<PAGE>   1
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                 ---------------

                                    FORM 10-K
(Mark One)

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

                   FOR THE FISCAL YEAR ENDED JANUARY 31, 1999

                                       OR

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

                           COMMISSION FILE NO. 0-23397

                               U. S. VISION, INC.
             (Exact name of registrant as specified in its charter)

         DELAWARE                                         22-3032948
(State or other jurisdiction of             (I.R.S. employer identification no.)
 incorporation or organization)

                                 1 HARMON DRIVE
                            GLEN OAKS INDUSTRIAL PARK
                           GLENDORA, NEW JERSEY 08029
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (609) 228-1000

        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 $.01 PER SHARE                     7,793,807
          (Title of class)                        (Number of Shares Outstanding
                                                      as of April 20, 1999)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES  X  NO

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

     The aggregate market value of voting stock held by nonaffiliates of the
registrant is approximately $10,416,875 This amount was calculated by reducing
the total number of shares of the registrant's common stock outstanding by the
total number of shares of common stock held by officers, directors, and
stockholders owning in excess of 10% of the registrant's common stock, and
multiplying the remainder by the average of the bid and asked price for the
registrant's common stock on April 20, 1999, as reported on the National
Association of Securities Dealers, Inc. Automated Quotation System. The
information provided shall in no way be construed as an admission that any
officer, director, or more than 10% stockholder of the registrant may be deemed
an affiliate of the registrant or that such person is the beneficial owner of
the shares reported as being held by such person, and any such inference is
hereby disclaimed.

                      DOCUMENTS INCORPORATED BY REFERENCE:

     Portions of the Registrant's definitive proxy statement concerning the 1999
Annual Meeting of Stockholders to be filed pursuant to Regulation 14A are
incorporated by reference into Part III of this report. The Proxy Statement will
be filed by the Commission not later than 120 days after the Registrant's fiscal
year ended January 31, 1999.

================================================================================
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                                     PART I

ITEM 1.  BUSINESS.

THE COMPANY

     U.S. Vision, Inc. was formed in March 1990 when the company completed a
leveraged buyout of Royal International Optical Corporation and became a
publicly traded retail optical company. Royal also owned Styl-Rite Optical Mfg.
Co., Inc., which currently manufactures, imports and distributes optical frames
and sunglasses principally for sale in the company's retail optical stores, as
well as for sale to third party optical retailers.

     The majority of the company's outstanding stock was acquired by Royal
Associates Acquisition Partnership in December 1994 and, in May 1995, the
company effected a one-for-one thousand reverse stock split and deregistered its
stock from the Nasdaq SmallCap Market. In March 1997, the company changed its
state of incorporation from Pennsylvania to Delaware. In December 1997, the
company completed its initial public offering of 2,500,000 shares of stock. The
company's stock is listed on the Nasdaq National Market under the symbol "USVI".

     Prior to January 31, 1996, the company's fiscal year ended on March 31.
Effective January 31, 1996, the company changed its fiscal year end to January
31. References herein to "fiscal 1995," "fiscal 1996," "fiscal 1997" and "fiscal
1998" refer to the ten months ended January 31, 1996, the fiscal year ended
January 31, 1997, the fiscal year ended January 31, 1998, and the fiscal year
ended January 31, 1999, respectively. The differences in period durations must
be considered in making period-to-period comparisons.

     U.S. Vision maintains its corporate headquarters at 1 Harmon Drive, Glen
Oaks Industrial Blvd., Glendora, New Jersey, 08029. The company's telephone
number is (609) 228-1000.

GENERAL

     U.S. Vision is a retailer of optical products and services through retail
optical departments licensed to operate within national and regional department
host stores and through a limited number of freestanding retail locations. As of
January 31, 1999, the company operated 614 locations in 48 states, consisting of
557 licensed departments and 57 freestanding stores. The company currently
operates 403 J.C. Penney Company, Inc. retail optical departments and is J.C.
Penney's primary optical licensee. In addition, the company operates 69 Sears
retail optical departments and 85 retail optical departments in regional
department stores. The company's freestanding stores are generally located in
malls and shopping centers.


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     U.S. Vision's retail optical departments are generally full-service retail
vision care stores that offer an extensive selection of designer brands and
private label prescription eyewear, contact lenses, sunglasses and accessories
with an on-premises, independent optometrist who performs complete eye
examinations and prescribes eyeglasses and contact lenses. The company's
extensive selection of designer and private label branded eyewear allows the
company to tailor its merchandise selection to meet the needs of the company's
host store customers. See "Business -- Products and Services --Merchandise
Selection" and "Store Operations."

     U.S. Vision operates a single, modern optical laboratory, distribution and
lens grinding facility where it fills customer orders for prescription eyewear
and maintains a central inventory of frames. Customer orders are placed at the
retail stores and are phoned into the central optical laboratory daily, where
the lenses are ground, cut, finished and custom fitted to optical frames in the
size and style selected by the customer. The finished eyewear is then shipped to
the retail store for delivery to the customer within one day upon request,
otherwise generally within approximately three to four days. See "Business --
Optical Laboratory and Distribution." Through Styl-Rite, the company
manufactures, imports and distributes optical frames and sunglasses principally
for sale in its optical stores and to a lesser extent for sale to third party
retailers.

     Since 1991, the company has been a national provider of managed vision care
benefits through its participation in managed vision care programs which offer
comprehensive eyewear benefits to managed care participants. Approximately 34%
of the company's revenues are attributable to purchases by participants in
managed vision care programs. See "Business -- Managed Vision Care."

PRODUCTS AND SERVICES

     Merchandise Selection. U.S. Vision carries a full selection of men's,
women's and children's eyeglass frames, a complete line of contact lenses,
sunglasses and ancillary products for eyeglasses and contact lenses.
Prescription eyewear and accessories accounted for 87% of the company's sales
during fiscal 1998. The company offers an extensive selection of designer and
private label branded eyewear. Designer eyeglass frames offered include Guess,
Nautica, Halston and Eddie Bauer, among others and, at certain stores, Giorgio
Armani, Calvin Klein and Polo by Ralph Lauren. The company also offers private
label branded eyeglass frames such as Hunt Club, Arizona, Ashley Stewart, Oliver
Winston, City Slickers and Rascals, among others. U.S. Vision offers a wide
variety of value-added eyewear features and services on which it realizes a
higher gross margin such as lightweight, virtually unbreakable polycarbonate
lenses, including Kodak progressive lenses and plastic photochromic lenses, as
well as scratch resistant and anti-reflective coatings. The company carries a
complete line of contact lenses by major contact lens manufacturers such as
Bausch & Lomb, Wesley Jessen, and Johnson & Johnson, including daily wear and
extended wear soft contact lenses and cosmetic tinted lenses. During fiscal
1998, contact lenses accounted for approximately 13% of the company's sales.

     Pricing. U.S. Vision maintains a promotional pricing strategy which
stresses a quality product delivered at a competitive price. The company's
frames and lenses are generally competitively priced, with prices varying based
on geographic region. While the company earns a higher gross margin on its
private-label lines, designer frames generally command premium prices, resulting
in higher gross profit dollars per transaction.


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     Full Customer Service. U.S. Vision strives to provide its customers with
exceptional care and value by combining the personal service typically
associated with a private optometrist with the broad product selection and
competitive prices of a large optical retailer. Management believes that
providing superior customer service from knowledgeable and courteous employees
complements the customer-oriented policies of its department store hosts.

MANAGED VISION CARE

     Since 1991, U.S. Vision has been a participating provider of managed vision
care benefits primarily through Vision One, a national vision care program which
offers comprehensive eyewear benefits to over 50 million covered lives through a
network of over 2,500 optical locations. Managed care programs are marketed
directly to employers, employee benefit plan sponsors and insurance companies
such as General Motors, Metropolitan Life, Aetna, Cigna, PruCare HMO and Blue
Cross/Blue Shield. Managed care programs give employers the opportunity to offer
their employees a group discount at retail optical locations of participating
providers with minimal direct cost to the employer. The discounts vary under the
plans from fixed percentage discounts to fixed dollar amounts with the balance
paid by the subscriber. As a result of these benefits, management believes that
many managed care participants have vision examinations on a regular basis and
may become more frequent customers of U.S. Vision. In addition, managed care
participants frequently apply their discounts and allowances toward the purchase
of premium eyeglass products and related accessories. Under the terms of the
company's contract with Cole National, a competitor of the company and the owner
of the Vision One program, the company pays an administrative fee for each
Vision One member transaction. The company's contract with Cole National expires
in 2002. The company retains the right, though it has not exercised it in the
past, to refuse to participate in particular Vision One programs under which it
cannot profitably provide goods and services, and to participate in other
managed care vision plans under certain conditions. Approximately 34% of the
company's revenues are generated from its participation in various managed
vision care programs.

STORE OPERATIONS

     Location and Layout. U.S. Vision operates most of its stores on the
premises of national and regional host department stores. These stores generally
operate under names such as "J.C. Penney Optical Center" and "Sears Optical,"
which associate the departments with the host store. The company's retail
optical departments generally operate under a lease or license arrangement
through which the host store collects the sales receipts, retains an agreed upon
percentage of sales, which is recorded as rent expense by the company, and
remits the remainder to the company on a regular basis. The company's leased
retail optical departments typically average in size from 500 to 800 square
feet. The company's retail optical departments are often located within the host
department store near the host store's other licensed departments such as the
beauty salon and photography studio. Management believes that the location of
its retail optical departments within a host store influences the company's
ability to take full advantage of the host store's customer traffic.


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     Each store follows a standard merchandise layout plan which is designed to
emphasize fashion, invite customer browsing and enhance the customer's shopping
experience. All of the company's stores are similar in appearance and are
operated under certain uniform standards and procedures. The company has
developed a new store prototype design and all of the company's new and
remodeled retail optical departments are designed in accordance with this
prototype.

     U.S. Vision's freestanding stores operate under various trade names such as
Royal Optical, Service Optical and Wall & Ochs and are located in malls and
shopping centers. A limited number of these stores are housed in freestanding
buildings with adjacent parking facilities. The company's freestanding stores
generally range in size from 900 to 1,400 square feet.

     Store Management. The company's store management structure consists of
field managers and store managers. The store managers, along with two to three
associates known as Optechs, are responsible for the day-to-day operations of
each of the company's retail optical departments. Optechs undertake a
comprehensive training program that familiarizes them with the company's product
lines, customer services, store procedures and automated systems. The company's
national Director of Training is responsible for overseeing the training of the
Optechs and updating the company's training materials. Management believes that
providing knowledgeable and responsive customer service is an important element
of its success and, accordingly, has developed and implemented a variety of
employee training and incentive programs.

     On-Site Independent Optometrist. The company has made arrangements with
licensed optometrists to provide eye examination services at or adjacent to its
retail locations in those states where it is permitted. See "Government
Regulations." The independent optometrists sublease space and equipment from the
company or from the host store. The company and the optometrists do not share in
each other's revenues. Management believes the presence of the optometrists at
the stores leads to repeat customers and reinforces the quality and
professionalism of each store.

RELATIONSHIP WITH HOST STORES

     Most of the company's stores operate as licensed optical departments within
a host department store such as J.C. Penney, Sears, Federated (Rich's, Burdines
and Lazarus), May (Strawbridge's, Famous Barr and L.S. Ayres), Marshall Field's,
Dayton's, Hudson's and Carson Pirie Scott, among others. Management believes
that the company's relationships with its host stores provide several
competitive advantages such as: (a) lower operating expenses; (b) lower initial
capital investment; (c) loyal host store customer base; (d) established host
store advertising and marketing programs; (e) one-stop shopping convenience; and
(f) access to the host store's private label credit card. Management believes
its hosts' reputation of quality, trust and value further enhances the company's
customer relations.

     Management believes it has developed excellent relationships with the host
stores in which it operates. Management strives to continue to enhance these
relationships. The company routinely consults with the host stores about the
size and placement of the company's optical departments within newly opened or
remodeled host stores.


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     The company's retail optical departments within J.C. Penney stores are
subject to a master lease that expires in December 2003. Since 1992, the company
has opened 168 retail optical departments within J.C. Penney and currently has
403 locations within J.C. Penney. The company's master lease with J.C. Penney
provides that only a limited number of the company's J.C. Penney optical centers
may be closed by J.C. Penney in any calendar year without cause. This
limitation, however, does not apply if J.C. Penney closes an entire J.C. Penney
department store, either temporarily or permanently. The lease also provides
that J.C. Penney will reimburse the company for certain costs relating to the
closed department. The company's optical departments within Sears stores are
each subject to a lease which provides for a year-to-year term, subject to early
termination by either party, without cause, on thirty-days prior written notice.
The company's retail optical departments located within other department stores
are subject to lease arrangements which contain short notice lease termination
provisions. These leases provide for monthly lease payments based upon a
percentage of the company's sales at each location.

     In January 1999, as part of the company's growth objectives to diversify
its host store base, the company signed master lease agreements with Hudson's
Bay Company, which operates over 450 retail locations in Canada In March 1999,
the company opened 15 retail optical departments within The Bay, a traditional
department store division of Hudson's Bay. In April 1999, the company opened its
first location in Zellers, the upscale discount retail division of Hudson's Bay.

MARKETING AND ADVERTISING

     U.S. Vision engages in a variety of marketing and promotional efforts to
maintain and strengthen its customer base. The company's advertising program is
targeted at the department store consumer and is designed to convey a message of
value, fashion, convenience and trust to its customer base. The company works
with each of its host stores to design advertising programs that convey this
message in a manner consistent with that of the host store and are targeted at
the specific customer base. For example, the company works with J.C. Penney to
develop targeted catalog inserts which advertise the company's J.C. Penney
optical departments. These advertising promotions generally mention the
availability of on-site professional eye examinations and the company's
acceptance, as a participating provider of managed vision care benefits, of the
discounts and allowances offered by managed vision care plans. These targeted
inserts are mailed to selected customers based on previous spending patterns at
the host store. The company actively supports its stores by providing local
advertising in individual geographic markets. U.S. Vision has an in-house
advertising department which permits it to respond quickly to fashion trends,
competitor advertising and promotional initiatives.

OPTICAL LABORATORY AND DISTRIBUTION

     U.S. Vision operates a 60,000 square foot modern optical laboratory,
distribution and lens grinding facility adjacent to its headquarters in
Glendora, New Jersey. Customer orders for prescription eyewear, sunglasses and
contact lenses are phoned or faxed in from each of the company's store locations
to its central laboratory. Customer orders generally are processed and shipped
to stores within three to four working days and many can often be completed
overnight if requested by the customer. Most prescription lenses are completed
from semi-finished polycarbonate or plastic lenses obtained from third-party
suppliers. These lenses are finished in a highly technical process that grinds
the surface of the lens to fit the prescription utilizing modern grinding
equipment, much of it computer-guided. The lenses are then custom fitted to
optical frames in the size and style selected by the customer. Other


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<PAGE>   7
prescriptions, including many standard prescriptions, can be manufactured by
cutting and edging a prefinished lens, also purchased from a third-party
supplier, to fit the frames selected. Contact lenses, accessories and
non-prescription sunglass orders are filled from available stock and shipped to
the company's retail optical departments.

     The company's laboratory is furnished with machinery capable of custom
grinding, polishing, cutting, edging, tinting and coating prescription lenses.
Management believes it has the manufacturing capacity in its laboratory to
accommodate all of the company's projected growth for the foreseeable future.

PURCHASING

     The company's relationships with its vendors and Styl-Rite's manufacturing
and importing capability have enabled the company to gain access to a wide array
of brand name product offerings. As a leading retailer of eyewear in the United
States, U.S. Vision purchases significant quantities of frames, lenses and
contact lenses from its suppliers. No purchases are made under long-term
contracts. In fiscal 1998, Bausch & Lomb, Signet Armorlite and Vistakon, the
company's largest suppliers, accounted for approximately 14%, 20% and 11% of the
company's total merchandise purchases, respectively. All raw materials for
products manufactured by the company are available from numerous suppliers.

     Through Styl-Rite, the company manufactures, imports, and distributes
optical frames and sunglasses for sale primarily in its own stores, and for sale
to third party optical retailers. Through various licenses and sublicenses,
Styl-Rite imports metal frames and manufactures plastic frames which bear the
designer, brand name and private label names sold by the company.

MANAGEMENT INFORMATION SYSTEMS

     Currently, customer prescription orders for the company's optical products
are prepared by the stores on order forms and the details of each order are
phoned in daily to the company's centralized laboratory. These orders are then
entered into the laboratory's order entry system which, for lenses, also makes
the necessary optical calculations to grind and finish the lenses to the correct
prescription and shape them to the dimensions of the frame selected by the
customer. The present laboratory order entry system also tracks each order
through every step of the manufacturing process until the finished product is
shipped to the retail optical department.

     In fiscal 1998, the company continued its efforts to design an integrated
management information system, which includes an automated order entry system at
each of its optical stores, and new manufacturing and financial systems in the
company's corporate headquarters. This new integrated system is designed to
facilitate the transmission of the order to the laboratory and provide the
company with improved order pricing and costing capability. This new system is
also designed to provide the stores with the capability to capture sales and
customer information, including prescription data, enhancing the company's
ability to monitor sales and merchandise trends and to improve customer service
after the sale. In addition, the automated order entry system is designed to
enable the stores to validate, at the time of sale, whether a particular frame
selected by the customer is in stock and whether the combination of the
customer's prescription, selected lenses and frame is within manufacturing
tolerances. The integrated information system is expected to enhance the
company's operating efficiencies by permitting all orders to be electronically
transmitted from the stores to the laboratory. The company has completed its 


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<PAGE>   8

implementation of the new financial accounting and reporting systems in its
corporate headquarters and commenced the implementation of the integrated
manufacturing systems in its laboratory. The company is currently in the design
and testing phase of the automated order entry portion of the system. There can
be no assurance that the company will be able to implement and operate this
information system effectively or that the system will produce the expected
benefits.

COMPETITION

     The company competes with other national, regional, and local retail
optical chains and independent optical retailers. Optical retailers generally
serve individual or local markets, and, as a result, competition is fragmented
and varies substantially among locations and geographic areas. Although the
retail optical industry is highly competitive, management believes none of the
company's competitors has more than a 7% market share based on revenue. The
principal competitive factors affecting the company's retail operations are
merchandise selection, quality and consistency of products and services, price,
location within the host store, convenience, availability of on-site
professional eye examinations and access to a host store's private label credit
card. The retail optical industry engages in price-related promotions as a
standard marketing practice. Several of the company's competitors have greater
financial and other resources than the company, which may enable competitors to
pursue more aggressive pricing and promotional strategies at the expense of
profits for longer periods of time than the company.

     The ability of the company to achieve its growth strategy by opening new
retail optical departments in existing and new host stores is dependent on the
company's ability to obtain suitable optical locations within existing and new
host stores. Management does not believe that the company's growth strategy will
be adversely effected by the fact that some competitors operate more retail
optical departments in host stores than the company. In addition, the company's
ability to obtain locations within host stores is dependent on whether or not
the host store's management decides to include an optical department within a
particular host store.

     Additionally, the company faces competition from advances in vision
correction technologies, including laser surgery and other surgical vision
correction procedures. This could result in decreased demand for eyeglasses and
contact lenses.

     To the extent U.S. Vision's customers may not be covered by its eye care
benefit plans, the company may compete with other vision care benefit plans and
retailers who provide alternative vision care plans. As the number of national
and regional managed vision care programs increase, competition for customers
will intensify among the various vision care programs.

EMPLOYEES

     As of January 31, 1999, the company had approximately 2,700 full-time and
part-time employees, of which: (a) approximately 2,100 were employed in the
company's retail outlets; (b) 400 were employed in manufacturing and
distribution in the company's laboratory in Glendora, New Jersey; (c) 100 were
employed at the company's Styl-Rite manufacturing facility in Miami; and (d) 100
were employed in administrative, marketing and managerial positions at the
company's headquarters in Glendora.


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<PAGE>   9
     Approximately 60 of the company's employees at the Styl-Rite facility are
subject to a collective bargaining agreement with the United Optical Workers
that expires in 2000. The company has never experienced a work stoppage or other
organized labor dispute and considers its labor relations to be good.

GOVERNMENT REGULATION

     The company is subject to a variety of federal, state and local laws, rules
and regulations affecting the health care industry and the delivery of health
care services. State and local legal requirements vary widely among
jurisdictions and are subject to frequent change. Federal legal requirements are
also subject to change.

     Relationships between the company and independent optometrists and
ophthalmologists are subject to federal, state and local laws and regulations.
State laws generally prohibit the practice of medicine and optometry by
unlicensed practitioners. In addition, many states prohibit medical
practitioners and optometrists from splitting fees with business corporations
such as the company and prohibit the practice of medicine and optometry by
corporate entities. Some states have enacted laws governing the ability of
ophthalmologists and optometrists to enter into contracts to provide
professional services with business corporations or lay persons. Some states
prohibit the company from computing its fee for rent, equipment leases and
management services provided by the company based on a percentage of the gross
revenue of the ophthalmologists and the optometrists. Such requirements are
particularly comprehensive in California and Texas, where the company operates a
significant number of stores. Further, some states restrict the location of
optometric offices in relation to optical stores, such as the company's, and
regulate advertising and the solicitation of prospective patients.

     Relationships between the company and independent ophthalmologists and
optometrists are also subject to the fraud and abuse provisions of the federal
Social Security Act which include the "anti-kickback" laws. The anti-kickback
laws prohibit the offering, payment, solicitation or receipt of any direct or
indirect remuneration for the referral of Medicare or Medicaid patients or for
the ordering or providing of Medicare or Medicaid covered services, items or
equipment. Violations of these laws may result in substantial civil or criminal
penalties for individuals or entities and exclusion from participation in the
Medicare and Medicaid programs. Several states, including states in which the
company operates, have adopted similar laws that cover patients with private
health insurance coverage as well as those covered by government programs.
Although management believes it is not in violation of the anti-kickback laws,
the applicability of these provisions has been subject to only limited judicial
and regulatory interpretation. In addition, certain of the company's products,
specifically frames manufactured by Styl-Rite, must comply with standards set by
the United States Food and Drug Administration.

     The company, as well as the independent optometrists providing services in
or adjacent to the company's stores, from time to time receive inquiries from
regulatory bodies regarding its compliance with applicable state and local
regulations. If the company's relationships with ophthalmologists and
optometrists are challenged, the company may be required to alter the manner in
which it conducts its business. There can be no assurance that a review of the
company's business by courts or regulatory authorities will not result in
determinations that could adversely affect the operations of the company or that
new laws, regulations or interpretations of current laws and regulations will
not have a material adverse effect on the company's business, financial
condition or results of operations.


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<PAGE>   10
ITEM 2.  PROPERTIES

     The company owns a 20,000 square foot facility in Glendora, New Jersey,
which serves as the company's corporate headquarters and a neighboring 60,000
square foot optical laboratory and distribution facility. The real property on
which these facilities are located, as well as the buildings and certain
equipment located therein, secure the company's obligations under the DRPA Term
Loans. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations--Liquidity and Capital Resources." Styl-Rite, the
company's frame manufacturing and importing operation, owns and operates a
40,000 square foot facility in Miami, Florida. The real property on which this
facility is located, as well as the building, secure the company's obligations
under the revolving line of credit and term loan. See "Management's Discussion
and Analysis of Financial Conditions and Results of Operations--Liquidity and
Capital Resources."

     In fiscal 1997, the company leased a 24,000 square foot warehouse adjacent
to its corporate headquarters in Glendora, New Jersey. The lease has a
three-year term and expires in 2000. The company has an option to purchase this
facility.

     U.S. Vision's freestanding store locations are subject to lease
arrangements which contain varying terms and are not subject to short notice
lease termination provisions. The leases provide for monthly base lease payments
plus, under certain circumstances, include an additional rent provision based on
a percentage of the company's sales at each location.

ITEM 3.  LEGAL PROCEEDINGS.

     The company is subject to various pending and threatened litigation from
time to time in the ordinary course of business. Although all litigation
involves some degree of uncertainty, in the opinion of management, liabilities,
if any, arising from such litigation or threat thereof are not expected to have
a material adverse effect on the company.

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

     None.


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<PAGE>   11
                                     PART II


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

     The company's stock is traded on Nasdaq under the symbol "USVI." The
company completed its initial public offering of 2,500,000 shares of stock on
December 5, 1997 and the first day of trading in the stock was December 1, 1997.

     For the period indicated below, the following table sets forth the high and
low bid information of the stock as reported on Nasdaq, rounded to the nearest
eighth of a dollar.

<TABLE>
<CAPTION>
                                1998 CLOSING PRICES       1997 CLOSING PRICES
                                -------------------      ---------------------
   CALENDAR PERIOD                 LOW      HIGH            LOW       HIGH
   ---------------                 ---      ----            ---       ----
<S>                             <C>        <C>           <C>        <C>
February 1 - April 30            $ 9.63    $13.13           --          --
May 1 - July 31                   10.75     13.38           --          --
August 1 - October 31              7.38     11.38           --          --
November 1 - January 31            6.50      9.88        $ 8.50     $ 9.75 (1)
</TABLE>

     As of April 20, 1999, there were 66 record holders of the company's stock.
The company has not declared or paid any cash dividends on the stock since its
organization. Under the terms of the company's revolving bank line of credit,
the company's ability to pay cash dividends to its stockholders is restricted.

------
(1)   December 1, 1997 - January 31, 1998


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ITEM 6.  SELECTED FINANCIAL DATA.

     The selected consolidated financial information regarding the company's
financial position and operating results set forth below for the years ended
January 31, 1999, 1998 and 1997, the ten months ended January 31, 1996, and the
year ended March 31, 1995 have been derived from the audited consolidated
financial statements of the company. The selected consolidated financial data
set forth below should be read in conjunction with the consolidated financial
statements of the company and related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this report.

<TABLE>
<CAPTION>
                                                                                         TEN MONTHS         YEAR
      (In thousands                                                                         ENDED           ENDED
     except share and                              YEAR ENDED JANUARY 31,                JANUARY 31,      MARCH 31,
      per share data)                        1999          1998            1997            1996(1)          1995
                                          ----------    -----------     ----------       -----------     -----------
<S>                                       <C>           <C>             <C>              <C>             <C>        
STATEMENTS OF OPERATIONS DATA:
Net sales ............................    $  131,491    $   122,763     $  111,544       $    91,172     $   112,283
Cost of sales ........................        40,648         38,584         34,273            29,652          35,139
                                          ----------    -----------     ----------       -----------     -----------
Gross profit .........................        90,843         84,179         77,271            61,520          77,144
Operating expenses:
 Selling, general and
  administrative .....................        79,119         73,367         68,366            61,598          70,506
 Depreciation and amortization .......         3,879          3,390          3,271             2,608           3,654
 Write-off of goodwill(2) ............            --             --             --             8,067              --
 Writedown of Dallas facility(3) .....            --             --             --             1,305           2,100
 Store closings and
   disposals(4) ......................            --           (389)            --            10,473              --
                                          ----------    -----------     ----------       -----------     -----------
              Total operating expenses        82,998         76,368         71,637            84,051          76,260
                                          ----------    -----------     ----------       -----------     -----------
Operating income (loss) ..............         7,845          7,811          5,634           (22,531)            884
Interest expense, net ................            21          2,486          3,499             2,041           1,443
                                          ----------    -----------     ----------       -----------     -----------
Income (loss) before income tax
 (benefit) ...........................         7,824          5,325          2,135           (24,572)           (559)
Income tax provision (benefit) .......           355             --             --            (1,686)           (463)
                                          ----------    -----------     ----------       -----------     -----------
Net income (loss) ....................    $    7,469    $     5,325     $    2,135       $   (22,886)    $       (96)
                                          ==========    ===========     ==========       ===========     ===========

Net income (loss) per share(5) .......    $     0.96    $      0.90     $     0.41       $     (4.33)    $     (0.02)
                                          ==========    ===========     ==========       ===========     ===========
Shares used in computing net
   income (loss) per share -- (5) ....     7,780,164      5,651,954      5,261,543         5,282,668       5,119,041
                                          ==========    ===========     ==========       ===========     ===========
Net income (loss) per share --
assuming dilution (6) ................    $     0.94    $      0.89     $     0.40       $     (4.33)    $     (0.02)
                                          ==========    ===========     ==========       ===========     ===========
Shares used in computing net
  income (loss) per share --
  assuming dilution (6) ..............     7,955,274      5,758,411      5,368,700         5,282,668       5,119,041
                                          ==========    ===========     ==========       ===========     ===========
Net income per share --
 pro forma(7)........................                   $      0.96
                                                        ===========
Shares used in computing net
 income per share -- pro forma(7)                         7,868,700
                                                        ===========
</TABLE>


                          Footnotes on following page.


                                       11
<PAGE>   13
<TABLE>
<CAPTION>
                                                                                         TEN MONTHS         YEAR
        (In thousands                                                                       ENDED           ENDED
       except share and                            YEAR ENDED JANUARY 31,                JANUARY 31,      MARCH 31,
        per share data)                      1999          1998            1997            1996(1)          1995
                                          ----------    -----------     ----------       -----------     -----------
<S>                                       <C>           <C>             <C>              <C>             <C>        
SELECTED OPERATING DATA:
Stores open at end of period:
 Licensed departments .......                557            507             488              467            452  
 Freestanding stores ........                 57             63              66               73            143
                                             ---            ---             ---              ---           ----
Total stores ................                614            570             554              540            595
Comparable store sales                                                                                     
 increase(8) ................                4.2%           9.2%            8.3%             6.3%          10.4%
</TABLE>

<TABLE>
<CAPTION>
                                      JANUARY 31,                  MARCH 31,
                         1999       1998       1997       1996       1995
                        -------    -------    -------    -------   ---------
<S>                     <C>        <C>        <C>        <C>       <C>    
BALANCE SHEET DATA:
Cash ...............    $   693    $   365    $   374    $ 1,529    $ 3,528
Working capital ....     23,152     17,967     11,321     12,252     20,617
Total assets .......     75,594     60,129     54,403     53,033     64,587
Long-term debt .....     14,069      8,296     22,623     21,516     15,649
Stockholders' equity     46,470     38,818     13,810     11,897     35,287
</TABLE>

--------------------------
(1)  The difference in duration of this period must be considered in making
     period-to-period comparisons.

(2)  Represents write-off of goodwill related to the 1990 acquisition of Royal.
     The goodwill was attributed to the closing of the Dallas facility and
     closed or otherwise liquidated stores described in notes (3) and (4) below,
     respectively. The write-off was determined based upon a measurement of the
     remaining undiscounted operating cash flows of the company.

(3)  Represents the writedown of the Dallas facility, which was closed by the
     company in connection with its plan to consolidate its laboratories into a
     single facility.

(4)  Represents lease termination costs, write-off of leasehold improvements and
     other related costs associated with the closing and disposal of stores
     during fiscal 1992 through 1995. As a result of favorable settlements on
     the terminated leases, the company realized a gain in fiscal 1997.

(5)  Net income per share has been computed using the weighted average number of
     shares outstanding after giving effect for all periods presented to the
     64-for-1 stock dividend and the conversion of all outstanding Series A
     Preferred Stock and Series C Preferred Stock into stock upon the closing of
     the company's initial public offering as described in Note 1 to Notes to
     Consolidated Financial Statements. Cash dividends on preferred stock of
     $217,000 were deducted from net income in computing net income per share
     for the fiscal year ended January 31, 1998.

(6)  Net income per share -- assuming dilution has been computed using the
     weighted average number of shares outstanding after giving effect to the
     64-for-1 stock dividend and the conversion of all outstanding Series A
     Preferred Stock and Series C Preferred Stock into stock upon the closing of
     the company's initial public offering as described in Note 1 to Notes to
     Consolidated Financial Statements. In addition, common share equivalents
     such as warrants and options are included in the computation for the years
     ended January 31, 1999, 1998 and 1997, respectively. Cash dividends on
     preferred stock of $217,000 were deducted from net income in computing net
     income per share - assuming dilution for the fiscal year ended January 31,
     1998.

(7)  Net income per share -- pro forma is calculated by dividing net income
     after adjustment for applicable interest expense, net of tax ($2,208,000)
     by the adjusted number of weighted average shares outstanding after giving
     effect to the 2,500,000 shares that were sold at the initial public
     offering price to repay $20,375,000 of debt.

(8)  Comparable store sales reflect existing stores that have been open over
     twelve months.


                                       12
<PAGE>   14
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS.

GENERAL OVERVIEW

     The company's net sales consist primarily of retail sales of prescription
eyewear and contact lenses, net of refunds and allowances for customer returns.
The company's sales are influenced by customer traffic in its host department
stores, the successful implementation of its promotional programs and its
participation in various managed vision care plans. The principal components of
the company's cost of sales include the cost of materials, including eyeglass
frames and lenses, as well as manufacturing, assembly, labor and overhead costs
associated with operating the company's centralized optical laboratory. Prices
of frames vary widely, from inexpensive to high-end designer brands.

     The company's selling, general and administrative expenses include
primarily labor-related expenses at the store level, rent and occupancy costs,
managed vision care costs, advertising and administrative expenses. The
company's rent paid to the host store is calculated as a percentage of net sales
within each retail optical department. Freestanding store rent is generally a
fixed monthly payment plus, in many cases, a percentage of net sales above
certain revenue levels. Flat fees per transaction are paid by the company to
vision care plans in which the company participates.

RESULTS OF OPERATIONS

     The following table sets forth selected statement of operations items
expressed as a percentage of net sales for the periods indicated:

<TABLE>
<CAPTION>
                                            YEAR ENDED JANUARY 31,
                                         1999       1998        1997
                                        ------     ------      ------
<S>                                     <C>        <C>         <C>   
Net sales ..........................     100.0%     100.0%      100.0%
Cost of sales ......................      30.9       31.4        30.7
                                        ------     ------      ------
  Gross profit .....................      69.1       68.6        69.3

Operating expenses:
 Selling, general and administrative      60.2       59.8        61.3
 Depreciation and amortization .....       2.9        2.7         2.9
                                        ------     ------      ------

Operating income, excluding
 unusual charges ...................       6.0        6.1         5.1
Unusual gains ......................       0.0       (0.3)        0.0
                                        ------     ------      ------

Operating income ...................       6.0        6.4         5.1
Interest expense, net ..............       0.0        2.1         3.2
                                        ------     ------      ------
Income before income tax ...........       6.0        4.3         1.9
Income tax provision ...............        .3         --          --
                                        ------     ------      ------
Net income .........................       5.7%       4.3%        1.9%
                                        ======     ======      ======
</TABLE>

FISCAL 1998 COMPARED TO FISCAL 1997

     Net sales increased $8.7 million, or 7.1%, from $122.8 million for fiscal
1997 to $131.5 million for fiscal 1998. A 4.2% increase in comparable store
sales accounted for $5.0 million of the increase in net sales. New store
openings, net of store closings, accounted for the remaining $3.7 million of the
increase. The increase in comparable store sales was the result of an increase
in the number of eyeglasses sold, as well as an increase in value added eyewear
features, such as anti-reflective coating and accessory kits.

     Cost of sales increased by $2.0 million, or 5.2%, from $38.6 million in
fiscal 1997 to $40.6 million in fiscal 1998. The increase was due principally to
the $8.7 million increase in net sales. As a percentage of net sales, cost of
sales decreased from 31.4% in fiscal 1997 to 30.9% in fiscal 1998. The


                                       13
<PAGE>   15
decrease was due principally to sales of higher margin merchandise, as discussed
above, and the benefit of additional discounts on inventory bulk purchases.

     Selling, general and administrative expenses increased by $5.7 million, or
7.8%, from $73.4 million in fiscal 1997 to $79.1 million in fiscal 1998. The
increase was principally due to an increase in retail salaries associated with
new store openings and greater department store rents which are tied directly to
sales volume. As a percentage of net sales, selling, general and administrative
expenses increased slightly for fiscal 1998 compared to fiscal 1997 due
principally to the opening of 63 new locations as well as an overall increase in
base salary rates as a result of the competitive labor market and the low
unemployment factor.

     Depreciation and amortization increased by $0.5 million, or 14.7%, from
$3.4 million in fiscal 1997 to $3.9 million in fiscal 1998 due principally to
the increase in capital expenditures associated with new store openings and
acquisitions.

     Interest expense, net decreased by $2.5 million, or 100.0%, from $2.5
million in fiscal 1997 to $0.0 million in fiscal 1998. The decrease was due to:
(a) the repayment of debt in connection with the completion of the initial
public offering in December 1997 and (b) the capitalization of interest expense
incurred during the development of the company's integrated management
information system. See "Liquidity and Capital Resources."

FISCAL 1997 COMPARED TO FISCAL 1996

     Net sales increased by $11.3 million, or 10.1%, from $111.5 million for
fiscal 1996 to $122.8 million for fiscal 1997. A 9.2% increase in comparable
store sales accounted for $9.5 million of the increase in net sales and new
store openings accounted for the remaining $1.7 million of the increase. The
increase in comparable store sales was the result of an increase in the number
of eyeglasses sold, as well as an increase in value added eyewear features, such
as anti-reflective coating and accessory kits.

     Cost of sales increased by $4.3 million, or 12.5%, from $34.3 million in
fiscal 1996 to $38.6 million in fiscal 1997. The increase was due principally to
the $11.2 million increase in net sales. As a percentage of net sales, cost of
sales increased from 30.7% in fiscal 1996 to 31.4% in fiscal 1997. The increase
was attributable to increased sales of designer and branded frames and lenses.
Although the company realizes a lower gross margin on the sale of these
products, designer and branded frames and lenses provide the company with higher
gross profit dollars per transaction.

     Selling, general and administrative expenses increased by $5.0 million, or
7.3%, from $68.4 million in fiscal 1996 to $73.4 million for fiscal 1997. The
increase was principally due to an increase in retail salaries associated with
new store openings and greater department store rents which are tied directly to
sales volume. As a percentage of net sales, selling, general and administrative
expenses decreased from 61.3% for fiscal 1996 to 59.8% for fiscal 1997 as
increases in revenue enabled the company to leverage its fixed expenses and take
advantage of operating efficiencies.

     Depreciation and amortization increased slightly by $0.1 million, or 3.0%,
from $3.3 million in fiscal 1996 to $3.4 million in fiscal 1997.

     Unusual gains for fiscal 1997 of $0.4 million consisted of $0.7 million
income resulting from favorable settlements of lease liabilities that were
established in connection with the closing and disposal of freestanding stores
in fiscal 1995, net of a $0.3 million loss recognized on the sale of the Dallas
facility.

     Interest expense, net decreased by $1.0 million, or 28.6 %, from $3.5
million for fiscal 1996 to $2.5 million for fiscal 1997. The decrease was due
to: (a) a reduction of the interest rate on the company's subordinated
debentures from an accrual rate of 20% in fiscal 1996 to 12% in fiscal 1997


                                       14
<PAGE>   16
when the company agreed to make cash interest payments and (b) the repayment of
debt in connection with the completion of the initial public offering in
December 1997. See "Liquidity and Capital Resources."

QUARTERLY FLUCTUATIONS

     The company's financial position and results of operations are affected by
seasonal fluctuations in sales and operating profits. The company's sales and
operating profits are generally lower in the fourth quarter, due to the
Christmas season, which has historically been a period of reduced sales of
prescription optical products. This trend has been mitigated somewhat by the
increase in vision care sales under plans which are on a calendar year basis and
require participants to use or lose their benefits annually. Quarterly sales can
also be affected by the timing and amount of sales contributed by new stores.
Accordingly, the results of operations for interim periods are not necessarily
indicative of results for the entire fiscal year.

The following tables set forth certain unaudited financial data for the quarters
indicated:

<TABLE>
<CAPTION>
                                   FISCAL 1998 QUARTER ENDED                          FISCAL 1997 QUARTER ENDED
                            --------------------------------------------    ---------------------------------------------
                            APRIL 30,   JULY 31,    OCT. 31     JAN. 31     APRIL 30,   JULY 31,    OCT. 31      JAN. 31
                              1998        1998        1998        1999        1997        1997        1997        1998
                            --------    --------    --------    --------    --------    --------    --------    --------
                                                (In thousands, except percentages and per share data)
<S>                         <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>     
Net sales ...............   $ 34,666    $ 31,753    $ 34,090    $ 30,982    $ 31,239    $ 30,815    $ 31,509    $ 29,200
Gross profit.............     24,024      22,106      23,703      21,010      21,597      21,018      21,710      19,854
 % of net sales..........       69.3%       69.6%       69.5%       67.8%       69.1%       68.2%       68.9%       68.0%
Operating income.........   $  2,935    $  2,253    $  2,390    $    267    $  2,370    $  1,778    $  1,814$      1,849
 % of net sales..........        8.5%        7.1%        7.0%        0.8%        7.6%        5.8%        5.8%        6.3%
Net income ..............   $  2,817    $  2,094    $  1,957    $    601    $  1,780    $  1,153    $  1,165$      1,227
% of net sales...........        8.1%        6.6%        5.8%        1.9%        5.7%        3.7%        3.7%        4.2%
 Net income per share....   $   0.36    $   0.27    $   0.25    $   0.08    $   0.34    $   0.22    $   0.22    $   0.15
 Net income per share --                                                                                        
   assuming dilution.....   $   0.35    $   0.26    $   0.25    $   0.08    $   0.33    $   0.21    $   0.22    $   0.15
</TABLE>

     The decrease in operating income in the fourth quarter of fiscal 1998 was
due to lower than anticipated net sales as well as an overall increase in base
salary rates as a result of the competitive labor market.

INCOME TAXES

     As of January 31, 1999, the company had net operating loss carryforwards of
approximately $16,000,000 which will begin to expire in the year 2006.
Approximately $6,300,000 of these carryforwards are available to offset future
taxable income without limitation and approximately $9,700,000 of these
carryforwards (the "Restricted NOLs") are significantly limited due to ownership
changes experienced by the company prior to 1999. As a result of these
limitations, approximately $780,000 of the Restricted NOLs will become available
for use each year through the year 2008. The remaining Restricted NOLs are
expected to expire unutilized. A valuation allowance has been established to
fully reserve the future benefit of all the net operating loss carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

     The company's primary cash sources for fiscal 1998 were from operations and
a new line of credit established in the second quarter of 1998. The company used
proceeds from the new line of credit to pay the entire outstanding balance on
its prior line of credit and an outstanding term loan. The company's working
capital requirements are seasonal and traditionally peak at the end of the
fourth quarter and the beginning of the first quarter. Cash and working capital
at January 31, 1999 were $693,000 and $23.2 million, respectively, compared to
$365,000 and $18.0 million, respectively, at January 31, 1998.


                                       15
<PAGE>   17
     For the year ended January 31, 1999, cash provided by operating activities
was $6.4 million compared to cash provided by operating activities of $1.8
million for the year ended January 31, 1998. The $4.6 million increase resulted
from an increase in net income and favorable changes in: (a) the collection of
accounts receivable, principally the result of one of the company's host
department stores centralizing its accounts payable department; (b) the accrued
interest expense payable by the company after the repayment of outstanding debt
from proceeds of the December 1997 initial public offering; (c) the timing of
payments for compensation and benefits; and (d) the reduction of lease
termination liabilities in fiscal 1997 as a result of the settlement of leases
on freestanding stores closed in fiscal 1995. These favorable increases in cash
provided by operating activities were offset by an increase in inventory as a
result of $3.4 million in bulk purchases during the third and fourth quarters of
fiscal 1998.

     Cash used in investing activities in fiscal 1998 was $10.8 million compared
to $5.2 million in fiscal 1997 and $4.5 million in fiscal 1996. Capital
expenditures in fiscal 1998 of $10.8 million were primarily for new store
openings, development work on the company's integrated management information
system and the acquisition of twenty-five licensed optical retail stores and two
medical center locations. See Note 10 to Notes to Consolidated Financial
Statements. In fiscal 1999, the company expects to spend approximately $12.0
million on capital expenditures for new store openings, new laboratory
equipment, the integrated management information system, and other capital
expenditures. Historically, the company has funded capital expenditures through
a revolving line of credit, debt financing activities, including capital leases,
and operating cash flow.

     The company's principal external source of liquidity is its $20.0 million
revolving line of credit with Commerce Bank, N.A. The revolving line of credit
facility bears interest at the lower of the prime rate as published in the Wall
Street Journal or the thirty (30) day rate for United States Treasury Bills plus
250 basis points, matures in June 2000 and renews automatically for a one-year
period, subject to either party's right to terminate by notice of non-renewal.
As of January 31, 1999, the company had $8,324,000 outstanding under its
revolving line of credit and $11,676,000 of availability. The loan agreement
prohibits the payment of dividends to stockholders and contains customary
covenants. The company must also maintain certain financial ratios pertaining to
its net worth, current ratio, and ratio of cash to fixed charges. See Note 5 to
Notes to Consolidated Financial Statements. The company is currently in
compliance with all financial covenants and management does not believe that the
financial covenants set forth in its revolving line of credit will have an
adverse impact on its operations or future plans.

     The company received a commitment from Commerce BankLease, a unit of
Commerce Bank, N.A., for a $1,000,000 five-year equipment lease financing
facility. The lease financing facility is subject to the completion of all
required documentation.

     In addition, in fiscal 1994 and 1995, the company invested $5.6 million in
capital expenditures related to the consolidation of the company's laboratory
operations and the purchase of its current corporate headquarters in New Jersey.
These expenditures were partially financed with a 2% term loan provided by the
Delaware River Port Authority ("DRPA"). The first DRPA term loan, which had a
balance of $1,078,000 as of January 31, 1999, is due in February 2010 and is
secured by the real property and building in which the company maintains its
corporate headquarters. The second DRPA term loan, which had a balance of
$2,049,000 as of January 31, 1999, is due in February 2010 and is secured by the
real property and building in which the company maintains its optical laboratory
and distribution facility. The third DRPA term loan, which had a balance of
$778,000 as of January 31, 1999, is due in June 2005 and is secured by certain
equipment located in the company's optical laboratory and distribution facility.
See Note 5 to Notes to Consolidated Financial Statements.

     Based upon its current operating and new store opening plans, the company
believes that it can fund its working capital and capital expenditure needs for
the foreseeable future through borrowings under the revolving line of credit and
cash generated from operations.


                                       16
<PAGE>   18
EFFECTS OF INFLATION

     The company believes that the effects of inflation on its operations have
not been material during the past three years.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In March 1998, the AICPA issued Statement of Position (SOP) 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The SOP, which has been adopted as of February 1, 1998, requires
the capitalization of certain costs incurred in connection with developing or
obtaining internal use software. Prior to the adoption of SOP 98-1, the company
capitalized all internal use software related costs except for interest which
was expensed as incurred. The effect of adopting the SOP was to increase net
income for the year ended January 31, 1999 by $528,000 or $0.07 per share.

YEAR 2000 COMPLIANCE

     The company's management recognizes the need to ensure that its operations
and relationships with host stores and other third parties will not be adversely
impacted by the Year 2000 issue. The Year 2000 problem is a result of computer
programs being written using two digits rather than four to define the
applicable year. Any of the company's programs that recognize a date using "00"
as the year 1900 rather than the Year 2000 could result in system failures or
miscalculations.

     During the third quarter of fiscal 1998, the company completed the
assessment of its internal critical and non-critical hardware and software.
Included in the company's assessment was the identification of all critical and
non-critical computer programs and hardware, including environmental systems
that are dependent on embedded microchips, such as security systems and VAC
systems. Based on its assessment, the company determined a portion of its
software and certain hardware will require modification or replacement so that
those systems will properly utilize dates beyond December 31, 1999. The company
anticipates that the total cost of the modifications will be less than $200,000.
The company's assessment indicated that its significant information technology
systems would not be affected. In addition, the company is currently developing
a Year 2000 compliant point of sale and order entry system in its retail
locations and, therefore, does not anticipate having any Year 2000 compliance
issues with respect to the information technology systems to be utilized by its
retail stores.

     The company also depends on the systems of its suppliers and host stores.
Consequently, the company is in the process of receiving adequate assurances
from its host stores that those systems on which the company relies are or will
be Year 2000 compliant before the end of 1999.

     To the extent possible, the company has developed and will implement
contingency plans designed to allow continued operations in the event of failure
of the company's or third party systems to be Year 2000 compliant.

     Management of the company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. As noted above, the company has
not yet completed all necessary phases of the Year 2000 program. Further, the
failure of the company or third parties upon which the company relies, to
identify Year 2000 issues and successfully and timely resolve them could have a
material adverse impact on the operations of the company.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

     The company occasionally makes forward-looking statements concerning its
plans, goals, product and service offerings, store openings and closings and
anticipated financial performance. These forward-looking statements may
generally be identified by introductions such as "outlook" for an upcoming
period of time, or words and phrases such as "should", "expect", "hope",
"plans", "projected",


                                       17
<PAGE>   19
"believes", "forward-looking" (or variants of those words and phrases) or
similar language indicating the expression of an opinion or view concerning the
future.

     These forward-looking statements are subject to risks and uncertainties
based on a number of factors and actual results or events may differ materially
from those anticipated by such forward-looking statements. These factors
include, but are not limited to: the company's ability to maintain its
relationship with its host stores such as J.C. Penney and Sears, as well as with
Cole National Corporation, a competitor of the company and the owner of the
Vision One managed vision care plan in which the company participates; the
growth rate of the company's revenue and market share; the company's ability to
effectively manage its business functions while growing the company's business
in a rapidly changing environment; and the quality of the company's plans and
strategies, and the ability of the company to execute such plans and strategies.

     In addition, forward-looking statements concerning the company's expected
revenue or earnings levels are subject to many additional uncertainties
applicable to competitors generally and to general economic conditions over
which the company has no control, such as the performance of its host stores.
The company does not plan to generally publicly update prior forward-looking
statements for unanticipated events or otherwise and, accordingly, prior
forward-looking statements should not be considered to be "fresh" simply because
the company has not made additional comments on those forward-looking
statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The company's earnings are affected by changes in interest rates due to the
impact those changes have on the interest expense payable by the company under
its variable rate debt revolving line of credit, for which the outstanding
balance was $8,324,000 as of January 31, 1999. A 1.0% change in the underlying
prime rate or the thirty (30) day rate for United States Treasury Bills would
result in a $83,000 change in the annual amount of interest on such debt. This
amount is determined by considering the impact of the hypothetical interest
rates on the company's revolving line of credit outstanding as of January 31,
1999.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The Financial Statements together with the report thereon of Ernst & Young
LLP, independent auditors, are included in this report commencing at Page F-1.

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

     None.


                                       18
<PAGE>   20
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

          The information set forth under the heading "Election of Directors"
and "Management of the Company" definitive proxy statement for the company's
1999 Annual Meeting of Stockholders is incorporated by reference in this Form
10-K Annual Report.

ITEM 11.  EXECUTIVE COMPENSATION.

          The information set forth under the heading "Executive Compensation"
of the definitive proxy statement for the company's 1999 Annual Meeting of
Stockholders is incorporated by reference in this Form 10-K Annual Report.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

          The information set forth under the heading "Ownership of Common Stock
by Certain Beneficial Owners and Management" of the definitive proxy statement
for the company's 1999 Annual Meeting of Stockholders is incorporated by
reference in this Form 10-K Annual Report.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

          The information set forth under the headings "Management of the
Company -- Compensation of the Company's Directors" and "Executive Compensation
-- Transactions with Management and Related Parties" of the definitive proxy
statement for the company's 1999 Annual Meeting of Stockholders is incorporated
by reference in this Form 10-K Annual Report.


                                       19
<PAGE>   21
                                     PART IV

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

FINANCIAL STATEMENTS

         The following financial statements of the company are filed as a part
of this report:

<TABLE>
<CAPTION>
                                                                                         Page
                                                                                         ----
<S>                                                                                      <C>
Report of Independent Auditors.........................................................  F-1
Consolidated Balance Sheets for the Fiscal Years Ended January 31, 1999 and 1998.......  F-2
Consolidated Statements of Income -- For the Fiscal Years Ended                          
  January 31, 1999, 1998 and 1997......................................................  F-3
Consolidated Statements of Stockholders' Equity -- for the Fiscal Years Ended            
  January 31, 1999, 1998 and 1997 .....................................................  F-4
Consolidated Statements of Cash Flows --For the Fiscal Years Ended                       
  January 31, 1999, 1998 and 1997......................................................  F-5
Notes to Consolidated Financial Statements.............................................  F-6
</TABLE>

         All financial statement schedules have been omitted because they are
not applicable or the required information is shown in the consolidated
financial statements and notes thereto.

REPORTS ON FORM 8-K

         No reports on Form 8-K have been filed by the company during the last
quarter of fiscal 1998.


                                       20
<PAGE>   22
EXHIBITS

The following exhibits are filed as a part of this report:

Exhibit
Number      Exhibit

3.1*        Restated Certificate of Incorporation of the Company
3.2*        Bylaws of the Company
10.1*       Loan and Security Agreement between the Company and Commerce Bank, 
            as amended
10.2*       Stock Option Plan, including form of Stock Option Agreement
10.3**      Subordinated Note Purchase Agreement
10.4**      Amendment to Subordinated Note Purchase Agreement
10.5**      J.C. Penney License Agreement
10.6**      Vision Care Agreement
10.7+       Employment Agreement for William A. Schwartz, Jr.
10.8+       Form of Employment Severance Agreement
10.9**      Form of Non-Statutory Option Agreement
10.10**     Form of Indemnification Agreement
10.11**     Stockholders' Agreement
10.12**     Form of Sears Lease
10.13**     Commerce Bank Mortgages and Schedules
10.14**     DRPA Loan Documentation
21+         Subsidiaries of the Company
23+         Consent of Independent Auditors
27+         Financial Data Schedule

----------
*        Previously filed as an exhibit to the Form S-1 (Reg. No. 333-35819)
         filed with the Commission on September 17, 1997.

**       Previously filed as an exhibit to Amendment No. 1 to the Form S-1 (Reg.
         No. 333-35819) filed with the Commission on October 29, 1997.

+        Filed herewith.


                                       21
<PAGE>   23
                                   SIGNATURES

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

                                         U. S. VISION, INC.


April 30, 1999                           By: /s/ William A. Schwartz, Jr.       
                                            ------------------------------------
                                             William A. Schwartz, Jr., President
                                             and Chief Executive Officer

         Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on April 30, 1999.

<TABLE>
<CAPTION>
         SIGNATURE                      CAPACITY
         ---------                      --------


<S>                                     <C>    
    /s/ William A. Schwartz, Jr.        President, Chief Executive Officer and Director
-----------------------------------     (Principal Executive Officer)
William A. Schwartz, Jr.                  


    /s/ Kathy G. Cullen                 Senior Vice President and Chief Financial Officer
-----------------------------------       (Principal Financial and Accounting Officer)
Kathy G. Cullen                           


  /s/ Dennis J. Shaughnessy             Director
-----------------------------------
Dennis J. Shaughnessy


 /s/ J. Roger Sullivan, Jr.             Director
-----------------------------------
J. Roger Sullivan, Jr.


 /s/ Richard K. McDonald                Director
-----------------------------------
Richard K. McDonald


 /s/ G. Kenneth Macrae                  Director
-----------------------------------
G. Kenneth Macrae


 /s/ David M. Tracy                     Director
-----------------------------------
David M. Tracy


 /s/ Peter M. Troup                     Director
-----------------------------------
Peter M. Troup
</TABLE>


                                       22
<PAGE>   24
                         Report of Independent Auditors

Board of Directors and Stockholders
U.S. Vision, Inc.

We have audited the accompanying consolidated balance sheets of U.S. Vision,
Inc. as of January 31, 1999 and 1998, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for each of the three
years in the period ended January 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with 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 U.S. Vision, Inc.
at January 31, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended January 31, 1999,
in conformity with generally accepted accounting principles.

As discussed in Note 2 to the financial statements, in the year ended January
31, 1999, the Company changed its method of accounting for costs of computer
software developed or obtained for internal use.


                                                       /s/Ernst & Young LLP





Philadelphia, Pennsylvania
March 17, 1999


                                      F-1
<PAGE>   25
                                U.S. Vision, Inc.

                           Consolidated Balance Sheets

                (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                        JANUARY 31,
                                                                    1999          1998
                                                                 -----------------------
<S>                                                              <C>           <C>      
ASSETS
Current assets:
   Cash                                                          $     693     $     365
   Accounts receivable                                              13,520        11,730
   Inventory                                                        22,818        18,155
   Prepaid expenses and other                                          847           349
                                                                 -----------------------
Total current assets                                                37,878        30,599
Property, plant, and equipment, net                                 31,634        26,003
Goodwill, net of accumulated amortization of $570 and $402,
   respectively                                                      5,565         2,917
Other                                                                  517           610
                                                                 -----------------------
                                                                 $  75,594     $  60,129
                                                                 =======================

LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
   Accounts payable -- trade                                     $   7,894     $   6,000
   Accrued expenses                                                  5,238         5,581
   Current portion of obligations under capital lease                  660           809
   Current portion of long-term debt                                   934           242
                                                                 -----------------------
Total current liabilities                                           14,726        12,632
Obligations under capital lease                                      1,542         2,199
Long-term debt, less current portion                                12,527         6,097
Other long-term liabilities                                            329           383
Stockholders' equity:
   Common stock, $0.01 par value:
     Authorized shares -- 15,000,000, issued and outstanding
       shares -- 7,793,807 and 7,761,544, at January 31, 1999
       and January 31, 1998, respectively                               78            78
   Additional paid-in capital                                      115,766       115,583
   Accumulated deficit                                             (69,374)      (76,843)
                                                                 -----------------------
Total stockholders' equity                                          46,470        38,818
                                                                 -----------------------
                                                                 $  75,594     $  60,129
                                                                 =======================
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-2
<PAGE>   26
                                U.S. Vision, Inc.

                        Consolidated Statements of Income

                (Dollars in thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                  YEAR ENDED JANUARY 31,
                                              1999         1998         1997
                                            ----------------------------------

<S>                                         <C>         <C>           <C>     
Net sales                                   $131,491    $ 122,763     $111,544
Cost of sales                                 40,648       38,584       34,273
                                            ----------------------------------
Gross profit                                  90,843       84,179       77,271

Operating expenses:
    Selling, general, and administrative
       expenses                               79,119       73,367       68,366
    Depreciation and amortization              3,879        3,390        3,271
    Store closings and disposals                  --         (389)          --
                                            ----------------------------------
                                              82,998       76,368       71,637
                                            ----------------------------------

Operating income                               7,845        7,811        5,634
Interest expense, net                             21        2,486        3,499
                                            ----------------------------------

Income before income tax                       7,824        5,325        2,135
Income tax provision                             355           --           --
                                            ----------------------------------
Net income                                  $  7,469    $   5,325     $  2,135
                                            ==================================
Net income per share                        $    .96    $     .90     $    .41
                                            ==================================
Net income per share - assuming
    dilution                                $    .94    $     .89     $    .40
                                            ==================================
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>   27
                                U.S. Vision, Inc.

           Consolidated Statements of Changes in Stockholders' Equity

                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                    9% SERIES A              9% SERIES C
                                     CUMULATIVE               CUMULATIVE
                                   PREFERRED STOCK          PREFERRED STOCK
                                ($100,000 FACE VALUE      ($63.50 FACE VALUE
                                     PER SHARE)               PER SHARE)
                                 SHARES      AMOUNT       SHARES      AMOUNT
                                ---------------------------------------------
<S>                             <C>         <C>           <C>         <C>    
Balance at January 31, 1996         144     $ 14,422      110,936     $ 7,044
Net income
Additional cost of equity
   exchange
Dividends on preferred stock         14        1,343       10,033         638
                                ---------------------------------------------
Balance at January 31, 1997         158       15,765      120,969       7,682
Net income
Dividends on preferred stock         11        1,088        8,417         534
Conversion of warrants                                     (3,895)       (247)
Conversion of preferred stock
   to common stock                 (169)     (16,853)    (125,491)     (7,969)
Proceeds from initial public
   offering
Initial public offering costs
                                ---------------------------------------------
Balance at January 31, 1998          --           --           --          --
Net income
Additional Initial public 
   offering costs
Stock issuance in connection
   with acquisition
Stock issuance in connection
   with director stock
   compensation plan
                                =============================================
Balance at January 31, 1999          --     $     --           --     $    --
                                =============================================
</TABLE>


                                       F-4
<PAGE>   28
                                U.S. Vision, Inc.

     Consolidated Statements of Changes in Stockholders' Equity (continued)

                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                       COMMON STOCK
                                   ($0.01 PAR VALUE PER    
                                          SHARE)           ADDITIONAL                           TOTAL    
                                  ---------------------     PAID-IN        ACCUMULATED      STOCKHOLDERS'
                                    SHARES     AMOUNT       CAPITAL          DEFICIT            EQUITY
                                  -----------------------------------------------------------------------
<S>                                <C>         <C>        <C>              <C>              <C>      
Balance at January 31, 1996          916,890   $   9      $     70,905     $   (80,483)      $  11,897
Net income                                                                       2,135           2,135
Additional cost of equity                               
   exchange                          (21,125)                     (222)                           (222)
Dividends on preferred stock                                                    (1,981)
                                  -----------------------------------------------------------------------
Balance at January 31, 1997          895,765       9            70,683         (80,329)         13,810
Net income                                                                       5,325           5,325
Dividends on preferred stock                                                    (1,839)           (217)
Conversion of warrants             1,607,775      16               231
Conversion of preferred stock                           
   to common stock                 2,758,004      28            24,794
Proceeds from initial public                            
   offering                        2,500,000      25            22,475                          22,500
Initial public offering costs                                   (2,600)                         (2,600)
                                  -----------------------------------------------------------------------
Balance at January 31, 1998        7,761,544      78           115,583         (76,843)         38,818
Net income                                                                       7,469           7,469
Additional initial public 
   offering costs                                                 (174)                           (174)
Stock issuance in connection                            
   with acquisition                   16,700       -               200                             200
Stock issuance in connection                            
   with director stock                                  
   compensation plan                  15,563       -               157                             157
                                  =======================================================================
Balance at January 31, 1999        7,793,807    $ 78        $  115,766     $    (69,374)     $  46,470
                                  =======================================================================
</TABLE>                                                  


          See accompanying notes to consolidated financial statements.


                                       F-4
<PAGE>   29
                                U.S. Vision, Inc.

                      Consolidated Statements of Cash Flows

                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED JANUARY 31,
                                                                           1999          1998          1997
                                                                         ------------------------------------
<S>                                                                      <C>          <C>           <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                               $  7,469     $   5,325     $   2,135
Adjustments to reconcile net income to net cash
provided by operating activities:
       Depreciation and amortization                                        3,879         3,390         3,271
       Interest expense                                                        --            --         1,637
       Store closings and lease termination payments                           --          (389)       (3,513)
   Changes in operating assets and liabilities, net of
   effect of acquisitions:
     Accounts receivable                                                   (1,547)       (3,024)       (1,101)
     Inventory                                                             (4,275)          (30)          538
     Other                                                                   (415)         (150)          330
     Accounts payable - trade                                               1,718        (1,173)         (647)
     Accrued expenses                                                        (396)       (2,151)        1,522
                                                                         ------------------------------------
Net cash provided by operating activities                                   6,433         1,798         4,172

CASH FLOWS FROM INVESTING ACTIVITIES:
     Additions to property, plant, and equipment, net                      (8,894)       (6,241)       (4,492)
     Disposal of Dallas facility                                               --         1,000            --
     Acquisitions                                                          (1,892)           --            --
                                                                         ------------------------------------
Net cash used in investing activities                                     (10,786)       (5,241)       (4,492)

CASH FLOWS FROM FINANCING ACTIVITIES:
Costs to exchange debt for equity                                              --            --          (222)
Preferred stock dividend                                                       --          (217)           --
Proceeds from initial public offering                                          --        22,500            --
1997 initial public offering costs                                           (174)       (2,600)           --
Proceeds from borrowings:
   Revolving line of credit                                                29,265       117,094       106,034
   Term loans                                                                  --            --         8,000
   Other                                                                      424         1,650            --
Repayments of borrowings:
   Revolving line of credit                                               (23,090)     (117,330)     (111,988)
   Term loans                                                                (524)      (16,825)       (2,099)
   Other                                                                   (1,220)         (838)         (560)
                                                                         ------------------------------------
   Net cash provided by (used in) financing activities                      4,681         3,434          (835)
                                                                         ------------------------------------
Net increase (decrease) in cash                                               328            (9)       (1,155)
Cash at beginning of period                                                   365           374         1,529
                                                                         ====================================
Cash at end of period                                                    $    693     $     365     $     374
                                                                         ====================================

Supplemental disclosure of cash flow information:
Interest paid                                                            $    554     $   2,496     $     990
                                                                         ====================================
Income taxes                                                             $    235     $      --     $      --
                                                                         ====================================

Supplemental schedule of non-cash investing and financing activities:
Capital lease obligations incurred                                       $     --     $     980     $   1,070
                                                                         ====================================
Note payable incurred in connection with acquisitions                    $  1,206     $      --     $      --
                                                                         ====================================
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>   30
                                U.S. Vision, Inc.

                   Notes to Consolidated Financial Statements

                                January 31, 1999


1. ORGANIZATION

U.S. Vision, Inc. (the "Company") was formed in March 1990 and incorporated in
the Commonwealth of Pennsylvania. In March 1997, the Company reincorporated in
the State of Delaware. The Company's principal business activity is the retail
sale and manufacturing of prescription eyewear through approximately 614 stores
located throughout the United States.

On May 12, 1995, the Board of Directors of the Company effected a 1-for-1,000
reverse stock split. All shareholders who had fractional shares after the
reverse split received cash at the rate of $1.25 per pre-split share. The
Company paid $407,000 in total for the fractional shares. Subsequent to the
reverse split, the Company deregistered its common stock under the Securities
and Exchange Act of 1934, as amended, and delisted its common stock for trading
on the Small Cap-Tier of the Nasdaq Stock Market. All share data for all periods
presented herein reflects the reverse stock split.

In December 1997, the Company completed an initial public offering of 2,500,000
shares of the Company's common stock. The initial public offering price was
$9.00 per share. The net proceeds to the Company were used to retire the
$8,837,000 outstanding balance of its 12% subordinated debentures which was
payable on March 1998 (See Note 5), to repay $6,600,000 on its bank term loan
due 2001 (see Note 5), and to repay $4,938,000 on its revolving line of credit
which would have expired on December 31, 1999 (see Note 5). In conjunction with
the sale of common stock, the Company recapitalized its common stock and
authorized a 64-for-1 stock dividend. Additionally, in conjunction with the
initial public offering described above, the holders of the Series A cumulative
preferred stock and Series C cumulative preferred stock converted all the
outstanding shares of preferred stock into common stock at the public offering
price. The liquidation values of the Series A and the Series C preferred stock
plus accumulated dividends at the date of the conversion of $16,853,000 and
$7,969,000, respectively, were converted for 1,872,592 and 885,412 shares of
common stock, respectively. All references to net income per share data in the
financial statements have been restated to give effect to the stock dividend and
conversion of the preferred stock.

2. SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
all of its wholly owned subsidiaries. All significant intercompany transactions
and balances have been eliminated.


                                       F-6
<PAGE>   31
                                U.S. Vision, Inc.

             Notes to Consolidated Financial Statements (continued)


2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

INVENTORY

Inventory, consisting principally of frames and lenses, is valued at the lower
of cost or market, determined by the first-in, first-out method.

PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment are stated at cost. Depreciation, which includes
assets under capital leases, is computed using the straight-line method. The
general range of useful lives is 10 to 30 years for buildings and improvements,
and 3 to 10 years for automobiles, machinery and equipment, computer equipment,
and furniture and fixtures. Depreciation expense totaled $3,703,000, $3,297,000,
and $3,178,000 in fiscal 1998, 1997, and 1996, respectively.

LONG-LIVED ASSETS

Long-lived assets, which principally includes property, plant, and equipment,
and goodwill arising from business acquisitions, are amortized on a
straight-line basis over the expected period to be benefited from 15 to 40
years. In accordance with FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company
periodically evaluates the realizability of long-lived assets as events or
circumstances indicate a possible inability to recover their carrying amounts.
Long-lived assets are grouped and evaluated on a per store basis by applying
various analyses, including undiscounted cash flows and profitability
projections.


                                      F-7
<PAGE>   32
                                U.S. Vision, Inc.

             Notes to Consolidated Financial Statements (continued)


2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ADVERTISING

The Company expenses advertising costs as incurred. Advertising expense was
$8,035,000, $7,594,000, and $6,766,000 in fiscal 1998, 1997, and 1996,
respectively.

STORE OPENINGS AND CLOSINGS

The noncapital expenditures incurred in opening new stores or remodeling
existing stores are expensed as incurred. When a store is closed, the remaining
investment in leasehold improvements and the amount estimated to terminate the
lease are expensed.

REVENUE RECOGNITION

Revenue is generally recognized when merchandise is delivered or shipped to the
customer.

RECLASSIFICATION

Certain prior-year amounts have been reclassified to conform with the
current-year presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1998, the AICPA issued Statement of Position (SOP) 98-1 "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use". The SOP,
which has been adopted as of February 1, 1998, requires the capitalization of
certain costs incurred in connection with developing or obtaining internal use
software. Prior to the adoption of SOP 98-1, the Company capitalized all
internal use software related costs except for interest which was expensed as
incurred. The effect of adopting the SOP was to increase net income for the year
ended January 31, 1999 by $528,000 or $0.07 per share on a diluted basis.


                                      F-8
<PAGE>   33
                                U.S. Vision, Inc.

             Notes to Consolidated Financial Statements (continued)


3. INVENTORY

Inventory is as follows (In thousands):

<TABLE>
<CAPTION>
                       JANUARY 31,
                    1999       1998
                   ------------------
<S>                <C>        <C>    
Finished goods     $18,782    $14,695
Work-in-process      1,230      1,043
Raw materials        2,806      2,417
                   ------------------
                   $22,818    $18,155
                   ==================
</TABLE>

4. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment is as follows (In thousands):

<TABLE>
<CAPTION>
                                     JANUARY 31,
                                   1999       1998
                                 ------------------
<S>                              <C>        <C>    
Land and buildings               $ 6,490    $ 6,319
Leasehold improvements             9,325      8,762
Machinery and equipment           21,723     18,646
Data processing equipment and
 related capitalized costs        12,286      8,761
Furniture and fixtures            13,648     11,973
Automobiles                          472        322
                                 ------------------
                                  63,944     54,783
Less accumulated depreciation     32,310     28,780
                                 ------------------
                                 $31,634    $26,003
                                 ==================
</TABLE>


                                      F-9
<PAGE>   34
                                U.S. Vision, Inc.

             Notes to Consolidated Financial Statements (continued)


5. LONG-TERM DEBT

Long-term debt is as follows (In thousands):

<TABLE>
<CAPTION>
                                                                            JANUARY 31,
                                                                         1999        1998
                                                                        ------------------
<S>                                                                     <C>         <C>   
$20,000,000 Revolving Line of Credit which expires on July 31,
  2000 (with automatic one year extensions). Interest is payable
  monthly at the lower of prime, as defined, or the thirty day
  rate for U.S. Treasury Bills plus 250 basis points (6.77% at
  January 31, 1999). The revolving line of credit is secured by
  substantially all the assets of the Company.                          $8,324      $   --

$7,000,000 Revolving Line of Credit. Interest was payable
  monthly at prime, as defined, plus 1.0% through November
  1997, when the rate was reduced to prime plus 0.5% (9% at
  January 31, 1998). The revolving line of credit was paid in full
  on July 31, 1998.                                                         --       1,907

$8,000,000 Term Loan. Interest is due monthly at prime, as
  defined, plus 1.5% through November 1997, when the rate was
  reduced to prime plus 1.0% (9.5% at January 31, 1998). The
  term loan was paid in full on July 31, 1998.                              --         214

DRPA Term Loan due February 1, 2010. Requires quarterly
  payments of $13,322, which includes principal and interest at
  2%. Final payment of $702,434 is due on January 31, 2010. The
  term loan is secured by the land and building of the Corporate
  headquarters.                                                          1,078       1,117

DRPA Term Loan due February 1, 2010. Requires quarterly
  payments of $25,313, which includes principal and interest at
  2%. Final payment of $1,334,625 is due on January 31, 2010. The
  term loan is secured by the land and building of the New Jersey
  manufacturing facility.                                                 2,049       2,123

DRPA Term Loan due on June 7, 2005. Requires quarterly
  payments of $33,175, which includes principal and interest at
  2%. The term loan is secured by certain of the equipment
  located in the New Jersey manufacturing facility.                        778         893
</TABLE>


                              F-10
<PAGE>   35
                                U.S. Vision, Inc.

             Notes to Consolidated Financial Statements (continued)


5. LONG-TERM DEBT (CONTINUED)

<TABLE>
<CAPTION>
                                                                            JANUARY 31,
                                                                         1999        1998
                                                                       -------------------
<S>                                                                    <C>          <C>   
Note payable to stockholder due July 7, 2001. Requires
  quarterly payments of $41,666 plus simple interest based on the
  prime rate at the first day of each calendar quarter (7.75% at
  January 31, 1999).                                                       416          --

Other                                                                      816          85
                                                                       -------------------
                                                                        13,461       6,339
Less current portion                                                       934         242
                                                                       -------------------
                                                                       $12,527      $6,097
                                                                       ===================
</TABLE>

The revolving credit agreement contains various financial covenants pertaining
to net worth, current ratio, and ratio of cash flow to fixed charges. The
revolving credit agreement also prohibits the payment of dividends to common
stockholders. At January 31, 1999, the Company was in compliance with all
financial covenants.

The carrying amounts of the Company's borrowings approximate their fair values.

Maturities of long-term debt for each of the next five years and thereafter are
as follows (In thousands):


<TABLE>
<CAPTION>
                         YEAR ENDED JANUARY 31,
                      <S>             <C>    
                        2000            $   934
                        2001              8,796
                        2002                366
                        2003                281
                        2004                273
                        Thereafter        2,811
                                        -------
                                        $13,461
                                        =======
</TABLE>


6. LEASE COMMITMENTS

Capital lease obligations are machinery and equipment leases which expire on
various dates through 2003. Assets under capital leases at January 31, 1999 and
1998, were $3,381,000 and $3,718,000, net of accumulated amortization of
$576,000 and $287,000, respectively, and are included as a component of
property, plant, and equipment in the consolidated balance sheets.


                                      F-11
<PAGE>   36
                                U.S. Vision, Inc.

             Notes to Consolidated Financial Statements (continued)


6. LEASE COMMITMENTS (CONTINUED)

Future minimum payments required under noncancelable capital leases and
operating leases with lease terms in excess of one year as of January 31, 1999,
are as follows (In thousands):

<TABLE>
<CAPTION>
                                                   CAPITAL   OPERATING
YEAR ENDED JANUARY 31,                             LEASES     LEASES
----------------------                             ------------------
<S>                                                <C>       <C>   

         2000                                      $  855      $1,663
         2001                                         604       1,133
         2002                                         496         570
         2003                                         322         291
         2004                                          --         119
         Thereafter                                    --         136
                                                   ------------------
         Total lease payments                       2,277      $3,912
                                                               ======
         Less amount representing interest             75
                                                   ------
         Present value of minimum capitalized
            lease payments                          2,002
         Less current portion                         660
                                                   ------
         Long-term portion                         $1,542
                                                   ======
</TABLE>


At January 31, 1999, the Company operated 57 of its retail stores under
operating leases with varying terms. The leases expire at various dates from
fiscal 1999 to fiscal 2006, and many have renewal options for up to five
additional years. The leases provide for minimum lease payments and, in many
cases, require payment of additional rents if sales exceed stipulated levels.
These additional rents are not significant. The leases also require, in most
cases, payment of taxes and common area expenses such as maintenance, security,
and other expenses.

The Company also operated 557 licensed optical departments under leases with
expiration dates ranging from 60-days to 5-years. These leases provide for
monthly lease payments calculated as a percentage of sales. Rent expense under
these leases was $15,537,000, $14,212,000, and $12,580,000 in fiscal 1998, 1997,
and 1996, respectively. Approximately 70% of these leases are with one large
national retailer. The Company's master lease provides that only a limited
number of the Company's optical centers with this retailer may be closed in any
calendar year without cause.


                                      F-12
<PAGE>   37
                                U.S. Vision, Inc.

             Notes to Consolidated Financial Statements (continued)


6. LEASE COMMITMENTS (CONTINUED)

The Company also operates other facilities under operating leases. Rent expense
for all operating leases, including those on its retail stores and licensed
optical departments described above, was $18,270,000, $17,010,000, and
$15,519,000 in fiscal 1998, 1997, and 1996, respectively.

7. INCOME TAXES

The components of the income tax provision are as follows (In thousands):

<TABLE>
<CAPTION>
                                                   YEAR ENDED JANUARY 31,
                                          --------------------------------------
                                           1999          1998            1997
                                          --------------------------------------
<S>                                       <C>            <C>           <C>      

Current provision                         $ 476          $ 85          $      --
Deferred benefit                           (121)          (85)                --
                                          --------------------------------------
Income tax provision                      $ 355          $ --          $      --
                                          ======================================
</TABLE>


Deferred income tax liabilities and assets result from differences in the tax
basis of assets and liabilities and their reported amounts in the consolidated
financial statements. Significant components of the Company's deferred income
taxes are as follows (In thousands):

<TABLE>
<CAPTION>
                                                          YEAR ENDED JANUARY 31,
                                                          1999            1998
                                                        ------------------------
<S>                                                     <C>             <C>    

Deferred tax liability:
  Depreciation                                          $ 1,548         $ 1,280
Deferred tax assets:
  Store closing reserves                                    199             289
  Inventory costs                                           414             483
  Alternative Minimum Tax Credit                            206              85
  Other                                                     170             190
Net operating loss carryover                              5,730           8,766
                                                        ------------------------
                                                          6,719           9,813
Valuation allowance for deferred tax assets              (4,965)         (8,448)
                                                        ------------------------
Total deferred tax assets                                 1,754           1,365
                                                        ------------------------
Net deferred tax assets                                 $   206         $    85
                                                        ========================
</TABLE>


                                      F-13
<PAGE>   38
                                U.S. Vision, Inc.

             Notes to Consolidated Financial Statements (continued)


7. INCOME TAXES (CONTINUED)

The deferred tax valuation reserve decreased $3,483,000 and $2,030,000 for
fiscal 1998 and 1997, respectively. The valuation reserve has been established
to eliminate the benefit of all net deferred tax assets except for the credit on
the Alternative Minimum Tax.

A reconciliation of the income tax provision with amounts determined by applying
the U.S. Statutory rate to income before income tax is as follows (in
thousands):


<TABLE>
<CAPTION>
                                                             YEAR ENDED JANUARY 31,
                                                        1999          1998        1997
                                                      ---------------------------------
<S>                                                   <C>           <C>           <C>  

Income tax provision at the statutory rate            $ 2,660       $ 1,810       $ 726
Amortization of goodwill                                   54            28          28
Nontaxable income                                          --           (57)         --
Nondeductible expenses                                     47            32          32
Change in realization of deferred asset                    --            --         (13)
Decrease in deferred tax asset valuation reserve       (2,691)       (2,030)       (866)
State income tax provision                                136            --          --
Other taxes                                               149           217          93
                                                      ---------------------------------
Income tax provision                                  $   355       $    --       $  --
                                                      =================================
</TABLE>

As of January 31, 1999, the Company had net operating loss carry forwards of
approximately $16,000,000 which will begin to expire in the year 2006.
Approximately $6,300,000 of these carry forwards are available to offset future
taxable income without limitation and approximately $9,700,000 of these carry
forwards (the "Restricted NOLs") are significantly limited due to ownership
changes experienced by the Company. As a result of these limitations,
approximately $780,000 of the Restricted NOLs will become available for use each
year through the year 2008. The remaining Restricted NOLs are expected to expire
unutilized. A valuation allowance has been established to fully reserve the
future benefit of all the net operating loss carry forwards.


                                      F-14
<PAGE>   39
                                U.S. Vision, Inc.

             Notes to Consolidated Financial Statements (continued)


8.  NET INCOME PER SHARE

         The following table (in thousands except per share data) presents the
calculation of earnings per share for the periods indicated.

<TABLE>
<CAPTION>
                                                      YEAR ENDED JANUARY 31,
                                                  1999        1998        1997
                                                 ------------------------------
<S>                                              <C>         <C>         <C>   

Net income                                       $7,469      $5,325      $2,135

Preferred stock dividends                            --         217          --
                                                 ------------------------------

Net income available to common stockholders      $7,469      $5,108      $2,135
                                                 ------------------------------

Basic average common shares outstanding           7,780       5,652       5,262

Effect of dilutive securities:

   Options                                          175         106         107
                                                 ------------------------------

Diluted average common shares outstanding         7,955       5,758       5,369
                                                 ------------------------------
Net income per share applicable to common
   stockholders                                  $ 0.96      $ 0.90      $ 0.41
                                                 ==============================
Net income per share - assuming dilution
   applicable to common stockholders             $ 0.94      $ 0.89      $ 0.40
                                                 ==============================
</TABLE>

Pro forma net income per share-basic and pro forma net income per share-assuming
dilution for the year ended January 31, 1998 was $0.96. Pro forma net income
gives effect to the initial public offering and the related pay down of the debt
as of the beginning of fiscal 1997. Pro forma net income per share-basic is
calculated by dividing net income after adjustment for applicable interest
expense, net of tax ($2,208,000) by the adjusted number of weighted average
shares outstanding (7,761,544) after giving effect to the 2,500,000 shares sold
to repay $20,375,000 of debt. Pro forma net income per share-assuming dilution
is calculated by dividing net income after adjustment for applicable interest
expense, net of tax by the adjusted number of weighted average shares
outstanding during the period plus the dilutive effect of stock options
(107,157).

9.   COMMITMENTS AND CONTINGENCIES

The Company, in the normal course of business, is involved in various legal
proceedings. Management of the Company believes that, in all cases, the outcome
of such legal proceedings will not have a material effect on the Company's
results of operations or financial condition.



                                      F-15
<PAGE>   40
                                U.S. Vision, Inc.

             Notes to Consolidated Financial Statements (continued)


10. ACQUISITIONS

On July 7, 1998, the Company acquired nine licensed optical retail stores
located within Sears full line stores and two medical center locations. On
October 4, 1998, the Company acquired all of the assets and inventory of sixteen
licensed optical departments from a department store division of a national
retailer. Both acquisitions were accounted for under the purchase method of
accounting. The operating results of these acquisitions are included in the
consolidated financial statements since the date of the acquisitions. The total
cost of these acquisitions was $3.2 million, and the excess of the purchase
price over the fair market value of the acquired assets and liabilities assumed
has been recorded as goodwill. The total goodwill recorded on these acquisitions
was $2.8 million which is being amortized on a straight line basis over 15 years
from the respective date of each acquisition.

11. SEGMENT INFORMATION

The Company operates in one segment: the marketing, distribution, and production
of optical products through retail optical stores. On January 31, 1999, the
Company operated in 48 states.

Approximately 66% of the Company's sales were in licensed departments of one
retailer for fiscal 1998 and 1997. Sales in licensed departments of another
retailer were approximately 12% and 10% for fiscal 1998 and 1997. A termination
of the licensed departments could cause a loss of sales, which would affect
operating results adversely.


12. STOCK BASED COMPENSATION PLANS

In February 1996, the Board of Directors authorized the formation of an
incentive stock option plan. The total amount of Common Stock for which options
may be granted under this plan may not exceed in the aggregate 1,300,000 shares.
The price at which shares may be purchased pursuant to options granted under the
plan may not be less than the fair market value of the shares of Common Stock on
the date the option is granted. In March 1996, 639,665 options were issued to
various members of management. The majority of these options vested immediately,
are exercisable at $7.69 per share (fair market value on date of grant), and
expire on October 1, 2004.

In May 1998, 317,000 options were issued to various members of management with
an exercise price of $12.00 per share (estimated fair market value on date of
grant). Twenty-five percent of these options vested immediately upon grant, and
the remaining options vest twenty-five percent per year for the next three years
from the date of grant. These options expire in May 2008.


                                      F-16
<PAGE>   41
                                U.S. Vision, Inc.

             Notes to Consolidated Financial Statements (continued)


12. STOCK BASED COMPENSATION PLANS (CONTINUED)

In December 1997, 33,333 non-qualified options were issued to various directors
with an exercise price of $9.00 per share (fair market value on date of grant).
One third of these options vested immediately upon grant, and the remaining
options vest one third per year for the next two years from the date of grant.
These options expire in December 2007.

The following table summarizes the Company's stock option activity:

<TABLE>
<CAPTION>
                                                           YEAR ENDED JANUARY 31,
                                            1999                     1998                     1997
                                   ----------------------   ---------------------    ---------------------
                                                Weighted                 Weighted                 Weighted
                                                 Average                  Average                  Average
                                     Number     Exercise      Number     Exercise      Number     Exercise
                                   of shares      Price      of shares     Price     of shares      Price
                                   -----------------------------------------------------------------------
<S>                                <C>          <C>          <C>        <C>          <C>          <C>     
Options outstanding at beginning
   of year                            769,523   $   7.75      736,190   $   7.69         96,525   $   7.69
Granted                               317,000      12.00       33,333       9.00        639,665       7.69
Exercised                                  -       -               -       -                 -       -
Forfeited                                  -       -               -       -                 -       -
                                   -----------------------------------------------------------------------
Options outstanding at end of
   year                             1,086,523   $   8.99      769,523   $   7.75        736,190   $   7.69
                                   =======================================================================
Exercisable at end of year            832,440   $   8.14      736,858   $   7.71        720,525   $   7.69
Available for future grants           343,335                 660,335                   660,335
</TABLE>


The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. If the Company had
recognized compensation costs based upon the fair value of the stock options at
the date of the grant, as prescribed by FAS 123, the Company's pro forma net
income and pro forma net income per share would have been $6.7 million and
$0.85, respectively, for the fiscal year ended January 31, 1999. The effect of
applying Statement 123's fair value method to the Company's stock-based awards
results in pro forma net income per share that are not different from amounts
reported for fiscal years ended January 31, 1998 and January 31, 1997.


                                      F-17
<PAGE>   42
                                U.S. Vision, Inc.

             Notes to Consolidated Financial Statements (continued)


12. STOCK BASED COMPENSATION PLANS (CONTINUED)

The fair value of options granted in fiscal 1998 was $5.54 per share. The fair
value of the options was estimated at the date of the grant using a
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 5.75%, dividend yield of 0%, expected volatility of the market
price of the common stock of 43.5%, and weighted average expected life of the
options of 5 years. The estimated fair value of the options was amortized to
expense over the vesting period of the options for the purposes of determining
pro forma net income and pro forma net income per share. The effects of applying
FAS 123 for purposes of providing pro forma disclosures are not likely to be
representative of the effects on reported net income in future years.

During 1998, the Company issued 15,563 shares of common stock to directors.
Compensation expense, based on the fair market value of the stock at the date of
grant, of $158,000 has been included in the statement of income for fiscal 1998.

13. EMPLOYEE BENEFIT PLAN

The Company implemented an employee savings plan (the "plan") during fiscal 1995
pursuant to Section 401(k) of the Internal Revenue Code. All employees who have
been credited with at least 250 hours of service within three consecutive months
are eligible to participate in the plan. Employees may elect to contribute to
the plan through payroll deductions in an amount not to exceed the amount
permitted under the Internal Revenue Code. The Company has the discretion to
make matching contributions on behalf of the participants. Employees are fully
vested in their contributions. Company contributions vest at a rate of 20% on
each participant's anniversary date in the plan provided that the participant
has completed 1,000 hours of service with the Company as of such date. During
fiscal 1998, 1997 and 1996, the Company contributed $104,000, $98,000 and
$90,000, respectively to the plan.



                                      F-18
<PAGE>   43
                                  EXHIBIT INDEX



    EXHIBIT
    NUMBER                              EXHIBIT

    3.1*          Restated Certificate of Incorporation of the Company
    3.2*          Bylaws of the Company
    10.1*         Loan and Security Agreement between the Company and Commerce
                  Bank, as amended
    10.2*         Stock Option Plan, including form of Stock Option Agreement
    10.3**        Subordinated Note Purchase Agreement
    10.4**        Amendment to Subordinated Note Purchase Agreement
    10.5**        J.C. Penney License Agreement
    10.6**        Vision Care Agreement
    10.7+         Employment Agreement for William A. Schwartz, Jr.
    10.8+         Form of Employment Severance Agreement
    10.9**        Form of Non-Statutory Option Agreement
    10.10**       Form of Indemnification Agreement
    10.11**       Stockholders' Agreement
    10.12**       Form of Sears Lease
    10.13**       Commerce Bank Mortgages and Schedules
    10.14**       DRPA Loan Documentation
    21+           Subsidiaries of the Company
    23+           Consent of Independent Auditors
    27+           Financial Data Schedule
-----------
*  Previously filed as an exhibit to the Form S-1 (Reg. No. 333-35819) filed
   with the Commission on September 17, 1997.

** Previously filed as an exhibit to Amendment No. 1 to the Form S-1 (Reg. No.
   333-35819) filed with the Commission on October 29, 1997.

+  Filed herewith.