in the Restructuring Plan, the
Company also expensed other charges and related business integration costs
related to the Restructuring Plan that were incurred during the fourth quarter
of 1998. These costs represent incremental or redundant costs as well as
internal costs that resulted directly from the development and initial
implementation of the Restructuring Plan, but are required to be expensed as
incurred. All other charges and business integration costs that were expensed as
incurred during 1998 were approximately $6.1 million. These other charges and
business integration costs consist primarily of: a) charge offs related to
exiting certain markets, b) charge offs of capitalized costs that will not be
realized as a result of the Restructuring Plan, and c) redundant employee costs
and expenses for severed employees through the date of severance. In addition,
these costs include training costs, rebranding costs, relocation costs,
retention payments, and lease costs for facilities that have been planned for
closure. The Company expects to record approximately $3.1 million during fiscal
1999 for business integration costs expected to be incurred, until such time as
the Restructuring Plan has been fully implemented.

     Several unusual accounting items occurred in 1998 (which specific costs
related thereto are not expected to occur again in the future). These unusual
items consisted of restructuring and other charges and business integration
costs of $8.9 million related to the previously announced Restructuring Plan
discussed above, merger costs of $0.7 million, start-up and software development
costs of $0.9 million, an extraordinary charge of $1.3 million related to early
extinguishment of debt and expenses for the Company's previously disclosed
intercompany reconciliation and other items totaling $3.6 million. The $3.6
million consisted of $1.6 million of expenses related to the results of the
Company's previously announced unreconciled item and $2.0 million of one time
items related to revenue recognition of acquisition integration fees and
receivable write offs. As a result of the Company's reconciliation of
intercompany accounts, change in accounting for start-up costs and software
development costs, and the change in accounting treatment for revenue
recognition regarding
                                       14
<PAGE>   17

acquisition integration fees in 1998, the Company will restate, to the extent
material, its previously reported 1998 Quarterly Financial Results, by filing
Amended Form 10-Qs for 1998.

     As previously announced, the unreconciled items referenced above required
extensive analysis of the financial statements from fiscal years 1996, 1997 and
1998 for many of the Company's acquired entities, resulting in a delay in filing
the Company's 10-K. The identified items substantially resulted from the
different accounting systems used for each entity during the prior periods.
Currently, these entities are operating on a single accounting management
information system using thin client server technology to connect them to
corporate headquarters over a private intranet network.

     Revenues for the first quarter ended March 31, 1999 increased over 30% to
$65.9 million while EBITDA, before business integration costs of $1.3 million,
increased over 20% to $5.4 million. Excluding the impact of business integration
costs in 1999 as a result of the Company's previously disclosed Restructuring
Plan, net income was $1.3 million, or $0.09 per share on a diluted basis or
inclusive of business integration costs, $16,175. The Company did not have a tax
provision in the first quarter of 1999. These business integration costs are
expected to continue to be incurred by the Company through 1999 on a diminishing
basis.

RESULTS OF OPERATIONS

     The following table sets forth, as a percentage of total revenues, certain
items in the Company's statement of operations for the periods indicated. As a
result of the 1996 Acquisitions, the 1997 Acquisitions and the 1998
Acquisitions, the Company does not believe that the historical percentage
relationships for 1996, 1997 and 1998 reflect the Company's expected future
operations.

<TABLE>
<CAPTION>
                                                              1996     1997     1998
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Revenues:
  LADS operations, net......................................   62.5%    62.6%    49.0%
  Managed care..............................................   37.5     27.0     24.6
  Buying group..............................................     --     10.4     26.4
                                                              -----    -----    -----
          Total revenue.....................................  100.0    100.0    100.0
                                                              -----    -----    -----
Operating expenses:
  LADS operating expenses...................................   47.9     50.5     38.6
  Medical claims............................................   43.4     20.3     18.9
  Cost of buying group sales................................     --      9.9     25.0
  General & administrative..................................   22.3     13.8     12.4
  Depreciation & amortization...............................    2.2      3.1      3.2
  Special items:
     Restructuring and other charges........................     --       --      2.9
     Start-up and software development costs................     --       --      0.4
     Merger costs...........................................     --       --      0.3
     Business development...................................    8.8       --       --
                                                              -----    -----    -----
          Total operating expenses..........................  124.6     97.6    101.7
                                                              -----    -----    -----
Income (loss) from operations...............................  (24.6)     2.4     (1.7)
  Amortization of loan fees.................................     --      0.3      0.1
  Interest expense..........................................    1.2      1.5      2.3
                                                              -----    -----    -----
  Income (loss) before income taxes.........................  (25.8)     0.6     (4.1)
  Income taxes..............................................     --       --     (1.1)
                                                              -----    -----    -----
  Income (loss) before extraordinary charge.................  (25.8)     0.6     (3.0)
  Extraordinary charge -- early extinguishment of debt......     --      0.5      0.6
                                                              -----    -----    -----
  NET INCOME (LOSS).........................................  (25.8)%    0.1%    (3.6)%
                                                              =====    =====    =====
  Medical Claims Ratio......................................  115.7%    75.1%    76.7%
</TABLE>

                                       15
<PAGE>   18

  YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

     Revenues.  Revenues increased 221% from $69.5 million for the year ended
December 31, 1997 to $223.4 million for the year ended December 31, 1998. The
increase was caused primarily by an increase in LADS operations net revenues
attributable to the 1997 Acquisitions, the LaserSight Acquisition, the 1998
Acquisitions and the Vision World acquisition, which accounted for $70.2 million
of the increase; an increase in buying group revenues attributable to the Block
Acquisition which accounted for $51.7 million of the increase; an increase in
managed care revenues attributable to the Block Acquisition, MEC acquisition;
and the addition of three capitated contracts and the expansion of an existing
contract which accounted for $32.0 million of the increase. Comparable clinic
revenues increased approximately 12% over 1997 levels for practices managed by
the Company for the entire year. Managed care revenues on a comparable basis
increased 35% over 1997 levels for business units operated by the Company for
the entire year. The Company's revenue mix has changed from 1997 to 1998, as a
full year of revenue was recognized for the Company's buying group in 1998
compared to three months in 1997.

     LADS Operating Expenses.  LADS operating expenses increased 146% from $35.1
million for the year ended December 31, 1997 to $86.3 million for the year ended
December 31, 1998. LADS operating expenses consist of salaries, wages and
benefits of certain clinic staff, professional fees, medical supplies,
advertising, building and occupancy costs, and other general and administrative
costs related to the operation of clinics and ASCs. This increase was caused
primarily by the 1997 Acquisitions, the LaserSight Acquisition and the 1998
Acquisitions. As a percentage of LADS operations net revenues, LADS operating
expenses decreased from 80.7% for the year ended December 31, 1997 to 78.8% for
the year ended December 31, 1998. This trend is not expected to continue as it
will be adversely impacted by increased LADS operations expenses in the future.

     Medical Claims.  Medical claims expense increased 199% from $14.1 million
for the year ended December 31, 1997 to $42.2 million for the year ended
December 31, 1998. The Company's medical claims ratio increased/decreased from
75.1% for the year ended December 31,1997 to 76.7% for the year ended December
31, 1998. This increase was primarily attributed to higher utilization in basic
vision care plans. As a percentage of managed care revenues, vision care
wellness service contracts increased to 45% of managed care revenues for the
year ended December 31, 1998. Medical claims expense consists of payments by the
Company to its Affiliated Providers for vision care wellness services, medical
and surgical eye care services and facility services. These payments are based
on fixed payments received (as determined by the number of eye care procedures
performed relative to other Affiliated Providers) or negotiated fee-for-service
schedules.

     Cost of Buying Group Sales.  Cost of buying group sales were incurred by
the Company as a result of its acquisition of Block Vision. The cost of buying
group sales consists of the costs of various optical products which are shipped
directly to the providers of eye care services.

     General and Administrative Expenses.  General and administrative expenses
increased 189% from $9.6 million for the year ended December 31, 1997 to $27.7
million for the year ended December 31, 1998. This increase was caused primarily
by the 1998 Acquisitions, staff necessary to support the Company's retail
optical division, practice management and managed care business and increases in
travel expenses, professional fees and occupancy costs. General and
administrative expenses primarily consist of salaries, wages and benefits
related to management and administrative staff located at the Company's
corporate headquarters, retail chains back offices, and its managed care service
centers. As a percentage of revenues, general and administrative expenses
decreased from 13.8% for the year ended December 31, 1997 to 12.4% for the year
ended December 31, 1998. This decrease was caused primarily by increased
economies of scale resulting from the Company's expanding business. General and
administrative expenses for the year ended December 31, 1998 include
approximately $2.5 million of business integration costs discussed above, which
are expected to be eliminated throughout 1999. General and administrative
expenses for the year ended December 31, 1998 includes approximately $0.5
million in intercompany amounts which remained unreconciled at December 31, 1998
and was written off in 1998.

     Depreciation and Amortization.  Depreciation and amortization expense
increased from $2.2 million for the year ended December 31, 1997 to $7.0 million
for the year ended December 31, 1998. As a percentage of

                                       16
<PAGE>   19

revenues, depreciation and amortization expense remained relatively constant at
3.1% and 3.2% for the year ended December 31, 1997 and 1998, respectively.

     Restructuring and Other Charges.  Restructuring and other charges were
incurred as a result of the Company's Restructuring Plan discussed above.

     Start-up and Software Development Costs.  Start-up costs were incurred due
to the Company's early adoption of the provisions of AICPA Statement of Position
98-5 ("SOP 98-5"), "Reporting on the Costs of Start-up Activities" and AICPA
Statement of Position 98-1 ("SOP 98-1") "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." Start-up costs relate to
start-up activities associated primarily with refractive surgery centers and
initiatives in 1998, and software development costs are associated with the
Company's implementation of the Great Plains accounting software system in 1998.

     Merger Costs.  Merger costs were incurred as a result of the EyeCare One
and VIPA pooling of interests and consist primarily of professional fees.

     Interest Expense.  Interest expense increased 372% from $1.1 million for
the year ended December 31, 1997 to $5.1 million for the year ended December 31,
1998. The increase was caused by an increase in the debt outstanding from $27.3
million at December 31, 1997 to $84.4 million at December 31, 1998.

     Extraordinary Charges.  The Company incurred extraordinary charges of $1.3
million for the year ended December 31, 1998 in connection with amendments to
its credit facility. These extraordinary charges represent the write-off of
unamortized deferred loan costs.

  YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

     Revenues.  Revenues increased 218% from $21.9 million for the year ended
December 31, 1996 to $69.5 million for the year ended December 31, 1997. This
increase was caused primarily by an increase in practice management fees
attributable to the 1996 Acquisitions, the 1997 Acquisitions and the Block
Acquisition, which accounted for $29.1 million of the increase, and an increase
in buying group revenues attributable to the Block Acquisition, which accounted
for $7.3 million of the increase, and an increase in managed care revenues
attributable to the 1997 Acquisitions, the Block Acquisition, the addition of
three capitated contracts and the expansion of an existing contract which
accounted for $10.3 million of the increase. Comparable clinic revenues
increased 12% over 1996 levels for practices managed by the Company for the
entire year. Managed care revenues on a comparable basis increased 45% over 1996
levels for business units operated by the Company for the entire year.

     LADS Operating Expenses.  LADS operating expenses increased 235% from $10.5
million for the year ended December 31, 1996 to $35.1 million for the year ended
December 31, 1997. LADS operating expenses consist of salaries, wages and
benefits of certain clinic staff, professional fees, medical supplies,
advertising, building and occupancy costs, and other general and administrative
costs related to the operation of clinics and ASCs. This increase was caused
primarily as a result of the 1996 and the 1997 Acquisitions. Prior to the 1996
Acquisitions, the Company recognized no practice management expenses related to
management services because the Company was not liable for such expenses.

     Medical Claims.  Medical claims expense increased 49% from $9.5 million for
the year ended December 31, 1997 to $14.1 million for the year ended December
31, 1997. The Company's medical claims ratio decreased from 115.7% for the year
ended December 31, 1996 to 75.1% for the year ended December 31, 1997. This
decrease was caused primarily by the Company's Block Acquisition and the
renegotiated agreement to pay its ophthalmology and ASC providers a per member
per month fee for surgical eye care services provided under the Company's
largest capitated managed care contract. Medical claims expense consists of
payments by the Company to its Affiliated Providers for primary eye care
services, medical and surgical eye care services and facility services. These
payments are based on fixed payments per member per month, a pro rata share of
managed capitated payments received (as determined by the number of eye care
procedures performed relative to other Affiliated Providers) or negotiated
fee-for-service schedules. Capitated payments and pro rata payments collectively
represented 16.2% and fee-for-service claims represented 83.8%

                                       17
<PAGE>   20

of total medical claims expense for the year ended December 31, 1997. Medical
claims for the year ended December 31, 1996 were based entirely on negotiated
fee-for-service schedules.

     Cost of Buying Group Sales.  Buying group cost of sales were incurred by
the Company as a result of it acquisition of Block Vision. The cost of buying
group sales represents two months of expenses attributable to Block Vision's
buying group business. These expenses represent the costs of various optical
products which are shipped directly to providers of eye care services.

     General and Administrative Expenses.  General and administrative expenses
increased 96% from $4.9 million for the year ended December 31, 1996 to $9.6
million for the year ended December 31, 1997. This increase was caused primarily
by the 1997 Acquisitions, and an increase in corporate staff necessary to
support the Company's expanded practice management and managed care business.
General and administrative expenses primarily consist of salaries, wages and
benefits related to management and administrative staff located at the Company's
corporate headquarters and managed care service centers. As a percentage of
revenues, general and administrative expenses decreased from 22.3% for the year
ended December 31, 1996 to 13.8% for the year ended December 31, 1997. This
decrease was caused primarily by increased economies of scale resulting from the
Company's expanding business.

     Depreciation and Amortization.  Depreciation and amortization expense
increased from $0.5 million for the year ended December 31, 1996 to $2.2 million
for the year ended December 31, 1997. As a percentage of revenues, depreciation
and amortization expense increased from 2.2% for the year ended December 31,
1996 to 3.1% for the year ended December 31, 1997. These increases were caused
primarily by the amortization of intangibles attributable to the 1996
Acquisitions, the 1997 Acquisitions and the Block Acquisition.

LIQUIDITY AND CAPITAL RESOURCES

     The Company has historically funded its working capital and capital
expenditure requirements primarily through institutional borrowings and private
debt and equity financings. Net cash used in operating activities for the year
ended December 31, 1997 was $3.5 million as compared to net cash provided by
operating activities of $1.0 million for the year ended December 31, 1998. The
Company experiences changes in certain balance sheet accounts which result
primarily from normal working capital needs.

     Net cash used in investing activities for the years ended December 31, 1997
and 1998 was $44.1 million and $50.0 million, respectively, and resulted from
payments for acquisitions, medical equipment and office furniture and
capitalized acquisition costs.

     Net cash provided by financing activities for the years ended December 31,
1997 and 1998 was $51.4 million and $51.0 million, respectively. The amounts for
1997 were primarily attributable to debt and equity financings, and the amounts
attributable for 1998 were primarily attributable to debt financings.

     On January 30, 1998, the Company entered into a five-year, $50.0 million
bank credit agreement (the "Credit Agreement") with the Bank of Montreal as
agent (the "Agent") for a consortium of banks. The Credit Agreement, which
matures in January 2003, provided the Company with a revolving credit facility
component in an aggregate amount of up to $10.0 million and a term loan
component in an aggregate amount of up to $40.0 million. The Credit Agreement is
secured by a pledge of the stock of substantially all of the Company's
subsidiaries and the assets of the Company and certain of its subsidiaries and
is guaranteed by certain of the Company's subsidiaries. The Credit Agreement
contains negative and affirmative covenants and agreements which place
restrictions on the Company regarding disposition of assets, capital
expenditures, additional indebtedness, permitted liens and payment of dividends,
as well as requiring the maintenance of certain financial ratios. The interest
rate on the Credit Agreement is, at the option of the Company, either (i) the
London InterBank Offered Rate plus an applicable margin rate, (ii) the greater
of (a) the Agent's prime commercial rate or (b) the "federal funds" rate plus
0.5%, or (iii) a fixed rate loan as determined by the Agent at each time of
borrowing. At the closing of the Credit Agreement the Company used approximately
$26.9 million of its available borrowing to repay the outstanding balance under
the Company's Bridge Credit Facility with Prudential Credit and related accrued
interest and transaction costs. The Company had used approximately $48.3 million
of its available borrowings under the Credit Agreement.

                                       18
<PAGE>   21

     On July 1, 1998, the Company entered into a restated $100.0 million bank
credit agreement with the Bank of Montreal as agent for a consortium of banks
(the "Restated Credit Agreement"). The Restated Credit Agreement was used in
part to early extinguish the Company's outstanding balance of approximately
$48.3 million under its prior Credit Agreement. The remaining balance under the
Restated Credit Agreement has been accessed in the past for working capital and
general corporate purposes, and for acquisitions. The Restated Credit Agreement
included a seven-year term loan of $70.0 million and a $30.0 million five-year
revolving and acquisition facility. Other terms and conditions were
substantially the same as the prior Credit Agreement with a slightly higher
margin spread on the seven-year term portion.

     On February 23, 1999, the Company entered into an amendment to the Restated
Credit Agreement (the "First Amendment"). The First Amendment provided a $50.0
million term loan maturing in June 2005 with quarterly principal payments of one
percent beginning in June 1999, a $20.0 million term loan maturing in June 2003
with quarterly principal payments of approximately $1.3 million beginning in
September 2000, a $12.5 million term loan which was to be utilized for
acquisitions and capital expenditures maturing in June 2003, and a $7.5 million
revolving facility maturing in June 2003. The First Amendment also revised
certain of the covenants and included a slightly higher margin spread on the
seven-year term portion. Other terms and conditions were substantially the same
as the Restated Credit Agreement. On June 11, 1999, the Company entered into a
second amendment to the Restated Credit Agreement (the "Second Amendment" and
together with the Restated Credit Agreement and the First Amendment, the
"Amended Credit Agreement"). The Second Amendment principally revised certain
financial covenants in connection with the credit facility which the Company was
previously unable to meet and resulted in the early termination of the Company's
unused portion of its borrowing capacity relative to the acquisition component
of the credit facility, which was scheduled to expire June 30, 1999. Of the $7.5
million of borrowings under the revolving facility, the Company currently has
limited availability of $1.7 million. As of June 10, 1999, the Company had used
approximately $78.0 million of its available borrowings under the Amended Credit
Agreement. The Company is currently evaluating its capital structure and various
financing alternatives as it considers its working capital needs over the
foreseeable future.

     On November 20, 1997, the Company completed the sale of 2,300,000 shares of
its Common Stock at a price of $9.50 in a secondary public offering (the
"Secondary Offering"). The net proceeds of $20.5 million from the Secondary
Offering were used to fund a portion of the consideration for the Block
Acquisition.

     In October 1997, the Company received a commitment from Prudential
Securities Credit Corporation ("Prudential Credit") for a credit facility in the
aggregate amount of $37.0 million pursuant to a Note Purchase Agreement (the
"Bridge Credit Facility"). Approximately $27.0 million of the Bridge Credit
Facility was available, if needed, to fund the cash portion of the Block
Acquisition to the extent the net proceeds from the Company's Secondary Offering
were insufficient for such purpose. The remaining balance of approximately $10.0
million of the Bridge Credit Facility was available for optometry and
ophthalmology practice acquisitions. The Company borrowed $5.6 million and $6.5
million for use in funding the cash portions of the Block Acquisition and
LaserSight Acquisitions, respectively. Additionally, the Company borrowed
approximately $3.5 million for use in the funding of certain optometry and
ophthalmology practice acquisitions. Amounts borrowed pursuant to the Bridge
Credit Facility were secured by a first security interest in all of the
company's assets. The Bridge Credit Facility was required to be repaid at the
earlier of six months from the date of any borrowing from the Bridge Credit
Facility or upon the closing of any future debt or equity offering by the
Company. The Bridge Credit Facility contained negative and affirmative covenants
and agreements which included covenants requiring the maintenance of certain
financial ratios. The Company repaid its Bridge Credit Facility borrowings in
full from available proceeds under its Credit Agreement.

     On August 18, 1997, the Company completed the sale of 2,100,000 shares of
its Common Stock at a price of $10.00 per share in an initial public offering
(the "Initial Public Offering"). The net proceeds from the Initial Public
Offering were used to repay substantially all of the Company's outstanding
indebtedness and to provide funding to acquisitions of optometry and
ophthalmology clinics and ASCs.

     In April 1997, the Company entered into a credit facility in the aggregate
amount of $4.9 million with Prudential Securities Group Inc. ("Prudential")
pursuant to a "Note and Warrant Purchase Agreement" (as

                                       19
<PAGE>   22

amended and restated, the Note and Warrant Purchase Agreement). The proceeds
from the borrowing were used to repay the Company's credit facility with Barnett
Bank N.A. in the principal amount of $2.0 million and for general working
capital purposes. Under the Note and Warrant Purchase Agreement, the Company
issued a senior note secured by all the Company's assets (the "Prudential
Note"). The Prudential Note accrued interest at 10% per annum with a maturity of
the earlier of January 1, 1998 or upon completion of the Initial Public
Offering. In addition, the Note and Warrant Purchase Agreement included a
detachable warrant to purchase 210,000 shares of Common Stock at an exercise
price equal to $10.00 per share, the price of the Common Stock in the Initial
Public Offering. The Prudential Note was repaid by the Company from the net
proceeds of the Initial Public Offering.

     In February 1997, the Company borrowed an aggregate of $2.0 million from
Piper Jaffray Healthcare Fund II Limited Partnership ("Piper Jaffray") for
working capital purposes pursuant to the issuance of senior subordinated notes
bearing interest at 10% per annum (the "1997 Subordinated Notes"). The 1997
Subordinated Notes included a detachable warrant to purchase an aggregate of
333,333 shares of Common Stock, which have an exercise price of $6.00 per share.
The 1997 Subordinated Notes were repaid by the Company from the net proceeds of
the Initial Public Offering.

     In December 1996, the Company borrowed an aggregate of $1.3 million from
certain individuals for working capital purposes pursuant to the issuance of
senior subordinated notes bearing interest at 10% per annum (the "1996
Subordinated Notes"). The 1996 Subordinated Notes included detachable warrants
to purchase an aggregate of 208,333 shares of Common Stock at an exercise price
of $6.00 per share. The 1996 Subordinated Notes were repaid by the Company from
the net proceeds of the Initial Public Offering.

     For the year ended December 31, 1998, the Company completed the 1998
Acquisitions and, in connection with the 1998 Acquisitions, the Company provided
aggregate consideration of approximately $37.5 million consisting of 1.6 million
shares of Common Stock, $21.9 million in cash and promissory notes in the
aggregate principal amount of approximately $1.3 million, subject to
post-closing adjustments. In addition, the Company is required to provide
additional contingent consideration, consisting of 301,583 shares of Common
Stock, and up to $2.1 million in cash, to be paid to certain sellers if certain
post-acquisition performance targets are met.

     Effective September 1, 1998, the Company completed the acquisition of
American SurgiSite Centers, Inc., an ambulatory surgery center developer,
management and consulting company located in New Jersey. In connection with this
transaction, the Company paid $1.47 million in cash and 235,366 shares. In
addition, the Company is required to provide additional contingent consideration
of up to $3.1 million if certain post acquisition performance targets are met.

     Effective June 30, 1998, the Company completed the acquisition of Vision
World, a retail optical chain located in Minneapolis, Minnesota, effective June
30, 1998. In connection with this transaction, the Company paid $16.1 million in
cash, net of cash acquired. In addition, the Company is required to provide
additional contingent consideration of up to $0.6 million in cash if certain
post-acquisition performance targets are met.

     In March 1998, the Company completed a pooling of interests transaction
with EyeCare One and VIPA, Inc. In connection with the pooling transaction, the
Company issued 1,109,806 shares of Common Stock, subject to post-closing
adjustments, valued at approximately $10.5 million.

     Effective December 1, 1997, the Company completed the LaserSight
Acquisition in exchange for aggregate consideration paid to the seller of
approximately $13.0 million, consisting of $6.5 million in cash and 820,085
shares of Common Stock, subject to certain post-closing adjustments. The cash
portion of the consideration paid by the Company for the LaserSight Acquisition
was financed through a letter amendment to the Company's credit facility with
Prudential Securities Credit Corporation. On March 11, 1998, the Company
redeemed 168,270 shares of its Common Stock pursuant to the Stock Distribution
Agreement from LaserSight, Inc., for an aggregate purchase price of
approximately $1.5 million. Such shares were subsequently reissued by the
Company in connection with the EyeCare One acquisition.

     Effective October 31, 1997, the Company completed the Block Acquisition in
exchange for aggregate consideration paid to the sellers of approximately $35.0
million, consisting of $25.6 million in cash, 458,365
                                       20
<PAGE>   23

shares of Common Stock, subject to certain post-closing adjustments and 219,633
shares of Common Stock to be held in escrow as contingent consideration, of
which 109,816 shares are to be delivered by the Company to the sellers if EBITDA
of Block Vision reaches $4.5 million for the year ended December 31, 1998. The
remaining 109,817 shares will be deliverable on a pro rata escalating basis if
Block Vision reaches $4.5 million of EBITDA for 1998 with the full contingent
consideration deliverable upon Block Vision attaining $4.9 million of EBITDA for
1998. There were no contingent shares issued for the year ended December 31,
1998, as EBITDA of Block Vision did not reach the required level.

     During 1997, the Company also completed the 1997 Acquisitions, and in
connection with the 1997 Acquisitions, the Company provided aggregate
consideration of $20.1 million, consisting of 1,480,122 shares of Common Stock,
$6.7 million in cash and $364,000 in promissory notes. Additionally, the Company
is required to provide additional contingent consideration, consisting of
approximately 174,021 shares of Common Stock, approximately $821,000 in cash,
and approximately $467,000 in shares of Common Stock, to be paid to certain
sellers if post-acquisition performance targets are met.

     The Company has treated as deferred compensation the issuance of shares of
restricted stock in September and October 1996 for future services related to
various business development initiatives and management incentives. In September
1996, the Company entered into a five-year services agreement with its Chief
Medical Officer and current director of the Company and issued 108,133 shares of
restricted Common Stock. These shares were valued at $2.77 per share or
$300,000. Of these shares, 40% vested immediate and the Company recorded a
business development charge of $120,000. The remaining 60% of the shares were
recorded as an offset in stockholders' equity as deferred compensation for
$180,000. In October 1996, the Company entered into a five-year advisory
agreement with an industry consultant and issued 125,627 shares of restricted
Common Stock, which vest over the life of the advisory agreement. These shares
were valued at $2.77 per share or $349,000. The Company recorded the issuance of
these shares as an offset in stockholders' equity as deferred compensation. This
deferred compensation is being amortized as the shares vest on a pro rata basis.

     Intangible assets consist of the excess of the purchase price over the fair
values of the net assets acquired from the business acquisitions, which is being
amortized on a straight-line method over 25 or 30 years, and the Management
Agreements with the Managed Professional Associations. The Management Agreements
have 40-year terms and are being amortized on a straight line method over 25
years. Intangible assets represented approximately 70% of the Company's total
assets at December 31, 1998. In determining the useful life of a Management
Agreement, the Company considers the operating history and other characteristics
of each practice. A principal consideration is the degree to which the practice
has demonstrated its ability to extend its existence indefinitely. The carrying
value of intangible assets is evaluated for recoverability whenever adverse
effects or changes in circumstances indicate that the carrying amount may not be
recoverable. Among other factors, the Company considers in making the valuation
are changes in the Managed Professional Associations market position,
reputation, profitability, and geographic penetration.

     The Company believes the effects of inflation have not had a material
adverse impact on its operations or financial condition to date. Substantial
increases in prices in the future, however, could have a material adverse effect
on the Company's results of operations.

     The Company has grown significantly with acquisitions funded with stock of
the Company. The Company may use its Common Stock as consideration for future
acquisitions in conjunction with its expansion strategy where it believes the
transaction will be accretive, which will be a factor in the Company's future
acquisitions, financial position and performance. The number of shares of Common
Stock the Company is ultimately required to provide in connection with its
acquisitions and the Company's ability to use stock in acquisitions will be
affected by the market price for its Common Stock and the number or shares so
provided will affect the Company's earnings per share.

     In 1999, thus far, the Company has operated and grown principally through
the use of positive operating capital cash flows and with a total sale of $1.1
million in company stock in two private transactions. As a result of the Second
Amendment, certain limited borrowings are now available to the Company.

                                       21
<PAGE>   24

     In connection with the Company's business integration plan described above,
the Company expects to spend approximately $4.9 million for severance and other
employee termination benefits in fiscal 1999. Additionally, the Company
currently expects to spend approximately $3.0 million for capital expenditures
and $3.0 million for new operating leases of equipment in fiscal 1999 which
includes costs to open new ASCs and new refractive surgery centers. Based upon
the Company's short-term anticipated capital needs for operation of its
business, general corporate purposes, along with furtherance of certain growth
objectives, management believes that the combination of the funds expected to be
provided from the Company's operations, limited accessibility under the credit
facility, accessibility to operating leases for certain new equipment and
currently anticipated future sources, will be sufficient for the short term. In
order to fully implement its vision care initiatives, including full
implementation of its refractive surgery program throughout its LADS markets,
the Company will seek additional working capital in the very near future and is
currently analyzing its options relative to the same. Additionally, to the
extent additional capital resources are currently needed for acquisitions or
other significant matters, the Company expects to utilize supplemental
borrowings to the extent available and/or the net proceeds, if feasible, from
the offering of debt or equity securities.

YEAR 2000 READINESS DISCLOSURE

     Currently many computer systems in use today were designed and developed
using two digits, rather than four, to specify the calendar year and as a
result, such systems are unable to recognize the year "2000". The inability of a
computer system to recognize the year "2000" could cause many computer
applications to fail or create erroneous results unless corrective measures are
taken. The Company utilizes software and related computer technologies essential
to its operations that could be affected by the year "2000" computer problem.

     The Company has implemented a plan of action which it believes will make
its computer systems year "2000 compliant." The Company is actively addressing
operational concerns regarding the year "2000" and is reviewing its systems to
identify those that may be affected by the year "2000."

     The Company divides its information technology software into the following
four general categories: (i) Financial (general ledger, financial and management
reporting, accounts payable, payroll and fixed assets), (ii) Retail Chains
(integrated-Point of Sale, Purchase Order Management, and Inventory Control
Systems), (iii) Practice Management (including billing, collection, accounts
receivables and third party billing) and (iv) Managed Care. The Company is in
various stages of readiness with respect to its information technology within
each category. The Company's Financial Category has been certified Year 2000
compliant by the third party software vendor providing the software to the
Company. The Company has selected the Delta Optical Computer System (the "Delta
System") as its integrated system for Retail Chains category. The Delta System
has been implemented in its Stein Optical Division. As part of the Company's
Restructuring Plan, the Delta System will be implemented in the remaining two
retail chain divisions. The Company has received certification that the Delta
System is Year 2000 compliant. Historically, the Company's philosophy with
respect to the Practice Management category of software is to utilize the third
party software legacy systems in place as long as they capably served a
practices needs. Currently, the Company has been advised that the third party
software suppliers it utilizes for the Practice Management category have either
installed or have scheduled to install over the next several months, Year 2000
upgrades. The Managed Care category generally has custom software that has been
upgraded for Year 2000 compliance and final testing is scheduled over the next
several months.

     The Company has initiated communications with significant suppliers,
customers and other third parties with which the Company does business, to
minimize disruptions to the Company's operations resulting from the year "2000"
problem and to ensure that any significant year "2000" problem will not have an
adverse effect on the Company's operations. The Company expects to work with
such parties to resolve or minimize year "2000" problems. The Company does not
expect the cost associated with its year "2000" compliance efforts to have a
material effect on the Company's future financial condition and results of
operation. The Company believes it currently has no material exposure to
contingencies related to the year "2000" issue and accordingly has not developed
a contingency plan. However, there can be no assurances that events outside the
control of the Company will not occur as a result of the year "2000" problem and
that such events would not have a material adverse effect on the Company.
                                       22
<PAGE>   25

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to changes in interest rates primarily as a result
of borrowing activities, under its Amended Credit Agreement, which is used to
maintain liquidity and fund the Company's business operations. The nature and
amount of the Company's debt may vary as a result of future business
requirements, market conditions and other factors. The extent of the Company's
interest rate risk is not quantifiable or predictable because of the variability
of future interest rates and business financing requirements, but the Company
does not believe such risk is material. The Company did not use derivative
instruments to adjust the Company's interest rate risk profile in 1998.

               SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

     This Form 10-K, the annual report and certain information provided
periodically in writing and orally by the Company's designated officers and
agents including the annual report contain certain statements which constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The terms
"Vision Twenty-One," "company," "we," "our" and "us" refer to Vision Twenty-One,
Inc. The words "expect," "believe," "goal," "plan," "intend," "estimate," and
similar expressions and variations thereof are intended to specifically identify
forward-looking statements. Those statements appear in this Form 10K, the annual
report and the documents incorporated herein by reference, particularly
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and include statements regarding the intent, belief or current
expectations of the company, its directors or its officers with respect to,
among other things;

          (i) our financial prospects;

          (ii) the successful integration of both completed and any future
     acquisitions;

          (iii) our ability to efficiently and effectively manage the Managed
     Providers;

          (iv) our financing plans including our ability to obtain satisfactory
     working capital through additional offerings of debt or equity;

          (v) trends affecting our financial condition or results of operations
     including our stock price and its potential impact on the number of shares
     utilized in acquisitions and on future earnings per share;

          (vi) our growth strategy and operating strategy including the shift in
     focus to internal growth and opening new de novo clinics and surgery
     centers, expanding managed care initiatives, vision care and refractive
     surgery programs;

          (vii) the impact on us of current and future governmental regulations;

          (viii) our current and future managed care contracts and the impact
     such contracts have on gross profit;

          (ix) our ability to continue to recruit Affiliated Providers, to
     convert certain of the Affiliated Providers to Managed Providers, and to
     maintain our relationships with Affiliated Providers;

          (x) our ability to continue the strategic relationships with
     affiliated retail optical companies;

          (xi) our strategic initiatives in vision care and refractive surgery;

          (xii) our ability to operate the managed care business efficiently,
     profitably and effectively;

          (xiii) our integration of systems and implementation of cost savings
     and reduction plans;

          (xiv) the future LADS overall operating margins;

          (xv) our year 2000 readiness and the readiness of third parties;

          (xvi) our expected savings from the restructuring programs;

                                       23
<PAGE>   26

          (xvii) our current and expected future revenue and the impact of any
     acquisition and the consolidation of infrastructure may have on our future
     performance;

          (xviii) our current run rate for laser vision correction procedures
     and the expected growth of such procedures and return on invested capital;

          (xviv) our late filing of the 10-Q and 10-K; and

          (xx) the purported class action complaints filed against the company.

     You are cautioned that any such forward looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those projected in the forward looking
statements as a result of various factors. The factors that might cause such
differences include, among others, the following:

          (i) in the event the company experiences future operating and net
     losses;

          (ii) any material inability to successfully integrate and profitably
     operate our acquisitions or to successfully open integrate and profitably
     operate de novo clinics, refractive surgery centers and ASCs;

          (iii) any material inability to acquire additional sufficient capital
     and financing at a reasonable cost to fund our long-term growth strategy or
     to maintain compliance with our credit facility;

          (iv) the inability to expand our managed care business, renew existing
     managed care contracts or maintain and expand our Contract Provider
     Network;

          (v) our inability to negotiate managed care contracts with HMOs;

          (vi) our inability to successfully and profitably operate our managed
     care business or for existing managed care contracts to positively impact
     gross profit;

          (vii) our ability to maintain our relationships with our managed
     clinics and the managed clinics inability to operate profitably;

          (viii) changes in state and/or federal governmental regulations which
     could materially affect our ability to operate or materially affect our
     profitability;

          (ix) the inability to maintain or obtain required licensure in the
     states in which we operate and in the states in which we may seek to
     operate in the future,

          (x) the degree current shortages in refractive surgery equipment
     adversely impacts the Company's access to same;

          (xi) consolidation of our competitors, poor operating results by our
     competitors, or adverse governmental or judicial rulings against our
     competitors;

          (xii) any failure by us to meet analysts expectations;

          (xiii) our stock price;

          (xiv) any adverse change in our medical claims to managed care revenue
     ratio;

          (xv) the effect of any future stock overhang in the market place
     (where the available stock for sale would be in excess of demand) and any
     negative impact on our stock price as a result of the overhang;

          (xvi) our inability to realize any significant benefits, cost savings
     or reductions from our restructuring program;

          (xvii) the non-compliance or readiness of the company or third parties
     with respect to year "2000" issues;

          (xviii) our inability to successfully increase and expand vision care
     and refractive surgery programs and other desired initiatives complementary
     to our LADS business;

                                       24
<PAGE>   27

          (xix) unexpected cost increases,

          (xx) our inability to successfully defend against the class action
     lawsuits or any additional litigation that may arise;

          (xxi) any reduction in coverage of and ratings by analysts following
     us and other factors including those identified in our filings from
     time-to-time with the SEC.

     The Company undertakes no obligation to publicly update or revise forward
looking statements to reflect events or circumstances after the date of this
Form 10-K and annual report or to reflect the occurrence of unanticipated
events.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(A) FINANCIAL STATEMENTS

     (1) Financial Statements.  The Company's Financial Statements included in
Item 8 hereof, as required, including the report of the Independent Certified
Public Accountants are as follows:

<TABLE>
<S>                                                           <C>
Report of Independent Certified Public Accountants..........     26
Consolidated Balance Sheets -- December 31, 1997 and 1998...     27
Consolidated Statements of Operations -- Years Ended
  December 31, 1996, 1997 and 1998..........................     28
Consolidated Statements of Stockholders' Equity -- Years
  Ended December 31, 1996, 1997 and 1998....................     29
Consolidated Statements of Cash Flows -- Years Ended
  December 31, 1996, 1997 and 1998..........................     30
Notes to Consolidated Financial Statements..................  31-53
</TABLE>

                                       25
<PAGE>   28

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Vision Twenty-One, Inc. and Subsidiaries

     We have audited the accompanying consolidated balance sheets of Vision
Twenty-One, Inc. and Subsidiaries as of December 31, 1997 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. These
consolidated 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Vision
Twenty-One, Inc. and Subsidiaries at December 31, 1997 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.

     As discussed in Note 2 to the consolidated financial statements, in 1998
the Company changed its method of accounting for start-up costs and software
development costs.

                                                 /s/ ERNST & YOUNG LLP

Tampa, Florida
June 11, 1999

                                       26
<PAGE>   29

                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                              ---------------------------
                                                                  1997           1998
                                                              ------------   ------------
<S>                                                           <C>            <C>
                                         ASSETS
Current assets:
  Cash and cash equivalents.................................  $  4,048,358   $  6,052,423
  Accounts receivable due from:
    Buying group members, net of allowances for doubtful
     accounts of approximately $33,000 and $30,000 at
     December 31, 1997 and 1998, respectively...............     5,427,592      6,288,923
    Patients, net of allowances for uncollectible accounts
     and contractual adjustments of approximately $3,446,000
     and $4,106,000 at December 31, 1997 and 1998,
     respectively...........................................     5,502,110     10,806,173
    Managed Professional Associations.......................     3,973,221      4,115,662
    Managed health benefits payors..........................     1,276,790      1,573,799
    Other...................................................       165,292         48,165
  Current portion of note receivable........................            --         35,508
  Inventories...............................................       936,242      3,308,813
  Prepaid expenses and other current assets.................     2,016,036      3,131,328
                                                              ------------   ------------
        Total current assets................................    23,345,641     35,360,794
Fixed assets, net...........................................     8,626,964     15,222,586
Excess of purchase price, net of accumulated amortization of
  $278,982 and $2,099,693 at December 31, 1997 and 1998,
  respectively..............................................    47,182,934     62,860,749
Management Agreements, net of accumulated amortization of
  $852,519 and $3,312,532 at December 31, 1997 and 1998,
  respectively..............................................    36,981,407     69,371,278
Cash surrender value of life insurance, net of policy loans
  of $624,464 at December 31, 1997..........................       205,596             --
Deferred income taxes.......................................     1,882,000      6,300,000
Note receivable, net of current portion.....................            --        160,568
Other assets................................................     1,155,359      2,401,149
                                                              ------------   ------------
        Total assets........................................  $119,379,901   $191,677,124
                                                              ============   ============
                          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $  5,319,654   $  6,951,099
  Accrued expenses..........................................     2,708,741      6,069,593
  Medical claims payable....................................     3,555,195      4,713,995
  Accrued compensation......................................     1,381,497      3,716,787
  Accrued restructuring charge..............................            --      2,796,000
  Accrued acquisition costs.................................     1,045,905        165,752
  Due to Managed Professional Associations..................       961,463      1,087,545
  Due to selling stockholders...............................     2,811,809             --
  Current portion of deferred leasehold incentive...........        23,046         43,868
  Current portion of long-term debt.........................       104,371      2,143,149
  Current portion of obligations under capital leases.......       566,084        538,820
                                                              ------------   ------------
        Total current liabilities...........................    18,477,765     28,226,608
Deferred rent payable.......................................       261,117        253,258
Obligations under capital leases............................       632,850        474,891
Long-term debt, less current portion........................    25,980,253     81,217,396
Deferred leasehold incentive................................       186,323        271,358
Deferred income taxes.......................................     6,111,000      7,512,000
Stockholders' equity:
Preferred stock, $.001 par value; 10,000,000 shares
  authorized; no shares issued..............................            --             --
Common stock, $.001 par value; 50,000,000 shares authorized;
  13,529,892 (1997) and 15,067,025 (1998) shares issued and
  outstanding...............................................        13,530         15,067
Additional paid-in capital..................................    76,416,476     89,196,292
Common stock to be issued (105,164 shares at December 31,
  1998).....................................................            --      1,053,664
Deferred compensation.......................................      (408,735)      (300,435)
Note receivable from officer................................      (175,484)      (172,984)
Accumulated deficit.........................................    (8,115,194)   (16,069,991)
                                                              ------------   ------------
Total stockholders' equity..................................    67,730,593     73,721,613
                                                              ------------   ------------
Total liabilities and stockholders' equity..................  $119,379,901   $191,677,124
                                                              ============   ============
</TABLE>

                            See accompanying notes.

                                       27
<PAGE>   30

                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                         ----------------------------------------
                                                            1996          1997           1998
                                                         -----------   -----------   ------------
<S>                                                      <C>           <C>           <C>
REVENUES:
  LADS operations, net.................................  $13,661,822   $43,521,243   $109,477,913
  Managed care.........................................    8,192,456    18,762,158     54,980,006
  Buying group.........................................           --     7,260,797     58,959,195
                                                         -----------   -----------   ------------
                                                          21,854,278    69,544,198    223,417,114
Operating expenses:
  LADS operating expenses..............................   10,474,994    35,139,668     86,277,417
  Medical claims.......................................    9,475,395    14,090,250     42,159,210
  Cost of buying group sales...........................           --     6,882,199     55,926,173
  General and administrative...........................    4,876,207     9,578,925     27,664,447
  Depreciation and amortization........................      487,360     2,195,668      6,984,129
  Special items:.......................................
     Restructuring and other charges...................           --            --      6,462,595
     Start-up and software development costs...........           --            --        932,494
     Merger costs......................................           --            --        717,835
     Business development costs........................    1,926,895            --             --
                                                         -----------   -----------   ------------
                                                          27,240,851    67,886,710    227,124,300
                                                         -----------   -----------   ------------
Income (loss) from operations..........................   (5,386,573)    1,657,488     (3,707,186)
Amortization of loan fees..............................           --       178,677        314,208
Interest expense.......................................      260,597     1,072,589      5,064,891
                                                         -----------   -----------   ------------
Income (loss) before income taxes......................   (5,647,170)      406,222     (9,086,285)
Income taxes...........................................           --            --     (2,450,000)
                                                         -----------   -----------   ------------
Income (loss) before extraordinary charge..............   (5,647,170)      406,222     (6,636,285)
Extraordinary charge--early extinguishment of debt.....           --       323,346      1,318,512
                                                         -----------   -----------   ------------
Net income (loss)......................................  $(5,647,170)  $    82,876   $ (7,954,797)
                                                         ===========   ===========   ============
Basic and diluted earnings (loss) per common share:
  Income (loss) before extraordinary charge............  $     (1.42)  $      0.05   $      (0.46)
  Extraordinary charge.................................           --         (0.04)         (0.09)
                                                         ===========   ===========   ============
Net earnings (loss) per common share...................  $     (1.42)  $      0.01   $      (0.55)
                                                         ===========   ===========   ============
</TABLE>

                            See accompanying notes.

                                       28
<PAGE>   31

                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                          COMMON                        NOTE
                                       COMMON STOCK       ADDITIONAL       STOCK                     RECEIVABLE
                                   --------------------     PAID-IN        TO BE        DEFERRED        FROM      ACCUMULATED
                                     SHARES     AMOUNT      CAPITAL       ISSUED      COMPENSATION    OFFICER       DEFICIT
                                   ----------   -------   -----------   -----------   ------------   ----------   ------------
<S>                                <C>          <C>       <C>           <C>           <C>            <C>          <C>
Balance at December 31, 1995.....   3,434,682   $ 3,434   $ 1,337,170   $        --    $      --     $(164,075)   $ (1,473,646)
 Sale of common stock............     360,442       360       999,640            --           --            --              --
 Issuance of shares of common
   stock for 1996 Acquisitions
   consummated effective December
   1, 1996.......................     651,842       652     2,580,645            --           --            --              --
 1,491,397 shares of common stock
   to be issued in 1997 for 1996
   Acquisitions consummated
   effective December 1, 1996....          --        --            --     5,905,965           --            --              --
 Issuance of detachable stock
   purchase warrants.............          --        --       125,000            --           --            --              --
 Issuance of shares of common
   stock for prior service.......     144,705       145       401,410            --           --            --              --
 Issuance of shares of common
   stock for advisory
   agreement.....................     125,627       126       348,488            --     (348,614)           --              --
 Issuance of shares of common
   stock for services
   agreement.....................     108,133       108       299,960            --     (180,041)           --              --
 Amortization of deferred
   compensation..................          --        --            --            --       11,620            --              --
 Net loss........................          --        --            --            --           --            --      (5,647,170)
 Reclassify undistributed
   earnings in S corporation to
   additional paid-in capital....          --        --       472,467            --           --            --        (472,467)
 Capital distribution............          --        --      (577,445)           --           --            --              --
                                   ----------   -------   -----------   -----------    ---------     ---------    ------------
Balance at December 31, 1996.....   4,825,431   $ 4,825   $ 5,987,335   $5,905,965..   $(517,035)    $(164,075)   $ (7,593,283)
 Initial and second public
   offering of common shares.....   4,400,000     4,400    37,618,793            --           --            --              --
 Issuance of shares of common
   stock for business
   combinations..................   4,298,740     4,299    31,826,620    (5,905,965)          --            --              --
 Issuance of detachable stock
   purchase warrants.............          --        --       301,500            --           --            --              --
 Sale of detachable stock
   purchase warrants.............          --        --       548,021            --           --            --              --
 Compensatory stock options
   accounted for under SFAS 123..          --        --       124,949            --           --            --              --
 Exercise of warrants and
   options.......................       5,721         6         2,751            --           --            --              --
 Amortization of deferred
   compensation..................          --        --            --            --      108,300            --              --
 Issuance of note receivable.....          --        --            --            --           --       (11,409)             --
 Net income......................          --        --            --            --           --            --          82,876
 Reclassify undistributed
   earnings in S corporation to
   additional paid-in capital....          --        --       604,787            --           --            --        (604,787)
 Capital distribution............          --        --      (598,280)           --           --            --              --
                                   ----------   -------   -----------   -----------    ---------     ---------    ------------
Balance at December 31, 1997.....  13,529,892   $13,530   $76,416,476   $        --    $(408,735)    $(175,484)   $ (8,115,194)
 Issuance of shares of common
   stock for business
   combinations..................   1,666,351     1,666    14,109,907            --           --            --              --
 105,164 shares of common stock
   to be issued in 1999 as
   additional consideration for
   acquisitions consummated in
   1997 and 1998.................          --        --            --     1,053,664           --            --              --
 Sale and issuance of detachable
   stock purchase warrants.......          --        --       128,109            --           --            --              --
 Purchase of common stock........    (168,270)     (168)   (1,547,916)           --           --            --              --
 Compensatory stock options
   accounted for under SFAS 123..          --        --       202,479            --           --            --              --
 Exercise of options.............      39,052        39       132,784            --           --            --              --
 Amortization of deferred
   compensation..................          --        --            --            --      108,300            --              --
 Collection of note receivable...          --        --            --            --           --         2,500              --
 Net loss........................          --        --            --            --           --            --      (7,954,797)
 Capital distribution............          --        --      (245,547)           --           --            --              --
                                   ----------   -------   -----------   -----------    ---------     ---------    ------------
Balance at December 31, 1998.....  15,067,025   $15,067   $89,196,292   $ 1,053,664    $(300,435)    $(172,984)   $(16,069,991)
                                   ==========   =======   ===========   ===========    =========     =========    ============

<CAPTION>

                                       TOTAL
                                   STOCKHOLDERS'
                                      EQUITY
                                   -------------
<S>                                <C>
Balance at December 31, 1995.....   $  (297,117)
 Sale of common stock............     1,000,000
 Issuance of shares of common
   stock for 1996 Acquisitions
   consummated effective December
   1, 1996.......................     2,581,297
 1,491,397 shares of common stock
   to be issued in 1997 for 1996
   Acquisitions consummated
   effective December 1, 1996....     5,905,965
 Issuance of detachable stock
   purchase warrants.............       125,000
 Issuance of shares of common
   stock for prior service.......       401,555
 Issuance of shares of common
   stock for advisory
   agreement.....................            --
 Issuance of shares of common
   stock for services
   agreement.....................       120,027
 Amortization of deferred
   compensation..................        11,620
 Net loss........................    (5,647,170)
 Reclassify undistributed
   earnings in S corporation to
   additional paid-in capital....            --
 Capital distribution............      (577,445)
                                    -----------
Balance at December 31, 1996.....   $ 3,623,732
 Initial and second public
   offering of common shares.....    37,623,193
 Issuance of shares of common
   stock for business
   combinations..................    25,924,954
 Issuance of detachable stock
   purchase warrants.............       301,500
 Sale of detachable stock
   purchase warrants.............       548,021
 Compensatory stock options
   accounted for under SFAS 123..       124,949
 Exercise of warrants and
   options.......................         2,757
 Amortization of deferred
   compensation..................       108,300
 Issuance of note receivable.....       (11,409)
 Net income......................        82,876
 Reclassify undistributed
   earnings in S corporation to
   additional paid-in capital....            --
 Capital distribution............      (598,280)
                                    -----------
Balance at December 31, 1997.....   $67,730,593
 Issuance of shares of common
   stock for business
   combinations..................    14,111,573
 105,164 shares of common stock
   to be issued in 1999 as
   additional consideration for
   acquisitions consummated in
   1997 and 1998.................     1,053,664
 Sale and issuance of detachable
   stock purchase warrants.......       128,109
 Purchase of common stock........    (1,548,084)
 Compensatory stock options
   accounted for under SFAS 123..       202,479
 Exercise of options.............       132,823
 Amortization of deferred
   compensation..................       108,300
 Collection of note receivable...         2,500
 Net loss........................    (7,954,797)
 Capital distribution............      (245,547)
                                    -----------
Balance at December 31, 1998.....   $73,721,613
                                    ===========
</TABLE>

                            See accompanying notes.

                                       29
<PAGE>   32

                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                              -----------------------------------------
                                                                 1996           1997           1998
                                                              -----------   ------------   ------------
<S>                                                           <C>           <C>            <C>
OPERATING ACTIVITIES
Net income (loss)...........................................  $(5,647,170)  $     82,876   $ (7,954,797)
Adjustments to reconcile net income (loss) to net cash
 provided by (used in) operating activities:
Extraordinary charge -- early extinguishment of debt........           --        323,346      1,318,512
Deferred income taxes.......................................           --             --     (2,450,000)
Depreciation and amortization...............................      492,144      2,211,975      6,984,129
Amortization of deferred leasehold incentive................       (4,784)       (16,307)       (25,443)
Amortization of loan fees...................................           --        178,677        314,208
Other amortization..........................................           --             --        662,391
Noncash compensation expense................................      521,582        124,949        202,479
Amortization of deferred compensation.......................       11,620             --             --
Interest accretion..........................................           --         50,260             --
Loss on disposal of fixed assets............................       18,458             --             --
Changes in operating assets and liabilities, net of effects
 from business combinations:
 Accounts receivable, net...................................     (512,811)      (572,712)    (4,529,919)
 Inventories................................................     (112,712)           497        (94,117)
 Prepaid expenses and other current assets..................      (20,153)      (174,117)      (494,368)
 Other assets...............................................      (32,984)      (521,371)      (485,531)
 Accounts payable...........................................      432,665     (2,651,604)       (26,975)
 Accrued expenses...........................................      176,659        690,617      1,500,606
 Accrued acquisition costs..................................      522,963       (522,963)            --
 Accrued compensation.......................................       48,342        834,759      2,335,290
 Accrued restructuring charge...............................           --             --      2,796,000
 Deferred rent payable......................................           --         (1,889)        (7,859)
 Medical claims payable.....................................      737,720       (552,064)     1,158,800
 Due to Managed Professional Associations...................      (27,741)    (3,011,758)      (207,178)
                                                              -----------   ------------   ------------
Net cash provided by (used in) operating activities.........   (3,396,202)    (3,526,829)       996,228
INVESTING ACTIVITIES
Payments for fixed assets, net..............................   (1,221,626)    (1,965,105)    (5,014,278)
Payments for acquisitions, net of cash acquired.............           --    (35,452,640)   (41,491,787)
(Increase) decrease in cash surrender value of life
 insurance..................................................      (68,979)       (74,644)       205,596
Payments for capitalized acquisition costs..................   (1,138,829)    (6,170,767)    (3,445,854)
Other.......................................................       (3,800)      (396,603)      (209,882)
                                                              -----------   ------------   ------------
Net cash used in investing activities.......................   (2,433,234)   (44,059,759)   (49,956,205)
FINANCING ACTIVITIES
Net proceeds from sale of common stock......................      750,000     42,850,000             --
Payments for offering costs.................................           --     (4,385,413)            --
Proceeds from long term debt................................    4,950,000     33,094,128    124,709,305
Payments on long term debt and capital lease obligations....      (61,695)   (19,866,349)   (69,462,503)
Net proceeds from line of credit............................      184,264             --             --
Proceeds from credit facility...............................           --      4,922,182             --
Payments on credit facility.................................           --     (4,874,000)            --
Payments for financing fees.................................           --       (717,882)    (2,771,822)
Proceeds from leasehold incentives..........................      175,000        220,000        131,300
Payments to acquire treasury stock..........................           --             --     (1,548,084)
Sale of detachable stock purchase warrants and exercise of
 options....................................................           --        550,778        148,893
Additional borrowings on cash surrender value of life
 insurance..................................................       33,585         35,870             --
Decrease in notes receivable, officers and shareholders.....      429,430        152,080          2,500
Capital distribution........................................     (577,445)      (598,280)      (245,547)
                                                              -----------   ------------   ------------
Net cash provided by financing activities...................    5,883,139     51,383,114     50,964,042
                                                              -----------   ------------   ------------
Increase in cash and cash equivalents.......................       53,703      3,796,526      2,004,065
Cash and cash equivalents at beginning of year..............      198,129        251,832      4,048,358
                                                              -----------   ------------   ------------
Cash and cash equivalents at end of year....................  $   251,832   $  4,048,358   $  6,052,423
                                                              ===========   ============   ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest......................  $   107,776   $  1,039,606   $  5,490,964
                                                              ===========   ============   ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
 ACTIVITIES
Common Stock issued upon conversion of a note payable.......  $   250,000   $         --   $         --
                                                              ===========   ============   ============
Issuance of detachable stock purchase warrants..............  $   125,000   $    301,500   $         --
                                                              ===========   ============   ============
Assets purchased under capital leases.......................  $        --   $     41,000   $         --
                                                              ===========   ============   ============
</TABLE>

See Note 3 regarding affiliations with practices financed through the issuance
of Common Stock and notes payable.

                            See accompanying notes.

                                       30
<PAGE>   33

                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1998

1. DESCRIPTION OF BUSINESS

     Vision Twenty-One, Inc. and Subsidiaries (Vision Twenty-One or the Company)
is a Florida corporation formed in May 1996 as a holding company. The Company's
initial subsidiaries were Vision 21 Physician Practice Management Company (MSO)
and Vision 21 Managed EyeCare of Tampa Bay, Inc. (MCO).

     Vision Twenty-One was formed to be a holding company to own the MSO and
MCO. The MSO and MCO were owned in identical proportions by two executive
officers and a member of the Board of Directors of the Company. During 1996, the
Company acquired the MSO and MCO through an exchange of 2,685,318 shares of
Common Stock for all of the outstanding shares of the MSO and MCO. There was no
other consideration paid by the Company. This transaction was accounted for as a
reorganization of companies under common control in a manner similar to that
used in a pooling of interests transaction. As a result, the accompanying
consolidated financial statements have been prepared to reflect the accounts of
the Company as if the reorganization had occurred as of the beginning of the
earliest period presented.

     The MSO provides business management services for eye care professionals
and related businesses. The MCO is a managed care organization which contracts
with third-party health benefits payors to provide eye care services through a
network of associated optometry and ophthalmology practices, retail optical
companies and ambulatory surgical centers.

     The Company develops and manages local area eye care delivery systems
("LADS") in 40 markets. LADS involve contractual affiliations with local
optometrists and ophthalmologists (the "Affiliated Providers") to provide
primarily vision care and refractive surgery at independent or company-owned
clinics and surgery centers. Additionally, the Company develops retail
distribution channels for its LADS through owning or affiliating with retail
optical chains, and develops managed care distribution channels for its LADS
through contracting with local health plans and other third party payors.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany accounts and transactions have been eliminated in consolidation.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130). SFAS 130 requires that total comprehensive income and comprehensive income
per share be disclosed and be given equal prominence with net income and
earnings per share. Comprehensive income is defined as changes in stockholders'
equity exclusive of transactions with owners such as capital contributions and
dividends. SFAS 130 is effective for fiscal years beginning after December 15,
1997. For the year ended December 31, 1998, the Company did not have any
elements of comprehensive income.

     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS 131), which supersedes Statement of
Financial Accounting Standards No. 14. SFAS 131 uses a management approach to
report financial and descriptive information about a Company's operating
segments. Operating segments are revenue-producing components of the enterprise
for which separate financial information is produced internally for the
Company's management. SFAS 131 is effective for fiscal years beginning after
December 15, 1997, and has been implemented for the year ended December 31,
1998.

                                       31
<PAGE>   34
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 requires the
capitalization of certain costs incurred in connection with developing or
obtaining internal use software, and is effective for financial statements for
fiscal years beginning after December 15, 1998. The Company has chosen to early
adopt the provisions of SOP 98-1, and expensed approximately $70,000 of software
development costs during 1998. These costs primarily relate to the Company's
implementation of the Great Plains accounting software system in 1998.

     In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-Up Activities
(SOP 98-5). SOP 98-5 requires that costs of start-up activities and organization
costs be expensed as incurred, and is effective for financial statements for
fiscal years beginning after December 15, 1998. The Company has chosen to early
adopt the provisions of SOP 98-5, and expensed approximately $862,000 of
start-up costs incurred during 1998 and previously capitalized as incurred in
1998. These costs primarily relate to start-up activities associated primarily
with refractive surgery center initiatives.

     In June 1998, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133) which is required to be adopted in years
beginning after June 15, 2000. SFAS 133 permits early adoption as of the
beginning of any fiscal quarter after its issuance. The Company's expected date
of adoption is not yet known. SFAS 133 will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. At December 31, 1998 and 1997, the Company had no
derivatives; accordingly, the Company has not determined the potential impact of
SFAS 133 on the future earnings and financial position of the Company.

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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

REVENUE RECOGNITION

  LADS Operations -- Practice Management Fees

     Prior to December 1, 1996, practice management fee revenue was earned
through contractual arrangements between the Company and several optometry
practices under common control. This revenue totaled $479,004 for the year ended
December 31, 1996.

                                       32
<PAGE>   35
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Subsequent to December 1, 1996, practice management fee revenue was earned
through management of Managed Professional Associations under Management
Agreements (See Note 3). This revenue represents reimbursement of practice
management expenses incurred by the Company under certain of the Management
Agreements, including depreciation expense of $31,123, $491,743 and $960,750 for
the years ended December 31, 1996, 1997 and 1998, respectively. In addition, the
Company generally receives a percentage (ranging from 20% to 37%) of the Managed
Professional Associations' net earnings before interest, taxes, and
shareholder-physician expenses, as determined under certain of the related
Management Agreements. Certain of the Management Agreements set the Company's
management fee at a pre-determined percentage of the Managed Professional
Associations' net revenues. Under those Management Agreements, the Company is
responsible for the payment of practice management expenses, generally excluding
shareholder-physician expenses. For the years ended December 31, 1996, 1997 and
1998, practice management fee revenue was as follows:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                   --------------------------------------
                                                      1996         1997          1998
                                                   ----------   -----------   -----------
<S>                                                <C>          <C>           <C>
Medical service revenues of Managed Professional
  Associations...................................  $1,667,025   $36,949,565   $73,087,157
Less amounts retained by physician shareholders
  of Managed Professional Associations...........    (203,186)   (5,997,643)   (8,384,848)
                                                   ----------   -----------   -----------
Management fees under Management Agreements with
  Managed Professional Associations..............  $1,463,839   $30,951,922   $64,702,309
                                                   ==========   ===========   ===========
</TABLE>

Included in net management fees are amounts representing reimbursement of
expenses for practice management expenses and a portion of depreciation and
amortization. These amounts were $1,275,296, $25,786,309 and $54,970,282 for the
years ended December 31, 1996, 1997 and 1998, respectively.

  LADS Operations -- Sale of Optical Goods

     Revenues from the sale of optical goods are recognized on the accrual basis
in the period that the related sales occur.

  Managed Care

     Managed care revenues are derived from monthly capitation payments from
health benefits payors which contract with the Company for the delivery of eye
care services. The Company records this revenue on the accrual basis at
contractually agreed-upon rates.

     Most of the managed care contracts are for one-year terms which
automatically renew and the contracts are terminable by either party on sixty
days notice. Revenues from one payor constituted approximately 79%, 31% and 9%
of managed care revenues and 60%, 10% and 2% of total revenues for the years
ended December 31, 1996, 1997 and 1998, respectively.

  Buying Group

     The buying group business provides billing and collection services to
suppliers of optical products, whereby providers receive merchandise from
suppliers for direct shipment to the providers. The Company pays the supplier
and likewise bills the providers for such products. The Company receives a
commission of approximately 5% of the total receivables collected. This
commission revenue is included in buying group revenue in the accompanying
consolidated statements of operations and is recognized upon shipment of
merchandise by the suppliers.

                                       33
<PAGE>   36
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

MEDICAL CLAIMS PAYABLE

     In accordance with the capitation contracts entered into with certain
managed health benefits payors, the Company is responsible for payment of
providers' claims. Medical claims payable represent provider claims reported to
the Company and an estimate of provider claims incurred but not reported (IBNR).

     The Company estimates the amount of IBNR using standard actuarial
methodologies based upon the average interval between the date services are
rendered and the date claims are reported and other factors considered relevant
by the Company.

     Prior to December 1, 1996, certain medical claims were paid to several
optometry practices under common control. Expense related to these transactions
totaled approximately $249,000 for the year ended December 31, 1996.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amount of cash and cash equivalents approximates its fair
value.

     The fair value of substantially all of the Company's long-term debt
approximates its carrying amount as the interest rates on substantially all of
the Company's long-term debt change with market interest rates.

CASH AND CASH EQUIVALENTS

     The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.

INVENTORIES

     Inventories are valued at the lower of cost (first-in, first-out basis) or
market, and primarily consist of eyeglass frames and lenses, sunglasses and
contact lenses.

FIXED ASSETS

     Fixed assets are stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the various classes of
assets, which range from three to ten years. Leasehold improvements are
amortized using the straight-line method over the shorter of the term of the
lease or the estimated useful life of the improvements. Routine maintenance and
repairs are charged to expense as incurred, while betterments and renewals are
capitalized.

TRANSACTION COSTS

     Direct external legal, accounting and other costs associated with
successful acquisitions are capitalized as part of the related purchase price
allocation. External costs associated with unsuccessful acquisitions are
expensed. All internal costs associated with acquisitions are expensed as
incurred.

INTANGIBLE ASSETS

     Intangible assets consist of the excess of the purchase price over the fair
values of the net assets acquired from the business acquisitions, which is being
amortized on a straight-line method over 25 or 30 years, and the Management
Agreements with the Managed Professional Associations. The Management Agreements
have 40-year terms and are being amortized on a straight-line method over 25
years. In evaluating the useful life of a Management Agreement, the Company
considers the operating history and other characteristics of each practice. The
primary consideration is the degree to which a practice has demonstrated its
ability to extend its existence indefinitely. In making this determination, the
Company considers (i) the number of physicians

                                       34
<PAGE>   37
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

recruited into the practice, (ii) the number of staff members including
physicians, (iii) the number of locations, and (iv) the complexity of the
procedures being performed, including disease treatment and control.

     Amortization expense with respect to intangible assets was approximately
$29,000, $1,098,000 and $4,344,000 for the years ended December 31, 1996, 1997
and 1998, respectively.

     In 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of (SFAS 121). In accordance with SFAS
121, the Company reviews the carrying value of its intangible assets at least
quarterly on an entity-by-entity basis to determine if facts and circumstances
exist which would suggest that the intangible assets may be impaired or that the
amortization period needs to be modified. Among the factors the Company
considers in making the evaluation are changes in the specific acquired
companies' or Managed Professional Associations' market position, reputation,
profitability and geographical penetration. If indicators are present which may
indicate impairments, the Company will prepare a projection of the undiscounted
cash flows of the specific entity and determine if the intangible assets are
recoverable based on these undiscounted cash flows. If impairment is indicated,
then an adjustment will be made to reduce the carrying amount of the intangible
assets to fair value.

CONCENTRATIONS OF CREDIT RISK

     The Company has accounts receivable from patients of the Managed
Professional Associations. The Company does not believe that there are any
substantial credit risks associated with receivables due from governmental
agencies. Any concentration of credit risk from other payors of the Managed
Professional Associations is limited by the number of patients and payors. The
Company and the Managed Professional Associations do not require any form of
collateral from their patients or third-party payors. The Company does not
believe that there are any substantial credit risks associated with receivables
due from buying group members or from any of the Managed Professional
Associations.

     The Company places cash and cash equivalents with high-quality financial
institutions. At times, the Company maintains cash balances in excess of amounts
insured by the Federal Deposit Insurance Corporation (FDIC).

NET LOSS PER COMMON SHARE

     During 1997, the Company adopted Financial Accounting Standards Board
Statement No. 128, Earnings Per Share (SFAS 128). SFAS 128 requires the
presentation of both basic and diluted earnings per share. Basic net income
(loss) per share is calculated by dividing net income (loss) by the weighted
average number of common shares outstanding during the period. Diluted net
income (loss) per share is calculated by dividing net income (loss) by the
weighted average number of common and potential common shares outstanding during
the period. Potential common shares consist of the dilutive effect of
outstanding options and warrants calculated using the treasury stock method.

CONTINGENT CONSIDERATION

     As part of its business strategy, the Company enters into various
transactions to acquire substantially all of the assets of various eye care
practices and enters into business management agreements with the eye care
practices. The Company also enters into strategic business acquisitions with
other companies from time to time. In connection with certain of the
acquisitions, the Company will hold shares of its common stock in escrow as
contingent consideration. Such shares of common stock held in escrow are due to
the owners of the certain eye care practices or other companies if certain
financial goals are met in the future, generally within twelve to eighteen
months of the effective date of the acquisition. The financial goals are
established on an

                                       35
<PAGE>   38
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

acquisition by acquisition basis and are generally established to resolve
differences between the Company and the applicable eye care practices or other
companies regarding the purchase price valuation.

     Depending on the relevant facts and circumstances of each acquisition and
the business reason for issuing contingent consideration, the Company accounts
for the issuance of common stock held in escrow as either additional purchase
consideration or compensation to the owners of the applicable eye care practices
or other companies utilizing the provisions of Emerging Issues Task Force Issue
No. 95-8 (EITF 95-8). Under EITF 95-8, the factors to be considered in making
the aforementioned accounting determination include, but are not limited to,
terms of continuing employment, components of the shareholder group, reasons for
contingent payment provisions, formulas for determining contingent consideration
and other agreements and issues.

COMMON STOCK TO BE ISSUED

     Common stock to be issued represents stock to be issued during the year
ending December 31, 1999 in connection with certain of the 1997 and 1998
Acquisitions. Approximately 76,600 and 14,300 shares were issued in April and
June 1999, respectively.

STOCK-BASED COMPENSATION

     The Company accounts for stock-based compensation arrangements under the
provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25). In 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), which is effective for fiscal years
beginning after December 15, 1995. Under SFAS 123, the Company may elect to
recognize stock-based compensation expense based on the fair value of the awards
or continue to account for stock-based compensation under APB 25, and disclose
in the financial statements the effects of SFAS 123 as if the recognition
provisions were adopted.

     The Company accounts for any stock-based compensation arrangements not
specifically addressed by APB 25 under the fair value provisions of SFAS 123,
including options granted to nonemployees and professionals employed by the
Managed Professional Associations. The pro forma disclosures required by SFAS
123 are provided for all stock-based compensation which are accounted for under
APB 25.

INCOME TAXES

     The Company has applied the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109), which requires an
asset and liability approach for financial accounting and reporting. Deferred
income tax assets and liabilities are determined based upon differences between
the financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and lives that will be in effect when the
differences are expected to reverse.

RECLASSIFICATIONS

     Certain prior year amounts have been reclassified in order to conform to
the 1998 presentation.

3. AFFILIATIONS WITH MANAGED PROFESSIONAL ASSOCIATIONS

     As part of its business strategy, the Company acquires substantially all of
the assets and assumes certain liabilities of ophthalmology and optometry
practices (Managed Professional Associations). In connection with these
acquisitions, the Company enters into business management agreements (Management
Agreements) with the Managed Professional Associations and the Managed
Professional Associations' stockholders. The Company does not own any interests
in or control the activities of the Managed Professional Associations.
Accordingly, the financial statements of the Managed Professional Associations
are not consolidated with those of the Company.
                                       36
<PAGE>   39
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1998 ACQUISITIONS AND AFFILIATIONS

     Effective January 1, 1998, the Company acquired substantially all of the
assets and assumed certain liabilities of The Eye DRx, a retail optical chain of
19 retail clinics located in Bloomfield, New Jersey. In connection with this
transaction, the Company paid $7.2 million in cash and issued 522,600 shares of
Common Stock. In addition, the Company is required to provide additional
contingent consideration of 19,398 shares of Common Stock if certain post
acquisition performance targets are met. In conjunction with this acquisition,
the Company entered into a Management Agreement with the Managed Professional
Associations' stockholders.

     The Company also acquired substantially all of the assets and assumed
certain liabilities of 54 optometry clinics, 9 ophthalmology clinics, 1
ambulatory surgical center, 2 refractive centers and 21 optical dispensaries,
located in Texas, Arizona, New Jersey, Florida, Nevada, Minnesota and Wisconsin.
In conjunction with these acquisitions, the Company entered into various
Management Agreements with the Managed Professional Associations and the Managed
Professional Associations' stockholders. In connection with these acquisitions,
the Company provided aggregate consideration of approximately $20.1 million,
consisting of approximately 1.0 million shares of Common Stock and approximately
$13.5 million in cash and promissory notes in the aggregate principal amount of
$1.3 million, subject to closing adjustments. In addition, the Company is
required to provide additional contingent consideration consisting of 282,185
shares of Common Stock, and up to $2.1 million in cash, to be paid to certain
sellers if certain post-acquisition performance targets are met. Such financial
goals were established to resolve certain differences between the Company and
the owners of the eye care practices regarding the purchase price valuations of
the respective practices. The contingent consideration, which is ultimately
issued by the Company if such financial goals are met, will be treated as an
increase in the purchase price of the assets acquired from the respective
practices. Based upon information to date, management of the Company believes
that the ultimate issuance of any such shares held in escrow will not have a
material adverse effect on the results of operations, financial condition or
liquidity of the Company.

     During 1998, the Company incurred approximately $2,530,000 of acquisition
costs which were capitalized and allocated to the Management Agreements entered
into.

1997 ACQUISITIONS AND AFFILIATIONS

     During 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of 11 ophthalmology and optometry practices, a
managed care company, a medical consulting company and an ambulatory surgical
center. In conjunction with these acquisitions, the Company entered into various
Management Agreements with the Managed Professional Associations and the Managed
Professional Associations' stockholders (collectively referred to as the 1997
Acquisitions). In connection with the 1997 Acquisitions, the Company holds in
escrow approximately 196,000 shares of Common Stock valued at approximately
$1,887,000, and $395,000 in cash. Such shares and cash held in escrow, along
with additional contingent consideration of approximately $426,000 in cash and
approximately $244,000 in shares of Common Stock, will be due the owners of
certain eye care practices if certain financial goals are met during the
eighteen-month period following the effective date of the transactions
(generally at several dates through February 1999). Such financial goals were
established to resolve certain differences between the Company and the owners of
the eye care practices regarding the purchase price valuations of the respective
practices. The contingent consideration, which is ultimately issued by the
Company if such financial goals are met, will be treated as an increase in the
purchase price of the assets acquired from the respective practices. Based upon
information to date, management of the Company believes that the ultimate
issuance of any such shares held in escrow will not have a material adverse
effect on the results of operations, financial condition or liquidity of the
Company.

                                       37
<PAGE>   40
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In connection with the 1997 Acquisitions, the Company paid cash of
approximately $4,152,000, issued 1,480,122 shares of Common Stock valued at
approximately $13,151,000 and $2,812,000 due to selling stockholders. The shares
of Common Stock were valued from $8.22 to $13.20 per share.

     During 1997, the owners of an ophthalmology practice included within the
1996 Acquisitions met certain financial goals which were established to resolve
differences between the owners and the Company regarding the purchase price
valuations of the practice. The Company issued to the owners of the
ophthalmology practice 56,356 shares valued at approximately $223,000, which
were previously held in escrow as contingent consideration for this 1996
Acquisition. The Company accounted for the additional consideration issued as an
increase in the purchase price of the assets acquired from this practice.

     During 1997, the Company incurred approximately $4,911,000 of acquisition
costs which were capitalized and allocated to the Management Agreements entered
into, including approximately $462,000 which is included in accrued acquisition
and offering costs in the accompanying consolidated balance sheets at December
31, 1997.

1996 ACQUISITIONS AND AFFILIATIONS

     Effective December 1, 1996, the Company acquired substantially all of the
assets and assumed certain liabilities of 10 ophthalmology and optometry
practices located in Minnesota, Arizona and Florida. In conjunction with these
acquisitions, the Company entered into Management Agreements with the Managed
Professional Associations and the Managed Professional Associations'
stockholders (collectively referred to as the 1996 Acquisitions).

     In connection with the 1996 Acquisitions, Vision Twenty-One issued 651,842
shares of Common Stock in 1996 and 1,491,397 shares of Common Stock in 1997 and
issued long-term notes payable to stockholders of approximately $1,925,000. The
shares, which were issued in 1997, were reported as Common Stock to be issued as
of December 31, 1996. All 2,143,239 shares of Common Stock were valued at $3.96
per share based on an independent valuation.

     The 1998, 1997 and 1996 Acquisitions were accounted for by recording the
assets and liabilities at fair value and allocating the remaining cost to the
related Management Agreements. The Management Agreements are being amortized on
a straight-line method over 25 years. Under the Management Agreements, the
Company provides management, marketing and administrative services to the
Managed Professional Associations in return for a management fee. The Management
Agreements have 40-year terms and are cancelable only for breach of its
provisions or insolvency. The Managed Professional Associations employ
ophthalmologists, optometrists and certain other patient care related
specialists. The Managed Professional Associations provide all eye care services
to patients and make all medical and patient care related decisions.

     During 1996, the Company incurred approximately $1,710,000 of acquisition
costs which were capitalized and allocated to the Management Agreements entered
into. During 1996, the Company incurred approximately $1,927,000 in costs
associated with unsuccessful acquisitions. Such amount has been classified as
business development costs in the consolidated statements of operations.

     As part of the purchase price allocation for 1998, 1997 and 1996, no
consideration has been allocated to employment and noncompete agreements between
the Company and the Managed Professional Associations' stockholders because the
Company believes these agreements have no material value.

4. BUSINESS COMBINATIONS

EYECARE ONE CORP. AND VISION INSURANCE PLAN OF AMERICA, INC.

     In March 1998, the Company completed a merger with EyeCare One Corp.
(EyeCare One) and Vision Insurance Plan of America, Inc. (VIPA). EyeCare One is
an optical retailer, selling frames, lenses and

                                       38
<PAGE>   41
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

contact lenses, with optometric services by licensed Doctors of Optometry in
each of its 16 locations in the Milwaukee, Wisconsin area. VIPA provides
subscriber group member enrollees with covered vision care services through
EyeCare One and its provider network under a master provider agreement which
began in 1997. The Company issued 1,109,806 shares of its Common Stock for all
of the outstanding common stock of EyeCare One and VIPA. The merger was
accounted for as a pooling of interests and accordingly, the Company's financial
statements have been restated. Merger costs of approximately $718,000 incurred
in connection with these transactions were charged to expense in 1998.

     Combined and separate results of the Company, EyeCare One and VIPA during
the periods preceding the merger were as follows:

<TABLE>
<CAPTION>
                                              THREE MONTH PERIOD ENDED MARCH 31, 1998
                                         --------------------------------------------------
                                           VISION
                                         TWENTY-ONE    EYECARE ONE     VIPA      COMBINED
                                         -----------   -----------   --------   -----------
<S>                                      <C>           <C>           <C>        <C>
Revenue................................  $44,431,577   $3,305,219    $215,396   $47,952,192
Extraordinary charge...................  $   397,190           --          --   $   397,190
Net income (loss)......................  $   583,641   $  153,917    $ 52,113   $   789,671
</TABLE>

<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31, 1997
                                        --------------------------------------------------
                                          VISION
                                        TWENTY-ONE    EYECARE ONE     VIPA      COMBINED
                                        -----------   -----------   --------   -----------
<S>                                     <C>           <C>           <C>        <C>
Revenue...............................  $56,266,779   $12,569,321   $708,098   $69,544,198
Extraordinary charge..................  $  (323,346)           --         --   $  (323,346)
Net income (loss).....................  $  (521,911)  $   437,201   $167,586   $    82,876
</TABLE>

<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31, 1996
                                        --------------------------------------------------
                                          VISION
                                        TWENTY-ONE    EYECARE ONE     VIPA      COMBINED
                                        -----------   -----------   --------   -----------
<S>                                     <C>           <C>           <C>        <C>
Revenue...............................  $ 9,563,693   $11,718,979   $571,606   $21,854,278
Extraordinary charge..................           --            --         --            --
Net income (loss).....................  $(6,119,637)  $   273,132   $199,335   $(5,647,170)
</TABLE>

VISION WORLD, INC.

     In June 1998, the Company acquired substantially all of the assets and
assumed certain liabilities of Vision World, Inc., (Vision World) a retail
optical chain of 38 retail clinics with 30 optometrists, located in Minneapolis,
Minnesota. In connection with this transaction, the Company paid approximately
$16,100,000 in cash, net of cash acquired. In addition, the Company is required
to provide additional contingent consideration of up to $600,000 in cash if
certain post acquisition performance targets are met. The acquisition was
accounted for by recording the assets and liabilities at fair value. The excess
of the purchase price over the fair values of the net assets acquired amounted
to approximately $12,900,000 and is being amortized on a straight-line method
over 30 years. The operating results of Vision World are included in the
Company's consolidated financial statements since July 5, 1998.

AMERICAN SURGISITE CENTERS, INC.

     In September 1998, the Company acquired substantially all of the assets and
assumed certain liabilities of American SurgiSite Centers, Inc., (American
SurgiSite), an ambulatory surgical center developer, management and consulting
company located in New Jersey with eight ambulatory surgical facilities. In
connection with this transaction, the Company paid $1,466,000 in cash, net of
cash acquired, and issued 235,366 shares of its Common Stock. In addition, the
Company is required to provide additional consideration of up to $3,100,000 if
certain post acquisition performance targets are met. The acquisition was
accounted for by

                                       39
<PAGE>   42
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

recording the assets and liabilities at fair value. The excess of the purchase
price over the fair values of the net assets amounted to approximately
$3,000,000 and is being amortized on a straight-line method over 25 years. The
operating results of American SurgiSite are included in the Company's
consolidated financial statements since September 1, 1998.

BBG-COA, INC. ACQUISITION

     During November 1997, the Company acquired all of the outstanding stock of
BBG-COA, Inc. and all related subsidiaries and affiliated companies (BBG) from
BBG stockholders. BBG provides billing and collection services to suppliers of
optical products through its buying group division (Block Buying Group) and
provides vision benefit management services to health management organizations,
preferred provider organizations and other managed care entities through its
managed care division (Block Vision). The purchase price for BBG included
458,365 shares of the Company's common stock valued at approximately $6,050,000,
cash of approximately $25,651,000 and the assumption of approximately $3,243,000
in long-term debt. The acquisition was accounted for by the purchase method of
accounting, with the purchase price allocated to the fair value of the assets
acquired and liabilities assumed. The excess of the purchase price over the fair
values of the net assets amounted to approximately $34,000,000 and is being
amortized on a straight-line method over 30 years. The operating results of BBG
are included in the Company's consolidated financial statements since November
1, 1997. In connection with the BBG acquisition, the Company holds in escrow
approximately 220,000 shares of Common Stock. Such shares held in escrow were
due the owners of BBG if certain financial goals were met during the
twelve-month period ended December 31, 1998. Such financial goals were
established to resolve certain differences between the Company and the owners of
BBG regarding the purchase price valuations of BBG. The contingent shares will
not be issued to the owners of BBG, as these financial goals were not attained.

ACQUISITION FROM LASERSIGHT, INCORPORATED

     During December 1997, the Company acquired all of the outstanding stock of
MEC Health Care, Inc. (MEC) and LSI Acquisition, Inc. (LSIA) from LaserSight,
Incorporated (LaserSight). MEC provides vision benefit management services to
health maintenance organizations, preferred provider organizations and other
managed care entities. LSIA provides practice management services to an
ophthalmology practice in New Jersey. The purchase price for MEC and LSIA
included 820,085 shares of the Company's common stock valued at $6,500,000 and
cash of $6,500,000. The acquisition was accounted for by the purchase method of
accounting, with the purchase price allocated to the fair value of the assets
acquired and liabilities assumed, subject to the final determination of certain
items in connection with the acquisition. The excess of the purchase price over
the fair values of the net assets amounted to approximately $13,000,000 million
and is being amortized on a straight-line method over 30 years. The operating
results of MEC and LSIA are included in the Company's consolidated financial
statements since December 1, 1997.

                                       40
<PAGE>   43
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following unaudited pro forma results of operations for the years ended
December 31 assume the acquisitions described above and the affiliations with
Managed Professional Associations described in Note 3 had occurred at the
beginning of the year prior to their acquisition, and do not purport to be
indicative of the results that actually would have occurred if the acquisitions
and affiliations had been made as of those dates or of results which may occur
in the future.

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                       ------------------------------------------
                                                           1996           1997           1998
                                                       ------------   ------------   ------------
<S>                                                    <C>            <C>            <C>
Pro forma information (unaudited):
  Total revenues.....................................  $142,760,000   $251,956,000   $256,238,000
                                                       ============   ============   ============
  Income (loss) before extraordinary charge..........  $ (2,443,000)  $  4,348,000   $ (5,700,000)
                                                       ============   ============   ============
  Net income (loss)..................................  $ (2,443,000)  $  4,024,000   $ (7,019,000)
                                                       ============   ============   ============
  Net earnings (loss) per common share...............  $      (0.62)  $       0.50   $      (0.49)
                                                       ============   ============   ============
  Net earnings (loss) per common share -- assuming
     dilution........................................  $      (0.62)  $       0.47   $      (0.49)
                                                       ============   ============   ============
</TABLE>

5. NOTE RECEIVABLE FROM OFFICER

     At December 31, 1997 and 1998, EyeCare One Corp. had a promissory note with
an officer/shareholder with a balance of $172,984. The note matures on December
31, 2001, with interest payable annually at a rate of 7.5%.

6. FIXED ASSETS

     Fixed assets consist of the following:

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
DESCRIPTION                                                      1997         1998
-----------                                                   ----------   -----------
<S>                                                           <C>          <C>
Medical equipment and office furniture......................  $8,351,180   $16,437,829
Leased equipment............................................   1,179,376     1,469,959
Leasehold improvements......................................   3,047,287     3,905,677
                                                              ----------   -----------
                                                              12,577,843    21,813,465
Less accumulated depreciation and amortization..............  (3,950,879)   (6,590,879)
                                                              ----------   -----------
                                                              $8,626,964   $15,222,586
                                                              ==========   ===========
</TABLE>

Depreciation and amortization of fixed assets totaled approximately $463,000,
$1,114,000 and $2,640,000 in 1996, 1997 and 1998, respectively. Amortization
expense related to capital leases is included in depreciation and amortization
in the consolidated statements of operations.

7. DEFERRED LEASEHOLD INCENTIVES

     During 1998, EyeCare One Corp. received approximately $131,000 as
incentives from the lessors of three locations. These amounts will be amortized
to rent expense over the remaining terms of the leases, which have a weighted
average life of 7 years.

     During 1997, EyeCare One Corp. was requested by a lessor to move its
location within a particular mall. The lessor made a payment of $220,000 to
EyeCare One Corp. as an incentive. EyeCare One Corp. offset the remaining
unamortized balance ($85,222) of leasehold improvements at the abandoned
location against the

                                       41
<PAGE>   44
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

amount received and will amortize the excess ($134,778) against rent expense
over the remaining 9 years of the lease.

     During 1996, EyeCare One Corp. was requested by a different lessor to move
its location within a particular mall. The lessor made a payment of $175,000 to
EyeCare One Corp. as an incentive. EyeCare One Corp. offset the remaining
unamortized balance ($79,317) of leasehold improvements at the abandoned
location against the amount received and will amortize the excess ($95,683)
against rent expense over the remaining 8 years of the lease.

8. LONG-TERM DEBT

     Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              -------------------------
                                                                 1997          1998
                                                              -----------   -----------
<S>                                                           <C>           <C>
Note payable under a $37 million credit facility which was
  repaid January 1998.......................................  $24,422,807            --
Revolving line of credit (limited to $7.5 million) due June
  2003, bearing interest at a rate equal to LIBOR plus 3.0%
  (9.25% at December 31, 1998)..............................           --   $ 5,593,413
Term loans (limited to $82.5 million), $50.0 million due
  June 2005, $32.5 million due June 2003, bearing interest
  at a rate equal to LIBOR plus 5.0% (ranging from 8.45% to
  9.24% at December 31, 1998)...............................           --    75,970,272
Note payable due April 1, 2000, with interest due in monthly
  installments at 8.25% which was repaid in 1998............    1,400,182            --
Notes payable due through 2001, with interest at 8.50% at
  December 31, 1998.........................................      261,635     1,796,860
                                                              -----------   -----------
                                                               26,084,624    83,360,545
Less current portion........................................     (104,371)   (2,143,149)
                                                              -----------   -----------
                                                              $25,980,253   $81,217,396
                                                              ===========   ===========
</TABLE>

     On January 30, 1998, the Company entered into a five-year, $50,000,000 bank
credit agreement (the "Credit Agreement") with the Bank of Montreal as agent
(the "Agent") for a consortium of banks. The Credit Agreement provided the
Company with a revolving credit facility component in an aggregate amount of up
to $10,000,000 and a term loan component in an aggregate amount of up to
$40,000,000. The Company had used approximately $48,300,000 of its available
borrowings under the Credit Agreement through June 30, 1998.

     On July 1, 1998, the Company entered into a $100,000,000 bank credit
agreement (the "Amended and Restated Credit Agreement") with a seven-year term
loan of $70,000,000 and a five-year revolving and acquisition facility of
$30,000,000 with the Bank of Montreal as Agent for a consortium of banks.
Certain proceeds from the Amended and Restated Credit Agreement were used to
early extinguish the Company's outstanding balance of approximately $48,300,000
under the Credit Agreement. As of December 31, 1998, the Company had borrowed
approximately $81,600,000 of its available borrowings under the Amended and
Restated Credit Agreement. The Amended and Restated Credit Agreement contains
negative and affirmative covenants and agreements which place restrictions on
the Company regarding disposition of assets, capital expenditures, additional
indebtedness, permitted liens and payment of dividends, as well as requiring the
maintenance of certain financial ratios. The Amended and Restated Credit
Agreement also contains certain periodic reporting covenants which require the
Company to provide certain periodic financial information to

                                       42
<PAGE>   45
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Agent as the representative for the consortium of banks under the Amended
and Restated Credit Agreement.

     On February 23, 1999, the Company amended the Amended and Restated Credit
Agreement through the execution of the First Amendment to Credit Agreement (the
"First Amendment"). The First Amendment resulted in the total borrowing capacity
of the Company being reduced to $90,000,000 under the credit facility. The term
loans under the First Amendment were amended to include a $50,000,000 term loan
maturing in June 2005, a $20,000,000 term loan maturing in June 2003 and a
$12,500,000 term loan maturing in June 2003 to be utilized for acquisitions and
capital expenditures. The First Amendment also amended the definition of certain
terms included in the previously executed Amended and Restated Credit Agreement.

     On June 10, 1999, the Company amended the Amended and Restated Credit
Agreement through the execution of the Second Amendment to Credit Agreement (the
"Second Amendment"). The Second Amendment waived certain financial covenants and
financial reporting covenants contained in the Amended and Restated Credit
Agreement, with which the Company was in violation prior to the Second
Amendment. The Second Amendment also revised the definition of certain terms
included in the Amended and Restated Credit Agreement, instituted certain new
covenants and revised certain previously existing covenants. The Company is in
compliance with all covenants included in the Amended and Restated Credit
Agreement, as amended by the Second Amendment, and, in the opinion of
management, will remain in compliance with such covenants during the remainder
of 1999.

     Both the revolving line of credit and the term loans under the Amended and
Restated Credit Agreement are secured by a pledge of the stock of substantially
all of the Company's subsidiaries and the assets of the Company and certain of
its subsidiaries, and are guaranteed by certain of the Company's subsidiaries.

     As of December 31, 1998, the aggregate principal maturities of long-term
debt, after giving effect to the revised terms included in the First Amendment
and the Second Amendment, are as follows:

<TABLE>
<S>                                                           <C>
1999........................................................  $ 2,143,149
2000........................................................    5,167,563
2001........................................................    7,217,568
2002........................................................    6,992,568
2003........................................................   14,339,697
Thereafter..................................................   47,500,000
                                                              -----------
                                                              $83,360,545
                                                              ===========
</TABLE>

     In connection with the 1998 amendments to the Company's Credit Agreement,
the Company incurred extraordinary charges of $1,318,512 (net of $567,000 of
income taxes) for the year ended December 31, 1998. These extraordinary charges
represent the write-off of unamortized deferred loan costs.

9. CAPITAL LEASE OBLIGATIONS

     The Company leases equipment under noncancelable capital leases (with an
initial or remaining term in excess of one year). Future minimum lease
commitments are as follows:

<TABLE>
<S>                                                           <C>
Year ending December 31:
1999........................................................  $  624,790
2000........................................................     344,042
2001........................................................     109,848
2002........................................................      90,194
                                                              ----------
Total minimum lease payments................................   1,168,874
Less amount representing interest...........................    (155,163)
                                                              ----------
Present value of minimum lease payments (including current
  portion of $538,820)......................................  $1,013,711
                                                              ==========
</TABLE>

                                       43
<PAGE>   46
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. COMMITMENTS AND CONTINGENCIES

COMMITMENTS

     The Company leases its headquarters, store locations and certain office
equipment under noncancelable operating lease arrangements which expire at
various dates, most with options for renewal. Certain locations are leased from
stockholders of the Managed Professional Associations and EyeCare One Corp. As
of December 31, 1998, future minimum lease payments under noncancelable
operating leases with original terms of more than one year are as follows:

<TABLE>
<S>                                                           <C>
1999........................................................  $ 9,084,457
2000........................................................    8,184,226
2001........................................................    6,596,256
2002........................................................    5,232,647
2003........................................................    4,219,241
Thereafter..................................................   14,303,472
                                                              -----------
          Total.............................................  $47,620,299
                                                              ===========
</TABLE>

     Rent expense in 1996, 1997 and 1998 was approximately $1,181,000,
$3,347,000 and $9,427,000, respectively. Rent expense related to locations
leased from stockholders of the Managed Professional Associations was
approximately $53,000, $1,284,000 and $1,916,000 in 1996, 1997 and 1998,
respectively. Rent expense paid to an officer/shareholder of EyeCare One Corp.
was approximately $331,000, $276,000 and $438,000 in 1996, 1997 and 1998,
respectively.

PROFESSIONAL LIABILITY

     The Company and the Managed Professional Associations are insured with
respect to medical malpractice risks primarily on a claims-made basis.
Management anticipates that the claims-made coverage currently in place will be
renewed or replaced with equivalent insurance as the term of such coverage
expires. Management is not aware of any reported claims pending against the
Company or a Managed Professional Association.

     Losses resulting from unreported claims cannot be estimated by management
and, therefore, are not included in the accompanying consolidated financial
statements.

LITIGATION

     In January and February 1999, four purported class action lawsuits were
filed against the Company and certain of its directors and officers. The
lawsuits were filed in United States District Court for the Middle District of
Florida, Tampa Division. The four plaintiffs generally sought to certify their
complaints as class actions on behalf of all purchasers of the Company's common
stock in the period between December 5, 1997 and November 5, 1998, and seek an
award of an unspecified amount of monetary damages to all of the members of the
purported class.

     On April 21, 1999, the cases were consolidated and one plaintiffs group was
appointed lead plaintiff by judicial order on May 6, 1999. This uncertified
consolidated class action seeks to hold the Company and two of its officers who
are also directors as well as a former officer liable for alleged federal
securities law violations. The lead plaintiffs group purports to represent a
class of plaintiffs who were allegedly defrauded by alleged misstatements and
omissions in analyst reports, trade journal articles, press releases and filings
with the Securities and Exchange Commission.

     Pursuant to the judicial order, the lead plaintiffs group must file an
amended consolidated complaint within forty-five days from May 31, 1999. As of
June 11, 1999, such amended consolidated complaint has not

                                       44
<PAGE>   47
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

been filed. The Company is not required to respond until such amended
consolidated complaint is filed and served. The Company believes that it has
substantial defenses to this matter and intends to assert then vigorously.
Management of the Company is unable to determine the impact, if any, that the
resolution of the aforementioned uncertified class action lawsuit will have on
the financial position or results of operations of the Company.

OTHER

     Laws and regulations governing the Medicare, Medicaid and other programs
are complex and subject to interpretation. In the opinion of management, the
Company and its Managed Professional Associations are in compliance with all
applicable laws and regulations. The Company is not aware of any pending or
threatened investigations involving allegations of potential wrongdoing at the
Company or any of its Managed Professional Associations. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subject to future government review and interpretation as well as
significant regulatory action including fines, penalties, and exclusion from the
Medicare, Medicaid and other programs.

11. INCOME TAXES

     The components of the income tax provision (benefit) on continuing
operations are as follows:

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                    -------------------------------------
                                                       1996         1997         1998
                                                    ----------   ----------   -----------
<S>                                                 <C>          <C>          <C>
Current...........................................          --           --   $(2,450,000)
Deferred..........................................          --           --            --
                                                    ----------   ----------   -----------
          Total...................................          --           --   $(2,450,000)
                                                    ==========   ==========   ===========
</TABLE>

     At December 31, 1997 and 1998, the Company had temporary differences
between amounts of assets and liabilities for financial reporting purposes and
such amounts measured by income tax reporting purposes. The Company also has net
operating loss (NOL) carryforwards available to offset future taxable income.
Significant components of the Company's deferred tax assets and liabilities are
as follows:

<TABLE>
<CAPTION>
                                                                    DEFERRED TAX
                                                                  ASSET (LIABILITY)
                                                              -------------------------
                                                                    DECEMBER 31,
                                                              -------------------------
            TEMPORARY DIFFERENCES/CARRYFORWARDS                  1997          1998
            -----------------------------------               -----------   -----------
<S>                                                           <C>           <C>
Net operating losses........................................  $ 1,586,000   $ 5,274,000
Restructuring charge........................................           --     1,116,000
Reserve on investment.......................................           --       301,000
Accrued vacation............................................           --       147,000
Book: tax differences in leases.............................      228,000       220,000
Other.......................................................      149,000       101,000
Valuation allowance.........................................      (81,000)     (859,000)
                                                              -----------   -----------
          Total deferred tax assets.........................    1,882,000     6,300,000
                                                              -----------   -----------
Identifiable intangible assets not deductible for tax
  purposes..................................................    5,705,000     5,369,000
Merger costs................................................           --     1,003,000
Accrual to cash conversions.................................       37,000        73,000
Difference in book: tax amortization........................       98,000       628,000
Other deferred tax liabilities..............................      271,000       439,000
                                                              -----------   -----------
          Total deferred tax liabilities....................    6,111,000     7,512,000
                                                              -----------   -----------
Net deferred taxes..........................................  $(4,229,000)  $(1,212,000)
                                                              ===========   ===========
</TABLE>

                                       45
<PAGE>   48
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Management believes, considering all available information, including the
Company's history of earnings from continuing operations (after adjustments for
nonrecurring items, restructuring charges, permanent differences and other
appropriate adjustments) and after considering appropriate tax planning
strategies, that it is more likely than not that the Company will not generate
sufficient taxable income in the appropriate carryforward periods to realize the
$7,159,000 in deferred tax assets. The total net deferred tax assets (both
current and noncurrent) have been reduced to the amount management considers
realizable by establishing valuation allowances aggregating $859,000 at December
31, 1998. The valuation allowances have been established due to the uncertainty
associated with forecasting future income. The increase in the valuation
allowance for 1998 is $778,000.

     Income taxes are different from the amount computed by applying the United
States statutory rate to income before income taxes for the following reasons:

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                                   -------------------------------------
                                                      1996         1997         1998
                                                   -----------   ---------   -----------
<S>                                                <C>           <C>         <C>
Income tax expense (benefit) at the statutory
  rate...........................................  $(1,920,037)  $  27,166   $(3,089,000)
Permanent differences............................        7,888     101,139       288,000
Effect of purchase price allocation..............           --     877,000            --
S corporation (income) loss......................      763,564    (198,243)           --
State taxes, net of federal benefit..............     (122,628)     (7,467)     (330,000)
Other............................................           --      77,405       (97,000)
Change in valuation allowance....................    1,271,213    (877,000)      778,000
                                                   -----------   ---------   -----------
Income taxes.....................................  $        --   $      --   $(2,450,000)
                                                   ===========   =========   ===========
</TABLE>

The Company has net operating loss carryforwards of approximately $14,016,000 at
December 31, 1998 that expire in various amounts from 2009 to 2018.

12. STOCKHOLDERS' EQUITY

PUBLIC OFFERINGS

     During 1997, the Company completed its initial public offering and a second
offering (collectively referred to as the Offerings) of 2,100,000 and 2,300,000
shares of Common Stock, respectively. The Offerings resulted in gross proceeds
of $42,850,000 and net proceeds to the Company, net of underwriters' discounts
and other offering expenses, of approximately $37,623,000. The net proceeds of
the offerings were used to repay outstanding indebtedness, finance the Block
Vision acquisition and for other general corporate uses. In connection with the
early extinguishment of certain indebtedness repaid from the net proceeds of the
initial public offering, the Company incurred an extraordinary charge of
$323,346 during the year ended December 31, 1997.

STOCK OPTION PLANS

     In July 1996, the Board of Directors adopted, and the stockholders of the
Company approved, two stock option plans: the Stock Incentive Plan (the
Incentive Plan) and the Affiliated Professionals Stock Plan (the Professionals
Plan and together with the Incentive Plan, the Plans). The purpose of the Plans
is to provide directors, officers, key employees, advisors and professionals
employed by the Managed Professional Associations with additional incentives
increasing their proprietary interest in the Company or tying a portion of their
compensation to increases in the price of the Company's common stock. The
aggregate number of shares of common stock reserved for issuance related to the
Incentive Plan and the Professionals Plan is 1,400,000 shares and 700,000
shares, respectively. Compensation expense under SFAS No. 123 for the options
issued to nonemployees was immaterial for the year ended December 31, 1996 and
approximately $125,000

                                       46
<PAGE>   49
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and $202,000 for the years ended December 31, 1997 and 1998, respectively. The
options vest over three to four-year periods.

     Pro forma information regarding net income is required by SFAS 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value for these options
was estimated at the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions for 1997 and 1998, respectively:
risk-free interest rates of 6.06% and 5.50%; a dividend yield of zero;
volatility factors of the expected market price of the Company's common stock
based on industry trends of .645 and .947; and a weighted-average expected life
of the options of 3 to 4 years. In addition, for pro forma purposes, the
estimated fair value of the options is amortized to expense over the options'
vesting period. Based on these assumptions, the pro forma net loss and basic and
diluted net loss per common share for the year ended December 31, 1997 and 1998
would be approximately ($387,000) and ($0.05) and ($8,931,000) and ($0.62),
respectively. For pro forma purposes, the Company has determined that the
amortized portion of the estimated fair value of options would have had an
insignificant effect on pro forma net loss and basic and diluted net loss per
common share for the year ended December 31, 1996.

     A summary of the Company's stock option activity and related information is
as follows:

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                -------------------------------------------
                                                       1997                   1998
                                                -------------------   ---------------------
                                                           WEIGHTED                WEIGHTED
                                                           AVERAGE                 AVERAGE
                                                           EXERCISE                EXERCISE
                                                OPTIONS     PRICE      OPTIONS      PRICE
                                                --------   --------   ----------   --------
<S>                                             <C>        <C>        <C>          <C>
Outstanding -- beginning of the year..........   562,000    $ 4.48       940,799    $ 6.90
  Granted.....................................   381,465    $10.33       313,865    $ 8.46
  Exercised...................................      (888)   $ 3.11       (39,052)   $ 3.44
  Forfeited...................................    (1,778)   $ 3.11       (61,777)   $10.85
                                                --------    ------    ----------    ------
Outstanding -- end of year....................   940,799    $ 6.90     1,153,835    $ 7.12
                                                ========    ======    ==========    ======
Exercisable at end of year....................   107,999    $ 3.21       399,723    $ 6.16
                                                ========    ======    ==========    ======
Weighted-average fair value of options granted
  during the year.............................  $   4.90              $     5.30
                                                ========              ==========
</TABLE>

     Significant option groups outstanding at December 31, 1998 and related
price and life information are as follows:

<TABLE>
<CAPTION>
                                                               WEIGHTED
                                                               AVERAGE
                                        WEIGHTED AVERAGE      REMAINING                     WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES  OUTSTANDING    EXERCISE PRICE    CONTRACTUAL LIFE   EXERCISABLE    EXERCISE PRICE
------------------------  -----------   ----------------   ----------------   -----------   ----------------
<S>                       <C>           <C>                <C>                <C>           <C>
$3.11 - $5.25.........       405,811         $ 3.55              8.01           183,546          $ 3.36
$6.00 - $9.87.........       513,926           8.26              8.68           168,933            7.71
$10.00 - $12.00.......       204,098          10.93              9.14            32,244           10.43
$13.20................        30,000          13.20              9.00            15,000           13.20
                           ---------         ------              ----           -------          ------
                           1,153,835         $ 7.12                             399,723          $ 6.12
                           =========         ======                             =======          ======
</TABLE>

STOCK COMPENSATION

     In May 1996, the Company granted 144,705 shares of common stock to a
consultant as compensation for prior service (the Grant). In October 1996, the
Company entered into advisory and services agreements (the Agreements) with the
consultant and its chief medical officer whereby they would be entitled to
233,760

                                       47
<PAGE>   50
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

shares of common stock as compensation over the term of the Agreements. The
Company recorded issuance of the common stock at its fair value on the dates of
the Agreements and Grant. The expense is recognized in 1996 for the Grant and
over the related terms for the Agreements. For the year ended December 31, 1996,
the Company recognized expense of approximately $401,000 and $132,000, related
to the Grant and Agreements, respectively. For the years ended December 31, 1997
and 1998, the Company amortized approximately $108,000 of deferred compensation
under the Agreements. Such amount was capitalized and included in acquisition
costs.

WARRANTS

     From time to time, the Company has issued detachable stock purchase
warrants ("warrants"). Each warrant enables the holder to purchase one share of
the Company's Common Stock. The warrants generally are issued in connection with
debt financings or as advisory fees. Certain of the warrants are sold and others
are issued for no consideration. Warrants issued for no consideration are
recorded at their fair value at the time of issuance. Fair value is determined
by the Company in consultation with its investment bankers based on certain
facts and circumstances at the time of issuance. A summary of warrants
outstanding at December 31, 1998 is as follows:

<TABLE>
<CAPTION>
                                                                  EXERCISE
NUMBER OF                                                           PRICE
WARRANTS           GRANT DATE             EXPIRATION DATE         PER SHARE
---------   ------------------------  ------------------------  -------------
<C>         <S>                       <C>                       <C>
 200,000    December 1996             December 2003                 $6.00
 333,333    February 1997             December 2003                 $6.00
 210,000    August 1997               August 2002                  $10.00
  35,000    October 1997              October 2002              $13.25-$13.63
  50,000    November 1997             November 2002                $11.50
 100,722    November - December 1997  November - December 2002  $8.25-$12.38
  45,753    January 1998              January 2003               $8.75-$9.19
</TABLE>

EMPLOYEE STOCK PURCHASE PLAN

     In 1998, the Company adopted the Vision Twenty-One, Inc. Employee Stock
Purchase Plan (ESPP), under which 200,000 shares of the Company's Common Stock
are available for purchase by employees. Eligible employees may elect to
withhold up to 10 percent of their salary to purchase shares of the Company's
Common Stock equal to the lesser of: (a) 85 percent of the closing market price
on the first day of each fiscal quarter; or (b) 85 percent of the closing market
price on the purchase date. A resolution to approve the ESPP is being put forth
at the Company's 1999 Annual Shareholder Meeting. Should such approval not be
given, the Plan will terminate and all deductions returned to those employees
who elected to participate in the Plan. For the year ended December 31, 1998,
there were no shares issued under the Plan.

STATUTORY REQUIREMENTS

     Dividends paid by VIPA are restricted by regulations of the Officer of the
Commissioner of Insurance (OCI). The payment of cash dividends is limited to
available shareholders' equity derived from realized net profits. Based upon the
regulatory formula, no amount is available for dividends in 1998 without
regulatory approval.

     VIPA is subject to regulation by the OCI, which requires, among other
matters, the maintenance of a minimum shareholders' equity. At December 31,
1998, approximately $75,000 of available letters of credit were outstanding to
satisfy VIPA's minimum shareholders' equity requirements.

                                       48
<PAGE>   51
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

OTHER

     On June 6, 1997, the Company's Board of Directors approved a l-for-1.5
reverse stock split pursuant to the Company's initial public offering of common
stock. All share and per share amounts in the accompanying Consolidated
Financial Statements have been restated to retroactively reflect the reverse
split.

     As required in the purchase agreement with LaserSight, the Company
repurchased approximately 168,000 shares of its Common Stock from LaserSight on
March 10, 1998 for approximately $1,548,000. These shares were reissued as part
of the consideration for the acquisition of certain assets of The Eye DRx, as
previously described in Note 3.

13. EARNINGS (LOSS) PER SHARE

     The following table sets forth the computation of basic and diluted
earnings (loss) per share for earnings (loss) from continuing operations:

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                   --------------------------------------
                                                      1996          1997         1998
                                                   -----------   ----------   -----------
<S>                                                <C>           <C>          <C>
Numerator for basic and diluted earnings (loss)
  per share-earnings (loss) available to common
  stockholders...................................  $(5,647,170)  $  406,222   $(9,086,285)
Denominator for basic earnings (loss) per share-
  weighted-average shares........................    3,977,537    7,975,671    14,385,359
                                                   -----------   ----------   -----------
Effect of dilutive securities:
  Stock options..................................           --      215,164            --
  Warrants.......................................           --      246,551            --
  Nonvested Stock................................           --      134,349            --
                                                   -----------   ----------   -----------
Dilutive potential common shares.................           --      596,064            --
                                                   -----------   ----------   -----------
Denominator for diluted earnings (loss) per
  share-weighted-average shares..................    3,977,537    8,571,735    14,385,359
                                                   -----------   ----------   -----------
Basic earnings (loss) per share..................  $     (1.42)  $     0.05   $     (0.63)
                                                   ===========   ==========   ===========
Diluted earnings (loss) per share................  $     (1.42)  $     0.05   $     (0.63)
                                                   ===========   ==========   ===========
</TABLE>

     Options and warrants to purchase approximately 1,800,000 shares of common
stock were outstanding at December 31, 1998, but were not included in the
computation of diluted loss per share because the effect would be antidilutive.
The Company has issued contingent stock consideration which would entitle the
stockholders of BBG and certain Managed Professional Associations to receive
approximately 430,000 of additional shares of Common Stock. The additional
shares were not included in the computation of basic and diluted loss per share
for 1998 since certain financial goals were not attained as of December 31, 1998
and the inclusion of the shares would be antidilutive.

14. EMPLOYEE BENEFIT PLAN

     The Company sponsors the Vision-Twenty One Retirement Savings Plan, a
defined contribution plan established under Section 401(k) of the U.S. Internal
Revenue Code (the Plan). Employees are eligible to contribute voluntarily to the
Plan after one-year of continued service and attaining age 21. At its
discretion, the Company may contribute 25% of the first 6% of the employee's
contribution. Employees are always vested in their contributed balance and vest
ratably in the Company's contribution over five years. For the year ended
December 31, 1998, the expense related to the Plan was approximately $159,000.
The expense to the Company related to the Plan in 1997 and 1996 was not
material.

                                       49
<PAGE>   52
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. RESTRUCTURING PLAN

     During the fourth quarter of 1998, management of the Company committed to
and commenced the implementation of a restructuring plan (the "Restructuring
Plan") that was designed to facilitate the transformation of the Company into an
integrated eye care company. The Restructuring Plan initiatives, which are
comprised of a number of specific projects, are expected to position the Company
to take full operational and economic advantage of recent acquisitions. The
Restructuring Plan will enable the Company to complete the consolidation and
deployment of necessary infrastructure for the future, optimize and integrate
certain assets and exit certain markets. The Restructuring Plan initiatives are
expected to result in the elimination of approximately 110 positions throughout
the Company and are expected to be completed by December 31, 1999. The
initiatives to be undertaken as part of the Restructuring Plan include the
integration of managed care service centers and business lines, the
consolidation of retail optical back office functions and the consolidation of
certain corporate functions.

     The Restructuring Plan resulted in a restructuring charge of approximately
$2,796,000 for the year ended December 31, 1998. The restructuring charge is
comprised of severance costs of approximately $1,914,000 and facility and lease
termination costs of approximately $882,000. The restructuring charge is
included in restructuring and other charges in the consolidated statements of
operations.

     Other charges included in restructuring and other charges in the
consolidated statements of operations for the year ended December 31, 1998
totaling approximately $3,667,000, include the write-off of certain amounts due
from Managed Professional Associations related to markets which have been exited
under the Restructuring Plan (approximately $1,911,000), a valuation charge
related to one Management Agreement (approximately $662,000), professional fees
associated with the development of the Restructuring Plan (approximately
$521,000) and other charges to write-off or write-down assets that will not be
realized as a result of the Restructuring Plan (approximately $573,000).

     Prior to implementing the initiatives developed in the Restructuring Plan,
the Company expensed other business integration costs of approximately
$2,501,000 that were incurred during the fourth quarter of 1998. Such amount is
included in general and administrative expenses in the consolidated statements
of operations. These business integration costs represent incremental or
redundant costs as well as internal costs that resulted directly from the
development and initial implementation of the Restructuring Plan, but that are
required to be expensed as incurred. These business integration costs consist
primarily of redundant employee costs and expenses for severed employees through
the date of severance, training costs, rebranding costs, relocation costs,
retention payments and lease costs for facilities that have been planned for
future closure.

16. SEGMENT REPORTING

     The Company identifies reportable segments based on management
responsibility for the strategic business units that offer different products
and services. The segments are managed separately based on the fundamental
differences in their operations. The Company's operations have been classified
into four segments: clinical and surgery centers, retail optical, managed care
and buying group. The clinical and surgery centers segment includes all activity
related to managing optometry and ophthalmology practices, refractive surgery
centers and ambulatory surgical centers. The retail optical segment includes the
operations of three retail optical chains located in Minnesota, New Jersey and
Wisconsin. The managed care segment includes the operations consisting primarily
of Block Vision, MEC and the MCO. The buying group segment includes the
operations of Block Buying Group. The corporate category includes general and
administrative expenses associated with the operations of the Company's
corporate and regional offices and expenses not allocated to reportable
segments.

                                       50
<PAGE>   53
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The accounting policies of the reportable segments are the same as those
described in Note 2. The Company evaluates the performance of its operating
segments based on income before income taxes, depreciation and amortization,
accounting changes, unusual items and interest expense. Summarized financial
information concerning the Company's reportable segments for 1996, 1997 and 1998
is as follows:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                         ----------------------------------------
                                                            1996          1997           1998
                                                         -----------   -----------   ------------
<S>                                                      <C>           <C>           <C>
Revenues:
  Clinical and surgery centers.........................  $ 1,942,843   $30,951,922   $ 66,544,857
  Retail optical.......................................   11,718,979    12,569,321     42,933,056
  Managed care.........................................    8,192,456    18,762,158     54,980,006
  Buying group.........................................           --     7,260,797     58,959,195
                                                         -----------   -----------   ------------
          Total segments...............................   21,854,278    69,544,198    223,417,114
  Corporate............................................           --            --             --
                                                         -----------   -----------   ------------
          Total revenues...............................  $21,854,278   $69,544,198   $223,417,114
                                                         ===========   ===========   ============
Segment profit:
  Clinical and surgery centers.........................  $   698,670   $ 5,657,357   $  9,862,974
  Retail optical.......................................      726,282       952,426      3,990,019
  Managed care (a).....................................   (1,604,851)    1,516,837      2,794,837
  Buying group (b).....................................           --       378,598      3,033,022
                                                         -----------   -----------   ------------
          Total segments...............................     (179,899)    8,505,218     19,680,852
  Corporate............................................   (2,792,419)   (4,652,062)    (8,290,985)
                                                         -----------   -----------   ------------
          Total segment profit.........................  $(2,972,318)  $ 3,853,156   $ 11,389,867
                                                         ===========   ===========   ============
</TABLE>

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

(a)   Managed care segment profit includes general and administrative expenses
      related to the Buying Group which the Company is unable to separately
      identify from the general and administrative expenses of Block Vision.
(b)   Buying group profit represents the gross profit from the sale optical
      products.

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                        -----------------------------------------
                                                           1996           1997           1998
                                                        -----------   ------------   ------------
<S>                                                     <C>           <C>            <C>
Depreciation and amortization:
  Clinical and surgery centers........................           --   $    491,743   $    971,817
  Retail optical......................................  $   357,445        393,133        921,191
  Managed care........................................        3,378         67,509        319,154
  Buying group........................................           --             --             --
                                                        -----------   ------------   ------------
          Total segments..............................      360,823        952,385      2,212,162
  Corporate...........................................      126,537      1,243,283      4,771,967
                                                        -----------   ------------   ------------
          Total depreciation and amortization.........  $   487,360   $  2,195,668   $  6,984,129
                                                        ===========   ============   ============
Interest expense:
  Clinical and surgery centers........................           --             --             --
  Retail optical......................................  $   100,489   $    138,399             --
  Managed care........................................           --         21,375   $      4,445
  Buying group........................................           --             --             --
                                                        -----------   ------------   ------------
          Total segments..............................      100,489        159,774          4,445
  Corporate...........................................      160,108        912,815      5,060,446
                                                        -----------   ------------   ------------
          Total interest expense......................  $   260,597   $  1,072,589   $  5,064,891
                                                        ===========   ============   ============
</TABLE>

                                       51
<PAGE>   54
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                        -----------------------------------------
                                                           1996           1997           1998
                                                        -----------   ------------   ------------
<S>                                                     <C>           <C>            <C>
Restructuring and other charges:
  Clinical and surgery centers........................           --             --             --
  Retail optical......................................           --             --             --
  Managed care........................................           --             --             --
  Buying group........................................           --             --             --
                                                        -----------   ------------   ------------
          Total segments..............................           --             --             --
  Corporate...........................................           --             --   $  6,462,595
                                                        -----------   ------------   ------------
          Total restructuring and other charges.......           --             --   $  6,462,595
                                                        ===========   ============   ============
Merger costs:
  Clinical and surgery centers........................           --             --             --
  Retail optical......................................           --             --             --
  Managed care........................................           --             --             --
  Buying group........................................           --             --             --
                                                        -----------   ------------   ------------
          Total segments..............................           --             --             --
  Corporate...........................................           --             --   $    717,835
                                                        -----------   ------------   ------------
          Total merger costs..........................           --             --   $    717,835
                                                        ===========   ============   ============
Business development:
  Clinical and surgery centers........................           --             --             --
  Retail optical......................................           --             --             --
  Managed care........................................           --             --             --
  Buying group........................................           --             --             --
                                                        -----------   ------------   ------------
          Total segments..............................           --             --             --
  Corporate...........................................  $ 1,926,895             --             --
                                                        -----------   ------------   ------------
          Total business development..................  $ 1,926,895             --             --
                                                        ===========   ============   ============
Extraordinary item:
  Clinical and surgery centers........................           --             --             --
  Retail optical......................................           --             --             --
  Managed care........................................           --             --             --
  Buying group........................................           --             --             --
                                                        -----------   ------------   ------------
          Total segments..............................                          --             --
  Corporate...........................................           --   $    323,346   $  1,318,512
                                                        -----------   ------------   ------------
          Total extraordinary item....................           --   $    323,346   $  1,318,512
                                                        ===========   ============   ============
</TABLE>

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                              ---------------------------
                                                                  1997           1998
                                                              ------------   ------------
<S>                                                           <C>            <C>
Total assets:
  Clinical and surgery centers..............................  $ 17,590,402   $ 24,721,869
  Retail optical............................................     3,704,893     11,871,486
  Managed care..............................................     6,996,744      6,141,893
  Buying group..............................................     5,427,592      6,288,923
                                                              ------------   ------------
          Total segments....................................    33,719,631     49,024,171
                                                              ------------   ------------
  Corporate.................................................    85,660,270    142,652,953
                                                              ------------   ------------
          Total assets......................................  $119,379,901   $191,677,124
                                                              ============   ============
</TABLE>

                                       52
<PAGE>   55
                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. OTHER RELATED PARTY TRANSACTION

     In 1995, the Company entered into a five-year services agreement with a
consulting company which assists the Company with its operational and management
development. One of the Company's directors is an employee and sole owner of the
consulting company. For the years ended December 31, 1996, 1997 and 1998, the
Company paid approximately $333,000, $600,000 and $720,000, respectively to this
consulting company.

18. SUBSEQUENT EVENT

     On June 4, 1999, the Company completed the sale of the Block Buying Group.
Cash proceeds received by the Company were primarily used to repay outstanding
borrowings under the Company's credit facility.

                                       53
<PAGE>   56

                                    PART III

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        DISCLOSURE

     Not applicable.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this Item is incorporated herein by reference
to the information under the headings "MANAGEMENT -- Directors and Executive
Officers" in the Company's definitive Proxy Statement to be used in connection
with the Company's 1999 Annual Meeting of Shareholders, which was filed with the
Commission on April 30, 1999.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by this Item is incorporated herein by reference
to the information under the headings "MANAGEMENT -- Directors Compensation,
and -- Compensation of Executive Officers" in the Company's definitive Proxy
Statement to be used in connection with the Company's 1999 Annual Meeting of
Shareholders, which was filed with the Commission on April 30, 1999.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item is incorporated herein by reference
to the information under the headings "MANAGEMENT -- Security Ownership of
Management and Others" in the Company's definitive Proxy Statement to be used in
connection with the Company's 1999 Annual Meeting of Shareholders, which was
filed with the Commission on April 30, 1999.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item is incorporated herein by reference
to the information under the headings "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" in the Company's definitive Proxy Statement to be used in
connection with the Company's 1999 Annual Meeting of Shareholders, which was
filed with the Commission on April 30, 1999.

                                       54
<PAGE>   57

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

<TABLE>
<S>     <C>                                                           <C>
(a)1.   The following Financial Statements of the Registrant are
        included in Part II, Item 8, Page: 32
        Report of Independent Certified Public Accountants..........   26
        Consolidated Balance Sheets -- December 31, 1997 and 1998...   27
        Consolidated Statements of Operations -- Years Ended
          December 31, 1996, 1997 and 1998..........................   28
        Consolidated Statements of Stockholders' Equity -- Years
          Ended December 31, 1996, 1997 and 1998....................   29
        Consolidated Statements of Cash Flows -- Years Ended
          December 31, 1996, 1997 and 1998..........................   30
        Notes to Consolidated Financial Statements..................   31
   2.   Financial Statement Schedules of the Registrant: See (d)
        below.
   3.   Exhibits: See Exhibit Index.
(b)     Reports on Form 8-K: During the last quarter of the year
        ended December 31, 1998, the Company filed a Form 8-K/A
        dated October 13, 1998 to provide the financial statements
        and proformas related to the Company's acquisition of Vision
        World which was previously omitted from the Company's Form
        8-K dated August 10, 1998, and the Company filed a Form 8-K
        dated November 12, 1998 to provide certain press releases
        issued by the Company and the financial statements of
        certain businesses acquired by the Company.
(c)     Exhibits: See Exhibit Index.
(d)     Financial Statements Schedules: The following valuation and
        qualifying accounts schedule is provided, all other
        financial statement schedules are omitted because of the
        absence of the conditions under which they are required.
</TABLE>

                                       55
<PAGE>   58

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

     We have audited the consolidated financial statements of Vision Twenty-One,
Inc. and Subsidiaries as of December 31, 1997 and 1998, and for each of the
three years in the period ended December 31, 1998, and have issued our report
thereon dated June 11, 1999 (included elsewhere in this Form 10-K). Our audits
also included the financial statement schedule listed in Item 14(a) (2) of this
Form 10-K. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.

     In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

                                          /s/ Ernst & Young LLP

Tampa, Florida
June 11, 1999

                    VISION TWENTY-ONE, INC. AND SUBSIDIARIES

                SCHEDULE I -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                         ADDITIONS
                                                  -----------------------
                                    BALANCE AT    CHARGED TO   CHARGED TO
                                   BEGINNING OF   COSTS AND      OTHER        DEDUCTIONS   BALANCE AT END
DESCRIPTION                           PERIOD       EXPENSES     ACCOUNTS       DESCRIBE      OF PERIOD
-----------                        ------------   ----------   ----------     ----------   --------------
<S>                                <C>            <C>          <C>            <C>          <C>
For the year ended December 31,
  1996
  Deducted from asset accounts:
     Allowance for doubtful
       accounts..................   $       --     $     --    $  685,000(1)  $       --     $  685,000
                                    ==========     ========    ==========     ==========     ==========
For the year ended December 31,
  1997
  Deducted from asset accounts:
     Allowance for doubtful
       accounts..................   $  685,000     $262,000    $2,532,000(2)  $       --     $3,479,000
                                    ==========     ========    ==========     ==========     ==========
For the year ended December 31,
  1998
  Deducted from asset accounts:
     Allowance for doubtful
       accounts..................   $3,479,000     $426,000    $  231,000(3)  $       --     $4,136,000
                                    ==========     ========    ==========     ==========     ==========
</TABLE>

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

(1) Amount represents allowance for doubtful accounts acquired in connection
    with the December 1, 1996 acquisition of substantially all of the assets and
    certain liabilities in 10 ophthalmology and optometry practices.
(2) Amount represents allowance for doubtful accounts acquired in connection
    with the 1997 purchases of substantially all of the assets and certain
    liabilities of 11 ophthalmology and optometry practices, 3 managed care
    companies, a medical consulting company, and an ambulatory surgical center.
(3) Amount represents allowance for doubtful accounts acquired in connection
    with the 1998 Acquisitions.

                                       56
<PAGE>   59

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Largo,
State of Florida on June 18, 1999.

                                          VISION TWENTY-ONE, INC.

                                          By:   /s/ THEODORE N. GILLETTE
                                            ------------------------------------
                                                    Theodore N. Gillette
                                                  Chief Executive Officer
                                               (Principal Executive Officer)

                                          By:     /s/ RICHARD T. WELCH
                                            ------------------------------------
                                                      Richard T. Welch
                                                  Chief Financial Officer
                                            (Principal Financial and Accounting
                                                           Officer)

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities indicated on
June 18, 1999.

<TABLE>
<CAPTION>
                      SIGNATURE                                            TITLE
                      ---------                                            -----
<C>                                                    <S>

              /s/ THEODORE N. GILLETTE                 Chief Executive Officer, President and
-----------------------------------------------------    Chairman of the Board (Principal Executive
                Theodore N. Gillette                     Officer)

                /s/ RICHARD T. WELCH                   Chief Financial Officer, Treasurer and
-----------------------------------------------------    Director (Principal Financial and Accounting
                  Richard T. Welch                       Officer)

               /s/ RICHARD L. SANCHEZ                  Chief Development Officer, Secretary and
-----------------------------------------------------    Director
                 Richard L. Sanchez

              /s/ RICHARD L. LINDSTROM                 Chief Medical Officer and Director
-----------------------------------------------------
                Richard L. Lindstrom

                 /s/ BRUCE S. MALLER                   Director
-----------------------------------------------------
                   Bruce S. Maller

                /s/ PETER J. FONTAINE                  Director
-----------------------------------------------------
                  Peter J. Fontaine

                 /s/ MARTIN F. STEIN                   Director
-----------------------------------------------------
                   Martin F. Stein

                 /s/ JEFFREY I. KATZ                   Director
-----------------------------------------------------
                   Jeffrey I. Katz
</TABLE>

                                       57
<PAGE>   60

                                 1998 FORM 10-K
                            VISION TWENTY-ONE, INC.

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             EXHIBITS DESCRIPTION
-------                            --------------------
<C>       <C>  <S>
 2.1*      --  Agreement and Plan of Reorganization effective as of
               September 1, 1997 among Florida Eye Center, Sever & Ramseur,
               M.D., P.A., Raymond J. Sever, M.D. and Henry M. Ramseur,
               M.D., and the Registrant.(5)
 2.2*      --  Asset Purchase Agreement effective as of September 1, 1997
               among Thomas J. Pusateri, M.D., P.A., Thomas J. Pusateri,
               M.D., and the Registrant.(5)
 2.3*      --  Asset Purchase Agreement effective as of September 1, 1997
               among Leonard E. Cortelli, M.D., P.A., Leonard E. Cortelli,
               M.D., and the Registrant.(5)
 2.4*      --  Optical Asset Purchase Agreement effective as of September
               1, 1997 among Center Optical, Inc., Sever, Pusateri &
               Cortelli, M.D., P.A., Henry M. Ramseur, M.D., Raymond J.
               Sever, M.D., and the Registrant.(5)
 2.5*      --  Managed Care Organization Asset Purchase Agreement effective
               as of September 1, 1997, among Managed Health Services,
               Inc., Leonard E. Cortelli, M.D., Thomas J. Pusateri, M.D.,
               Henry M. Ramseur, M.D., Raymond J. Sever, M.D., the
               Registrant and Vision 21 Management Services, Inc.(5)
 2.6*      --  Agreement and Plan of Reorganization effective as of
               September 1, 1997, among Retina Associates Southwest, P.C.,
               Denis Carroll, M.D., Leonard Joffe, M.D., Reid Schindler,
               M.D., and the Registrant.(5)
 2.7*      --  Agreement and Plan of Reorganization dated May 1, 1997 by
               and among Cochise Eye & Laser, P.C., Jeffrey S. Felter,
               M.D., Thomas Rodcay, M.D., Vision 21 of Sierra Vista, Inc.
               and Vision Twenty-One, Inc.(9)
 2.8*      --  Asset Purchase Agreement dated June 1, 1997 among
               Swagel-Wootton Eye Center, Ltd., Wendy Wootton, M.D., James
               C. Wootton, M.D., Lorin Swagel, M.D., Daniel T. McGehee,
               O.D. and Vision Twenty-One, Inc.(9)
 2.9*      --  Asset Purchase Agreement dated June 1, 1997 among Aztec
               Optical Limited Partnership, Swagel-Wootton Eye Center,
               Ltd., Wendy Wootton, M.D., James C. Wootton, M.D., Lorin
               Swagel, M.D., Daniel T. McGehee, O.D. and Vision Twenty-One,
               Inc.(9)
 2.10*     --  Stock Purchase Agreement dated as of October 31, 1997 by and
               among Vision Twenty-One, Inc., BBG-COA, Inc., MarketCorp
               Venture Associates, L.P., New York State Business Venture
               Partnership, Chase Venture Capital Associates, Michael P.
               Block, Saree Block and James T. Roberto.(8)
 2.11*     --  Stock Purchase Agreement effective December 1, 1997 among
               Vision Twenty-One, Inc., MEC Health Care, Inc., LSI
               Acquisition, Inc. and LaserSight Incorporated.(10)
 2.12*     --  Asset Purchase Agreement dated as of December 1, 1997 by and
               Desert Eye Associates, L.T.D., Jack A. Aaron, M.D.,
               Marcello, M.D., and Vision Twenty-One, Inc.(13)
 2.13*     --  Agreement and Plan of Reorganization dated March 31, 1998 by
               between Vision Twenty-One, Inc., Eye Care One Corp., Martin
               F. Stein, Robert C. Sowinski, Eugene H. Edson, Stephen L.
               Charnof, John C. Colman, not individually but solely as
               trustee of the John C. Colman Trust, u/t/a dated August 5,
               1994, and Stephen L. Charnof and Daniel J. Stein, not
               individually but solely in their capacities as Trustees of
               the Daniel J. Stein Irrevocable Trust u/a/d April 3,
               1996.(12)
 2.14*     --  Stock Purchase Agreement effective March 31, 1998 by and
               Vision Twenty-One, Inc., Vision Twenty-One of, Inc., Vision
               Insurance Plan of America, Inc., Martin F. Stein, Robert C.
               Sowinski, Eugene H. Edson, Stephen L. Charnof, Thomas W.
               Witter, and John C. Colman, not individually but solely as
               Trustee of the John C. Colman Trust u/t/a dated August 5,
               1994.(13)
</TABLE>

                                       58
<PAGE>   61

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             EXHIBITS DESCRIPTION
-------                            --------------------
<C>       <C>  <S>
 2.15*     --  Asset Purchase Agreement dated as of April 1, 1998 by and
               among Robert L. Garrett, O.D., P.C., Robert L. Garrett,
               O.D., Optometric Associates of Arizona, P.L.C., and Vision
               Twenty-One, Inc.(13)
 2.16*     --  Asset Purchase Agreement dated as of April 1, 1998 by and
               Master Eye Consultants, P.C., Optometric Associates of
               Texas, P.C., Vision Twenty-One, Inc., and J.R. Cacy,
               O.D.(13)
 2.17*     --  Asset Purchase Agreement dated as of May 1, 1998 by and
               Johnson Eye Institute, P.A., Sever, Pusateri &, M.D., P.A.,
               Optometric Associates of Florida, P.A., Vision Twenty-One,
               Inc. and David A. Johnson, M.D. (14)
 2.18*     --  Asset Purchase Agreement effective January 1, 1998, by and
               among Elliot L. Shack, O.D., P.A., Charles M. Cummins, O.D.
               and Elliott L. Shack, O.D., P.A., and Vision Twenty-One,
               Inc.(13)
 2.19*     --  Stock Purchase Agreement effective as of January 1, 1998 by
               and between Vision Twenty-One, Inc., The Complete Optical
               Laboratory, Inc., Elliot L. Shack, and Charles M.
               Cummins.(13)
 2.20*     --  Asset Purchase Agreement dated as of May 1, 1998 by and
               among Johnson Eye Institute Surgery Center, Inc., Vision
               Twenty-One Surgery Center, Ltd. and David A. Johnson, M.D.
               and Debra Pazo Johnson.(14)
 2.21*     --  Asset Purchase Agreement dated effective June 30, 1998 among
               Vision Twenty-One, Inc., Vision World, Inc., Russell
               Trenholme and Takako Trenholme.(16) (Schedules (or similar
               attachments) have been omitted and the Registrant agrees to
               furnish supplementally a copy of any omitted schedule to the
               Securities and Exchange Commission upon request.)
 3.1*      --  Amended and Restated Articles of Incorporation of Vision
               Twenty-One, Inc.(1)
 3.2*      --  Bylaws of Vision Twenty-One, Inc.(1)
 4.1*      --  Specimen of Vision Twenty-One, Inc. Common Stock
               Certificate.(1)
 4.2*      --  Promissory Note dated June 1996 from Vision Twenty-One, Inc.
               to Peter Fontaine.(1)
 4.3*      --  Promissory Note dated November 1996 from Vision Twenty-One,
               Inc. to Peter Fontaine.(1)
 4.4*      --  Promissory Note dated December 1996 from Vision Twenty-One,
               Inc. to Peter Fontaine.(1)
 4.5*      --  Note Purchase Agreement for 10% Senior Subordinated Notes
               December 19, 1999 (Detachable Warrants Exchangeable Into
               Common Stock) dated December 20, 1996, by and between Vision
               Twenty-One, Inc. and certain purchasers.(1)
 4.6*      --  Amendment No. 1 dated April 18, 1997, to that certain Note
               Purchase Agreement dated December 20, 1996, by and between
               Vision Twenty-One, Inc. and certain purchasers.(1)
 4.7*      --  Note Purchase Agreement for 10% Senior Subordinated Series
               1997 Notes Due December 19, 1999 (Detachable Warrants
               Exchangeable Into Common Stock) dated February 28, 1997
               between Vision Twenty-One, Inc. and Piper Jaffray Healthcare
               Fund II Limited Partnership.(1)
 4.8*      --  Amended and Restated Note and Warrant Purchase Agreement
               dated June 1997 and First Amendment to Amended and Restated
               Note and Warrant Purchase Agreement dated August 1997
               between Vision Twenty-One, Inc. and Prudential Securities
               Group.(4)
 4.9*      --  Credit facility commitment letter dated October 10, 1997
               between Prudential Securities Credit Corporation and Vision
               Twenty-One, Inc.(5)
 4.10*     --  Note Purchase Agreement dated October 1997 between Vision
               Twenty-One, Inc. and Prudential Securities Credit
               Corporation.(9)
 4.11*     --  Letter Amendment dated December 30, 1997 to the Note and
               Warrant Purchase Agreement between Vision Twenty-One, Inc.
               and Prudential Securities Credit Corporation.(10)
 4.12*     --  Stock Distribution Agreement dated December 30, 1997 by and
               between Vision Twenty-One, Inc. and LaserSight
               Incorporated.(10)
 4.13*     --  Credit Agreement dated as of January 30, 1998 among Vision
               Twenty-One, Inc. the Banks Party Hereto and Bank of Montreal
               as Agent.(11)
 4.14*     --  Amended and Restated Credit Agreement dated as of July 1,
               1998 among Vision Twenty-One, Inc., and the Bank of Montreal
               as Agent for a consortium of banks.(15)
</TABLE>

                                       59
<PAGE>   62

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             EXHIBITS DESCRIPTION
-------                            --------------------
<C>       <C>  <S>
 4.15      --  First Amendment to the Amended and Restated Credit Agreement
               dated as of February 23, 1999 among Vision Twenty-One, Inc.,
               the Banks party hereto and Bank of Montreal as Agent for the
               Banks.
 4.16      --  Second Amendment to the Amended and Restated Credit
               Agreement dated as of June 11, 1999 among Vision Twenty-One,
               Inc., the Banks party hereto and Bank of Montreal as Agent
               for the Banks.

               (The Company is not filing any instrument with respect to
               long-term debt that does not exceed 10% of the total assets
               of the Company and the Company agrees to furnish a copy of
               such instrument to the Commission upon request.)
10.1*      --  Employment Agreement dated October 1, 1996 between Vision
               Twenty-One, Inc. and Theodore N. Gillette.(1)
10.2*      --  Employment Agreement dated October 1, 1996 between Vision
               Twenty-One, Inc. and Richard Sanchez.(1)
10.3*      --  Employment Agreement dated September 1, 1996 between Vision
               Twenty One, Inc. and Richard T. Welch.(1)
10.4*      --  Services Agreement dated September 9, 1996 between Vision
               Twenty-One, Inc. and Dr. Richard L. Lindstrom, M.D.(1)
10.5*      --  Vision Twenty-One, Inc. 1996 Stock Incentive Plan.(1)
10.6*      --  Vision Twenty-One, Inc. Affiliated Professionals Stock
               Plan.(1)
10.7*      --  Agreement dated May 10, 1996 between Vision Twenty-One, Inc.
               and Bruce S. Maller.(1)
10.8*      --  Advisory Agreement dated October 20, 1996 between Vision
               Twenty-One, Inc. and Bruce S. Maller.(1)
10.9*      --  Services Agreement dated March 10, 1996 between Vision
               Twenty-One, Inc. and The BSM Consulting Group.(1)
10.10*     --  Subscription Agreement dated June 4, 1996 between Vision
               Twenty-One, Inc. and Peter Fontaine.(1)
10.11*     --  Promissory Note dated June 1996 from Vision Twenty-One, Inc.
               to Peter Fontaine, filed as Exhibit 4.2 to this Report and
               incorporated herein by reference.
10.12*     --  Promissory Note dated November 1996 from Vision Twenty-One,
               Inc. to Peter Fontaine, filed as Exhibit 4.3 to this Report
               and incorporated herein by reference.
10.13*     --  Promissory Note dated December 1996 from Vision Twenty-One,
               Inc. to Peter Fontaine filed as Exhibit 4.4 to this Report
               and incorporated herein by reference.
10.14*     --  Note Purchase Agreement for 10% Senior Subordinated Notes
               Due December 19, 1999 (Detachable Warrants Exchangeable Into
               Common Stock), dated December 20, 1996, by and between
               Vision Twenty-One, Inc. and certain purchasers filed as
               Exhibit 4.5 to this Report and incorporated herein by
               reference.(2)
10.15*     --  Amendment No. 1 dated April 18, 1997, to that certain Note
               Purchase Agreement dated December 20, 1996, by and between
               Vision Twenty-One, Inc. and certain purchasers filed as
               Exhibit 4.6 to this Report and incorporated herein by
               reference.(1)
10.16*     --  Note Purchase Agreement for 10% Senior Subordinated Series
               1997 Notes Due December 19, 1999 (Detachable Warrants
               Exchangeable Into Common Stock), by and between Vision
               Twenty-One, Inc. and Piper Jaffray Healthcare Fund II
               Limited Partnership, filed as Exhibit 4.7 to this Report and
               incorporated herein by reference.(1)
10.17*     --  Amended and Restated Note and Warrant Purchase Agreement
               dated June 1997 and First Amendment to Amended and Restated
               Note and Warrant Purchase Agreement dated August 1997
               between Vision Twenty-One, Inc. and Prudential Securities
               Group, Inc. filed as Exhibit 4.8 to this Report and
               incorporated herein by reference.(4)
10.18*     --  Form of Indemnification Agreement.(1)
</TABLE>

                                       60
<PAGE>   63

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             EXHIBITS DESCRIPTION
-------                            --------------------
<C>       <C>  <S>
10.19+*    --  Ancillary Provider Participation Agreement and Provider
               Amendment among Humana Medical Plan, Inc., Humana Health
               Plan of Florida, Inc., Humana Health Insurance of Florida,
               Inc., Humana Insurance Company and Vision 21.(2)
10.20+*    --  Asset Purchase Agreement dated December 1, 1996, by and
               among Gillette & Associates, #6965, P.A., Theodore N.
               Gillette, O.D., Mark Sarno, O.D. and Mark Beiler, O.D. and
               Vision Twenty-One, Inc.(2)
10.21*     --  Subordinated Promissory Note dated December 1, 1996, from
               Vision Twenty-One, Inc. to Gillette & Associates, #6965,
               P.A.(1)
10.22*     --  Business Management Agreement dated December 1, 1996,
               between Vision Twenty-One, Inc. and Gillette & Associates,
               #6965, P.A.(2)
10.23+*    --  Agreement and Plan of Reorganization dated December 1, 1996,
               by and among Eye Institute of Southern Arizona, P.C.,
               Jeffrey I. Katz, M.D. and Barry Kusman, M.D., Vision Twenty-
               One, Inc. and Vision 21 of Southern Arizona, Inc.(3)
10.24*     --  Business Management Agreement dated December 1, 1996,
               between Eye Institute of Southern Arizona, P.C. and
               ExcelCare, P.C. (as assigned to Vision Twenty-One, Inc.)(1)
10.25+*    --  Asset Purchase Agreement dated December 1, 1996, by and
               among Lindstrom, Samuelson & Hardten Ophthalmology
               Associates, P.A., Richard L. Lindstrom, M.D., Thomas W.
               Samuelson, M.D. and David R. Hardten, M.D. and Vision
               Twenty-One, Inc.(9)
10.26*     --  Subordinated Promissory Note dated December 1, 1996, from
               Vision Twenty-One, Inc. to Lindstrom, Samuelson & Hardten
               Ophthalmology Associates, P.A.(1)
10.27*     --  Business Management Agreement dated December 1, 1996,
               between Vision Twenty-One, Inc. and Lindstrom, Samuelson &
               Hardten Ophthalmology Associates, P.A.(1)
10.42*     --  Stock Purchase Agreement dated May 1997, between David R.
               Hardten, M.D., Robert B. Kennedy, O.D., Thomas A. Knox,
               Gregory W. Kraupa, O.D., John W. Lahr, O.D., Richard L.
               Lindstrom, M.D., Jack W. Moore, Thomas W. Samuelson, M.D.,
               and Bradley Dr. Richter, O.D. and Vision Twenty-One, Inc.(1)
10.43*     --  Regional Services Agreement dated May 1997, between Vision
               Twenty-One, Inc. and Richard L. Lindstrom, M.D.(1)
10.47*     --  Form of Contract Provider agreement(2)
10.48+*    --  Joint Venture Agreement dated May 1, 1996 by and between For
               Eyes Managed Care, Inc. and Vision 21 Managed Eye Care of
               Tampa Bay, Inc.(3)
10.49*     --  Amendment to Agreement and Plan of Reorganization dated July
               31, 1997 by and among Kuscat Investments, L.L.C.,
               Ocusite-ASC, Inc., Jeffrey I. Katz, M.D. and Barry Kusman,
               M.D., Vital Site, P.C., Vision Twenty-One, Inc. Vision 21 of
               Southern Arizona, Inc. and the escrow agent.(9)
10.50*     --  Employment Agreement dated October 31, 1997 between Vision
               Twenty-One, Inc. and Michael P. Block.(9)
10.51*     --  Letter of Intent dated October 15, 1997 by and among Vision
               Twenty-One, Inc., BBG-COA, Inc. MarketCorp Venture
               Associates, L.P., New York State Business Venture
               Partnership, Chase Venture Capital Associates, Michael P.
               Block, Saree Block and James T. Roberto.(6)
10.52*     --  Credit facility commitment letter dated October 10, 1997
               between Prudential Securities Credit Corporation and Vision
               Twenty-One, Inc. filed as Exhibit 4.9 to this Report and
               incorporated herein by reference.
10.53*     --  Note Purchase Agreement dated October 1997 between Vision
               Twenty-One, Inc. and Prudential Securities Credit
               Corporation, filed as Exhibit 4.10 to this Report and
               incorporated herein by reference.
10.54*     --  Stock Purchase Agreement effective October 31, 1997 by and
               among Vision Twenty-One, Inc., BBG-COA, Inc. Market Corp
               Venture Associates, L.P., New York state Business Venture
               Partnership, Chase Venture Capital Associates, Michael P.
               Block, Saree Block and James T. Roberto, filed as Exhibit
               2.10 to this Report and incorporated herein by reference.
</TABLE>

                                       61
<PAGE>   64

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             EXHIBITS DESCRIPTION
-------                            --------------------
<C>       <C>  <S>
10.55*     --  Letter Agreement of October 2, 1997 by and between
               Prudential Securities Incorporated as exclusive agent for
               obtaining $50.0 million credit facility, and Vision
               Twenty-One, Inc.(9)
10.56*     --  Letter Agreement of October 14, 1997 by and between
               Prudential Securities Incorporated, as exclusive financial
               adviser in the Block Acquisition, and Vision Twenty-One,
               Inc.(9)
10.57*     --  Letter Amendment dated December 30, 1997 to the Note and
               Warrant Purchase Agreement between Vision Twenty-One, Inc.
               and Prudential Securities Credit Corporation, filed as
               Exhibit 4.11 to this Report and incorporated herein by
               reference.(10)
10.58*     --  Stock Distribution Agreement dated December 30, 1997 by and
               between Vision Twenty-One, Inc. and LaserSight,
               Incorporated, filed as Exhibit 4.12 to this Report and
               incorporated herein by reference.(10)
10.59*     --  Credit Agreement dated as of January 30, 1998 among Vision
               Twenty-One, Inc. ,the Banks Party Hereto and Bank of
               Montreal as Agent filed as Exhibit 4.13 to this Report and
               incorporated herein by reference.(11)
10.60*     --  Amended and Restated Credit Agreement dated as of July 1,
               1998 among Vision Twenty-One, Inc. the Banks Party Hereto
               and Bank of Montreal as Agent, filed as Exhibit 4.14 to this
               Report and incorporated herein by reference.(16)
10.61      --  First Amendment to the Amended and Restated Credit Agreement
               dated as of February 23, 1999 among Vision Twenty-One, Inc.,
               the Banks party hereto and Bank of Montreal as Agent for the
               Banks, filed as Exhibit 4.15 to this report and incorporated
               herein by reference.
10.62      --  Second Amendment to the Amended and Restated Credit
               Agreement dated as of June 11, 1999 among Vision Twenty-One,
               Inc., the Banks party thereto and Bank of Montreal as Agent
               for the Banks, filed as Exhibit 4.16 to this Report and
               incorporated herein by reference.
10.63*     --  Vision Twenty-One, Inc. Employee Stock Purchase Plan.(17)
21         --  List of the subsidiaries of Vision Twenty-One, Inc.
23         --  Consent of Ernst & Young, LLP, independent certified public
               accountants.
27         --  Financial Data Schedule for the year ended December 31, 1998
               (for SEC use only).
</TABLE>

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

   * Previously filed as an Exhibit in the Company filing identified in the
     footnote following the Exhibit Description and incorporated herein by
     reference.
 (1) Registration Statement on Form S-1 filed on June 13, 1997 (File No.
     333-29213).
 (2) Amendment No. 1 to Registration Statement on Form S-1 filed on July 23,
     1997.
 (3) Amendment No. 3 to Registration Statement on Form S-1 filed on August 14,
     1997.
 (4) Amendment No. 4 to Registration Statement on Form S-1 filed on August 18,
     1997.
 (5) Form 8-K filed September 30, 1997.
 (6) Registration Statement on Form S-1 filed on October 30, 1997 (333-39031).
 (7) Amendment No. 1 to Registration Statement on Form S-1 filed on November 3,
     1997.
 (8) Form 10-Q filed on November 14, 1997.
 (9) Amendment No. 2 to Registration Statement on Form S-1 filed November 19,
     1997.
(10) Form 8-K filed January 13, 1998.
(11) Form 8-K filed February 10, 1998.
(12) Form 8-K filed April 14, 1998.
(13) Registration Statement on Form S-1 filed on April 30, 1998 (File No.
     333-51437).
(14) Amendment No. 1 to Registration Statement on Form S-1 filed on May 12, 1998
     (333-51437).
(15) Form 8-K filed July 10, 1998.
(16) Form 10-Q filed August 14, 1998.
(17) Form S-8 filed November 13, 1998.

                                       62