NATIONAL VISION, INC.

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

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

296 Grayson Highway, Lawrenceville, Georgia
(Address of principal executive offices)

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. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ ] No [X]

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities and Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ]

The number of shares of Common Stock of the registrant outstanding as of March 1, 2002, was 5,000,000, including shares that are part of the disputed claims reserve in the registrant’s Chapter 11 Case. The aggregate market value of shares of Common Stock held by non-affiliates of the registrant as of March 1, 2002, was approximately $4 million based on a closing price of $0.80 per share on the American Stock Exchange on such date. For purposes of this computation, all executive officers and directors of the registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such directors and officers are, in fact, affiliates of the registrant.

National Vision, Inc. (the “Company”) is filing this Amendment No. 1 to its Form 10-K for 2001 to give effect to the restatement described in Note 17 to the accompanying Consolidated Financial Statements. Note 17 describes the effects of the restatement.

Except for the Certifications under Rule 13a-14 and Section 1350 of Title 18, all information contained herein is as of March 22, 2002, and does not reflect any events or changes in information, other than the restatement, that may have occurred subsequent to March 22, 2002. The Company has also revised its use of Non-GAAP financial measures, such as EBITDA, to conform to the requirements of Regulation G, which applies to disclosures made on and after March 28, 2003. For a discussion of events and developments relating to periods subsequent to March 22, 2002, see the Company’s reports filed with the Securities and Exchange Commission for such subsequent periods, including the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002, which is being filed concurrently with this Form 10-K/A.

The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports available, free of charge, through its website, http://www.nationalvision.com, as soon as reasonably practicable after such material is filed with, or furnished to, the Securities and Exchange Commission.

National Vision, Inc. (the “Company”) is a retail optical company, with 514 vision centers throughout the United States and Mexico. Our locations sell a wide range of optical products, including eyeglasses, contact lenses, and sunglasses. We offer the services of optometrists at substantially all of our locations. These optometrists are typically independent of us and operate their own practices within our retail locations. To support our retail operations, we also operate two manufacturing and distribution centers.

National Vision, Inc. was founded as National Vision Associates, Ltd. in 1990, when it entered into a master license agreement with Wal-Mart Stores, Inc. (“Wal-Mart”). The original agreement gave the Company the right to operate 75 vision centers in Wal-Mart stores. The agreement was expanded for up to 190 vision centers in 1992 and expanded again in 1994 for up to 400 stores.

In late 1997, the Company made a strategic decision to diversify the revenue base through acquisitions in the freestanding optical market. Between October 1997 and October 1998, the Company acquired three prominent chains in the freestanding optical market. More specifically, Midwest Optical, Inc. was acquired in October 1997 with 51 freestanding retail optical centers in four Midwest states. Frame-n-Lens Optical, Inc. was acquired in July 1998 with 150 freestanding vision centers in California and 120 vision centers located within Sam’s Clubs. New West Eyeworks, Inc. was acquired in October 1998 with 175 retail optical centers in 13 states with more than 120 vision centers in freestanding locations and more than 50 host vision centers in Fred Meyer stores. Following the acquisitions, the Company changed its name to Vista Eyecare, Inc.

To fund the acquisitions, the Company issued $125 million in senior notes in October 1998 bearing interest at 12.75% per annum. At the time the Senior Notes were issued, the Company entered into a $25 million secured credit facility to provide liquidity for the day-to-day operations.

Sales shortfalls in the freestanding stores caused adverse pressure on cash flow and liquidity. In October 1999, the Company announced that, because of slow sales in its recently acquired businesses, it would use the allowed 30-day grace period for making the interest payment due on the Senior Notes. In November 1999, the Company replaced its prior secured credit facility and used the proceeds from a new credit facility to make the interest payment that had been due under the Senior Notes.

The Company continued to experience weak sales and cash flow problems with the freestanding stores throughout early 2000. Experiencing liquidity difficulties given limited availability under the credit facility, and after failing to negotiate an out-of-court restructuring with the holders of the Senior Notes, the Company filed for reorganization under Chapter 11 on April 5, 2000.

During the bankruptcy process, the Company closed or disposed of all of its freestanding stores and closed all of its host vision centers operating in Sam’s Clubs and in Meijer Thrifty Acre stores. On May 31, 2001, the Company emerged from bankruptcy as an optical retailer operating vision centers in host departments, including Wal-Mart and Fred Meyer locations.

Upon emerging from bankruptcy, the Company changed its name to National Vision, Inc. (“National Vision”) and implemented “fresh start” accounting. As a result, all assets and liabilities were restated to reflect their respective fair values. The consolidated financial statements after emergence are those of a new reporting entity (the “Successor”) and are not comparable to the financial statements of the pre-confirmation company (the “Predecessor”). A black line has been drawn in the financial statements to distinguish Predecessor and Successor Company results.

We operate 400 vision centers in domestic Wal-Mart stores, all of which operate pursuant to a master license agreement (See “Business-Leased Department Agreements”). These units generated approximately 83% of our revenue in 2001 and represent the most profitable of the Company’s host retail operations measured as a percent of sales. We therefore depend on Wal-Mart and on our agreement with them for much of our operations.

Unless otherwise expressly stated, all information in this Business section of this Form 10-K/A is as of December 29, 2001.

Our vision centers typically occupy between 1,000 and 1,500 square feet, including areas for merchandise display, customer service, and contact lens fitting. Each vision center maintains inventory of approximately 1,000 eyeglass frames and 550 pairs of contact lenses, along with sunglasses and other optical accessories. Our two optical laboratories deliver prescription eyewear to all our vision centers. The vision centers located in Wal-Mart typically have a finishing laboratory, which allows for the vision center to provide one hour service for most single vision prescription lenses. These vision centers carry inventory of approximately 725 pairs of spectacle lenses.

We are a value provider of optical goods and stress that theme in our marketing. We offer everyday low prices at our vision centers. National Vision also has a satisfaction guaranteed customer policy. We are vigilant about ways to lower our own costs so we may pass savings on to our customers.

We expect that retail optical sales through numerous managed vision care programs will increase over the next several years as a percentage of overall retail optical sales. Under managed vision care plans, members fulfill their eyecare and eyewear needs at specific locations designated by the plan sponsor. We believe our network of vision centers combined with the convenience of their locations and our ability to offer low prices should enable us to make competitive bids for managed care contracts.

Our vision centers in Wal-Mart are identified as the “Vision Center located in Wal-Mart.” We use the “Vista Optical” name to identify some of our vision centers operating in Fred Meyer locations. As part of our agreement to sell the freestanding vision centers, we have agreed to phase out our use of the Vista name. We have obtained a license to continue our use of this name through January 2004. The licensor of this mark recently filed for bankruptcy, and it is possible that we will lose our right to use this name.

We employ 2,180 associates on a full-time basis and 840 associates on a part-time basis. We have 2,550 associates engaged in retail sales, 240 in laboratory and distribution operations, and 230 in management and administration. Apart from our retail employees in Mexico, none of our employees are governed by any collective bargaining agreements. We believe that our employment relations are generally good.

Optometrists are important to the success of our vision centers. We strive to have an optometrist on a full-time time basis at most of our locations. These optometrists are typically independent from us and lease a portion of our locations for an eye examination facility. We typically charge rent to these optometrists, in exchange for the premises and the equipment which we provide. Our agreement with Wal-Mart contemplates that we generally will have an optometrist on duty at least 48 hours each week. Our relationships with optometrists are subject to extensive regulation. (See “Business-Government Regulation.”)

We operate two manufacturing and distribution facilities that supply substantially all merchandise requirements of our vision centers. The facilities are located in Lawrenceville, Georgia (this facility also includes our central administrative offices) and St. Cloud, Minnesota.

Our distribution centers provide lens blanks, frames, contact lenses, and sunglasses to our vision centers. We use an overnight delivery service to ship completed orders and replenishment items to the vision centers. The distribution centers and the manufacturing facilities are interfaced with our management information system. Raw materials consist of frames and lenses and are readily available from multiple vendors.

In 2000, National Vision completed the development of a new point of sale system. We began installing the system in our vision centers in the fall of 2000 and completed the installation in all of our units in 2002. The system is working substantially as planned. The system was designed to upgrade data processing, broaden capabilities at the retail level, and improve the processing of managed care transactions.

We have agreements governing our operations in host environments, such as Wal-Mart. Typically, each agreement is for a base term, followed by an option to renew for a specified length of time. The agreements provide for payments of minimum and percentage rent, and also contain customary provisions for leased department operations. (See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Summary of Lease Agreements”.)

Our business is heavily regulated by federal, state, and local law. We must comply with federal laws such as the Social Security Act (which applies to our participation in Medicare programs), the Health Insurance Portability and Accountability Act of 1996 (which governs our participation in managed care programs), and the Food and Drug Administration Act (which regulates medical devices such as contact lenses). In addition, all states have passed laws that govern or affect our arrangements with the optometrists who practice in our vision centers. Some states, such as California, Texas, North Carolina, and Kansas, have particularly extensive and burdensome requirements that affect the way we do business. In California, optometrists who practice adjacent to our retail locations are providers to and subtenants of a subsidiary, which is licensed as a single-source HMO. This subsidiary is regulated by the Department of Managed Health Care. This agency has recently required that we change our way of doing business. This new way of doing business will increase our costs in California. There is no assurance that the Department will find our new way of business satisfactory. Our costs of compliance could continue to increase as a result. Depending on its views, this Department could also seek to revoke our HMO license. Such a revocation would have a material adverse impact on our business.

Many of these states also have adopted laws that mirror the federal laws described above. Local ordinances (such as zoning requirements) can also impose significant burdens and costs of compliance. Frequently, our competitors sit on state and local boards. Our risks and costs of compliance are often increased as a result.

We believe that we substantially comply with material regulations that apply to our business.

The retail eyecare industry is extremely competitive. We compete with national companies such as Lenscrafters and Cole; we also compete with numerous regional and local firms. In addition, optometrists, ophthalmologists, and opticians provide many of the same goods and services we provide. The level and intensity of competition can vary dramatically depending on the particular market. We believe that we have numerous competitive advantages, such as our everyday low pricing, product selection, and quality and consistency of service.

We also compete for managed care business. Our competition for this business is principally the larger national and regional optical firms. Competition for this business is driven by size of provider network, quality and consistency of service, and by pricing of vision care services. We have one of the largest networks in the country and believe that the size of the network gives us a competitive advantage.

Several of our competitors have significantly greater financial resources than we do. As a result, they may be able to engage in extensive and prolonged price promotions that may adversely affect our business. They may also be able spend more than we do for advertising.

We operate 35 vision centers in Mexico under a master license agreement with Wal-Mart. Our operations in Mexico face unique risks, such as currency devaluations, inflation, difficulties in cross-cultural marketing, and similar factors.

Information relative to sales and identifiable assets for the United States and Mexico for the seven months ended December 29, 2001, the five months ended June 2, 2001, and for the years ended December 30, 2000 and January 1, 2000 are summarized in the following tables (amounts in thousands):


			United States		Mexico		Other		Consolidated

SUCCESSOR COMPANY:
	Seven months ending December 29, 2001
		Sales	$	132,633	$	2,910	$	—	$	135,543

		Identifiable assets	$	168,600	$	2,617	$	—	$	171,217

PREDECESSOR COMPANY:
	Five months ending June 2, 2001
		Sales	$	118,407	$	2,150	$	—	$	120,557

		Identifiable assets	$	184,034	$	2,654	$	—	$	186,688

	Fiscal year 2000
		Sales	$	302,902	$	4,792	$	—	$	307,694

		Identifiable assets	$	88,666	$	2,222	$	—	$	90,888

	Fiscal year 1999
		Sales	$	325,101	$	3,954	$	—	$	329,055

		Identifiable assets	$	217,690	$	2,328	$	201	$	220,219

The Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission, may be obtained by any shareholder without charge upon written request to National Vision, Inc., 296 Grayson Highway, Lawrenceville, GA 30045, Attn: Investor Relations. In addition, the Company’s most recent public filings with the Securities and Exchange Commission are available on the Company’s website at www.nationalvision.com.

Our 514 vision centers in operation as of December 29, 2001 are located as follows:


Location	Total		Location	Total

Alabama		8	Nevada		7
Alaska		12	New Hampshire		4
Arizona		14	New Jersey		13
California		98	New Mexico		10
Colorado		8	New York		26
Connecticut		10	North Carolina		60
Florida		5	North Dakota		4
Georgia		37	Oregon		32
Hawaii		4	Pennsylvania		18
Idaho		3	Puerto Rico		1
Kansas		10	South Carolina		11
Kentucky		1	South Dakota		1
Louisiana		1	Tennessee		2
Maine		1	Texas		7
Maryland		3	Virginia		23
Massachusetts		5	Washington		29
Minnesota		1	West Virginia		7
Montana		2	Wyoming		1
			Mexico		35

Our headquarters in Lawrenceville, Georgia are located in a 66,000 square foot building that includes a distribution center and lens laboratory. The building is leased through January 2009.

The Company also has a regional facility located in St. Cloud, Minnesota. The 20,000 square foot St. Cloud facility is subject to a lease that expires in October 2007. The facility contains an optical laboratory.

On April 5, 2000, the Company and ten of its subsidiaries (collectively, the “Debtors”) filed voluntary petitions with the United States Bankruptcy Court for the Northern District of Georgia for reorganization under Chapter 11 (the “Chapter 11 Cases”). In March 2001, the Debtors filed a plan of reorganization (the “Plan”) for the Chapter 11 Cases. The Plan was confirmed by the bankruptcy court on May 18, 2001. On May 31, 2001, after securing a new revolving credit facility with Fleet Capital Corporation, the Company emerged from bankruptcy.

Under the Plan, the Company’s pre-petition unsecured claims were converted into new secured notes and common stock. The secured notes have a face value of $120 million, provide for the payment of interest of 12% twice a year at the end of March and September and are subordinated to debt under the Company’s credit facility. The notes are payable over eight years with principal repayments based on excess cash flow for the prior six month period, adjusted, if necessary, to ensure the Company has at least $3 million in cash, measured as of the end of June and December of each year, with the first measurement date occurring at the end of 2001. The principal repayments are made by the end of the second month subsequent to the measurement date. On February 28, 2002, the Company made its first principal redemption in the amount of $1.6 million. The Company can provide no assurance as to whether it will generate sufficient cash to make future principal repayments or as to the amount of any such repayments. Five million shares of new common stock, par value $0.01, were issued, based on the Company’s reorganization value. Under the Plan, former shareholders received no value for their interests, consequently, all common stock issued prior to emergence from bankruptcy was cancelled.

The Company’s reorganization value was developed by the Company, the Official Committee of Unsecured Creditors and their respective financial advisors. The reorganization value was based on a calculation of the present value of the free cash flows under the Company’s financial projections, including an assumption of a terminal value. Such projections were necessarily based on a variety of estimates and assumptions which might not be realized and are inherently subject to significant uncertainties and contingencies. Some assumptions inevitably will not materialize. The projections therefore should not be considered as a guarantee or other assurance of actual results.

As part of the bankruptcy proceedings, Myrel Neumann, a Director of the Company, has approximately $1.0 million of outstanding claims against the Company, which are included in the Company’s disputed claims reserve. These claims originated with NVI’s 1997 purchase of a company owned by Dr. Neumann.

No matters were submitted to a vote of security holders during the last quarter of fiscal 2001.

ITEM 5. MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

On May 31, 2001, the Company’s Plan of Reorganization became effective, resulting in the cancellation of 21,169,103 shares of Common Stock and the issuance of 5,000,000 shares of Common Stock, par value $0.01, to the Company’s creditors.

The Company’s Common Stock was traded on the NASDAQ Small Cap Market under the symbol “VSTA” from October 1999 until May 17, 2000, when it began trading on the OTC Bulletin Board. Upon issuance of Common Stock after emergence from bankruptcy, the Company’s Common Stock was listed on the American Stock Exchange in August of 2001 under the symbol “NVI”. The following table sets forth for the periods indicated the high and low prices of the Company’s Common Stock in the various market systems as noted above.

As of December 29, 2001, there were approximately 320 holders of record of the Company’s Common Stock.

It is the Company’s intent to use cash resources only for its operations and, ultimately, for payment of interest expense and repayment of principal on the Company’s new secured notes. The Company’s bond indenture and credit facility agreement restrict the Company’s ability to pay dividends.

We frequently refer to EBITDA in this document. EBITDA is calculated as net earnings before interest, taxes, depreciation, and amortization, extraordinary items, cumulative effect of a change in accounting principle, and reorganization items as defined in the Indenture governing our Senior Notes. We refer to EBITDA because:

•

It is the basis for the calculation of the excess cash flow principal repayment under our senior notes; and

•

It is a widely accepted financial indicator of a company’s ability to service or incur indebtedness.

EBITDA does not represent cash flow from operations as defined by generally accepted accounting principles (“GAAP”), is not necessarily indicative of cash available to fund all cash flow needs, should not be considered an alternative to net income or to cash flow from operations (as determined in accordance with GAAP) and should not be considered an indication of our operating performance or as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures for other companies.

The following selected financial data of the Company for the seven months ended December 29, 2001, the five months ended June 2, 2001, the year ended December 30, 2000, January 1, 2000, January 2, 1999 and January 3, 1998, are derived from the Company’s Consolidated Financial Statements. The Company emerged from Chapter 11 on May 31, 2001 and implemented “fresh start” accounting as of June 2, 2001. Results of operations for the 3-day period from May 31, 2001 through June 2, 2001 were not material. In accordance with fresh start accounting, all assets and liabilities were restated to reflect their respective fair values. The consolidated financial statements after that date are those of a new reporting entity and are not comparable to the pre-confirmation periods. The selected financial data set forth below should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Report.

National Vision, Inc.
Consolidated Statements of Operations
(In thousands except vision center store count)


		Successor			Predecessor

					(Restated)
		Seven months			Five months
		Ended			Ended
		December 29,			June 2,
		2001			2001			2000			1999			1998			1997

		(1)(2)(3)			(1)(2)(3)(7)			(1)(6)(8)(9)			(1)(5)(8)			(1)			(1)(4)
Net sales		$	135,543		$	120,557		$	307,694		$	329,055		$	245,331		$	186,354
Cost of goods sold			61,488			57,404			143,458			147,768			112,929			86,363

Gross profit			74,055			63,153			164,236			181,287			132,402			99,991
Gross profit percentage			54.6	%		52.4	%		53.4	%		55.1	%		54.0	%		53.7	%

Selling, general & administrative expense			71,526			68,377			166,364			177,162			121,413			89,156
Impairment of long-lived assets			—			—			2,684			1,952			—			—
Restructuring expense			—			—			1,601			—			—			—

Operating income/(loss)			2,529			(5,224	)		(6,413	)		2,173			10,989			10,835
Interest expense, net			8,389			1,150			7,723			19,329			5,538			1,554

Earnings/(loss) before reorganization items and taxes			(5,860	)		(6,374	)		(14,136	)		(17,156	)		5,451			9,281
Reorganization expense/(gain)			—			(102,515	)		121,539			—			—			—

Earnings/(loss) before taxes, extraordinary items and cumulative effect of a change in accounting principle			(5,860	)		96,141			(135,675	)		(17,156	)		5,451			9,281
Income tax expense			—			—			—			—			2,037			3,708

Earnings/(loss) before extraordinary items and cumulative effect of a change in accounting principle			(5,860	)		96,141			(135,675	)		(17,156	)		3,414			5,573
Extraordinary gain/(loss), net			—			17,182			(827	)		(406	)		—			—
Cumulative effect, net			—			—			(3,378	)		—			—			—

Net earnings/(loss)		$	(5,860	)	$	113,323		$	(139,880	)	$	(17,562	)	$	3,414		$	5,573

BALANCE SHEET DATA:
Total assets		$	171,217		$	186,688		$	90,888		$	220,219		$	229,097		$	83,250
Current and long-term obligations		$	120,000		$	123,000		$	183,735		$	151,902		$	139,608		$	24,973
Shareholders’ equity/(deficit)		$	19,274		$	25,000		$	(113,323	)	$	26,557		$	43,927		$	35,598
STATISTICAL DATA:
Domestic vision centers open at end of period:
	Leased department vision centers		479			473			472			577			562			364
	Freestanding vision centers		—			—			226			322			331			50
Average annual sales per Wal-Mart leased department vision center (10)		$	535		$	535		$	540		$	527		$	522		$	522
Average annual sales per other host leased department vision center (10)		$	245		$	245		$	248		$	242		$	176		$	146
Average annual rent per Wal-Mart leased department vision center (10)		$	71		$	71		$	68		$	66		$	63		$	64
Wal-Mart leased department vision centers converted to supercenters			7			4			13			5			5			2
Capital expenditures		$	2,750		$	2,084		$	5,379		$	12,704		$	9,183		$	8,049
Depreciation and amortization		$	11,425		$	4,808		$	17,526		$	18,602		$	14,177		$	11,035
EBITDA (11)		$	13,954		$	(416	)	$	11,113		$	20,775		$	25,166		$	21,870

(1)		Financial information for all years presented includes results of international operations for the 12 months ended November 30. (See Note 2 to Consolidated Financial Statements.)

(2)		The 2001 results have been restated. (See Note 17 to the Consolidated Financial Statements.)

(3)		The Company emerged from Chapter 11 on May 31, 2001 and implemented “fresh start” accounting as of June 2, 2001. Results of operations for the 3 day period from May 31, 2001 through June 2, 2001 were not material. In accordance with fresh start accounting, all assets and liabilities were restated to reflect their respective fair values. The consolidated financial statements after that date are those of a new reporting entity and are not comparable to the periods prior to emergence.

(4)		The Company uses a 52/53 week retail calendar. (See Note 2 to Consolidated Financial Statements). Fiscal 1997 consisted of 53 weeks ended January 3, 1998. Sales for the 53rd week approximated $3.0 million in fiscal 1997.

(5)		In 1999, the Company recorded a $2.7 million provision for the write-off of certain receivables and an impairment of $1.9 million in connection with 36 under-performing vision centers. The receivables provision was included in SG&A expense.

(6)		In 2000, the Company recorded an impairment provision for inventory and receivables at the freestanding locations totaling $1.1 million and $518,000, respectively. These items were included in cost of goods sold and selling, general and administrative expense, as appropriate.

(7)		In 2001, the Predecessor Company recorded a $6.3 million provision for uncollectable receivables. Of this amount $2.9 million related to the ongoing host business. This expense was included in selling, general and administrative expense. In addition, the Predecessor Company recorded a $2.4 million provision for inventory. This expense was included in cost of goods sold.

(8)		The Company incurred expenses for the impairment of certain long-lived assets and store closing costs prior to the Company’s filing of Chapter 11 in April 2000.

(9)		This represents the cumulative effect of a change in accounting principle for the adoption of SAB 101. (See Note 2 to the Consolidated Financial Statements).

(10)		For the purposes of calculating average annual sales and average annual rent, the Successor results for the seven months ended December 29, 2001 have been combined with the Predecessor results for the five months ended June 2, 2001

(11)		EBITDA is calculated as net earnings before interest, taxes, depreciation and amortization, extraordinary items, cumulative effect of a change in accounting principle, and reorganization items. (See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Use of Non-GAAP Financial Measures”). The following is a reconciliation of net earnings to EBITDA (amounts in thousands):


		(Successor)				(Predecessor)

		Seven months			Five months
		Ended December 29, 2001			Ended June 2, 2001			2000			1999			1998		1997

Net earnings/(loss)		$	(5,860	)	$	113,323		$	(139,880	)	$	(17,562	)	$	3,414	$	5,573
Addback:
	Interest expense, net		8,389			1,150			7,723			19,329			5,538		1,554
	Reorganization expense/(gain)		—			(102,515	)		121,539			—			—		—
	Income tax expense		—			—			—			—			2,037		3,708
	Extraordinary (gain)/loss, net		—			(17,182	)		827			406			—		—
	Cumulative effect, net		—			—			3,378			—			—		—
	Depreciation and amortization		11,425			4,808			17,526			18,602			14,177		11,035

EBITDA		$	13,954		$	(416	)	$	11,113		$	20,775		$	25,166	$	21,870

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

Under the Plan, the Company’s pre-petition unsecured claims were converted into new secured notes and common stock. The secured notes have a face value of $120 million, will provide for the payment of interest of 12% twice a year at the end of March and September and are subordinated to debt under the Company’s credit facility. The notes are payable over eight years with principal repayments based on excess cash flow for the prior six month period, adjusted, if necessary, so that the Company has at least $3 million in cash, measured as of the end of June and December of each year, with the first measurement date occurring at the end of 2001. The principal repayments are made by the end of the second month subsequent to the measurement date. On February 28, 2002, the Company made its first principal redemption in the amount of $1.6 million. The Company can provide no assurance as to whether it will generate sufficient cash to make future principal repayments or as to the amount of any such repayments. Five million shares of new common stock, par value $0.01, were issued, based on the Company’s reorganization value. Under the Plan, former shareholders received no value for their interests, consequently, all common stock issued prior to emergence from bankruptcy was cancelled.

In the allocation of the reorganization value, the Company’s tangible and intangible assets were recorded at their assumed fair value. Intangible Value of Contractual Rights, approximating $113.6 million, was established as part of fresh start accounting and is being amortized over 15 years using the straight-line method. This intangible asset represents the value of the Company’s lease agreement and the business relationship developed with Wal-Mart. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” this intangible is an amortizable asset because it has a finite useful life. However, the precise length of its life is subject to future change due to various reasons, including the Wal-Mart superstore conversions that automatically trigger extensions on the contractual life of the asset, possible changes and/or extensions to the Master Lease Agreement as well as other businesses that may be developed through our relationship with Wal-Mart. Based on projections, management believes that the best estimate of the useful life of this asset is 15 years. Due to the uncertainty involved in predicting the pattern of economic benefits realized from the Wal-Mart relationship, this asset is amortized using the straight-line method.

No assurances can be given as to the price at which the securities of the Company may trade (See “Market for Registrant’s Common Stock and Related Stockholder Matters”), and such prices may be materially different from the reorganization value prepared in connection with the Plan.

Subsequent to the issuance of the Company’s 2001 financial statements, the Company’s management determined that the following revisions to the 2001 financial statements were required:

The consolidated financial statements for the year ended December 29, 2001 contained herein have been restated to reflect all of these adjustments and reclassifications.


	As Previously
	Reported*		As Restated

At December 29, 2001:
Accounts receivable		3,939		3,908
Other current assets		636		583
Equipment		17,731		17,049
Net property and equipment		24,682		24,000
Other assets and deferred costs		1,561		1,332
Deferred tax asset – current		—		3,681
Deferred tax asset – long term		385		—
Total Assets		168,916		171,217
Accrued expenses and other current liabilities		25,707		24,712
Current portion of other long-term debt		—		1,597
Senior notes		120,000		118,403
Deferred tax liability – long term		—		3,296
Liabilities and Shareholders’ Equity		168,916		171,217

These restatement adjustments have no effect on the previously reported net loss for the seven months ended December 29, 2001 or the previously reported net income for the five months ended June 2, 2001.

*Includes certain reclassification adjustments made to the previously reported amounts, which are unrelated to the restatement.

The Company emerged from Chapter 11 on May 31, 2001 and implemented “fresh start” accounting as of June 2, 2001. Results of operations for the 3 day period from May 31, 2001 through June 2, 2001 were not material. In accordance with fresh start accounting, all assets and liabilities were restated to reflect their respective fair values. The consolidated financial statements after that date are those of a new reporting entity and are not comparable to the periods prior to emergence. However, for purposes of this discussion, the Successor results for the seven months ended December 29, 2001 have been combined with the Predecessor results for the five months ended June 2, 2001 and then compared to the Predecessor results for the fiscal year ended December 30, 2000. Differences between periods due to fresh start accounting are explained when necessary. Results for these periods are summarized in the following tables:


	Fiscal Year			Fiscal Year
	Ended			Ended
	December 29,			December 30,
	2001 (A)			2000

Net sales	$	256,100		$	307,694
Cost of goods sold		118,892			143,458

Gross profit		137,208			164,236
Selling, general & administrative expense		139,903			166,364
Impairment of long-lived assets		—			2,684
Restructuring expense		—			1,601

Loss before reorganization items and taxes		(2,695	)		(6,413	)
Interest expense, net		9,539			7,723

Loss before reorganization items and taxes		(12,234	)		(14,136	)
Reorganization expense/(gain)		(102,515	)		121,539

Earnings/(loss) before taxes, extraordinary item and cumulative effect		90,281			(135,675	)
Income tax expense		—			—

Net earnings/(loss) before extraordinary item and cumulative effect		90,281			(135,675	)
Extraordinary gain/(loss), net		17,182			(827	)
Cumulative effect, net		—			(3,378	)

Net earnings/(loss)	$	107,463		$	(139,880	)

(A)

Represents the combined results of the Successor for the seven months ended December 29, 2001 and the results of the Predecessor for the five months ended June 2, 2001.

The Company’s results of operations in any period are significantly affected by the number and mix of vision centers opened and operating during the period. At December 29, 2001, the Company operated 514 vision centers, versus 725 vision centers at December 30, 2000, summarized as follows:

Net Sales. The Company recorded net sales of $256.1 million in fiscal 2001, a decrease of 16.8% from sales of $307.7 million in fiscal 2000. Sales decreased due to the following reasons:

•

In April 2001, the Company disposed of the remainder of its freestanding stores. These stores had sales of approximately $61 million in 2000 versus sales of $18 million in 2001.

•

The Company closed all of its Sam’s Club operations in the third quarter of 2000. These locations had sales of approximately $12 million in fiscal 2000.

Comparable store sales in the Company’s Wal-Mart business declined 0.5% from levels recorded in the prior fiscal year. This decrease was partially offset by sales from 5 new stores opened in 2001.

Gross Profit. In the Current Year, gross profit decreased to $137.2 million from $164.2 million in the prior year. This decrease in gross profit was primarily driven by a reduction in sales caused by the closure of the freestanding locations and the Sam’s Club locations. Gross margin, as a percent of sales, increased to 53.6% from 53.4% in the Prior Year. Gross margin percentage was positively impacted by an increase in eyeglass margins, resulting from the introduction and repositioning of certain eyeglass lens items and additional price-point options placed on the frame boards. Also, the Company recorded a charge of approximately $2.6 million and $1.1 million to adjust inventory of the freestanding locations to its net realizable value in the Current Year and in the Prior Year, respectively.

The current year improvement was partially offset by increases in rent expense (which is a component of gross profit) as a percent of sales for the Wal-Mart division. This was due to approximately 46 vision centers entering the three-year option period of the Wal-Mart lease since the end of the Prior Year. The option period effectively increases each location’s minimum rent requirement. We expect this trend of increased rent to continue as additional Wal-Mart locations enter the option period of their lease. The Company believes that, on the basis of comparable store sales growth it has historically achieved over the five year period prior to 2001, occupancy expense under the Wal-Mart agreement as a percent of sales should not, in the foreseeable future, increase by more than one percentage point over levels recorded in 2001. During 2001, the Company’s effective rent percentage on the Wal-Mart store revenues was approximately 13.5%. The Company cannot give any assurances that it will be able to continue to record comparable sales increases at these historical levels. Any significant shortfall in comparable store sales would have a negative impact on occupancy expense as a percent of sales.

Selling, General, And Administrative Expense (“SG&A expense”). SG&A expense (which includes both store operating expenses and home office overhead) decreased to $139.9 million in the Current Year from $166.4 million for the Prior Year. The dollar decrease was primarily the result of lower payroll, depreciation and other expenses due to the above-mentioned store dispositions and closures. However, SG&A expense increased as a percent of sales from 54.1% in the Prior Year to 54.6% in the Current Year.

•

the amortization of the newly established intangible value of contractual rights of approximately $4.4 million for the seven months ended December 29, 2001;

•

a $6.3 million charge for uncollectible managed care receivables in the Predecessor Company ($2.9 million of which related to ongoing businesses);

•

an increase in freestanding healthcare costs of approximately $1.0 million; and

•

an increase in third party processing costs as a result of increased managed care sales and receipts. Third party processing costs as a percentage of sales are expected to increase as sales under managed care programs increase.

•

a 1.7% decrease in retail and field supervision payroll costs as a percent of sales primarily due to the closure of the freestanding stores that had higher payroll costs as a percent of sales;

•

a charge of approximately $0.5 million in the Prior Year to adjust accounts receivable in the Company’s freestanding stores to net realizable value; and

•

a reduction in total advertising expenditures in the Current Year due to the disposal of the Company’s freestanding locations. Historically the Company’s advertising expenditures for the freestanding locations have been in excess of 10% of sales, well in excess of expenditures as a percentage of sales for the domestic host businesses. Advertising for the Company’s domestic host businesses in 2001 is up slightly from historical levels.

Impairment Loss and Restructuring Expense. In the first quarter of 2000, the Company recorded a non-cash pre-tax charge of approximately $2.7 million, primarily related to the impairment of leasehold improvements and furniture and fixtures of 91 stores which were closed prior to the Company’s Chapter 11 filing. Also, the Company recorded a $1.6 million reserve for anticipated closing costs which was comprised of $1.4 million of lease termination costs and $0.2 million of severance and other closing costs.

Operating Loss. The operating loss for the Current Year was $2.7 million compared to a loss of $6.4 million in the Prior Year. Operating loss as a percentage of sales prior to the restructuring reserve and the impairment loss was 1.1% in the Current Year, compared to a loss of 0.7% in the Prior Year. This improvement was primarily due to the closure of the freestanding locations and the Sam’s Club locations.

Interest Expense. Interest expense increased to $9.5 million compared to $7.7 million in the Prior Year. In the Prior Year, the Company stopped accruing interest on unsecured debt. The Company emerged from bankruptcy on May 31, 2001, and new senior notes in the amount of $120 million, bearing interest of 12%, were issued and the previous notes were cancelled. The new notes were outstanding for seven months in the current period and interest of approximately $8.4 million was accrued. Contractual interest for the Prior Year was $20.7 million.

Reorganization Items. The Company recorded all transactions incurred as a result of the Chapter 11 filing separately as reorganization items. There were no reorganization items recorded after June 2, 2001, as the Company emerged from bankruptcy. The table below summarizes the items incurred by the Predecessor Company (amounts in thousands):


		Five Months			Twelve Months
		Ended			Ended
		June 2, 2001			December 30, 2000

Fresh start adjustments (a)		$	(114,263	)	$	—
Impairment of goodwill			—			100,805
Impairment of fixed assets			33			12,000
Provision for rejected leases			1,592			1,920
Loss on disposal of freestanding division			3,645			—
Other store closing costs			532			670
Retention plan			3,231			2,173
Professional fees			2,008			3,421
Letter of credit reserve on DIP Facility			197			—
Interest income on accumulated cash			(127	)		(144	)
Other reorganization costs			637			694

	Reorganization (gain)/expense	$	(102,515	)	$	121,539

(a)

The adjustments represent the elimination of Predecessor Company equity and the fair value adjustments that were made as part of fresh-start accounting.

Benefit For Income Taxes. The Company recorded pre-tax operating income in the Current Year due primarily to the fresh start adjustments. The Company reflected no tax expense as this income is not taxable. The Company generated operating losses for tax purposes in 2001. No income tax benefit has been recorded as realization is considered unlikely.

Extraordinary Items. In 2001, as part of the Company’s emergence from bankruptcy, the Predecessor Company recognized an extraordinary gain of $17.2 million related to the extinguishment of debt. The gain was calculated as follows:

The 2000 results also include an extraordinary loss of $827,000 associated with the write-off of the capitalized costs of the Company’s previous Foothill credit facility.

Net Income/(loss). The Company posted net income of $107.5 million in the Current Year versus a net loss of $139.9 million in the Prior Year. Of the 2001 net income of $107.5 million, $102.5 million results from a reorganization gain, as noted above.

EBITDA. EBITDA is calculated as net earnings before interest, taxes, depreciation and amortization, extraordinary items, cumulative effect of a change in accounting principle, and reorganization items. EBITDA increased in the Current Year due to the disposal of the freestanding operations in April 2001. (See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Use of Non-GAAP Financial Measures.”)

The following is a reconciliation of net earnings to EBITDA (amounts in thousands):

On April 20, 2001, the Predecessor Company completed the sale of its freestanding retail operations to Vista Acquisition LLC (the “Buyer”). We received consideration of approximately $7.0 million, consisting of $5.7 million in cash and a $1.3 million note receivable. The note receivable was fully reserved at the time of the sale, due to the low probability of collection. The assets sold consisted primarily of furniture, fixtures and inventory at approximately 200 freestanding locations and inventory and equipment at the Fullerton, California laboratory/distribution center. In a related transaction, the Company agreed to sell, subject to regulatory approval, to the Buyer its interest in a managed care subsidiary. The net book value of the assets of the subsidiary ($1.1 million) was fully reserved upon the agreement date as the Buyer took possession of these assets, however, the Company received no consideration from the Buyer for these assets and future receipt was uncertain. For purposes of the unaudited pro forma financial information presented below, these transactions have been combined.

The following information presents the Company’s results of operations for the retail store operations retained by the Company upon emergence from bankruptcy in June 2001. In addition to the exclusion of the freestanding store financial results, the pro forma information also excludes the financial results of other dispositions that occurred during the bankruptcy process, including the Sam’s Club stores and the Meijer Thrifty Acres stores. Accordingly, data for the first and second quarter of 2001 and for all quarters of 2000 is presented on a pro forma basis as if all disposed operations were closed or disposed of as of the beginning of 2000. The pro forma information does not necessarily reflect actual results that would have occurred nor is it necessarily indicative of future results of operations of the Company without the closed or disposed operations. Costs related to the bankruptcy, reorganization and restructuring costs are excluded.


	Pro Forma			Pro Forma									Pro Forma
	First			Second			Third			Fourth			Fiscal
	Quarter			Quarter			Quarter			Quarter			2001

Store count at end of period		502			503			505			514			514
Domestic comparable store sales growth		-0.5	%		0.5	%		0.0	%		-0.5	%		0.0	%

Net sales	$	60,906		$	60,042		$	59,741		$	57,196		$	237,885
Gross profit	$	33,357		$	33,699		$	33,644		$	30,100		$	130,800
Operating income	$	4,428		$	789		$	2,204		$	(48	)	$	7,374
Net earnings/(loss)	$	3,689		$	(731	)	$	(1,469	)	$	(3,655	)	$	(2,165	)

Capital expenditures	$	1,200		$	1,100		$	970		$	1,445		$	4,715
Depreciation and amortization	$	2,817		$	3,443		$	4,979		$	4,910		$	16,149


	Pro Forma			Pro Forma			Pro Forma			Pro Forma			Pro Forma
	First			Second			Third			Fourth			Fiscal
	Quarter			Quarter			Quarter			Quarter			2000

Store count at end of period		490			491			494			499			499
Domestic comparable store sales growth		5.0	%		1.5	%		0.0	%		0.5	%		2.0	%

Net sales	$	59,727		$	59,038		$	58,781		$	56,902		$	234,449
Gross profit	$	33,729		$	32,229		$	31,990		$	29,653		$	127,600
Operating income	$	5,680		$	4,411		$	4,350		$	2,815		$	17,255
Net earnings/(loss)	$	350		$	3,494		$	3,629		$	2,060		$	9,532

Capital expenditures	$	2,100		$	700		$	900		$	800		$	4,500
Depreciation and amortization	$	2,819		$	2,817		$	3,110		$	2,642		$	11,389

A reconciliation of the quarterly results for 2000 and 2001 from reported results to pro forma results is presented in the following tables (amounts in thousands):

(A)		Represents the combination of the Predecessor Company’s financial results for the five months ended June 2, 2001 and the Successor Company’s financial results for the seven months ending December 29, 2001.

(B)		Includes a charge of approximately $2.6 million in the second quarter of 2001 to reflect the net realizable value of certain inventories impacted by the sale of the freestanding operations.

(C)		Includes a charge of $6.3 million for uncollectible accounts receivable incurred by the Predecessor Company, $2.9 million of which related to the host vision centers.

(D)		Represents the results of the freestanding operations, the Sam’s Club operations, and the Meijer Thrifty Acres locations that were either sold or closed during the restructuring of the Company.

(E)		Represents the impairment of fixed assets for the freestanding locations that were scheduled for closure prior to the Company’s Chapter 11 filing.

(F)		Represents the severance and other closing costs incurred related to the closure of certain freestanding locations prior to the Company’s Chapter 11 filing.

(G)		Reorganization items and Extraordinary gains and losses were expenses of the Predecessor Company related to the store closures and the Chapter 11 procedures.

(H)		Cumulative effect of a change in accounting principles represents the Predecessor Company’s adoption of SAB101. (See Note 2 to the Consolidated Financial Statements.)

Historical Pro Forma Annual Results of Ongoing Operations. The following pro forma annual information presents the Company’s results of operations for the retail store operations retained by the Company upon emergence from bankruptcy. Accordingly, such pro forma data is presented as if the freestanding operations, the Sam’s Club operations and other disposed operations were closed or disposed of as of the beginning of the periods presented. Costs related to the bankruptcy, reorganization and restructuring costs, are excluded.

Pro forma net sales and gross profit have increased over the prior year primarily due to 18 new host vision centers opened in 2001 and 21 new vision centers opened during fiscal 2000, which operated for all of fiscal 2001, but only a portion of fiscal 2000.

•

amortization of Intangible Value of Contractual Rights and depreciation of revalued fixed assets, both of which were established during fresh start accounting, totaling approximately $4.4 million and $1.0 million, respectively

•

increases in payroll costs of $0.9 million resulting from new store openings.

•

increases in benefit costs in 2001 of approximately $600,000 due to an increase in rates and increased claims experience

•

increases in third party processing costs resulting from an increase in managed care sales as a percentage of total sales

•

a $2.9 million charge for uncollectible accounts receivable incurred by the Predecessor Company’s host vision centers in 2001 and a charge of $300,000 for inventory.

Pro forma net earnings/(loss) decreased from income of $9.5 million to a loss of $2.2 million in fiscal 2001. In addition to the factors discussed above, the Company incurred additional interest expense of approximately $1.8 million due to the issuance of its new Senior Notes and the Company's emergence from bankruptcy in May 2001.

•

It is the basis for the calculation of the excess cash flow principal repayment under our senior notes; and

•

It is a widely accepted financial indicator of a company’s ability to service or incur indebtedness.

The following tables provide reconciliations of reported net earnings to historical pro forma EBITDA for the years ended December 29, 2001 and December 30, 2000. EBITDA is calculated as net earnings before interest, taxes, depreciation and amortization, extraordinary items, cumulative effect of a change in accounting principle, and reorganization items. (See “Management’s Discussion and Analysis — Use of Non-GAAP Financial Measures.”)

(A)		Represents the combination of the Predecessor Company’s financial results for the five months ended June 2, 2001 and the Successor Company’s financial results for the seven months ending December 29, 2001.

(B)		Represents the results of the freestanding operations, the Sam’s Club operations, and the Meijer Thrifty Acres locations that were either sold or closed during the restructuring of the Company.

(C)		Reorganization items and Extraordinary gains and losses were expenses of the Predecessor Company related to the store closures and the Chapter 11 procedures.

(D)		Cumulative effect of a change in accounting principles represents the Predecessor Company’s adoption of SAB 101. (See Note 2 to the Consolidated Financial Statements.)

Net Sales. The Company recorded net sales of $307.7 million in fiscal 2000, a decrease of 6.5% over sales of $329.1 million in fiscal 1999. Sales decreased due to the following reasons:

•

The Company closed 91 freestanding stores in April 2000. Theses stores had sales of $3.1 million in 2000 versus $13.0 million in 1999, a reduction of $9.9 million.

•

The remaining freestanding stores generated negative comparable store sales of 15.5% resulting in a decrease of $10.6 million in sales.

•

During 2000, the Company closed 117 Sam’s Club locations, 72 of which were terminated prior to the end of their lease term. These closings resulted in a sales decrease of $12.2 million in 2000.

•

Favorable comparable store sales at the Wal-Mart and Military divisions of 2.0% and 6.5%, respectively. This resulted in a $4.7 million sales increase.

•

New store openings at the Wal-Mart and Military divisions resulted in sales increases of $6.9 million over the prior year.

In addition, the Company’s adoption of SAB 101 deferred the recognition of approximately $300,000 of net sales in fiscal 2000. (See Note 2 of Consolidated Financial Statements.)

Gross Profit. In 2000, gross profit decreased to $164.2 million versus $181.3 million in 1999. This decrease was due to the following:

•

A reduction in sales caused by the closure of all of the Company’s Sam’s Club locations, as well as the operation of approximately 97 fewer freestanding locations and the negative comparable store sales registered by the remaining freestanding vision centers acquired by the Company ($11.8 million).

•

A charge of approximately $1.1 million to adjust inventory at the Company’s freestanding stores to net realizable value (See Reorganization Items, Restructuring Expenses and Impairment of Long-lived Assets).

•

A reduction in vendor promotional monies and independent optometrist revenue from the amounts received a year ago.

Gross profit as a percentage of sales decreased from 55.1% in 1999 to 53.4% in 2000. In addition to the reasons described above, the decrease can also be attributed to the following:

•

A loss of efficiency in the Fullerton Lab caused by the decrease in volume as a result of declining sales levels in the Company’s freestanding vision centers as well as lower volume resulting from closed stores.

•

A sales shift from eyeglasses to contact lenses caused by contact lens promotions in the freestanding vision centers. Eyeglasses have a higher margin than do contact lenses. Additionally, contact lens margins decreased due to competitive price pressure.

•

A decline in average sales per store recorded by the freestanding operations caused rent as a percentage of net sales to increase and thereby reduced margin as a percent of net sales.

Selling, General, and Administrative Expense. This category of expense includes both retail operating expense and corporate office administrative costs. SG&A expense decreased from $177.2 million in 1999 to $166.4 million in 2000. The decrease was due primarily to the following:

•

Payroll savings of $6.7 million from the closure of the Sam’s Club locations and approximately 97 freestanding locations.

•

Home office savings of $2.2 million related to the elimination of amortization of goodwill from the Frame-n-Lens, New West and Midwest acquisitions, which was impaired in the third quarter of 2000, and a reduction in payroll, recruiting and relocation expenses.

Operating Income/(Loss). Operating results for 2000, prior to reorganization and restructuring items and impairment of long-lived assets, decreased to an operating loss of $2.1 million versus operating income of $4.1 million in 1999.

Interest Expense. Interest expense decreased from $19.3 million in 1999 to $7.7 million in 2000. Because of the filing of the Chapter 11 Cases, we have stopped accruing for interest on unsecured debt until the Company emerges from Chapter 11 of the Bankruptcy Code, or it becomes probable that the Company will pay these amounts as part of a plan of reorganization. Contractual interest expense for 2000 was $20.7 million. In addition, interest expense excludes $144,000 of interest income which has been reflected as a reorganization item.

Benefit for Income Taxes. We recorded a pre-tax operating loss of $135.7 million in 2000 versus a loss of $17.2 million in 1999. The resulting income tax benefit was approximately $1.7 million. We have established a valuation allowance equal to the amount of the tax benefit.

Extraordinary Loss. Results also include an extraordinary loss of $827,000 and $406,000 in 2000 and 1999 associated with the write-off of the capitalized costs of the Company’s previous credit facilities.

Cumulative Effect of a Change in an Accounting Principle. In December 1999, the SEC issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. SAB 101 summarizes the SEC’s view in applying generally accepted accounting principles to selected revenue recognition issues. Prior to the adoption of SAB 101, the Company recognized revenues and the related costs from retail sales when at least 50% of the payment was received. In response to SAB 101, the Company is required to recognize revenue upon delivery of the product. The cumulative effect of this change in accounting principle was a $3.4 million reduction in net earnings of 2000.

Net Income/(loss). The Company recorded a net loss of $139.9 million in 2000, or a loss of $6.61 per basic and diluted share versus a loss of $17.6 million in 1999 or $0.83 per basic and diluted share.

REORGANIZATION ITEMS, RESTRUCTURING EXPENSES AND IMPAIRMENT OF LONG-LIVED ASSETS.

In the last quarter of 1999 and in fiscal 2000, we recorded charges relating to store closings, the impairment of long-lived assets and the expenses incurred in the Chapter 11 Cases. Generally accepted accounting principles require different presentations depending on whether we incurred the cost before or after the filing of the Chapter 11 Cases.

We have recorded charges for impairment of fixed assets and restructuring expenses in connection with stores closed before the filing of the Chapter 11 Cases. Emerging Issues Task Force Issue 94-3, Liability Recognition for Certain Employee Termination Benefits to Exit an Activity (Including Certain Costs Incurred in a Restructuring), requires that we present these charges as components of operating income.

In connection with stores closed after the filing of the Chapter 11 Cases, we have recorded charges for impairment of fixed assets and for restructuring expenses. All expenses of this nature incurred after the first quarter of 2000 have been presented as reorganization items, below operating income.

The table below summarizes charges for impairment of fixed assets and restructuring expenses incurred in 1999 and 2000 before the Company began the Chapter 11 proceedings (amounts in thousands):

Impairment and restructuring charges incurred after the first quarter of 2000 are considered reorganization items and are presented below operating income.

Results for fiscal 2000 include charges of $121.5 million, which were incurred after the Company filed the Chapter 11 Cases.

Due to continuing negative cash flows, coupled with the possible sale or disposition of certain Company assets, we recorded a non-cash charge of $100.8 million for the impairment of goodwill associated with the acquisition of Frame-n-Lens Optical, Inc., New West Eyeworks, Inc. and Midwest Vision, Inc. in the third quarter of 2000. In addition, we recorded a non-cash charge of $10.6 million to reflect the impairment of fixed assets associated with these acquired entities.

The Company terminated ten leases governing all of the Company’s units located in Meijer Thrifty Acre locations. The Company recorded a non-cash pre-tax charge of $987,000 in 2000 related to the impairment of leasehold improvements and furniture and fixtures in the Meijer locations.

In the second quarter of 2000, the Company reached an agreement with Wal-Mart Stores, Inc. to terminate its 72 leases governing all of the Company’s units located in Sam’s Club locations. Pursuant to this agreement, the Company turned over all such locations to Wal-Mart Stores by September 1, 2000. The Company received no proceeds from Wal-Mart for the early termination, and Wal-Mart waived all claims for rent under the leases for the balance of the original lease term. The Company recorded a non-cash pre-tax charge of $367,000 related to the impairment of leasehold improvements and furniture and fixtures in the Sam’s Club locations.

A summary of the impairment charges recorded in 2000 follows (amounts in thousands):

In addition to the impairment of goodwill and fixed assets, the Company recorded adjustments to inventory of $1.1 million and to accounts receivable of $0.5 million to adjust the carrying value to net realizable value in 2000. These charges were included in cost of goods sold and SG&A expense, as appropriate.

We have agreements governing our operations in host environments, such as Wal-Mart. Typically, each agreement is for a base term, followed by an option to renew for a specified length of time. The agreements provide for payments of minimum and percentage rent, and also contain customary provisions for leased department operations. The table below sets forth key data about each of these agreements:

Our agreement with Wal-Mart gives us the right to open 400 vision centers, the last of which opened in 2001. Our agreement with Wal-Mart also provides that, if Wal-Mart converts its own store to a supercenter (a store which contains a grocery department in addition to the traditional Wal-Mart store offering) and relocates our vision center as part of the conversion, the term of our lease begins again. During 2001, 11 locations were relocated, effectively renewing these leases. We expect between 11 and 14 leases to relocate to supercenters in 2002. We believe that Wal-Mart may in the future convert many of its stores and thereby cause many of our leases to start again. We have received no assurances from Wal-Mart as to how many of their locations will ultimately be converted.

The following table sets forth the number of leases for domestic Wal-Mart and Fred Meyer vision centers that expire each calendar year, assuming the company exercises all available options to extend the terms of the leases. This table includes scheduled superstore conversions which are known as of March 2001. The number of lease expirations indicated could decrease if there is an increase in the number of future supercenter conversions.

Of the six Wal-Mart leases scheduled to expire in 2002, one location was closed in the first quarter of 2002 at the end of the original nine-year lease term. The remaining five leases will expire on December 31, 2002 which falls in the Company’s fiscal year 2003. These five leases represent annualized sales of approximately $3.3 million and annualized store-level cash flow of approximately $1 million. In 2003, 36 leases are scheduled to expire over the course of the year, including five closed on December 31, 2002; eight in the first quarter, five in the second quarter, seven in the third quarter, and eleven in the fourth quarter. These stores represent annualized sales of approximately $16.6 million and annualized store-level cash flow of approximately $2.3 million. Store-level cash flow excludes corporate overhead and other costs not specifically attributable to individual stores. We expect store closing costs to average between $5,000 and $10,000 per vision center.

As of December 29, 2001, we had 91 vision centers that were operating in the three-year extension period of the Wal-Mart lease. We exercised our option to renew the leases for the three year extension period for 46 Wal-Mart vision centers in 2001. The base term for 45 vision centers expires in 2002, and we will need to determine which leases to extend. We expect to renew the leases for the vast majority of these vision centers. These decisions will be based on various factors, including sales levels, anticipated future profitability, increased rental fees in the option period, and market share.

Our agreement with Wal-Mart de Mexico provides that each party will not deal with other parties to operate leased department vision centers in Mexico. (We have agreed to waive this restriction for the next five stores opened by Wal-Mart de Mexico). This agreement also permits each party to terminate the lease for each vision center which fails to meet minimum sales requirements specified in the agreement. Under our agreement with Wal-Mart de Mexico, we have two options for two-year renewals, and one option for an additional one-year renewal, for each vision center.

Our agreement with Fred Meyer obligates us to exercise our renewal option as to all or none of these locations with the exception of five stores, which are covered by a separate agreement. This option must be exercised in 2003.

Although the Company cannot determine the precise effects of inflation, it does not believe inflation has had a material effect on its domestic sales or results of operations. The Company cannot determine whether inflation will have a material long-term effect on its sales or results of operations.

As a result of inflation in prior years, the Company has in the past adjusted its retail pricing. Further pricing adjustments are contingent upon competitive pricing levels in the marketplace. Management is monitoring the continuing impact of these inflationary trends.

Our capital needs have been for operating expenses, capital expenditures and interest expense. Our sources of capital have been cash flow from operations and proceeds from the sale of the freestanding operations. The Company made its first principal payment on the Senior Notes of $1.6 million on February 28, 2002.

The Company emerged from bankruptcy on May 31, 2001. Upon emergence, all of the Company’s pre-petition unsecured liabilities, including the previous senior notes, and all former equity interests were cancelled. Liabilities Subject to Compromise were $169 million and were converted at approximately 85% of face value into a combination of new secured notes and common stock. The notes have a face value of $120 million, provide for payment of interest twice a year at the end of March and September and are subordinated to debt under the Company’s credit facility. The notes are payable over eight years with principal repayments based on excess cash flow. Excess cash flow is defined as EBITDA (as defined) plus or minus working capital changes less the sum of capital expenditures, cash interest payments and cash tax payments, and is subject to a $3 million cash reserve. Any remaining principal balance will be due in 2009. The obligation to prepay principal will have an adverse impact on the ability of the Company to accumulate cash. We can make no assurance as to whether our operations will generate sufficient cash for us to make principal repayments based on excess cash flow. A decrease in sales levels, coupled with the potential impact of the slowing economy on retail sales overall, could have a negative impact on our cash balances and on the amount of any excess cash principal payments due in 2002 and beyond. If this trend of flat sales continues, our ability to make our excess cash flow payments under our indenture will be significantly impaired. In addition, a prolongation of this trend, coupled with the potential loss of vision centers under our Wal-Mart Master Lease, would substantially impair our ability to pay off or refinance the notes.

In May 2001, the Company’s secured revolving credit facility with Foothill Capital expired and was replaced with a secured revolving Credit Facility (the “Exit Facility”) from Fleet Financial Corporation. The Exit Facility has a term of three years, bears interest at the prime rate plus 0.75% per annum or at LIBOR plus 3.0%, and provides availability of an estimated $10 million, subject to borrowing base limitations and letter of credit requirements. We believe that the Exit Facility will provide the Company with adequate liquidity during 2002.

As of March 1, 2002 and subsequent to the Company’s emergence from bankruptcy in May 2001, we have made cash payments related to the Predecessor Company and to the completion of the bankruptcy process. These cash payments approximate $8 million and include:

A majority of these costs were accrued in the Successor Company’s opening balance sheet. Until the claims distribution process is complete, the Company will continue to make cash payments for 1) the settlement of landlord and other disputed cash claims, and 2) professional costs related to the settlement of claims and the distribution of stocks and bonds.

It is the Company’s intent to use excess cash for its ongoing operations, for payment of interest expense and repayment of principal on the Company’s outstanding debt.

As of December 29, 2001, the Company’s remaining unused availability under the Exit Facility, after being reduced for letter of credit requirements, has decreased to approximately $1.7 million, as inventory and receivable levels (borrowing base components) have declined. At December 29, 2001 and at March 1, 2002, the Company had no borrowings under the Exit Facility, and had letters of credit of $3.5 million outstanding. The Company believes that cash generated from operations and funds available under the Exit Facility will be sufficient to satisfy its cash requirements through 2002.

In April 2001, the Company finalized the sale of its freestanding operations and received cash proceeds of $5.7 million related to this transaction. The Company anticipates that cash flow from operations will improve with the disposition of the freestanding operations.

The Company opened five Wal-Mart vision centers in 2001. We have opened 400 Wal-Mart vision centers, as provided for in our Master Lease Agreement. We may open between 5 and 10 additional vision centers in 2002 in other host environments dependent upon liquidity, construction schedules and other constraints. For each of our new vision centers, we typically spend between $100,000 and $140,000 for fixed assets and approximately $25,000 for inventory.

During 2001, we converted 11 Wal-Mart vision centers to supercenters. In 2002, we expect to convert between 11 and 14 of our existing Wal-Mart vision centers to supercenters. Each supercenter conversion requires expenditures of approximately $60,000 to $80,000.

In conjunction with our historical results from operations, emergence from Chapter 11 and the disposition of our freestanding operations, the Company incurred significant net operating losses. These losses are expected to result in significant tax net operating loss carry-forwards.

Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss the consolidated financial statements of National Vision, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, management evaluates its estimates and judgments and incorporates any changes in such estimates and judgments into the accounting records underlying the Company’s consolidated financial statements. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 2 in the Notes to the Consolidated Financial Statements beginning on page F-1.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB 101”). SAB 101 summarizes the SEC’s view in applying generally accepted accounting principles to selected revenue recognition issues. Prior to the adoption of SAB 101, the Company recognized revenues and the related costs from retail sales when at least 50% of the payment was received. In response to SAB 101, the Company is required to recognize revenue upon delivery of the product. The amount of cash received at the time the customer’s order is placed is recorded as a deposit liability and is presented within accrued liabilities. The effect of this change in accounting principle was applied cumulatively as of the beginning of 2000 and totaled $3.4 million.

Management must make estimates of potential returns and replacements of all or part of the eyewear sold to a customer. We analyze historical remake and warranty activity, consider current economic trends and changes in customer demand and acceptance of our products when evaluating the adequacy of our estimate of these costs. Differences may result in the amount and timing of revenue and related costs for any period if management made different judgements or utilized different estimates.

The Company recognizes cost of product sold to retail customers when the sales transaction is complete and revenue is recognized. Periodically, the Company receives purchase discounts or reduced pricing on inventory purchases; these reductions in the normal purchase price are accounted for in the weighted average cost of inventory.

Managed care accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. Substantially all of the Company’s receivables are due from health care plans or third-party administrators located throughout the United States. Approximately 12% of the Company net sales from ongoing businesses relate to products sold to customers that ultimately will be funded in full or in part through private insurance plans, third party insurance administration programs or government reimbursement programs such as Medicare and Medicaid. Failure by the Company to accurately file for reimbursement on a timely basis with these programs can have an adverse effect on the Company’s collection results which, in turn, will have an adverse effect on liquidity and profitability.

Estimates of our allowance for uncollectible receivables are based on our historical collection experience, historical and current operating, billing and collection trends and a percentage of our receivables by aging category. Changes in our billing and collection processes, changes in funding policies by insurance plans and changes in our sales mix within insurance plans may have a material effect on the amount and timing of our estimated expense requirements.

The Company’s inventories are stated at the lower of weighted average cost or market.

In most cases, the expected sales value (i.e., market value) of the Company’s inventory is higher than its cost. However, as the Company progresses through a selling season, certain slow-moving merchandise may be removed from stores and returned to the Company’s distribution center to be sold below cost in secondary markets. As a result, there is a high degree of judgment and complexity in determining the market value of such inventories. For inventory on hand, the Company estimates the future selling price of its merchandise, given its current selling price and its planned promotional activities, and provides a reserve for the difference between cost and the expected selling price for all items expected to be sold below cost.

The Company conducts physical inventory counts for a selection of store locations on a periodic basis through the course of the fiscal year and adjusts the Company’s records to reflect the actual inventory counts. Inventory in the Company’s distribution center is counted near the end of the fiscal year. As all locations are not counted as of the Company’s reporting dates, the Company provides a reserve for inventory shrinkage based principally on historical inventory shrinkage experience.

In accounting for the effects of the reorganization, the Company adopted “fresh start” accounting principles as contained in the American Institute of Certified Public Accountants’ Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code “ (“SOP 90-7”). SOP 90-7 was applicable because pre-reorganization shareholders received none of the Company’s new common stock and the reorganization value of the assets of the Successor company was less than the total pre-petition liabilities allowed plus post-petition liabilities. SOP 90-7 also requires that any changes in accounting principles required within twelve months of fresh start accounting, must be adopted at the time of implementation of fresh start accounting.

Fresh start accounting principles require that we determine the reorganization value of the reorganized Company. The Company’s reorganization value was developed by the Company, the Official Committee of Unsecured Creditors and their respective financial advisors. The reorganization value was based on a calculation of the present value of the free cash flows under the Company’s financial projections, including an assumption of a terminal value. Such projections were submitted to the bankruptcy court and to creditors for review and objection as part of the Company’s disclosure statement accompanying the Plan.

Our most significant intangible asset is the Intangible Value of Contractual Rights, which was established as part of the Company’s adoption of fresh start accounting in May 2001. This intangible asset, which has a value of $109.2 million at December 29, 2001, represents the value of the Company’s lease agreement with Wal-Mart and the business relationship therein created. In accordance with SFAS No. 142, this intangible is an amortizable asset because it has a finite useful life. However, the precise length of its life is not known due primarily to the Wal-Mart superstore conversions that automatically trigger extensions on the contractual life of the asset. Based on our projections, our best estimate of the useful life of this asset is 15 years. Due to the uncertainty involved in predicting the pattern of economic benefits realized from the Wal-Mart relationship, we amortize this asset using the straight-line method.

We assess the impairment of all identifiable intangibles and long-lived assets on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important, which could trigger an impairment review, include (1) a significant underperformance of vision center operations relative to expected historical or projected future operating results; (2) significant changes in the manner of our use of Company assets or the strategy for our overall retail optical business; (3) significant negative industry or economic trends; (4) a significant decline or adverse change in the rate or geographic concentration of Wal-Mart host store relocations or superstore conversions; and (5) a permanent adverse change in cash flows generated by an operation.

If we determine that the carrying value of intangibles or long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure any impairment based on a projected cash flow model. If the projected cash flows are not in excess of the book value of the related asset, we measure the impairment based on a projected discounted cash flow method. Significant management judgment is required regarding the existence of impairment indicators as discussed above. Future events could cause us to conclude that impairment indicators exist and that long-lived assets or intangible assets are impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations. Based on our review of our intangible and other long-lived assets as of December 29, 2001, no impairment was determined to exist.

At a meeting held on October 25, 2001, the Compensation Committee of the Board of Directors awarded stock options and performance shares to approximately 530 employees and outside directors. Stock options covering 348,750 shares were awarded, at a strike price of $0.40 per share, the price at which common stock of the Company closed on October 25, 2001. The options vest on the seventh anniversary of the grant date; however, vesting may be accelerated in the event the Company attains defined performance goals set by the Board of Directors. Because the number of shares and the per share strike price are not subject to uncertainty, the option plan qualifies for fixed accounting treatment. As a result, the Company does not record compensation expense in connection with the granting of the stock options. If accounting standards change, and the stock options were to receive variable accounting treatment, the Company would periodically record compensation expense over the vesting period of the stock options equal to the spread between the strike price and the trading price of the common stock. Note 2 to the financial statements sets forth information regarding the Pro Forma impact of stock options on net income and basic and diluted earnings per share.

As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as equipment depreciation, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the statement of operations.

The Company emerged from Chapter 11 Bankruptcy on May 31, 2001. As part of the emergence Plan, the Company’s capital structure was highly leveraged with $120 million of senior notes with interest payable at 12% per annum. Before, during and after the bankruptcy process, the Company incurred significant net operating losses (“NOL”) that result in tax loss carry-forwards. A portion of these carry-forwards are subject to limitations under section 382 of the Internal Revenue Code.

Generally accepted accounting principles require that we record a valuation allowance against the deferred tax asset associated with this NOL if it is “more likely than not” that we will not be able to utilize it to offset future taxes. Due to the size of the NOL carry-forward in relation to our history of unprofitable operations and the continuing uncertainties surrounding the profitability of our ongoing retail businesses taking into consideration the highly leveraged capital structure within which we operate as discussed above, we have not recognized any of this net deferred tax asset. We currently provide for income taxes only to the extent that we expect to pay cash taxes for current income.

It is possible, however, that we could be profitable in the future at levels which cause management to conclude that it is more likely than not that we will realize all or a portion of the NOL carry forward. Upon reaching such a conclusion, we would immediately record the estimated net realizable value at a rate equal to our combined federal and state effective rates. Subsequent revisions to the estimated net realizable value of the deferred tax asset could cause our provision for income taxes to vary significantly from period to period, although our cash tax payments would remain unaffected until the benefit of the NOL is utilized.

We self-insure estimated costs associated with workers’ compensation claims and group medical liabilities, up to certain limits. Insurance reserves are established based on actuarial estimates of the loss that we will ultimately incur on reported claims, as well as estimates of claims that have been incurred but not yet reported. Trends in actual experience are a significant factor in the determination of such reserves. We believe our estimated reserves for such claims are adequate, however actual experience in claim frequency and/or severity could materially differ from our estimates and affect our results of operations.

The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgment in selecting any available alternative. See our audited consolidated financial statements and notes thereto which begin on page F-1 of this Annual Report on Form 10-K which contain accounting policies and other disclosures required by generally accepted accounting principles.

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets separate from goodwill. SFAS No. 142 requires the use of a non-amortization approach to account for purchased goodwill and certain intangibles. In accordance with SOP 90-7, we adopted SFAS No. 141 and SFAS No. 142 at the fresh start implementation date. The adoption of these pronouncements did not have a material impact on our financial statements.

The FASB also recently issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Statement No. 144 supersedes Statement No. 121 to supply a single accounting approach for measuring impairment of long-lived assets, including segment of a business accounted for as a discontinued operation or those to be sold or disposed of other than by sale. We adopted Statement No. 144 in 2001 upon fresh start accounting. Adoption of this pronouncement did not have a material impact on our financial statements.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”. SAB 101 summarizes the SEC’s view in applying generally accepted accounting principles to selected revenue recognition issues. SAB 101 specified that final delivery of product is required prior to recognizing revenue. Prior to the adoption of SAB 101, the Company recognized revenues and the related costs from retail sales when at least 50% of the payment was received. We applied the guidance in SAB 101 to our financial statements in 2000. The initial impact was reflected as a cumulative effect adjustment to our consolidated financial statements resulting from a change in accounting principles.

This Form 10-K/A contains a number of statements about the future. It also contains statements which involve assumptions about the future. All these statements are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements represent our expectations or belief concerning future events, including the following: any statements regarding future sales levels, the continuation of historical trends, and the Company’s liquidity. Without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements.

We do not know whether the forward-looking statements made in this Form 10-K/A will prove to be correct. We have tried to identify factors which may cause these statements to be incorrect, but we may not have identified all of them. These factors could also have a negative impact on our results. The following is our non-exclusive list of these factors:

Our recent emergence from bankruptcy may adversely affect our relationships with our vendors and customers.

On May 31, 2001, we emerged from bankruptcy. Our various relationships with our vendors and our customers may be adversely affected by our past reliance on the protections afforded by Chapter 11. In addition, we continue to go through the process of resolving some claims by potential unsecured creditors pursuant to our rights under the bankruptcy plan. The process may divert the time and resources of our management that could otherwise be used in running our business.

Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under our notes.

As a result of the issuance of our notes, we are highly leveraged. The notes are subordinated to our credit facility. Assuming the issuance of all of our notes and after giving effect to the establishment of our credit facility, we had:

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total availability, as of March 1, 2002, of $1.8 million under our credit facility, after letter of credit requirements.

Our ability to pay or refinance our indebtedness, including our ability to repay the notes, or to fund capital expenditures will depend on our future performance. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

Based upon our current level of operations, we believe that our cash flow from operations, available cash, and available borrowings under our credit facility, will be adequate to meet our future liquidity needs for at least the next two years. A decrease in revenues, coupled with the borrowing base limitation contained in our credit facility, could require us to postpone capital expenditures. We cannot assure you that our business will generate sufficient cash flow from operations, that revenue growth will be realized or that future borrowings will be available under our credit facility in an amount sufficient to enable us to pay our indebtedness, including the notes, or to fund our other liquidity needs.

Our substantial indebtedness could have important consequences to you. For example, it could:

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increase our vulnerability to general adverse economic and industry conditions,

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limit our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements,

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require us to dedicate a substantial portion of our cash flow from operations to the payment of our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures or other general corporate purposes,

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limit our flexibility in planning for, or reacting to, changes in our business and our industry,

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place us at a competitive disadvantage compared to competitors that have less debt, and

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limit, along with the financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds. Our failure to comply with the covenants in the indenture under which our notes were issued or our credit facility would result in an event of default which, if not cured or waived, could have a material adverse effect on us.

A substantial number of our vision centers are located in Wal-Mart stores. Our ability to continue to generate revenue depends on our continued relationship with Wal-Mart.

In connection with our emergence from Chapter 11 reorganization, we have sold all of our free standing vision centers. We are substantially dependent on Wal-Mart and its affiliates for our current operations. The following chart shows, as of December 29, 2001, the number of our vision centers that are in Wal-Mart stores and the total number of our vision centers:

In addition, vision centers located in Wal-Mart stores accounted for substantially all of the earnings before interest, taxes, depreciation and amortization of the vision centers that we continue to own after the sale of our free standing vision centers for the fiscal year ended December 29, 2001. Vision centers in Wal-Mart stores rely largely on customer traffic generated by the Wal-Mart host store. Our agreement with Wal-Mart does not require Wal-Mart to maintain any existing Wal-Mart store or to open new ones.

Our agreement with Wal-Mart gives us the right to open at least 400 vision centers, including those already open. We have reached that number. Wal-Mart is under no obligation to provide us with additional vision center leases. However, our agreement with Wal-Mart also provides that, if Wal-Mart converts its own store to a “supercenter,” which is a store that contains a grocery department in addition to the traditional Wal-Mart store offering, and relocates our vision center as part of the conversion, the term of our lease begins again. We believe that Wal-Mart may in the future convert many of its stores and thereby cause many of our leases to start again. There were 11 conversions of Wal-Mart stores in which we run vision centers into “supercenters” in the year 2001, and 32 of these conversions prior to 2001. We have received no assurances from Wal-Mart as to how many of their locations will ultimately be converted.

Our agreement with Wal-Mart provides for a nine-year base term at each vision center that begins at opening and gives us a three-year extension option. Wal-Mart is under no obligation to provide us with any further extensions. Forty-six vision centers have base terms that expired in 2001 under our Wal-Mart agreement, all of which have been extended, and another forty-five have base terms that expire in 2002, which we have the option to extend. More base terms will expire in subsequent years. As each base term expires, we determine whether to exercise our three-year extension options for our Wal-Mart vision centers. We make those decisions based upon various factors, including, for example:

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the increased minimum license fees charged by Wal-Mart during the option period.

We must exercise our extension option for any Wal-Mart vision center at least six months before its initial license expires. We expect to extend the licenses for a substantial majority of these vision centers. We cannot assure you, however, how many licenses we will actually extend.

In each of the next several years, increasing numbers of vision centers under our Wal-Mart agreement will have their base terms expire. Our rental obligations to Wal-Mart will increase in the three-year option period. We will need to continue to improve sales at these vision centers. If we do not, our rent as a percent of sales will increase significantly during the option period. Alternatively, we may choose not to exercise the extension options.

We cannot control our expansion in our host stores, including Wal-Mart, beyond those currently under contract. Although we periodically discuss expansion opportunities with each host, we cannot assure you that any host will offer to extend our current agreements or offer us additional vision centers. Nor can we assure you that any renewal or new store offer will be on terms similar to those in our current agreements. Wal-Mart operates its own optical division. Wal-Mart may, in the future, allocate its future vision centers entirely to its own optical division.

Our lack of growth could make it difficult for us to make payments on our notes, and could adversely affect the price of our common stock.

Average revenues in our Wal-Mart vision centers are approximately $540,000 per center per year. Average revenues in the other vision centers that we continue to own after the sale of our free standing vision centers are less than $300,000 per center per year. The expiration of our leases with Wal-Mart will cause a reduction in our revenues, which we may not be able to replace with revenues generated by other vision centers.

Our sales revenues could decrease in the future as Wal-Mart leases expire. It is unlikely that we will be able to open enough new vision centers under our Fred Meyer and military contracts to compensate for the loss of the revenues generated by Wal-Mart vision centers for which our leases expire. We expect that our expenses, however, will increase over time. A combination of lower sales and higher expenses would adversely affect our ability to repay or refinance our notes, which could have an adverse effect on the price of our common stock. A continuation of the 2001 flat sales levels would also have an adverse impact.

In conjunction with our historical results from operations, emergence from Chapter 11 and the disposition of our free standing operations, we incurred significant net operating losses. These losses are expected to result in significant net operating loss carry-forwards, the amount of which has not yet been finally determined. Our ability to utilize our net operating losses that were realized prior to our emergence from Chapter 11 is limited under Section 382 of the Internal Revenue Code of 1986. If our net operating losses realized after our emergence from Chapter 11 are subject to substantial limitation because of a future change of control of the company or for other reasons, our cash tax costs would increase and have an adverse effect on our ability to repay the notes. If, after such a change of control, we determined that we would be unable to utilize this tax asset, we could then be forced to write down the asset and record a charge against our financial results.

Your right to receive payments on our notes will be junior to our borrowings under our credit facility, which could adversely affect our ability to pay off the notes.

Our indebtedness under our credit facility is secured by liens against substantially all of our assets. In the event of a default on our secured indebtedness, or a bankruptcy, liquidation or reorganization of the company and our subsidiaries, these assets will be available to satisfy obligations with respect to the secured indebtedness before they can be used to satisfy our obligations under our notes. Therefore, there may be insufficient assets remaining for us to pay off the notes in full.

The terms of our credit facility and the indenture under which our notes were issued restrict our corporate activities.

Our credit facility contains various restrictive covenants and requires us to maintain specified financial ratios and satisfy financial tests, such as:

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minimum requirements of earnings before interest, taxes, depreciation and amortization in our credit facility of (1) $6 million for the fiscal quarter ending September 29, 2001, (2) $11 million for the two fiscal quarters ending December 29, 2001, (3) $17 million for the three fiscal quarters ending March 30, 2002, and (4) $19.6 million for the four fiscal quarters ending June 29, 2002 and for each four quarter period ending on the last day of each fiscal quarter for the remainder of the term of our credit facility, and

Our ability to meet these financial ratios and tests may be affected by events beyond our control, and we cannot assure you we will meet these tests. In addition, our credit facility and our indenture limit our ability to take action with respect to:

Our breach of any of these covenants could result in an event of default under our credit facility. If a default occurs, our lender can declare our indebtedness, both principal and interest, immediately due and payable, and could terminate its commitment to make future advances. In addition, a default under the indenture could cause the principal and accrued interest on the notes to become due and payable. The restrictions in the indenture and the credit facility will likely restrict our ability to obtain additional financing for working capital, capital expenditures or general corporate purposes. Our indebtedness requires substantial debt service payments and, with respect to the indenture, mandatory redemptions of principal, which may restrict our ability to use our operating cash flow for capital expenditures and other working capital requirements. We have pledged substantially all of our assets under our credit facility and under the indenture. If we fail to repay all amounts declared due and payable, our lender and then the holders of our notes could proceed against the collateral granted to it to satisfy our obligations. It is likely that our assets would be insufficient to repay in full that indebtedness and our other indebtedness, including the notes.

We are required by our indenture to make mandatory redemptions of principal owing on our notes if we generate excess cash flow, which may have an adverse impact on our common stock.

The indenture requires mandatory redemptions of principal out of the excess cash flow that we may generate biannually. There can be no assurances that we will generate enough excess cash flow to make any mandatory redemptions. Prepayments of principal on the notes, if any, will prevent us from having excess cash to reinvest in our business, and could adversely affect the price of our common stock.

Further issuances of our common stock and our notes could adversely affect their trading prices.

We issued a total of 5,000,000 shares of our common stock and $120,000,000 aggregate principal amount of our notes to creditors pursuant to the Plan. As of the March 1, 2002, less than all of the shares of common stock and the notes have been distributed to creditors who can trade them on The American Stock Exchange. Some of the shares of common stock and notes have been held in reserve for distribution to creditors upon the resolution of claims that we have disputed in the bankruptcy court. Although no issuances of securities other than pursuant to the Plan are currently contemplated (except grants of stock options or other stock awards pursuant to employee benefit plans that are in place) further issuances of our common stock and notes in the future could take place. These issuances could cause adverse changes in the trading prices of the common stock and the notes.

Former holders of our old Senior Notes due 2005 held a large majority of our unsecured debt in bankruptcy, and thus are the initial holders of a majority of our common stock. If holders of significant numbers of shares of our common stock act as a group, these holders could be in a position to control the outcome of corporate actions requiring shareholder approval, including the election of directors.

Holders of our common stock and our notes may elect to sell large blocks of common stock or notes, which may have an adverse effect on the price of our common stock and our notes.

Our former unsecured creditors received our common stock and our notes in exchange for their claims against us. Some or all of the holders of our common stock and notes may prefer to liquidate their investment rather than hold the securities on a long-term basis. The possibility that one or more of the holders of significant numbers of shares of our common stock or a large principal amount of our notes may determine to sell all or a large portion of their shares of our common stock or their notes in a short period of time may adversely affect the market price of the common stock or notes. Partially for that reason, there can be no assurance as to the degree of price volatility in any trading market that may develop for the common stock and the notes. As a result, no assurance can be given that any holder of our common stock or our notes will be able to sell them or at what price any sale may occur. No assurance can be given

as to the market price, if any, that will prevail for our common stock in the future. If a market were to exist for our notes, they may trade at prices higher or lower than their face value, depending upon many factors, including, without limitation, the prevailing interest rates, markets for similar securities, industry conditions and the performance of, and investor expectations for us.

Our common stock and our notes have all been issued but not distributed. Further distributions will be made pursuant to the bankruptcy plan as disputed claims are resolved. Distributions of our common stock and our notes to people that decide to sell them immediately could cause sudden adverse changes in the trading prices of our common stock and our notes.

The public market for our securities has existed for a limited period of time.

Our common stock was previously listed on the NASDAQ Small Cap Market under the ticker symbol “VSTA.” It was delisted on May 9, 2000 because its price dropped below $1.00 for a period of 30 days. Pursuant to the bankruptcy plan, the old shares of our stock were deemed cancelled, terminated, and of no further force and effect as of May 31, 2001. 5,000,000 shares of our common stock were issued in accordance with the terms of the Plan. The public market for our common stock was initiated by listing on the AMEX on August 27, 2001, and the public market for our notes was initiated by listing on the AMEX on August 27, 2001. The price of our common stock has declined very significantly since its original listing date. There can be no assurance that an active trading market for our common stock or our notes will develop or be sustained or that the market price of our common stock or our notes will not further decline.

Our common stock may be delisted from The American Stock Exchange, referred to as the AMEX, if it does not maintain certain listing standards.

Our recent operating history, including our filing of and emergence from Chapter 11, has caused the price of our securities to be depressed. In addition, the general market for securities has been severely depressed in recent quarters. The price of our common stock has declined very significantly since its original listing date. The rules of the AMEX allow the exchange to delist securities if the AMEX determines that a company’s securities fail to meet guidelines with respect to corporate net worth, public float, number of shareholders, the aggregate market value of shares, or price per share. In light of our recent operating history specifically, and the market conditions for stocks in general, we cannot assure purchasers of our common stock or notes that we will continue to meet the requirements of the AMEX. If we are unable to continue to satisfy these criteria, the AMEX may begin procedures to remove our common stock or notes from the exchange. If our common stock or notes are delisted, a trading market may no longer exist, and the ability of shareholders to buy and sell common stock or notes may be materially impaired.

We have not declared dividends in the past, and do not anticipate doing so in the near future, which may adversely affect the price of our common stock.

Our credit facility and our indenture prohibit the payment of cash dividends without the consent of the lender and the holders of the notes, respectively. We have never declared or paid any dividend on our capital stock. We currently anticipate that all of our earnings, if any, will be retained for payment of the principal amount of the notes, and then for development of our business, and do not anticipate paying any cash dividends in the foreseeable future.

We have historically borrowed long-term debt under our credit facility at variable interest rates. We therefore incur the risk of increased interest costs if interest rates rise.

The retail eyecare industry is extremely competitive. Failure to attract customers will depress our earning and may adversely affect our ability to repay the notes and the price of our common stock.

We also compete for managed care business. Our competition for this business is principally the larger national and regional optical firms. Competition for this business is driven by size of provider network, quality and consistency of service, and by pricing of vision care services. Successful renewals of certain existing third-party contracts are integral to maintaining sales revenues.

Several of our competitors have significantly greater financial resources than we do. As a result, they may be able to engage in extensive and prolonged price promotions which may adversely affect our business. They may also be able spend more than we do for advertising. If we are not able to maintain our market share of the retail optical industry, our business will suffer. A decline in our earnings could adversely affect the price of our common stock and the notes, and our ability to repay the notes.

Federal and state governments extensively regulate the health care and insurance industries. A finding that we have violated existing regulations, or future adverse changes in those regulations, could negatively affect our business and its prospects, our ability to repay the notes, and the price of our common stock and our notes.

Both federal and state governments extensively regulate the delivery of health care, including relationships among health care providers such as optometrists and eyewear providers like us. Many states prohibit business corporations from practicing medicine or controlling the medical judgments or decisions of physicians. States often also prohibit various financial arrangements, such as splitting fees with physicians. The legality of our relationships with opticians and independent optometrists has been and may continue to be challenged from time to time. Regulations vary from state to state and are enforced by both courts and regulatory authorities, each with broad discretion. A ruling that we have violated these laws could, for example, result in:

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invalidation or modification of our agreements with optometrists and opticians, or

These consequences could have an adverse effect on our business, which could impact the price of our common stock and notes and impact our ability to repay the notes. Also, changes in our relationships with independent optometrists and opticians could adversely affect our relationship with Wal-Mart or our other host stores. Local ordinances (such as zoning requirements) can also impose significant burdens and costs of compliance. Frequently, our competitors sit on state and local boards. Our risks and costs of compliance are often increased as a result. All of these matters could cause our business to suffer, our ability to repay the notes to be adversely affected, and the trading price of our common stock and notes to decline.

In California, optometrists who practice adjacent to our retail locations are providers to and subtenants of a subsidiary, which is licensed as a single-source HMO. This subsidiary is regulated by the Department of Managed Health Care. This agency has recently required that we change our way of doing business. This new way of doing business will increase our costs in California. There is no assurance that the Department will find our new way of business satisfactory. Our costs of compliance could continue to increase as a result. Depending on its views, this Department could also seek to revoke our HMO license. Such a revocation would have a material adverse impact on our business. On a general basis, the regulatory environment in California has become more difficult, and future actions of regulatory agencies or private parties could worsen this trend. Such actions could force us to change the way we do business, to incur significant expense in litigation and compliance efforts, and could have a material adverse impact on us.

The fraud and abuse provisions of the Social Security Act and anti-kickback laws and regulations adopted in many states prohibit soliciting, paying, receiving or offering any compensation for making, or causing someone to make, referrals of patients, items or services in some circumstances. The Social Security Act also imposes significant penalties for false or improper Medicare and Medicaid billings. Many states have adopted similar laws applicable to any payor of health care services. We must also comply with federal laws such as the Health Insurance Portability Act of 1996 (which governs our participation in managed care programs) and the Food and Drug Administration Act (which regulates medical devices such as contact lenses). In addition, the Stark Self-Referral Law restricts referrals for Medicare or Medicaid covered services where the referring physician has a financial relationship with the service provider. In some cases, the rental of space constitutes a financial relationship under this law. Many states have adopted similar self-referral laws which are not limited to Medicare or Medicaid reimbursed services. Violations of these laws may result in substantial civil or criminal penalties, including double and treble civil monetary penalties, and in the case of federal laws, exclusion from the Medicare and Medicaid programs. These kinds of exclusions and penalties, if applied to us, could have a material adverse effect on our business, which could adversely affect the price of our common stock and our notes, and our ability to repay the notes.

We do not have employment agreements with key management. The departure of key executives could adversely affect our business.

We depend on the continuing efforts of our executive officers and senior management. The departure of these individuals in significant numbers could adversely affect our business and prospects if we are unable to attract and retain qualified replacements. We do not currently have employment agreements with any personnel, including key executive officers and management. However, we offer our executives and management bonus and stock-based incentives related to our performance.

Failure to have independent vision care professionals available in or near our vision centers would adversely affect our ability to win managed care and host store contracts, and could prevent us from operating in some states.

Our business and marketing strategies emphasize the availability of independent optometrists in close proximity to our vision centers. Typically, we contract with at least one licensed optometrist to occupy a space in or adjacent to each of our stores. Additionally, our agreement with Wal-Mart contemplates that we will make optometrists available at least 48 hours per week if permitted by law. Some states require that licensed opticians be present when eyeglasses or contact lenses are fitted or dispensed. In some markets it may be

difficult for us to attract and retain optometrists if our vision centers generate low sales. Any difficulties or delays in securing the services of vision care professionals could adversely affect our business and our relationship with our host stores. Consequences of difficulty or delay could include termination of our host store licenses for those vision centers, and imposition of legal sanctions against us, including closure of vision centers without licensed professionals.

Our retail business may suffer if we fail to keep sufficient licensed optometrists available in our vision centers, which may adversely affect our ability to repay our notes and the price of our common stock and notes.

Historically, if there is no licensed optometrist available to give eye exams, our retail business has suffered. In some markets, it can be difficult to hire or keep vision care professionals on staff in our vision centers. Failure to maintain a staff of qualified vision care professionals may cause our customers to go elsewhere to provide for their optical needs, which would have an adverse effect on our business.

Our success increasingly depends on our ability to develop and maintain relationships with managed vision care companies.

An increasing percentage of patients receive health care coverage through managed care payors. As this trend continues, our success will increasingly depend on our ability to negotiate contracts with health maintenance organizations referred to as HMOs, employer groups and other private third party payors. We cannot assure you that we will be able to establish or maintain satisfactory relationships with managed care and other third party payors. Many managed care payors have existing provider structures in place that they may be unable or unwilling to change. Our inability to enter into arrangements with managed care payors in the future could have a material adverse effect on our business.

We have established a network of optometrists and other providers located in or adjacent to our stores in order to enhance our ability to contract with managed care payors for both professional services and retail eyewear supplies. Currently, approximately 11% of our revenues are received from managed care payors. We expect this percentage to increase in the future. Managed care contracts include a variety of reimbursement methods, such as capitation and fee for service or discounts. Our contracts with managed care companies on the one hand, and with networks of optometrists and other providers on the other, are subject to federal and state regulations, for example:

Insurance Licensure. Most states impose strict licensure requirements on companies that engage in the business of insurance, including health insurance companies and HMOs. Many licensing laws mandate strict financial and other requirements which we may not be able to meet, were we deemed to be engaging in the business of insurance. Additionally, the licensure process can be lengthy and time consuming.

Any Willing Provider Laws. Some states require managed care payors to include any provider who is willing to abide by the terms of the payor’s contracts. Some states also prohibit termination of providers without cause. Other states are considering similar requirements. These kinds of laws limit our ability to develop effective managed care provider networks.

Antitrust Laws. A range of antitrust laws apply to us and our provider network. These laws prohibit anti-competitive conduct, including price-fixing, concerted refusals to deal, and divisions of markets. We cannot assure you that our operations will not be challenged on antitrust grounds in the future.

Proposed reforms may affect our earnings and may adversely affect our business.

There have been numerous reform initiatives at the federal and state levels relating to the payment for and availability of healthcare services. We believe that these initiatives will continue for the foreseeable future. If adopted, some of these reforms could adversely affect our earnings, and may adversely affect our business.

A significant portion of medical care in the United States is funded by government and private insurance programs, such as Medicare, Medicaid and corporate health insurance plans. According to government projections, more medical beneficiaries who are significant consumers of eye care services will enroll in managed care organizations. Governmental and private third party payors are trying to contain medical costs by:

These cost containment efforts may lead to limitations or reductions in reimbursement for eye care services, which would adversely affect our future sales. Additionally, some reimbursement programs require us to collect payment from third party payors. Our inability to fully collect reimbursable amounts could adversely affect cash flow generated from operations.

We depend on reliable and timely reimbursement of claims we submit to third party payors. There are risks we may not be paid on a timely basis, or that we will be paid at all. Some plans have complex forms to complete. Sometimes our staff may incorrectly complete forms, delaying our reimbursement. These delays can hurt our cash flow and also force us to write-off more of these accounts receivable.

New advances may reduce the need for our products or allow other manufacturers to produce eyewear at lower cost than we can.

Technological advances in the eyecare industry, such as new surgical procedures or medical devices, could reduce the demand for our products. Corneal refractive surgery procedures such as laser surgery, radial-keratotomy and photo-refractive keratectomy may change the demand for our products. The development of new drugs may have a similar effect. Technological advances such as wafer technology and lens casting may make our current lens manufacturing method uncompetitive or obsolete. The number of individuals electing Lasik and similar surgical procedures has dramatically increased each year, which could significantly decrease demand for our goods and services. These and other medical and technological advances may have a material adverse effect on our operations.

We have begun to roll out a new point of sale system, which may cause us to lose sales.

We have begun to roll out a new point of sale system. Although we have not experienced any problems to date, there are risks that the new system will not function as planned. In addition, we could lose sales because employees are unfamiliar with the system or because they have difficulty using it.

We believe that a weakening economy may cause an increase in the period of time between repurchases of our retail products by the average consumer, since customers may see replacement purchases of eyeglasses and contact lenses as non-essential. An extension of the repurchase cycle for our retail products would reduce the number of sales of our retail products. Lower sales of our retail products would reduce our revenues, which could adversely affect both our ability to pay off the notes and the price of our common stock and notes.

Operating in other countries presents special risks that may affect our results of operations.

Our Mexican operations face risks substantially similar to those we face in our Wal-Mart stores, including dependence on the host store and limits on expansion. We cannot assure you that our Mexican operations will be able to attain profitability.

Our foreign operations expose us to all of the risks of investing and operating in foreign countries generally, including:

Our Articles of Incorporation, By-Laws and shareholder rights agreement contain provisions that make it more difficult to effect a change in control of the company, which may adversely affect the price of our common stock.

Provisions of our Articles of Incorporation and By-Laws could discourage tender offers or other transactions that would result in shareholders receiving a premium over the market price for our common stock. These include provisions:

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permitting our board of directors to consider constituencies in addition to the shareholders, and

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requiring shareholders to comply with various procedures in connection with any shareholder proposals or director nominations.

Our shareholder rights agreement provides us with a defensive mechanism that decreases the risk that a hostile acquirer will attempt to take control of us without negotiating directly with our board of directors. It is meant to prevent an acquirer from gaining control of us by paying an inadequate price or by using coercive techniques. The shareholder rights agreement may discourage acquirers from attempting to purchase us, which may adversely affect the price of our common stock.

We may not have the ability to raise the funds necessary to finance the change of control repurchase contemplated by our indenture.

Upon some changes of control of the company, holders of our notes have the right to require us to repurchase all or a portion of the notes. If a change of control occurs, we cannot assure you that we will have sufficient funds to repurchase all of the notes tendered. Our failure to repurchase tendered notes would be an event of default under our indenture. Changes of control are also restricted by, and constitute a default under, our credit facility. If the lender under our credit facility were to accelerate our obligations due to a default, it would have a priority claim to the proceeds from the sale of our assets that secure the credit facility.

Our adoption of “Fresh Start” accounting may make evaluating our financial position and results of operations, as compared to prior periods, more difficult.

Due to our emergence from bankruptcy pursuant to the Plan, we implemented “fresh start” accounting as of June 2, 2001. In accordance with fresh start accounting, all assets and liabilities were restated to reflect their respective fair values. As a result, the consolidated financial statements for our reorganized company starting on and going forward from June 2, 2001 will not be comparable to our consolidated financial statements for the periods prior to June 2, 2001. The change in our accounting principles may make it more difficult to compare our operations to prior periods.

Our operating history since our emergence from bankruptcy may be insufficient to evaluate our financial condition based on our financial statements.

Our operating history since we emerged from bankruptcy is limited. Our financial statements since the implementation of “fresh start” accounting may be insufficient to draw proper conclusions about our future ability to generate profits and to make payments on the notes.

Market risk is the potential change in an instrument’s value caused by, for example, fluctuations in interest and currency exchange rates. The Company’s primary market risk exposures are interest rate risk and the risk of unfavorable movements in exchange rates between the U.S. dollar and the Mexican peso. Monitoring and managing these risks is a continual process carried out by senior management, which reviews and approves the Company’s risk management policies. We manage market risk on the basis of an ongoing assessment of trends in interest rates, foreign exchange rates, and economic developments, giving consideration to possible effects on both total return and reported earnings. The Company’s financial advisors, both internal and external, provide ongoing advice regarding trends that affect management’s assessment. The Company’s operations are not considered to give rise to significant market risk.

The Company borrows long-term debt under our credit facility at variable interest rates. (See Note 8 to Consolidated Financial Statements.) We therefore incur the risk of increased interest costs if interest rates rise. At December 29, 2001, the Company had no outstanding borrowings under its credit facility. The Company’s interest cost under its Senior Notes is fixed at 12% through the expiration date of the Senior Notes, due 2009.

The Company’s division in Mexico operates in a functional currency other than the U.S. dollar. The net assets of this division are exposed to foreign currency translation gains and losses, which are included as a component of accumulated other comprehensive loss in shareholders’ equity. Such translation resulted in unrealized income of $144,000 in 2001. Historically, the Company has not attempted to hedge this equity risk.

The Consolidated Financial Statements of the Company are included as a separate section of this Report commencing on page F-1.

The Company incorporates by reference herein the section entitled “Election of Directors” in the Company’s Proxy Statement mailed to shareholders in connection with the Company’s 2002 annual meeting.

The Company incorporates by reference herein the section entitled “Compensation of Executive Officers” in the Company’s Proxy Statement mailed to shareholders in connection with the Company’s 2002 annual meeting.

The Company incorporates by reference herein the section entitled “Common Stock Ownership of Certain Beneficial Owners and Management” in the Company’s Proxy Statement mailed to shareholders in connection with the Company’s 2002 annual meeting.

In 2001, 2000 and 1999, the Company made rent payments of approximately $80,000 for the St. Cloud laboratory/distribution facility, which is owned by Myrel Neumann, a current director of the Company. The Company paid insurance premiums of approximately $443,000 in 2000 for insurance policies purchased through an agency in which J. Smith Lanier, II, a director of the Predecessor Company during 2000, has a substantial ownership interest. The Audit Committee (which has ratified the purchase of insurance by the Company from this insurance agency) and management of the Company believe that these premiums and rent payments are comparable to those which could have been obtained from unaffiliated companies.

(a) (1) and (2) The Consolidated Financial Statements and Schedule of the Company and its subsidiaries are filed as a separate section of this Report commencing on page F-1.

2.1 — First Amended Joint Plan of Reorganization Under Chapter 11, Title 11, United States Code, filed by Vista Eyecare, Inc. and Certain of its Debtor Subsidiaries, dated April 13, 2001, incorporated by reference to exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 1, 2001.

2.2 — Modification to First Amended Joint Plan of Reorganization Under Chapter 11, Title 11, United States Code, filed by Vista Eyecare, Inc. and Certain of its Debtor Subsidiaries and First Amended Joint Plan of Reorganization Under Chapter 11, Title 11, United States Code, Filed by Frame-N-Lens Optical, Inc.; Midwest Vision, Inc.; New West Eyeworks, Inc., and Certain of Their Debtor Subsidiaries, dated May 17, 2001, incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 1, 2001.

3.1 — Amended and Restated Articles of Incorporation of the Company, dated April 8, 1992, as amended, incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 8-A filed with the SEC on August 9, 2001.

3.2 — Amended and Restated By-Laws of the Company, incorporated by reference to the Company’s Registration Statement on Form S-1, registration number 33-46645, filed with the Commission on March 25, 1992, and amendments thereto.

4.1 — Form of Common Stock Certificate, incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A filed with the SEC on August 9, 2001.

4.2 — Rights Agreement dated as of January 17, 1997 between the Company and Wachovia Bank of North Carolina, N.A., incorporated by reference to the Company’s Registration Statement on Form 8-A filed with the Commission on January 17, 1997.

4.3 — Amendment to Rights Agreement, dated as of March 1, 1998, between the Company and Wachovia Bank of North Carolina, N.A., incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form 8-A filed with the SEC on March 24, 1998.

4.4 — Indenture, dated as of June 15, 2001, between the Company and State Street Bank and Trust Company, as trustee, incorporated by reference to Exhibit TC3 to the Company’s Application for Qualification of Indenture on Form T-3 filed with the SEC on May 31, 2001.

4.5 — First Amendment of Indenture, dated as of July 6, 2001, between the Company and State Street Bank and Trust Company, as trustee, incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form 8-A filed with the SEC on August 9, 2001.

4.6 — Registration Rights Agreement, dated as of May 31, 2001, among the Company and the Holders (as defined therein) of registrable securities, incorporated by reference to Exhibit 4.8 to the Company’s Amendment to Quarterly Report on Form 10-Q/A filed with the SEC on August 22, 2001.

4.7 — Amendment to Registration Rights Agreement, dated as of August 7, 2001, among the Company and the Holders (as defined therein) of registrable securities, incorporated by reference to Exhibit 4.9 the Company’s Amendment to Quarterly Report on Form 10-Q/A filed with the SEC on August 22, 2001.

4.8 — Lock-Up Agreement, dated May 31, 2001, between Scudder High Yield Series - Scudder High Yield Fund and the Company, incorporated by reference to the Company’s Form 10-K for the fiscal year ended December 29, 2001.

4.9 — Lock-Up Agreement, dated May 31, 2001, between U.S. Bancorp Investments, Inc. and the Company, incorporated by reference to the Company’s Form 10-K for the fiscal year ended December 29, 2001.

4.10 — Second Amendment of Indenture, dated as of December 7, 2001, between the Company and State Street Bank and Trust Company, as trustee.

10.1 — Sublease Agreement, dated December 16, 1991, by and between Wal-Mart Stores, Inc. and the Company, incorporated by reference to the Company’s Registration Statement on Form S-1, registration number 33-46645, filed with the Commission on March 25, 1992, and amendments thereto.

10.2 — Form indemnification agreement for directors and executive officers of the Company, incorporated by reference to the Company’s Form 10-Q for the quarterly period ended June 30, 2001.

10.3 — Vision Center Master License Agreement, dated as of June 16, 1994, by and between Wal-Mart Stores, Inc. and the Company, incorporated by reference to the Company’s Form 10-Q for the quarterly period ended September 30, 1994. [Portions of Exhibit 10.3 have been omitted pursuant to an order for confidential treatment granted by the Commission. The omitted portions have been filed separately with the Commission.]

10.4++ — Split Dollar Life Insurance Agreement, dated as of November 3, 1994, among the Company, A. Kimbrough Davis, as Trustee, and James W. Krause, incorporated by reference to the Company’s Form 10-K for the fiscal year ended December 31, 1994.

10.5++ — Level IV Management Incentive Plan, incorporated by reference to the Company’s Form 10-K for the fiscal year ended December 31, 1994.

10.6 — Agreement dated as of November 23, 1995 by and between Mexican Vision Associates Operadora, S. de R.L. de C.V. and Wal-Mart de Mexico, S.A. de C.V. in original Spanish and an uncertified English translation, incorporated by reference to the Company’s Form 10-K for the fiscal year ended December 30, 1995. [Portions of Exhibit 10.6 have been omitted pursuant to a request for confidential treatment filed with the Commission. The omitted portions have been filed separately with the Commission.]

10.7++ — Executive Relocation Policy, incorporated by reference to the Company’s Form 10-Q for the quarterly period ended March 30, 1996.

10.8++ — Restated Stock Option and Incentive Award Plan, incorporated by reference to the Company’s Form 10-Q for the quarterly period ended June 29, 1996.

10.9++ — First Amendment to Restated Stock Option and Incentive Award Plan, incorporated by reference to the Company’s Form 10-Q for the quarterly period ended March 29, 1997.

10.11++ — Form Restricted Stock Award, incorporated by reference to the Company’s Form 10-Q for the quarterly period ended March 29, 1997.

10.12++ — Restated Non-Employee Director Stock Option Plan, incorporated by reference to the Company’s Form 10-Q filed on June 28, 1997.

10.18 — Loan and Security Agreement dated as of May 30, 2001, between the Company and Fleet Capital Corporation, incorporated by reference to the Company’s Form 10-Q for the quarterly period ended June 30, 2001.

21 — Subsidiaries of the Registrant, incorporated by reference to the Company’s Form 10-K for the fiscal year ended January 1, 2000.

99.2** — Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

++ Management contract or compensatory plan or arrangement in which a director or named executive officer participates.

(b) No reports on Form 8-K have been filed during the last quarter of the period covered by this report.

CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
FOR THE SEVEN MONTHS ENDED DECEMBER 29, 2001,
THE FIVE MONTHS ENDED JUNE 2, 2001, AND
FOR THE YEARS ENDED DECEMBER 30, 2000 AND JANUARY 1, 2000
TOGETHER WITH AUDITORS’ REPORT

The following consolidated financial statements and schedule of the registrant and its subsidiaries are submitted herewith in response to Item 8 and Item 14(a)1 and to Item 14(a)2, respectively.

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are inapplicable, or have been disclosed in the notes to consolidated financial statements and, therefore, have been omitted.

Board of Directors and Shareholders
National Vision, Inc.
Lawrenceville, Georgia

We have audited the accompanying consolidated balance sheet of National Vision, Inc. and subsidiaries as of December 29, 2001 (Successor Company balance sheet), and the related consolidated statements of operations, shareholders’ equity, and cash flows for the seven months ended December 29, 2001 (Successor Company operations), and the five months ended June 2, 2001 (Predecessor Company operations). Our audit also included the 2001 financial statement schedule listed in the Index on page F-1. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the 2001 financial statements and financial statement schedule based on our audit. The financial statements and financial statement schedule as of December 30, 2000 (Predecessor Company balance sheet) and for each of the years in the two-year period then ended (Predecessor Company operations) were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements (which included an explanatory paragraph for the Company’s emergence from Chapter 11 bankruptcy and adoption of fresh start accounting in accordance with AICPA Statement of Position 90-7, “Financial Reporting for Entities in Reorganization Under the Bankruptcy Code”), and stated that such 2000 and 1999 financial statement schedules, when considered in relation to the 2000 and 1999 basic financial statements taken as a whole, presented fairly, in all material respects, the information set forth therein, in their report dated February 25, 2002. Those auditors reported on such financial statements prior to the restatement referred to below.

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

As discussed in Note 4 to the financial statements, on May 18, 2001, the Bankruptcy Court entered an order confirming the Predecessor Company’s plan of reorganization, which became effective after the close of business on May 31, 2001. Accordingly, the accompanying financial statements have been prepared in conformity with AICPA Statement of Position 90-7, “Financial Reporting for Entities in Reorganization Under the Bankruptcy Code,” for the successor company as a new entity with assets, liabilities, and a capital structure having carrying values not comparable with prior periods as described in Note 4.

In our opinion, the Successor Company consolidated financial statements present fairly, in all material respects, the financial position of National Vision, Inc. and subsidiaries as of December 29, 2001, and the results of their operations and their cash flows for the period from June 3, 2001 to December 29, 2001, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the 2001 financial statement schedule, when considered in relation to the 2001 basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Further, in our opinion, the Predecessor Company financial statements referred to above present fairly, in all material respects, the Predecessor Company’s results of their operations and their cash flows for the period December 31, 2000 to June 2, 2001, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 17, the accompanying 2001 financial statements have been restated to (i) reflect a balance sheet reclassification resulting in a current deferred tax asset and a non-current net deferred tax liability as of December 29, 2001, (ii) correctly reflect in Note 11 the components of deferred income tax assets and liabilities (including the valuation allowance) as of December 29, 2001; (iii) correctly reflect the balance sheet classification of senior notes between short-term and long-term liabilities as of December 29, 2001, (iv) correctly reflect the balance sheet classification of reserves for certain assets from accrued expenses and other current liabilities to accounts receivable, property and equipment and other assets and deferred costs as of December 29, 2001, and (v) correctly reflect the statement of operations classification of certain amounts from reorganization expense to cost of goods sold and selling, general & administrative expense in the five months ended June 2, 2001.

The following is a copy of the previously issued report of Arthur Andersen LLP, which has ceased operations and which report has not been reissued in connection with this Form 10-K/A, on the consolidated balance sheets of National Vision, Inc. and subsidiaries at December 29, 2001 and December 30, 2000 and the related consolidated statements of operations, changes in shareholders’ equity (deficit) and cash flows for the seven months ended December 29, 2001 (successor company), the five months ended June 2, 2001 (predecessor company), and for the years ended December 30, 2000 and January 1, 2000 (predecessor company). Arthur Andersen LLP reported on such financial statements prior to the restatement discussed in Note 17.

We have audited the accompanying balance sheets of NATIONAL VISION, INC. (a Georgia corporation) AND SUBSIDIARIES as of December 29, 2001 (Successor Company) and Vista Eyecare, Inc. as of December 30, 2000 (Predecessor Company) and the related consolidated statements of operations, shareholders’ equity/(deficit) and cash flows for the seven months ended December 29, 2001 (Successor Company), the five months ended June 2, 2001 (Predecessor Company), and for the years ended December 30, 2000 and January 1, 2000 (Predecessor Company). These financial statements and schedule referred to below are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

As discussed in Note 3, effective May 31, 2001, the Company was reorganized under a plan confirmed by the United States Bankruptcy Court for the Northern District of Georgia and adopted a new basis of accounting whereby all remaining assets and liabilities were adjusted to their estimated fair values. Accordingly, the consolidated financial statements for periods subsequent to the reorganization are not comparable to the consolidated financial statements presented for prior periods.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of National Vision, Inc. and subsidiaries as of December 29, 2001 and of Vista Eyecare, Inc. and subsidiaries as of December 30, 2000, and the results of their operations and their cash flows for the seven months ended December 29, 2001, the five months ended June 2, 2001, and for the years ended December 30, 2000 and January 1, 2000 in conformity with accounting principles generally accepted in the United States.

Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule of valuation and qualifying accounts listed in the index to consolidated financial statements is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

NATIONAL VISION, INC.
CONSOLIDATED BALANCE SHEETS
December 29, 2001 (Restated) and December 30, 2000
(In thousands, except share information)

Upon emergence from Chapter 11, the Company adopted fresh start reporting. As a result, all assets and liabilities were restated to reflect their fair values. The consolidated financial statements of the new reporting entity (the “Successor”) are not comparable to the reporting entity prior to the Company’s emergence from Chapter 11 (the “Predecessor”).

National Vision, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the seven months ended December 29, 2001,
the five months ended June 2, 2001 (Restated), and for
the years ended December 30, 2000 and January 1, 2000
(In thousands, except per share information)

National Vision, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY / (DEFICIT)
For the seven months ended December 29, 2001,
the five months ended June 2, 2001, and for
the years ended December 30, 2000 and January 1, 2000
(In thousands, except share information)

National Vision, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the seven months ended December 29, 2001, (Restated)
the five months ended June 2, 2001, (Restated) and for
the years ended December 30, 2000 and January 1, 2000
(In thousands)

National Vision, Inc. formerly known as Vista Eyecare, Inc. (the Company) is engaged in the retail sale of optical goods and services. The Company is largely dependent on Wal-Mart Stores, Inc. (Wal-Mart) for continued operation of vision centers which generate a significant portion of the Company’s revenues (See Note 6).

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company operates on a 52/53 week retail calendar with the fiscal year ending on the Saturday closest to December 31. Pursuant to such calendar, financial information for fiscal 2001, 2000 and 1999 is presented for the respective 52-week periods. Due to various statutory and other considerations, international operations do not operate on this 52/53 week calendar. To allow for more timely consolidation and reporting, international operations are reported using a fiscal year ending November 30.

Upon emergence from bankruptcy, the Company adopted “fresh start” accounting in accordance with AICPA Statement of Position 90-7 (“SOP 90-7”). As a result, all assets and liabilities were restated to reflect their respective fair values. The consolidated financial statements after emergence are those of a new reporting entity (the “Successor”) and are not comparable to the financial statements of the pre-confirmation company (the “Predecessor”). A black line has been drawn in the financial statements to distinguish Predecessor and Successor Company results. (See Note 4 — “Bankruptcy Proceedings and Fresh Start Adjustments.”) SOP 90-7 also requires that any changes in accounting principles required within twelve months of fresh start accounting, must be adopted at the time of implementation of fresh start accounting.

The Company’s plan of reorganization in the Chapter 11 Cases provides that, as claims of creditors are resolved, the Company will make periodic distributions of its new common stock and notes. As of March 1, 2002, the Company has made five such distributions, for a total of 4,190,000 shares of new common stock and $100.9 million face amount of new notes. The balance of 810,000 shares of new common stock and $19.1 million face amount of new notes are part of a disputed claim reserve on deposit with the Company’s outside trustee and will be distributed as and when disputed claims are resolved. Because the disputed claim reserve resides with a third-party trustee, the common stock and senior notes remaining in the disputed claim reserve are considered issued and outstanding for accounting purposes. Interest expense on the senior notes remaining in the claim reserve are accrued for and paid to the trustee for ultimate distribution to claimholders when disputed claims are resolved.

In December 1999, the SEC issued Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements”. SAB 101 summarizes the SEC’s view in applying generally accepted accounting principles to selected revenue recognition issues. Prior to the adoption of SAB 101, the Company recognized revenues and the related costs from retail sales when at least 50% of the payment was received. In response to SAB 101, the Company defers revenue recognition until delivery of the product by estimating the value of transactions in which final delivery to the customer has not occurred at the end of the period presented. Cash received prior to final delivery of the product is reflected as a deposit liability within accrued liabilities. These estimates are based on historical trends, taking into consideration current changes in the Company’s manufacturing and distribution process.

The Company considers cash on hand and short-term cash investments to be cash and cash equivalents. The Company’s policy is to maintain uninvested cash at minimal levels. Cash includes cash equivalents which represent highly liquid investments with a maturity of one month or less. The Company restricts investment of temporary cash investments to financial institutions with high credit standings.

Managed care accounts receivable are recorded net of contractual allowances and are reduced by an allowance for amounts that may become uncollectible. Substantially all of the Company’s receivables are due from health care plans and programs located throughout the United States. Estimates of our allowance for uncollectible receivables are based on our historical collection experience, historical and current operating, billing and collection trends.

The Company’s inventories are stated at the lower of weighted average cost or market.

The Company conducts physical inventory counts for a selection of store locations near the end of each fiscal quarter and adjusts the Company’s records to reflect the actual inventory counts. The Company’s distribution center is counted near the end of the fiscal year. As all locations are not counted as of the Company’s reporting dates, the Company provides a reserve for inventory shrinkage based principally on historical inventory shrinkage experience.

Property and equipment are stated at cost. For financial reporting purposes, depreciation is computed using the straight-line method over the assets’ estimated useful lives or terms of the related leases, whichever is shorter. Accelerated depreciation methods are used for income tax reporting purposes. For financial reporting purposes, the useful lives used for computation of depreciation range from five to ten years for equipment, from three to nine years for furniture and fixtures, from three to six years for hardware and software related to information systems processing, and from five to nine years which approximate the remaining lease term for leasehold improvements. At the time property and equipment are retired, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is credited or charged to income. Maintenance and repairs are charged to expense as incurred. Replacements and improvements are capitalized.

In August 2001, the Financial Accounting Standards Board (“ FASB”) issued Statement of Financial Accounting Standards, (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supercedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,” and the accounting and reporting provisions of Accounting Principles Board (“APB”) Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” and amends APB Opinion No. 51, “Consolidated Financial Statements.” SFAS No. 144 retains many of the requirements of SFAS No. 121 and the basic provisions of APB Opinion No. 30; however, it establishes a single accounting model for long-lived assets to be disposed of by sale. The Company adopted this pronouncement upon implementation of fresh start accounting as required by SOP 90-7. SFAS No. 144 did not have a material impact on our financial statements.

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and current portion of long-term debt approximate fair value because of the immediate or short-term maturity of these financial instruments.

The fair value of the Company’s long-term debt determined using the closing price on the most recent trade date prior to December 29, 2001 on the American Stock Exchange is as follows:

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable. The risk is limited due to the large number of individuals and entities comprising the Company’s customer base.

The Company’s most significant intangible asset is the Intangible Value of Contractual Rights, which was established as part of the Company’s adoption of “fresh start” accounting in May 2001. This intangible asset, which has a gross carrying amount of $113.6 million and accumulated amortization of $4.4 million at December 29, 2001, represents the value of the Company’s lease agreement with Wal-Mart and the business relationship therein created. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” this intangible is an amortizable asset because it has a finite useful life. However, the precise length of its life is not known due primarily to the Wal-Mart superstore conversions that automatically trigger extensions on the contractual life of the asset. Based on our projections, our best estimate of the useful life of this asset is 15 years. Due to the uncertainty involved in predicting the pattern of economic benefits realized from the Wal-Mart relationship, the Company amortizes this asset using the straight-line method.

Amortization expense on the Intangible Value of Contractual Rights was $4.4 million for the seven months ended December 29, 2001. Future amortization expense for each of the five succeeding fiscal years is expected to be as follows:

The Company assesses the impairment of all identifiable intangibles and long-lived assets on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important, which could trigger an impairment review, include (1) a significant underperformance of vision center operations relative to expected historical or projected future operating results; (2) significant changes in the manner of our use of Company assets or the strategy for our overall retail optical business; (3) significant negative industry or economic trends; (4) significant decline or adverse change in the rate or geographic concentration of Wal-Mart host store relocations or superstore conversions; and (5) a permanent adverse change in cash flows generated by an operation.

If we determine that the carrying value of intangibles or long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure any impairment based on an undiscounted projected cash flow model. If the undiscounted projected cash flows are not in excess of the book value of the related asset, we measure the impairment based on a projected discounted cash flow method. Significant management judgment is required regarding the existence of impairment indicators as discussed above. Based on our review of our intangible and other long-lived assets as of December 29, 2001, no impairment of these assets was determined to exist.

Deferred income taxes are recorded using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred income taxes are provided for depreciation, inventory basis differences, and accrued expenses where there is a temporary difference in recording such items for financial reporting and income tax reporting purposes. Before, during and after the bankruptcy process, the Company incurred significant net operating losses (“NOL”) that result in tax loss carry-forwards. A portion of these carry-forwards are subject to limitations under section 382 of the Internal Revenue Code.

In accordance with the provisions of SFAS 109, “Accounting for Income Taxes,” a valuation allowance is recorded against any net deferred tax assets if it is “more likely than not” that we will not be able to utilize it to offset future taxes. Due to the size of the NOL carry-forward in relation to our history of unprofitable operations and the continuing uncertainties surrounding the profitability of our ongoing retail businesses, we provide a full valuation allowance for the net deferred tax asset. We currently provide for income taxes only to the extent that we expect to pay cash.

The Company applies the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” Stock Option awards continue to be accounted for in accordance with APB Opinion No. 25. In October 2001, the Company granted stock options to eligible employees. Because the number of shares to be issued and the per share strike price are not subject to uncertainty, this stock option plan qualifies for fixed accounting treatment. As a result, the Company does not record compensation expense in connection with the granting of these stock options.

Had compensation cost for the Plan been determined based on the fair value at the grant date for awards in 2001, 2000 and 1999 consistent with the provisions of SFAS No. 123, the Company’s net earnings and earnings per share would have been reduced to the pro forma amounts indicated below (amounts in thousands except per share information):

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were used in the model:

Other assets and deferred costs include capitalized financing costs which are being amortized using a method which approximates the effective yield method over periods from one to seven years to correspond with the terms of the underlying debt. In addition, certain capitalized assets resulting from contractual obligations are included and are being amortized over periods of up to five years.

The Company self-insures estimated costs associated with workers’ compensation claims and group medical liabilities, up to certain limits. Insurance reserves are established based on actuarial estimates of the loss that we will ultimately incur on reported claims, as well as estimates of claims that have been incurred but not yet reported. Trends in actual experience are a significant factor in the determination of such reserves. We believe our estimated reserves for such claims are adequate, however actual experience in claim frequency and/or severity could materially differ from our estimates and affect our results of operations.

Production costs of future media advertising and related promotion campaigns are deferred until the advertising events occur. All other advertising and promotion costs are expensed during the year in which they are incurred. Advertising expense, net of cooperative advertising credits, for the seven months ended December 29, 2001, the five months ended June 2, 2001, the year ended December 30, 2000 and the year ended January 1, 2000 was approximately $2.8 million, $3.6 million, $12.2 million and $14.3 million, respectively.

Interest expense includes interest on debt and capital lease obligations, purchase discounts on invoice payments, the amortization of finance fees, and the amortization of the discount on the subordinated debt.

The financial statements of foreign subsidiaries are translated into U.S. dollars in accordance with SFAS No. 52 “Foreign Currency Translation.” Assets and liabilities of our foreign operations are translated into U.S. dollars using year-end exchange rates; income and expenses are translated using the average exchange rates for the reporting period. Translation gains or losses are deferred in accumulated other comprehensive income, a separate component of shareholders’ equity.

In 1998, the Financial Accounting Standards Board issued SFAS No.133, “Accounting for Derivative Instruments and Hedging Activities.” The adoption of SFAS No. 133 in 2001 had no impact on the Company’s financial statements as the Company did not hold derivative instruments, nor participate in hedging activities.

Other comprehensive income is defined as net income and other changes in stockholders’ equity from transactions other than those involving stockholders and net income. The Company’s only source of other comprehensive income is the cumulative translation adjustment from its operations in Mexico. The Predecessor Company’s cumulative other comprehensive income was eliminated as part of fresh-start accounting on June 2, 2001.

The preparation of these financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements ” (“SAB 101”). SAB 101 summarizes the SEC’s view in applying generally accepted accounting principles to selected revenue recognition issues. SAB 101 specified that final delivery of product is required prior to recognizing revenue. Prior to the adoption of SAB 101, the Company recognized revenues and the related costs from retail sales when at least 50% of the payment was received. We applied the guidance in SAB 101 to our financial statements in 2000. The initial impact was reflected as a cumulative effect adjustment to our consolidated financial statements resulting from a change in accounting principles.

On April 5, 2000, the Company and ten of its subsidiaries (collectively, the “Debtors”) filed voluntary petitions with the United States Bankruptcy Court for the Northern District of Georgia for reorganization under Chapter 11 (the “Chapter 11 Cases”). In March 2001, the Debtors filed a plan of reorganization (the “Plan”) for the Chapter 11 Cases. The Plan was subsequently accepted by the required percentage of creditors entitled to vote on the Plan and was confirmed by the bankruptcy court by its order entered on May 18, 2001. On May 31, 2001, after securing a new revolving credit facility with Fleet Capital Corporation, the Company emerged from bankruptcy.

The Plan provided for the conversion of the Company’s pre-petition unsecured claims into new secured notes and common stock. The secured notes have a face value of $120 million, provide for the payment of interest of 12% twice a year at the end of March and September, and are subordinated to debt under the Company’s credit facility. The notes are payable over eight years with principal repayments based on excess cash flow for the prior six month period, adjusted for existing cash balances, measured as of the end of June and December of each year, with the first measurement date occurring at the end of 2001. The principal repayments are to be made by the end of the second month subsequent to the measurement date. Any remaining outstanding principal balance will be due in 2009. Five million shares of new common stock, par value $0.01, were issued based on the Company’s reorganization value. Under the Plan, former shareholders received no value for their interests. Consequently, all Predecessor common stock securities were cancelled.

The gain on cancellation of indebtedness aggregated $17.2 million and has been treated as an extraordinary item in the accompanying Condensed Consolidated Statements of Operations for the period ended June 2, 2001.

At December 29, 2001, $19.1 million of the new notes and approximately 810,000 shares of new common stock were not distributed to creditors whose claims were disputed. The interests of creditors whose claims were not resolved upon the Company’s emergence from Chapter 11, were provided for in the Company’s disputed claim reserve. In accordance with the Plan, the notes and equity are effectively held in trust for the benefit of the creditors, and will be appropriately distributed upon resolution of disputed claims. Any balance remaining in the disputed claims reserve, upon resolution of all claims, will be distributed pro rata to all creditors.

In accounting for the effects of the reorganization, the Company adopted “fresh start” accounting principles as contained in the American Institute of Certified Public Accountants’ Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (SOP 90-7). SOP 90-7 was applicable because pre-reorganization shareholders received none of the Company’s new common stock and the reorganization value of the assets of the Successor company was less than the total pre-petition liabilities allowed plus post-petition liabilities. SOP 90-7 also requires that any changes in accounting principles required within twelve months of fresh start accounting, must be adopted at the time of implementation of fresh start accounting. (See Note 3.)

“Fresh Start” accounting principles require that we determine the reorganization value of the reorganized Company. The Company’s reorganization value was developed by the Company, the Official Committee of Unsecured Creditors and their respective financial advisors. The reorganization value was based on a calculation of the present value of the free cash flows under the Company’s financial projections, including an assumption of a terminal value. Such projections were submitted to the bankruptcy court and to creditors for review and objection as part of the Company’s disclosure statement accompanying the Plan.

Net increases in the fair value of the Company’s identifiable assets totaled $114.3 million. This amount was recognized as a gain in the Predecessor’s statement of operations and is detailed below (amounts in thousands):

The application of fresh start accounting on the Predecessor company’s June 2, 2001 balance sheet is as follows: (amounts in thousands)

(c)

Gain on extinguishment of debt is calculated as follows: (amounts in thousands)

As part of fresh start accounting, liabilities subject to compromise in the amount of $169 million were exchanged for new notes and common stock as part of the discharge of debt in the bankruptcy. These liabilities are identified below: (amounts in thousands)

In accordance with SOP 90-7, the Predecessor Company recorded all transactions incurred as a result of the Chapter 11 Cases as reorganization items. The table below summarizes these items: (amounts in thousands)

The following represents activity in the restructuring and reorganization provisions during 2001. This amount includes an estimate for disputed claims that are expected to be paid in cash in 2002 (amounts in thousands):

The ending balance of this restructuring and reorganization accrual consists primarily of an estimate for disputed claims that are expected to be paid in cash, and the expected costs associated with resolving them.

We operate 400 vision centers in domestic Wal-Mart stores, all of which operate pursuant to a master license agreement. These units generated approximately 83% of our revenue in 2001. In 1994, the Company and Wal-Mart replaced their original agreement with a new master license agreement (the Wal-Mart Agreement), which increased minimum and percentage license fees payable by the Company and also granted the Company the opportunity to operate up to 400 vision centers in existing and future Wal-Mart stores (400 vision centers were in operation under the Wal-Mart Agreement at fiscal year end 2001). Each vision center covered by the Wal-Mart Agreement has a separate license. Pursuant to the Wal-Mart Agreement, the term of each such license is nine years with a renewable option for one additional three-year term. Percentage license fees remain the same over the nine-year base term and three- year option term, whereas minimum license fees increase during the three-year option term. The Wal-Mart license agreement is subject to certain customary provisions, including a minimum tangible net worth calculation (as defined). Management believes that it is in compliance with this provision at December 29, 2001.

In 1994, the Company opened eight vision centers in stores owned and operated by Wal-Mart de Mexico, S.A. de C.V. (Wal-Mart de Mexico). In 1995, the Company completed the negotiation of a master license agreement governing these vision centers. Pursuant to this agreement, each vision center has an individual base term of five years from the date of opening, followed by two options (each for two years), and one option for one year. Each party has the right to terminate a location which fails to meet specified sales levels. The agreement provides for annual fees based on a minimum and percentage of sales. The agreement also gives the Company a right of first refusal to open vision centers in all stores in Mexico owned by Wal-Mart de Mexico. As of December 29, 2001, the Company operated 35 vision centers in Wal-Mart de Mexico stores.

The Company operates 55 leased vision centers in stores owned by Fred Meyer pursuant to a master license agreement. The agreement provides for minimum and percentage rent and other customary terms and conditions. The term of the agreement is for five years (expiring December 31, 2003), with a five-year option.

The Company classifies inventory as finished goods if such inventory is readily available for sale to customers without assembly or value added processing. Finished goods include contact lenses, over the counter sunglasses and accessories. The Company classifies inventory as raw materials if such inventory requires assembly or value added processing. This would include grinding a lens blank, cutting the lens in accordance with a prescription from an optometrist, and fitting the lens in a frame. Frames and uncut lens are considered raw materials. A majority of the Company’s sales represent custom orders; consequently, the majority of the Company’s inventory is classified as raw materials.

Inventory balances, by classification, are summarized as follows: (amounts in thousands)

The Predecessor 2000 inventory balances include capitalized freight costs of $250,000 for freight costs incurred to transfer inventory between Company locations and $420,000 of costs capitalized for certain business supplies. In 2001, the Successor Company expenses these costs as a component of cost of goods sold as incurred.

In May 2001, the Company’s secured revolving credit facility with Foothill Capital expired and was replaced with a senior secured revolving credit facility (the “Exit Facility”) from Fleet Capital Corporation. The Exit Facility has a term of three years, bears interest at the prime rate plus 0.75% per annum or at LIBOR plus 3.0%, and provides availability of an estimated $10 million, subject to borrowing base limitations and letter of credit requirements. The Exit Facility contains various restrictive covenants and requires us to maintain minimum EBITDA levels (as defined) and a minimum fixed charge coverage ratio (as defined) of 1.0 to 1.0. The Company paid $275,000 in commitment fees related to the Exit Facility in 2001. At December 29, 2001, the Company had no outstanding borrowings under the Exit Facility and $1.7 million of unused availability.

On May 9, 2000, the Bankruptcy Court approved an order permitting the Company to enter into a $25 million debtor-in-possession credit facility with Foothill Capital Corporation (the “DIP Facility”). The DIP Facility (which replaced the Company’s prior secured credit facility with Foothill Capital Corporation) consisted of a $12.5 million term loan and $12.5 million revolving credit facility. The Company paid professional fees, organization fees and waiver fees of $500,000 to convert the previous Foothill Credit Facility to the DIP Facility. The DIP Facility expired on May 31, 2001. All professional fees, organization fees and waiver fees associated with the DIP Facility were written off upon expiration of the Facility.

As part of the Company’s Plan of Reorganization, the Predecessor Company’s $125 million unsecured notes were converted into new Successor Company secured notes and common stock. The Successor Company notes have a face value of $120 million, provide for the payment of interest of 12% twice a year at the end of March and September, and are subordinated to debt under the Company’s credit facility. These notes are payable over eight years with principal repayments (“Excess Cash Repayments”) based on excess cash flow for the prior six month period, adjusted for existing cash balances, and measured at the end of June and December, beginning with December 2001. The principal repayments are to be made by the end of the second month subsequent to the measurement date. Any remaining outstanding principal will become due in 2009. For the six months ended December 29, 2001, the Company made an Excess Cash Repayment of $1.6 million on February 28, 2002 to bondholders of record on February 13, 2002. This amount is classified as current at December 29, 2001. As Excess Cash Repayments are contingent upon future cash flows, the only principal repayment that is classified as “current” is the Excess Cash Repayment measured as of December 29, 2001.

Long-term debt obligations at December 29, 2001 and December 30, 2000 consisted of the following (amounts in thousands):

The Company is party to letters of credit totaling $3.5 million and $4.5 million at December 29, 2001 and December 30, 2000, respectively. Management does not expect any material losses to result from these off-balance-sheet instruments because performance is not expected to be required.

See Note 2 to Consolidated Financial Statements for the fair value estimate of the long-term debt at December 29, 2001.

In 2001, as part of the Company’s emergence from bankruptcy, the Predecessor Company recognized an extraordinary gain of $17.2 million related to the extinguishment of debt. The gain was calculated as follows:

In 2000, the Company recorded an extraordinary loss of $827,000 as a result of refinancing the Company’s Foothill Credit Facility. In 1999, the Company recorded an extraordinary loss of $406,000 as a result of refinancing the previous secured credit facility. Both refinancings necessitated the write-off of capitalized costs associated with the previous facilities. Because of the Company’s decision to fully reserve for the Company’s 2001, 2000 and 1999 tax benefit, there was no tax effect on these extraordinary items.

As of December 29, 2001, the Company is a lessee under non-cancellable operating lease agreements for certain equipment which expire at various dates through 2003. Additionally, the Company is required to pay minimum and percentage license fees pursuant to certain commercial leases and pursuant to its agreements with its host store companies.

Effective December 20, 1991, the Company entered into a lease agreement for approximately 66,000 square feet of corporate office space. The term of the lease is ten years with a renewal option of seven years. The Company paid approximately $215,000 annually in rental fees in 2001, 2000 and 1999. We exercised our option for this lease, which now expires in 2009.

In connection with its acquisition of Midwest Vision, Inc., the Company entered into a ten-year lease for administrative headquarters and an optical laboratory located in St. Cloud, Minnesota. The facility is leased from the former owner of Midwest Vision. Lease expense on the headquarters and laboratory is approximately $6,667 monthly which, in the opinion of management, represents a fair market lease rate.

As of December 29, 2001, aggregate future minimum payments under the license and lease arrangements that will not be assigned or rejected in the Bankruptcy proceedings are as follows: (amounts in thousands)

Total rental expenses related to cancelable and non-cancellable operating leases were approximately $17.8 million, $16.5 million, $41.0 million, and $43.1 million for the seven months ended December 29, 2001, the five months ended June 2, 2001, and the years ended December 30, 2000 and January 1, 2000, respectively.

On April 5, 2000, the Company and ten of its subsidiaries (collectively, the “Debtors”) filed voluntary petitions with the United States Bankruptcy Court for the Northern District of Georgia for reorganization under Chapter 11 (the “Chapter 11 Cases”). In March 2001, the Debtors filed a plan of reorganization (the “Plan”) for the Chapter 11 Cases. The Plan was subsequently accepted by the required percentage of creditors entitled to vote on the Plan and was confirmed by the bankruptcy court by its order entered on May 18, 2001. On May 31, 2001, after securing a new revolving credit facility with Fleet Capital Corporation, the Company emerged from bankruptcy.

The Plan provided for the conversion of the Company’s pre-petition unsecured claims into new secured notes and common stock. The secured notes have a face value of $120 million, provide for the payment of interest of 12% twice a year at the end of March and September, and are subordinated to debt under the Company’s credit facility. The notes are payable over eight years with principal repayments based on excess cash flow for the prior six month period, adjusted for existing cash balances, measured as of the end of June and December of each year, with the first measurement date occurring at the end of 2001. The principal repayments are to be made by the end of the second month subsequent to the measurement date. Five million shares of new common stock, par value $0.01, were issued based on the Company’s reorganization value. Under the Plan, former shareholders received no value for their interests. Consequently, all Predecessor common stock securities were cancelled.

At December 29, 2001, $19.1 million of the new notes and approximately 810,000 shares of new common stock were not distributed to creditors whose claims were disputed. Disputed claims include the potential liability for certain litigation matters of the Predecessor Company. The interests of creditors whose claims were not resolved upon the Company’s emergence from Chapter 11, were provided for in the Company’s disputed claim reserve. In accordance with the Plan, the notes and equity are effectively held in trust for the benefit of the creditors, and will be appropriately distributed upon resolution of disputed claims. Any balance remaining in the disputed claims reserve, upon resolution of all claims, will be distributed pro rata to all creditors.

The Company is involved in certain litigation and claims arising in the normal course of business. In the opinion of management, the resolution of these matters will not have a material adverse effect on the financial position or results of operations of the Company.

The Company accounts for income taxes under Statement of Financial Accounting Standards (“SFAS 109”) Accounting for Income Taxes, which requires the use of the liability method of accounting for deferred income taxes. The components of the net deferred tax assets are as follows (amounts in thousands):

The sources of the difference between the financial accounting and tax basis of the Company’s liabilities and assets which give rise to the deferred tax assets and liabilities at December 29, 2001 and December 30, 2000, are as follows (amounts in thousands):

Due to tax operating losses that will not be realized, no provision/benefit for income taxes has been recorded on the accompanying statements of operations for all periods presented. Tax expense differs from the amounts resulting from multiplying income before income taxes by the statutory federal income tax rate for the following reasons: (amounts in thousands)

At December 29, 2001, the Company had U.S. regular tax net operating loss (“NOL”) carry-forwards of approximately $90 million that can reduce future federal income taxes. If not utilized, these carry-forwards will expire beginning in 2009. The Company also has non-expiring alternative minimum tax credit carry-forwards of $1.4 million available to offset future regular taxes.

The Company’s net operating loss carry-forwards of $90 million at December 29, 2001, could be substantially limited in the event of a greater than 50% change in stock ownership of the Company. The limitation would be based on the stock value and the Federal Exempt Tax Rate on the date of ownership change. These limitations could create a cap on the amount of the NOLs that would be deductible each year going forward until the amount is depleted or the time limitation on the NOLs expire.

As of December 29, 2001 and December 30, 2000, the Company recorded a valuation allowance of $1.1 million and $17.3 million, respectively, representing the excess deferred tax assets over deferred tax liabilities. This valuation allowance was recorded due to the uncertainty of the realizability of its net deferred tax assets.

In Mexico, the location of the Company’s foreign operations, the Company pays the greater of its income tax or an asset tax. Because the Company has operating losses in Mexico, the Company pays no income tax, but it is subject to the asset tax. Therefore, no provision for income taxes has been made on the Company’s books for its operations in Mexico.

Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per common share are computed as basic earnings per common share, adjusted for outstanding stock options that are dilutive. The computation for basic and diluted earnings per share are summarized as follows: (amounts in thousands except per share information)

Significant components of accrued expenses and other current liabilities are summarized as follows:

Contractual interest expense for the five months ended June 2, 2001 and for the year ended December 30, 2000 was $8.1 million and $20.7 million, respectively.

In 1996, the Company adopted the restated Stock Option and Incentive Award Plan (the Plan) pursuant to which incentive stock options qualifying under Section 422A of the Internal Revenue Code and nonqualified stock options may be granted to key employees. The Plan also provides for the issuance of other equity awards, such as awards of restricted stock. The Plan replaced and restated all the Company’s prior employee stock option plans. The Plan is administered by the Compensation Committee of the Company’s Board of Directors. The Compensation Committee has the authority to determine the persons receiving options, option prices, dates of grants and vesting periods, although no option may have a term exceeding ten years. All options outstanding at the Company’s emergence from bankruptcy in 2001 were cancelled. The Plan was amended in 1999 to increase the number of shares under the Plan from 3,350,000 to 4,350,000. In October 2001, the Committee reduced the number of shares available under the Plan to 720,000 and granted stock options and performance stock grants to key managers. After giving effect to outstanding awards, there were, at December 29, 2001, 431,250 remaining unissued shares under the Plan.

In 2001, the Compensation Committee granted to employees 288,750 options to purchase shares of the Company’s common stock at the stated market value on the date of grant. These options vest 100% at the end of seven years. Vesting, however, can be accelerated if the Company achieves certain financial goals prior to the end of the seven-year period. Unexercised options expire ten years from the date of grant.

In April 1997, the Company adopted the Restated Non-Employee Director Stock Option Plan (the Directors’ Plan), pursuant to which stock options for up to 500,000 shares of Common Stock may be granted to non-employee directors. The Directors’ Plan replaced and restated the Company’s prior non-employee director stock option plan. The Directors’ Plan provides for automatic grants of options to purchase 7,500 shares of the Company’s common stock to each non-employee director serving on the date of each annual meeting of shareholders, beginning with the 1997 annual meeting. All options outstanding at the Company’s emergence from bankruptcy were cancelled. In October 2001, the Committee reduced the number of shares under the Plan to 180,000 and made a one-time grant to eligible non-employee directors of options to purchase 15,000 shares. Non-employee directors also receive automatic grants of options to purchase 10,000 shares as of the date of each annual meeting of shareholders. Each grant is at an exercise price equal to the market value on the date of grant. Under the option grant, 50% of the shares vest on the second anniversary of the grant date, 25% on the third anniversary and 25% on the fourth anniversary. All option grants are exercisable for a ten-year period. In 2001, the Compensation Committee granted to directors 60,000 options to purchase shares of the Company’s common stock. The remaining shares available for grant under the Directors’ Plan totaled 120,000 at December 29, 2001.

In 2001, 2000 and 1999, all exercise prices represent the estimated fair value of the Common Stock on the date of grant as determined by the Board of Directors. Stock option transactions during the three years ended December 29, 2001 were as follows:

The following table shows the options outstanding and the options exercisable with pertinent data related to each at December 29, 2001:

The Company is authorized to issue up to 5,000,000 shares of preferred stock, par value $1 per share, with such terms, characteristics and designations as may be determined by the Board of Directors. No such shares are issued and outstanding.

In January of 1997, the Company’s Board of Directors approved a Shareholders Rights Plan (the “Rights Plan”). The Rights Plan provides for the distribution of one Right for each outstanding share of the Company’s Common Stock held of record as of the close of business on January 27, 1997 or that thereafter becomes outstanding prior to the earlier of the final expiration date of the Rights or the first date upon which the Rights become exercisable. Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Participating Cumulative Preferred Stock, par value $0.01 per share, at a price of $40.00 (the Purchase Price), subject to adjustment. The Rights are not exercisable until ten calendar days after a person or group (an Acquiring Person) buys or announces a tender offer for 15% or more of the Company’s Common Stock, or if any person or group has acquired such an interest, the acquisition by that person or group of an additional 2% of the Company’s Common Stock. In the event the Rights become exercisable, then each Right will entitle the holder to receive that number of shares of Common Stock (or, under certain circumstances, an economically equivalent security or securities of the Company) having a market value equal to the Purchase Price. If, after any person has become an Acquiring Person (other than through a tender offer approved by qualifying members of the Board of Directors), the Company is involved in a merger or other business combination where the Company is not the surviving corporation, or the Company sells 50% or more of its assets, operating income, or cash flow, then each Right will entitle the holder to purchase, for the Purchase Price, that number of shares of common or other capital stock of the acquiring entity which at the time of such transaction have a market value of twice the Purchase Price. The Rights will expire on January 26, 2007, unless extended, unless the Rights are earlier exchanged, or unless the Rights are earlier redeemed by the Company in whole, but not in part, at a price of $0.001 per Right. In February 1998, the Company’s Board of Directors amended the Rights Plan effective March 1, 1998 to provide that Rights under this plan can be redeemed and certain amendments to this plan can be effected only with the approval of the Continuing Directors, which are defined in the Rights Plan as the current directors and any future directors that are approved or recommended by Continuing Directors.

In 2000, the Company cancelled 10,000 shares of the Predecessor Company’s Common Stock.

Selected quarterly data for the Company for the fiscal years ended December 29, 2001 and December 30, 2000 is as follows: (amounts in thousands except per share information)

The Company has restated results for the two months ended June 2, 2001, as noted above. The following table presents the results as previously reported compared to the restated results (amounts in thousands):

In 2001, 2000 and 1999, the Company made rent payments of approximately $80,000 for the St. Cloud laboratory/distribution facility, which is owned by Myrel Neuman, a current director of the Company. The Company paid insurance premiums of approximately $443,000 in 2000 for insurance policies purchased through an agency in which J. Smith Lanier, II, a director of the Predecessor Company during 2000, has a substantial ownership interest.

Subsequent to the issuance of the Company’s 2001 financial statements, the Company’s management determined that the following revisions to the 2001 financial statements were required:


	1)	Reclassification of the balance sheet to reflect a current deferred income tax asset and a non-current net deferred income tax liability as of December 29, 2001, and restatement of the 2001 income tax footnote which details the Company’s deferred tax assets and liabilities to correctly reflect the deferred tax assets, liabilities, and valuation allowance of the Company as of December 29, 2001, due mainly to 1) an unrecorded deferred income tax asset for net operating loss carryforwards resulting from the disposition of the Company’s free-standing store locations, and 2) an unrecorded deferred income tax liability for the intangible value of contractual rights recorded upon fresh start accounting.


	2)	Reclassification of the balance sheet presentation for senior notes to reflect a short-term senior note liability as of December 29, 2001 for a senior note principal payment made in February 2002.


	3)	Reclassification of certain reserves for equipment and other assets from accrued expenses and other current liabilities to accounts receivable, property and equipment, and other assets and deferred costs as of December 29, 2001.


	4)	Reclassification of certain non-reorganization expenses, which were previously presented as reorganization expenses, in the five month predecessor period ended June 2, 2001, to cost of goods sold and selling, general & administrative expense.

The consolidated financial statements for the year ended December 29, 2001 contained herein have been restated to reflect all of these adjustments and reclassifications.

Includes certain reclassification adjustments made to the previously reported amounts, which are unrelated to the restatement.

SCHEDULE II
NATIONAL VISION, INC.
VALUATION AND QUALIFYING ACCOUNTS
Seven Months Ended December 29, 2001, Five Months Ended June 2, 2001, Year Ended December 30, 2000 and Year Ended January 1, 2000
(In thousands)

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.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on June 3, 2003 by the following persons on behalf of the registrant, in the capacities indicated.

1.		I have reviewed this annual report on Form 10-K/A of National Vision, Inc.

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

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


Date:	June 3, 2003

		/s/ Reade Fahs

		Reade Fahs Title: Chief Executive Officer

1.		I have reviewed this annual report on Form 10-K/A of National Vision, Inc.

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

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


Date:	June 3, 2003

		/s/ Angus C. Morrison Angus C. Morrison Title: Chief Financial Officer


	Period Ended	High		Low

Fiscal 2000	April 1, 2000	$	2.500	$	0.844
	July 1, 2000	$	0.875	$	0.203
	September 30, 2000	$	0.359	$	0.125
	December 30, 2000	$	0.219	$	0.031
Fiscal 2001	March 31, 2001	$	0.200	$	0.030
	June 2, 2001	$	0.040	$	0.020


	Period Ended	High		Low

Fiscal 2001	September 29, 2001	$	5.000	$	0.900
	December 29, 2001	$	1.050	$	0.350


Reorganized value:
	New Debt	$	120,000
	New Equity		25,000

Reorganization value		$	145,000


Net liabilities subject to compromise	$	169,245
Deferred financing costs related to cancelled senior notes		(7,063	)

Net liabilities extinguished		162,182
Less: Reorganized value		145,000

Gain on extinguishment of debt	$	17,182


	Three Months Ended
	March 31, 2001

	As Reported			Adjustments			Pro Forma

Net sales	$	74,735		$	13,829	(D)	$	60,906
Cost of goods sold		34,525			6,976	(D)		27,549

Gross profit		40,210			6,853			33,357
Selling, general & administrative		39,071			10,142	(D)		28,929

Operating income / (loss)		1,139			(3,289	)		4,428
Interest expense, net		739			—			739

Earnings / (loss) before reorganization items, taxes, extraordinary item and cumulative effect of a change in accounting principle		400			(3,289	)		3,689
Reorganization expense / (gain)		1,789			1,789	(G)		—

Earnings / (loss) before taxes, extraordinary item and cumulative effect of a change in accounting principle		(1,389	)		(5,078	)		3,689
Income taxes		—			—			—

Net earnings / (loss) before extraordinary item and cumulative effect of a change in accounting principle		(1,389	)		(5,078	)		3,689
Extraordinary (loss) / gain, net		—			—			—

Net earnings / (loss)	$	(1,389	)	$	(5,078	)	$	3,689


	December 29, 2001		December 30, 2000

Wal-Mart vision centers in US		400		397
Wal-Mart vision centers in Mexico		35		27
Fred Meyer vision centers		55		56
Military base vision centers		24		19
Freestanding stores		—		226

		514		725


	Three Months Ended
	June 30, 2001

	As Reported (A)			Adjustments			Pro Forma

Net sales	$	64,428		$	4,386	(D)	$	60,042
Cost of goods sold (B)		31,174			4,831	(D)		26,343

Gross profit		33,254			(445	)		33,699
Selling, general & administrative (C)		39,244			6,334	(D)		32,910

Operating income / (loss)		(5,990	)		(6,779	)		789
Interest expense, net		1,520			—			1,520

Loss before reorganization items, taxes, extraordinary item and cumulative effect of a change in accounting principle		(7,510	)		(6,779	)		(731	)
Reorganization expense / (gain)		(104,304	)		(104,304	) (G)		—

Earnings / (loss) before taxes, extraordinary item and cumulative effect of a change in accounting principle		96,794			97,525			(731	)
Income taxes		—			—			—

Net earnings / (loss) before extraordinary item and cumulative effect of a change in accounting principle		96,794			97,525			(731	)
Extraordinary (loss) / gain, net		17,182			—			—

Net earnings / (loss)	$	113,976		$	114,707		$	(731	)


	Three Months Ended
	April 1, 2000

	As Reported			Adjustments			Pro Forma

Net sales	$	83,180		$	23,453	(D)	$	59,727
Cost of goods sold		36,745			10,747	(D)		25,998

Gross profit		46,435			12,706			33,729
Selling, general & administrative		45,759			17,710	(D)		28,049
Impairment of long-lived assets		2,684			2,684	(E)		—
Restructuring expense		1,601			1,601	(F)		—

Operating income / (loss)		(3,609	)		(9,289	)		5,680
Interest expense, net		5,330			—			5,330

Earnings / (loss) before reorganization items, taxes, extraordinary item and cumulative effect of a change in accounting principle		(8,939	)		(9,289	)		350
Reorganization expense / (gain)		—			—			—

Earnings / (loss) before taxes, extraordinary item and cumulative effect of a change in accounting principle		(8,939	)		(9,289	)		350
Income taxes		—			—			—

Net earnings / (loss) before extraordinary item and cumulative effect of a change in accounting principle		(8,939	)		(9,289	)		350
Extraordinary (loss) / gain, net		—			—			—
Cumulative effect of a change in accounting principle		(3,378	)		(3,378)	(H)		—

Net earnings / (loss)	$	(12,317	)	$	(12,667	)	$	350


	Three Months Ended
	July 1, 2000

	As Reported			Adjustments			Pro Forma

Net sales	$	78,783		$	19,745	(D)	$	59,038
Cost of goods sold		36,287			9,478	(D)		26,809

Gross profit		42,496			10,267			32,229
Selling, general & administrative		42,424			14,606	(D)		27,818
Impairment of long-lived assets		—			—			—
Restructuring expense		—			—			—

Operating income / (loss)		72			(4,339	)		4,411
Interest expense, net		917			—			917

Loss before reorganization items, taxes, extraordinary item and cumulative effect of a change in accounting principle		(845	)		(4,339	)		3,494
Reorganization expense / (gain)		4,379			4,379	(G)		—

(Loss) / earnings before taxes, extraordinary item and cumulative effect of a change in accounting principle		(5,224	)		(8,718	)		3,494
Income taxes		—			—			—

Net earnings / (loss) before extraordinary item and cumulative effect of a change in accounting principle		(5,224	)		(8,718	)		3,494
Extraordinary (loss) / gain, net		(827	)		(827)	(G)		—
Cumulative effect of a change in accounting principle		—			—			—

Net earnings / (loss)	$	(6,051	)	$	(9,545	)	$	3,494


	Three Months Ended
	September 30, 2000

	As Reported			Adjustments			Pro Forma

Net sales	$	75,578		$	16,797	(D)	$	58,781
Cost of goods sold		36,338			9,547	(D)		26,791

Gross profit		39,240			7,250			31,990
Selling, general & administrative		41,646			14,006	(D)		27,640
Impairment of long-lived assets		—			—			—
Restructuring expense		—			—			—

Operating income / (loss)		(2,406	)		(6,756	)		4,350
Interest expense, net		721			—			721

Loss before reorganization items, taxes, extraordinary item and cumulative effect of a change in accounting principle		(3,127	)		(6,756	)		3,629
Reorganization expense / (gain)		114,521			114,521	(G)		—

(Loss) / earnings before taxes, extraordinary item and cumulative effect of a change in accounting principle		(117,648	)		(121,277	)		3,629
Income taxes		—			—			—

Net earnings / (loss) before extraordinary item and cumulative effect of a change in accounting principle		(117,648	)		(121,277	)		3,629
Extraordinary (loss) / gain, net		—			—			—
Cumulative effect of a change in accounting principle		—			—			—

Net earnings / (loss)	$	(117,648	)	$	(121,277	)	$	3,629


		Twelve Months Ended
		December 29, 2001

		As Reported (A)			Adjustments			Pro Forma

Net earnings/(loss)		$	107,463		$	109,628		$	(2,165	)
Addback:
	Interest expense, net		9,539			—			9,539
	Reorganization expense/(gain)		(102,515	)		(102,515	)(C)		—
	Income tax expense		—			—			—
	Extraordinary (gain)/loss, net		(17,182	)		(17,182	)(C)		—
	Depreciation and amortization		16,233			84	(B)		16,149

EBITDA		$	13,538		$	(9,985	)	$	23,523


Impairment of goodwill:
	Frame-n-Lens	$	38,318
	New West Eyeworks		60,610
	Midwest Vision		1,877

Total goodwill impairment		$	100,805

Impairment of fixed assets:
	Frame-n-Lens	$	4,792
	New West Eyeworks		5,186
	Midwest Vision		668
	Meijer Thrifty Acre		987
	Sam’s Club		367

Total fixed asset impairment		$	12,000


					No. of Options
Vision Centers	No. of Units as of		Length of Base	Length of Option	Exercisable in
Located in	December 29, 2001		Term (in years)	Term (in years)	Fiscal 2002

Wal-Mart		400	9	3		45
Fred Meyer		55	5	5		—
Wal-Mart de Mexico		35	5	2 or 1		—
Military Bases		24	2 or 5	—		—


	LEASES EXPIRING IN CALENDAR YEAR

HOST													2008 AND
COMPANY	2002		2003		2004		2005		2006		2007		THEREAFTER		TOTAL

Wal-Mart		6		36		44		43		53		62		156		400
Fred Meyer		—		—		—		—		—		—		55		55

Totals		6		36		44		43		53		62		211		455


Category	Number

Total Vision Centers		514
Wal-Mart Locations		400
Wal-Mart de Mexico		35


	Page

Reports of Independent Auditors		F-2
Consolidated Balance Sheets as of December 29, 2001 (Restated) and December 30, 2000		F-4
Consolidated Statements of Operations for the Seven Months Ended December 29, 2001, the Five Months Ended June 2, 2001 (Restated), and the Years Ended December 30, 2000 and January 1, 2000		F-5
Consolidated Statements of Shareholders’ Equity / (Deficit) for the Seven Months Ended December 29, 2001, the Five Months Ended June 2, 2001, and the Years Ended December 30, 2000 and January 1, 2000		F-6
Consolidated Statements of Cash Flows for the Seven Months Ended December 29, 2001 (Restated), the Five Months Ended June 2, 2001 (Restated), and the Years Ended December 30, 2000 and January 1, 2000		F-7
Notes to Consolidated Financial Statements		F-8
Schedule II, Valuation and Qualifying Accounts		S-1


													Accumulated
	Common Stock						Additional			Retained			Other
							Paid-in			Earnings/			Comprehensive			Comprehensive
	Shares			Amount			Capital			(Deficit)			Income / (loss)			Income			Total

Predecessor Company:
BALANCE, January 2, 1999		21,166,612		$	211		$	47,195		$	594		$	(4,073	)				$	43,927
Restricted stock								136												136
Exercise of stock options		12,491						56												56
Net loss											(17,562	)				$	(17,562	)		(17,562	)

Comprehensive income																$	(17,562	)

BALANCE, January 1, 2000		21,179,103			211			47,387			(16,968	)		(4,073	)					26,557
Cancellation of shares		(10,000	)
Net loss											(139,880	)				$	(139,880	)		(139,880	)

Comprehensive income																$	(139,880	)

BALANCE, December 30, 2000		21,169,103			211			47,387			(156,848	)		(4,073	)					(113,323	)
Net income through June 2, 2001											113,323					$	113,323			113,323

Comprehensive income																$	113,323

Elimination of prior equity		(21,169,103	)		(211	)		(47,387	)		43,525			4,073						—

BALANCE, June 2, 2001		0		$	—		$	—		$	—		$	—					$	—

Successor Company:
Distribution of new common shares — June 2, 2001		5,000,000		$	50		$	24,950		$	—		$	—					$	25,000
Stock issuance costs								(10	)											(10	)
Net loss June 3 - December 29, 2001											(5,860	)				$	(5,860	)		(5,860	)
Cumulative translation adjustment														144			144			144

Comprehensive income																$	(5,716	)

BALANCE, December 29, 2001		5,000,000		$	50		$	24,940		$	(5,860	)	$	144					$	19,274


	Carrying Value		Fair Value

Long-term debt	$	118,403	$	74,003


	Increase /(Decrease)

Inventory	$	(700	)(e)
Property, plant and equipment, net		1,942	(f)
Other assets		(586	)(g)
Intangible value of contractual rights		113,607	(h)

Total fair value adjustments	$	114,263


		Predecessor												Successor
		Before												Reorganized
		Fresh Start			Extinguishment			New issuance			Fair value			Balance Sheet
		June 2, 2001			of debt			Notes / Stock			adjustments			June 2, 2001

Cash & cash equivalents		$	11,165											$	11,165
Accounts receivable			4,544												4,544
Inventory			20,566									(700	) (e)		19,866
Deferred tax asset			—									7,199	(j)		7,199
Other current assets			778												778

	Total current assets		37,053			—			—			6,499			43,552
Property and equipment
	Property and equipment		88,191									(60,323	)		27,868
	Accumulated depreciation		(62,265	)								62,265			—

	Property and equipment, net		25,926			—			—			1,942	(f)		27,868
Other assets and deferred costs			9,310			(7,063	) (a)					(586	) (g)		1,661
Deferred tax asset			385									(385	) (j)		—
Intangible value of contractual rights			—									113,607	(h)		113,607

	Total assets	$	72,674			(7,063	)		—			121,077		$	186,688

Liabilities not subject to compromise:
Current liabilities
	Accounts payable	$	1,858											$	1,858
	Accrued expenses		27,619			2,300	(b)								29,919

	Total current liabilities		29,477			2,300			—			—			31,777
	Revolving credit facility		3,000												3,000
	Senior notes		—						120,000	(d)					120,000
	Other debt		—			97	(b)								97
Deferred tax liability												6,814	(j)		6,814
Liabilities subject to compromise			171,642			(171,642	) (b)
Shareholders’ equity / (deficit)
	Common stock		211						50	(d)		(211	) (i)		50
	Additional paid-in capital		47,387						24,950	(d)		(47,387	) (i)		24,950
	Retained earnings / (deficit)		(174,970	)		17,182	(c)					157,788	(i)		—
	Cumulative translation adjustment		(4,073	)								4,073	(i)		—

	Total shareholders’ equity / (loss)		(131,445	)		17,182			25,000			114,263			25,000

Total liabilities and shareholders’ equity		$	72,674			(152,063	)		145,000			121,077		$	186,688

(a)		Elimination of deferred financing costs associated with the senior notes being cancelled as part of the plan of reorganization.

(b)		Elimination of pre-petition liabilities. Cash claims of $2.3 million were accrued as well as assumed capital leases totaling $97,000.


Reorganized value
New Debt	$	120,000
New Equity		25,000

Reorganization value	$	145,000

(e)		Reduction of inventory for a change in accounting policy related to the capitalization of certain freight costs incurred for transfers of inventory between Company locations, and certain business supplies.

(f)		Net increase in fixed assets is the result of fair value adjustments increasing equipment by approximately $3.4 million and decreasing certain leaseholds and furniture and fixtures by $1.5 million.

(g)		Elimination of all intangibles with the exception of the California HMO licenses.

(h)		Establishment of Intangible value of contractual rights to be amortized over 15 years using the straight-line method. This intangible asset represents the value of the Company’s lease agreement and the business relationship developed with Wal-Mart.

(i)		Elimination of Predecessor Company equity.

(j)		Deferred tax effects of fair value adjustments.

(a)		This amount is net of an accrual for claims to be paid in cash of approximately $2.3 million.

(b)		This amount is net of $97,000 worth of capital leases assumed to continue after emergence from bankruptcy.


								Other adjustments,
	Balance at		Charged to					including			Accrued at
	December 30, 2000		Expense		Paid			Fresh-start accounting			June 2, 2001

Restructuring and reorganization items	$	4,727	$	9,889		($1,343	)		($4,042	)	$	9,231


	Balance at		Charged to								Accrued at
	June 2, 2001		Expense		Paid			Other adjustments			December 29, 2001

Restructuring and reorganization items	$	9,231	$	—		($8,383	)		377		$	1,225


Fiscal Year			Operating Leases

		2002	$	26,019
		2003		22,981
		2004		11,141
		2005		5,011
		2006		2,947
	Thereafter			3,504

Total minimum lease payments			$	71,603


	Successor			Predecessor

	Seven			Five			Year Ended
	Months			Months
	Ended			Ended

	December 29,			June 2,			December 30,			January 1,
	2001			2001			2000			2000

Federal income tax (benefit) / provision at statutory rate	$	(2,051	)	$	39,663		$	(46,148	)	$	(5,971	)
State income taxes, net of federal income tax benefit		(176	)		3,400			(3,393	)		(439	)
Loss on disposed subsidiaries		—			(26,912	)		—			—
Professional fees		344			573			—			—
Change in valuation allowance for U.S federal and state taxes		1,137			(17,335	)		8,782			5,182
Nondeductible goodwill		—			—			38,640			1,425
Other, net		746			611			2,119			(197	)

	$	0		$	0		$	0		$	0


			Predecessor						Successor

						Two Months
						Ended
			Quarter			June 2			One Month			Quarter			Quarter
			Ended			(Restated -			Ended			Ended			Ended
FISCAL 2001			March 31			See Note 17.)			June 30			September 29			December 29

Net sales			$	74,735		$	45,822		$	18,606		$	59,741		$	57,196
Cost of goods sold				34,525			22,879			8,295			26,097			27,096

Gross profit				40,210			22,943			10,311			33,644			30,100
Selling, general & administrative expense				39,071			29,306			9,938			31,440			30,148

Operating income / (loss)				1,139			(6,363	)		373			2,204			(48	)
Interest expense, net				739			411			1,109			3,673			3,607

Earnings / (loss) before reorganization items and taxes				400			(6,774	)		(736	)		(1,469	)		(3,655	)
Reorganization expense / (gain)				1,789			(104,304	)		—			—			—

Earnings / (loss) before taxes and extraordinary gain				(1,389	)		97,530			(736	)		(1,469	)		(3,655	)
Income tax expense				—			—			—			—			—

Earnings / (loss) before extraordinary gain				(1,389	)		97,530			(736	)		(1,469	)		(3,655	)
Extraordinary gain, net				—			17,182			—			—			—

Net earnings / (loss)			$	(1,389	)	$	114,712		$	(736	)	$	(1,469	)		(3,655	)

Basic earnings / (loss) per share:
	Earnings / (loss) before extraordinary gain		$	(0.07	)	$	4.61		$	(0.15	)	$	(0.29	)	$	(0.73	)
	Gain from extraordinary item			—			0.81			—			—			—

	Net earnings / (loss) per basic share		$	(0.07	)	$	5.42		$	(0.15	)	$	(0.29	)	$	(0.73	)

Diluted earnings / (loss) per share:
	Earnings / (loss) before extraordinary gain		$	(0.07	)	$	4.61		$	(0.15	)	$	(0.29	)	$	(0.73	)
	Gain from extraordinary item			—			0.81			—			—			—

Net earnings / (loss) per diluted share			$	(0.07	)	$	5.42		$	(0.15	)	$	(0.29	)	$	(0.73	)

Supplemental information:
		Capital expenditures	$	1,259		$	825		$	335		$	970		$	1,445
		Depreciation and amortization	$	2,867		$	1,941		$	1,536		$	4,979		$	4,910


		Predecessor

		As Reported			(As Restated
					See Note 17)
		Two Months			Two Months
		Ended			Ended
Fiscal 2001		June 2			June 2

Net sales		$	45,822		$	45,822
Cost of goods sold			20,236			22,879

Gross profit			25,586			22,943
Selling, general & administrative expense			25,906			29,306

Operating income / (loss)			(320	)		(6,363	)
Interest expense, net			411			411

Earnings / (loss) before reorganization items and taxes			(731	)		(6,774	)
Reorganization expense / (gain)			(98,261	)		(104,304	)

Earnings / (loss) before taxes and extraordinary gain			97,530			97,530
Income tax expense			0			0

Earnings / (loss) before extraordinary gain			97,530			97,530
Extraordinary gain, net			17,182			17,182

Net earnings / (loss)		$	114,712		$	114,712

Basic earnings / (loss) per share:
	Earnings / (loss) before extraordinary gain	$	4.61		$	4.61
	Gain from extraordinary item		0.81			0.81

	Net earnings / (loss) per basic share	$	5.42		$	5.42

Diluted earnings / (loss) per share:
	Earnings / (loss) before extraordinary gain	$	4.61		$	4.61
	Gain from extraordinary item		0.81			0.81

	Net earnings / (loss) per diluted share	$	5.42		$	5.42

Supplemental information:
	Capital expenditures	$	825		$	825
	Depreciation and amortization	$	1,941		$	1,941


FISCAL 2000			Quarter Ended

			April 1			July 1			September 30			December 30

Net sales			$	83,180		$	78,783		$	75,578		$	70,153
Cost of goods sold				36,745			36,287			36,338			34,088

Gross profit				46,435			42,496			39,240			36,065
Selling, general & administrative expense				45,759			42,424			41,646			36,535
Impairment on long-lived assets				2,684			0			0			0
Restructuring expense, net				1,601			0			0			0

Operating income / (loss)				(3,609	)		72			(2,406	)		(470	)
Interest expense, net				5,330			917			721			755

Earnings / (loss) before reorganization items and taxes				(8,939	)		(845	)		(3,127	)		(1,225	)
Reorganization expense				0			4,379			114,521			2,639

(Loss) before taxes, extraordinary loss and cumulative effect				(8,939	)		(5,224	)		(117,648	)		(3,864	)
Income tax expense				0			0			0			0

Earnings / (loss) before extraordinary loss and cumulative effect				(8,939	)		(5,224	)		(117,648	)		(3,864	)
Extraordinary loss, net				0			(827	)		0			0
Cumulative effect, net				(3,378	)		0			0			0

Net loss			$	(12,317	)	$	(6,051	)	$	(117,648	)	$	(3,864	)

Basic earnings / (loss) per share:
	Earnings / (loss) before extraordinary item and cumulative effect		$	(0.42	)	$	(0.25	)	$	(5.56	)	$	(0.18	)
	Loss from extraordinary item			0.00			(0.04	)		0.00			0.00
	Loss from cumulative effect			(0.16	)		0.00			0.00			0.00

	Net earnings / (loss) per basic share		$	(0.58	)	$	(0.29	)	$	(5.56	)	$	(0.18	)

Diluted earnings / (loss) per share:
	Earnings / (loss) before extraordinary item and cumulative effect		$	(0.42	)	$	(0.25	)	$	(5.56	)	$	(0.18	)
	Loss from extraordinary item			0.00			(0.04	)		0.00			0.00
	Loss from cumulative effect			(0.16	)		0.00			0.00			0.00

Net earnings / (loss) per diluted share			$	(0.58	)	$	(0.29	)	$	(5.56	)	$	(0.18	)

Supplemental information
		Capital expenditures	$	2,445		$	796		$	1,038		$	1,100
		Depreciation and amortization	$	4,816		$	4,682		$	5,389		$	2,639


					Additions

			Balance at		Charged to		Charged to				Balance at
Description			Beginning of Period		Cash and Expenses		Other Accounts		Deductions		End of Period

Predecessor: Year ended
	January 1, 2000
		Allowance for Uncollectible Accounts Receivable	$	1,274	$	2,660	$	631	$	729	$	3,836
		Provision for self-insured liabilities	$	1,638	$	9,475	$	2,794	$	11,314	$	2,593

Year ended
	December 30, 2000
		Allowance for uncollectible accounts receivable	$	3,836	$	1,236	$	1,482	$	2,214	$	4,340
		Provision for self-insured liabilities	$	2,593	$	9,863	$	2,807	$	12,061	$	3,202

Five months ended
	June 2, 2001
		Allowance for uncollectible accounts receivable	$	4,340	$	6,195	$	—	$	7,706	$	2,829
		Provision for self-insured liabilities	$	3,202	$	4,741	$	1,163	$	5,359	$	3,747


Successor: Seven months ended
	December 29, 2001
		Allowance for uncollectible accounts receivable	$	2,829	$	320	$	—	$	1,360	$	1,789
		Provision for self-insured liabilities	$	3,747	$	4,894	$	2,103	$	7,673	$	3,071


		NATIONAL VISION, INC.

		By: /s/ Reade Fahs Reade Fahs President and Chief Executive Officer

June 3, 2003


Signature		Title


By: /s/ Reade Fahs Reade Fahs		President and Chief Executive Officer



By: /s/ Angus C. Morrison Angus C. Morrison		Senior Vice President and Chief Financial Officer



By: /s/ S. Lynn Butler S. Lynn Butler		Principal Accounting Officer



By: /s/ Robert Floum Robert Floum		Director



By: /s/ James W. Krause James W. Krause		Director



By: /s/ Marc Nelson Marc Nelson		Director



By: /s/ Jeffrey Snow Jeffrey Snow		Director



By: /s/ Peter T. Socha Peter T. Socha		Director


23.1		Notice Regarding Consent of Arthur Andersen LLP.

23.2		Deloitte & Touche LLP Consent

99.1		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.