1 800 CONTACTS INC, S-1/A, 1999-07-26

1 800 CONTACTS INC
S-1/A, 1999-07-26
OPTICAL INSTRUMENTS & LENSES

Previous: SCOUT KANSAS TAX EXEMPT BOND FUND INC, 40-17F2, 1999-07-26

Next: PORTFOLIO ADVISORY SERVICES LLC, 13F-HR, 1999-07-26

<PAGE>

As filed with the Securities and Exchange Commission on July 26, 1999

Registration No. 333-80289
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

PRE-EFFECTIVE

AMENDMENT NO. 2
to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933

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

1-800 CONTACTS, INC.
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
Delaware 5960 87-0571643
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or organization) Classification Code Number) No.)
</TABLE>

66 E. Wadsworth Park Drive
Draper, Utah 84020
Telephone: (801) 924-9800
(Address, including zip code, and telephone number, including area code, of
Registrant's executive offices)

Jonathan C. Coon, President and Chief Executive Officer
1-800 CONTACTS, INC.
66 E. Wadsworth Park Drive
Draper, Utah 84020
Telephone: (801) 924-9800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

Copies to:
<TABLE>
<S> <C>
Dennis M. Myers, Esq. Gregory C. Smith, Esq.
Kirkland & Ellis Skadden, Arps, Slate, Meagher & Flom LLP
200 East Randolph Drive 525 University Avenue, Suite 220
Chicago, Illinois 60601 Palo Alto, California 94301
(312) 861-2000 (650) 470-4500
</TABLE>

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

Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

SUBJECT TO COMPLETION, DATED JULY 23, 1999
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information in this prospectus is not complete and may be changed. +
+Underwriters may not confirm sales of these securities until the registration +
+statement filed with the Securities and Exchange Commission becomes +
+effective. This prospectus is not an offer to sell these securities, and we +
+are not soliciting offers to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

PROSPECTUS

2,040,000 Shares

[1-800-CONTACTS LOGO APPEARS HERE]

Common Stock

1-800 CONTACTS, INC. is selling 1,410,000 shares in this offering and the
selling stockholders identified in this prospectus are selling 630,000 shares
in this offering. 1-800 CONTACTS, INC. will not receive any of the proceeds
from the sale of shares by the selling stockholders. 1-800 CONTACTS, INC.'s
common stock is traded on the Nasdaq National Market under the symbol "CTAC."
On July 22, 1999, the last reported sale price for the common stock on the
Nasdaq National Market was $23.0625 per share. See "Price Range of Common
Stock."

--------

<TABLE>
<CAPTION>
Per Share Total
--------- -------
<S> <C> <C>
Public offering price........................................ $ $
Underwriting discount and commissions........................ $ $
Proceeds to 1-800 CONTACTS, INC., before expenses............ $ $
Proceeds to selling stockholders, before expenses............ $ $
</TABLE>

1-800 CONTACTS, INC. and the selling stockholders have granted the
underwriters an option for a period of 30 days to purchase up to 306,000
additional shares of common stock. The underwriters are severally underwriting
the shares being offered. The underwriters expect to deliver the shares against
payment in New York, New York on August , 1999.

--------

Investing in the common stock involves a high degree of risk. See "Risk
Factors" beginning on page 8.

--------

The Securities and Exchange Commission and state regulators have not
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.

Hambrecht & Quist McDonald Investments Inc.

, 1999
<PAGE>

[Pictures of representative products sold by 1-800 CONTACTS,
the 1-800 CONTACTS Logo and a
customer service representative displaying contact lenses]

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----

<S> <C>
Prospectus Summary..................................................... 4

Risk Factors........................................................... 8

Forward-Looking Statements............................................. 17

Use of Proceeds........................................................ 18

Price Range of Common Stock............................................ 19

Dividend Policy........................................................ 19

Capitalization......................................................... 20

Selected Financial Data................................................ 21

Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 23

Business............................................................... 31

Management............................................................. 45

Certain Relationships and Related Transactions......................... 49

Principal and Selling Stockholders..................................... 51

Description of Capital Stock........................................... 53

Underwriting........................................................... 56

Experts................................................................ 58

Legal Matters.......................................................... 58

Where You Can Find More Information.................................... 58

Index to Financial Statements.......................................... F-1
</TABLE>

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

We were incorporated under the laws of the State of Utah in February 1995
and were reincorporated under the laws of the State of Delaware in February
1998. We completed the initial public offering of our common stock in February
1998. Our principal executive office is located at 66 E. Wadsworth Park Drive,
Draper, Utah 84020, and our telephone number is (801) 924-9800. Our website is
contacts.com. The information contained on our website does not constitute a
part of this prospectus. As used in this prospectus, references to "we," "our,"
"us," and 1-800 CONTACTS refer to 1-800 CONTACTS, INC. and not to the
underwriters or the selling stockholders.

All brand names and trademarks appearing in this prospectus are the
property of their respective holders.

Except as otherwise noted, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option.

3
<PAGE>

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this
prospectus. This summary is not complete and may not contain all of the
information that you should consider before investing in our common stock. You
should read the entire prospectus carefully, including "Risk Factors" and our
financial statements and the related notes before making an investment
decision.

1-800 CONTACTS, INC.

1-800 CONTACTS, INC. is a leading direct marketer of replacement contact
lenses. As of July 3, 1999, we had shipped more than 1.5 million orders to
approximately 900,000 customers since our inception. Through our easy-to-
remember, toll-free telephone number, "1-800 CONTACTS" (1-800-266-8228), and
increasingly through our Internet addresses, which include
"www.1800contacts.com," "www.contacts.com" and "www.contactlenses.com," we sell
all of the popular brands of contact lenses, including those manufactured by
Johnson & Johnson, CIBA Vision, Bausch & Lomb, Wesley Jessen, Ocular Sciences
and CooperVision. Our high volume, cost-efficient operations, supported by our
proprietary management information systems, enable us to offer our products at
competitive prices while delivering a high level of customer service. As a
result of our extensive inventory of more than 18,000 SKUs, we generally ship
approximately 90% of our orders within one business day of receipt. We believe
that we offer our customers an attractive alternative for obtaining replacement
contact lenses in terms of convenience, price, speed of delivery and customer
service. Our net sales have grown rapidly, from $3.6 million in 1996 to $59.9
million in 1998 and from $23.2 million in the first two quarters of 1998 to
$46.3 million in the first two quarters of 1999.

The Internet is our fastest-growing sales channel and a more cost-
effective way for us to serve our customers. Our Internet sales for the first
two quarters of 1999 were $6.5 million compared to $0.1 million in the same
period in the previous fiscal year. During the second quarter of 1999, our
website generated approximately 24% of our new orders. Our online presence
enables us to operate more efficiently by substantially eliminating the payroll
and long distance costs associated with telephone orders. This increased
efficiency allows us to offer Internet customers free shipping in addition to
other services not possible with telephone orders such as e-mail shipping
confirmation, online order tracking and e-mail correspondence. We believe that
our customers will increasingly use the Internet to order and reorder
replacement contact lenses.

We market our products through an aggressive national advertising campaign
that aims to increase recognition of the 1-800 CONTACTS brand, increase traffic
on our web site, add new customers, continue to build strong customer loyalty
and maximize repeat purchases. As compared to other direct marketers of
replacement contact lenses, we believe that our toll-free telephone number and
Internet addresses afford us a significant competitive advantage in generating
consumer awareness and repeat business. We spent approximately $22.7 million on
advertising in 1998, and intend to use a significant portion of the net
proceeds from this offering to further increase our sales and marketing
activities. Our experience has been that increases in advertising expenditures
have a direct impact on the growth of net sales. We believe that the planned
increase in advertising activities will enable us to attract significant
numbers of new customers. In addition, our new marketing campaign will more
prominently feature our website, contacts.com.

Our sales and marketing efforts, combined with our focus on delivering a
high level of customer service, have built a loyal customer base. Our customer
service representatives are trained to provide efficient and accurate order
entry, are able to provide customers with real time product availability
information and estimated delivery dates for their lenses, and are empowered to
handle all customer service

4
<PAGE>

issues. For the twelve-month period ended June 30, 1998, each $1.00 of sales to
new customers generated approximately $0.78 of repeat sales in the succeeding
12 month period. During the first two quarters of 1999, approximately $23.4
million, or 50.5% of net sales, were to repeat customers, compared to net sales
to repeat customers of approximately $8.6 million, or 37.1% of net sales, in
the first two quarters of 1998.

We estimate, based on published reports, that the U.S. retail market for
contact lenses was approximately $3.7 billion in 1997 and, according to
industry analysts, is expected to grow at 4% to 6% in 1999, with the disposable
market growing at 8% to 12%. The growth in the disposable market is largely due
to the shift in the contact lens market away from traditional soft lenses,
which generally are replaced on an annual basis, to disposable lenses, which
are replaced on a daily, weekly or bi-weekly basis.

Over the last decade, there have been significant changes in the ways
contact lenses are sold to consumers. Driven primarily by the growing
commodity-like nature of contact lens products, such as disposable lenses,
direct marketers have emerged as an attractive alternative to more traditional
providers, such as eye care practitioners and retail optical chains. We believe
that consumers are increasingly seeking the convenience, speed and home
delivery that direct marketers of replacement contact lenses can provide.

Competitive Strengths

We attribute our success as a direct marketer in the replacement segment
of the contact lens industry and our significant opportunities for growth to
several competitive strengths, including:

. Our brand, which we believe is the most recognized in the direct
marketing segment of the contact lens industry;

. Our easy-to-remember, toll-free telephone number, 1-800 CONTACTS;

. Our Internet addresses, which include www.1800contacts.com,
www.contacts.com and www.contactlenses.com;

. Our extensive inventory of over six million contact lenses (18,000
SKUs), which enables us to ship approximately 90% of our orders within
one business day of receipt;

. Our proprietary management information systems, which enable us to
process both telephone and Internet orders, continually monitor and
track substantially all of our inventory, rapidly process credit card
orders and increase the speed and accuracy of the shipping process;

. Our commitment to high quality, consistent customer service; and

. Our loyal customer base of approximately 900,000 customers as of July
3, 1999.

Growth Strategy

Our objective is to be the world's largest seller of replacement contact
lenses. The key components of our strategy include:

. Increasing awareness of the 1-800 CONTACTS and contacts.com brand
names;

. Increasing the number of online customers;

. Leveraging our customer base through strategic partnerships;

. Enhancing our customer relationships;

. Maintaining our technology focus and expertise;

. Pursuing selected acquisitions; and

. Pursuing international expansion.

5
<PAGE>

The Offering

<TABLE>
<S> <C>
Common stock offered by 1-800
CONTACTS........................ 1,410,000 shares

Common stock offered by the
selling stockholders............ 630,000 shares

Common stock outstanding after
the offering.................... 7,692,458 shares

Use of proceeds.................. We will use the net proceeds from the
offering to fund advertising and brand
development and for other general corporate
purposes, which may include acquisitions and
working capital. See "Use of Proceeds."

Nasdaq National Market symbol.... CTAC
</TABLE>

The common stock outstanding after this offering is based on the number of
shares outstanding at July 22, 1999 and excludes 258,108 shares of common stock
issuable upon the exercise of outstanding options at a weighted average
exercise price of $9.99 per share and an additional 241,142 shares of common
stock available for future issuance to employees or non-employee directors
under our stock option plan. See "Management--Incentive Stock Option Plan."

6
<PAGE>

Summary Financial Data

The selected historical financial data presented below are derived from
the financial statements of 1-800 CONTACTS, INC. included elsewhere in this
prospectus. The "as adjusted" balance sheet data summarized below reflects the
application of the estimated net proceeds from the sale of 1,410,000 shares of
common stock offered by us at the assumed public offering price of $23.0625 per
share after deducting estimated underwriting discounts and commissions and
offering expenses.

<TABLE>
<CAPTION>
Fiscal Year First Two Quarters
------------------------------------ ------------------------
1996 1997 1998 1998 1999
---------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... $3,628,296 $21,115,314 $59,875,941 $23,229,742 $46,264,313
Gross profit............ 1,412,990 7,090,791 22,560,528 8,641,644 17,700,483
Advertising expense..... 468,146 3,485,619 24,206,857 5,947,851 9,799,330
Other selling, general
and administrative
expenses............... 573,166 2,459,602 7,334,668 2,578,807 5,615,991
Income (loss) from
operations............. 371,678 1,145,570 (8,980,997) 114,986 2,285,162
Net income (loss)....... $ 348,363 $ 1,032,408 $(7,892,608) $ (429,972) $ 1,763,362
Basic and diluted net
income (loss) per
common share........... $ (1.27) $ (0.07) $ 0.28
Pro forma income (loss)
before benefit
(provision) for
income taxes........... $ 348,363 $ 1,032,408 $(8,535,287) $ 395,472 $ 2,456,041
Pro forma benefit
(provision) for income
taxes.................. (134,120) (397,477) 642,679 (149,873) (692,679)
---------- ----------- ----------- ----------- -----------
Pro forma net income
(loss)................. $ 214,243 $ 634,931 $(7,892,608) $ 245,599 $ 1,763,362
========== =========== =========== =========== ===========
Pro forma basic net
income (loss) per
common share........... $ 0.14 $ (1.27) $ 0.04 $ 0.28
Pro forma diluted net
income (loss) per
common share........... $ 0.13 $ (1.27) $ 0.04 $ 0.28
</TABLE>

<TABLE>
<CAPTION>
July 3, 1999
-----------------------
Actual As Adjusted
----------- -----------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Working capital........................................ $11,124,037 $41,266,256
Total assets........................................... 25,299,750 55,441,969
Total debt (including current portion)................. 49,001 49,001
Stockholders' equity................................... 14,813,386 44,955,605
</TABLE>

Prior to February 9, 1998, we were an S corporation and were not subject
to federal and certain state income taxes. Pro forma net income (loss) reflects
historical net income less pro forma income taxes. Pro forma income taxes are
provided as if we had been a C corporation rather than an S corporation for the
periods noted. We terminated our S corporation status upon the completion of
our initial public offering in February of 1998, and, at that date, we recorded
a non-recurring, non-cash charge to earnings to recognize deferred income
taxes. Pro forma diluted net income (loss) per share of common stock is based
on the weighted average shares of common stock and stock equivalents
outstanding, including actual shares outstanding and shares deemed to be
outstanding using the treasury stock method. The shares deemed to be
outstanding for 1997 included the number of shares sufficient to fund the S
corporation distribution of approximately $983,000. See "Dividend Policy."

7
<PAGE>

RISK FACTORS

You should consider carefully the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could harm our business, operating results and financial
condition and could result in a complete loss of your investment.

This prospectus contains forward-looking statements that involve known and
unknown risks and uncertainties. These statements relate to our plans,
objectives, expectations and intentions. Our actual results could differ
materially from those discussed in these statements. Factors that could
contribute to these differences include those discussed below and elsewhere in
this prospectus.

Risks Relating to Our Business

Our sales growth will not continue at historical rates and we may encounter
unforeseen difficulties in managing our future growth.

Since our formation in February 1995, we have experienced rapid growth. We
expect the rate of growth in net sales to decrease in future quarters of 1999
and to stabilize in the future. Our ability to compete effectively and to
manage future growth, if any, will require us to continue to improve our
financial and management controls and our reporting systems and procedures on a
timely basis and to expand, train and manage our employee base. Our failure or
inability to accomplish any of these goals could harm our business.

A significant portion of our sales do not comply with applicable state laws and
regulations governing the delivery and sale of contact lenses.

The sale and delivery of contact lenses are generally governed by state
laws and regulations. We sell to customers in all 50 states and each sale is
likely to be subject to the laws of the state where the customer is located.
The laws and regulations relating to the delivery and sale of contact lenses
vary from state to state, but can generally be classified into five categories:

(1) laws that require contact lenses to be dispensed only pursuant to a
valid prescription;

(2) laws that require the dispenser to be licensed by the state as an
optometrist, ophthalmologist or other professional authorized to
dispense lenses;

(3) laws that require lenses be dispensed only in a face-to-face
transaction;

(4) laws with requirements that are unclear or do not specifically
address the sale and delivery of contact lenses; and

(5) laws that we believe place no restrictions on the dispensing of
replacement contact lenses.

Many of the states requiring that contact lenses be dispensed in face-to-face
meetings or by a person licensed by such state to dispense lenses also require
that lenses only be dispensed pursuant to a valid prescription. Neither we nor
any of our employees is a licensed or registered dispenser of contact lenses in
any state other than California and Texas.

Our operating practice is to attempt to obtain a valid prescription from
each customer or his/her eye care practitioner. If we are unable to obtain a
copy of or verify the customer's prescription, it is our practice to ship the
lenses to the customer based on the information that the customer has provided.

8
<PAGE>

net sales in 1998 appeared to conform to the requirements of applicable state
laws and regulations. Any action brought against us based on our failure to
comply with applicable state laws and regulations could result in us being
subject to significant fines, being prohibited from making sales in a
particular state, being required to comply with such laws or could constitute a
misdemeanor. Such required compliance could result in:

. increased costs to us;

. the loss of a substantial portion of our customers for whom we are
unable to obtain or verify a prescription;

. the inability to sell to customers at all in a particular state if we
cannot comply with such state's laws; and

. misdemeanor penalties and civil fines.

The occurrence of any of the above results could harm our ability to sell
contact lenses and to operate profitably. Furthermore, states may not enact or
may impose laws or regulations that prohibit mail order dispensing of contact
lenses or otherwise impair our ability to sell contact lenses and continue to
operate profitably. We have not obtained an opinion of counsel with regard to
our compliance with applicable state laws and regulations or the enforceability
of such state laws and regulations, and information contained in this
prospectus regarding our compliance with applicable state laws and regulations
should not be construed as being based on an opinion of counsel.

From time to time, we receive notices, inquiries or other correspondence
from states or their regulatory bodies charged with overseeing the sale of
contact lenses. We are currently involved in litigation brought by two
California optometrists regarding our alleged business practices in California
and by the Kansas Board of Examiners in Optometry regarding our alleged
business practices in Kansas. We have in the past, and intend in the future, to
vigorously defend any actions brought against us. See "Business-- Government
Regulation" and "--Legal Proceedings."

Because we don't manufacture contact lenses, we cannot ensure that the contact
lenses we sell meet all federal regulatory requirements.

Contact lenses are regulated as medical devices by the FDA. Under the
Federal Food, Drug, and Cosmetic Act, medical devices must meet a number of
regulatory requirements, including the requirement that they be cleared or
approved by FDA, be manufactured in accordance with good manufacturing practice
regulations, be labeled in compliance with federal law, and be listed with FDA.
We attempt to ensure that the lenses we buy do comply with federal laws.
However, because we are not the manufacturers, we cannot ensure that the lenses
we sell do comply with the FDC Act. The distribution of medical devices that do
not comply with the FDC Act is unlawful, and subjects the distributor and the
devices themselves to FDA regulatory action. The possible sanctions include
warning letters from the FDA, injunction, civil penalties, and criminal
prosecution, as well as seizure of the contact lenses.

It is possible that the FDA will consider certain of the contact lenses we sell
to be misbranded.

The FDA also regulates the labeling of medical devices. The contact lenses
that we sell are prescription devices, and therefore contain the statement
required by FDA regulations: "Caution: Federal law restricts this device to
sale by or on the order of a (physician or other licensed
practitioner)." However, because of the difficulty we have encountered in
obtaining the cooperation of eye care practitioners, we sometimes sell lenses
based solely on the prescription information provided by the customer without a
written prescription or other order by the customer's eye care practitioner.
Although the FDA has not objected to the sale of contact lenses without a
written prescription or other order directly from the customer's eye care
practitioner, it is possible that the FDA will consider contact lenses that are
sold in such a fashion to be misbranded. The sale of misbranded devices is
unlawful under the Federal Food, Drug, and Cosmetic Act, and can result in a
warning letter, seizure, injunction, civil penalties, or prosecution. To date,
we have not received any notices from the FDA.

9
<PAGE>

We currently purchase a substantial portion of our products from unauthorized
distributors and are not an authorized distributor for the majority of the
products that we sell.

We are not an authorized distributor for the majority of the products
which we sell. Some of the major manufacturers of contact lenses have refused
to sell lenses directly to direct marketers, including us, and have sought to
prohibit their distributors from doing so. As a result, we currently purchase a
substantial portion of our products from unauthorized distributors. We do not
investigate the sources from which our suppliers obtain the contact lenses we
sell. These sources may include foreign establishments. Contact lenses
manufactured either abroad or domestically for the export market may not comply
with the good manufacturing practice standards established by the FDA, and
therefore, their sale by us may be in violation of the Federal Food, Drug, and
Cosmetic Act. We are aware that at least one large manufacturer of contact
lenses puts tracking codes on its products in an effort to identify
distributors who are selling to direct marketers. In addition, the prices we
pay for certain of our products are sometimes higher than those paid by eye
care practitioners, retail chains and mass merchandisers, who are able to buy
directly from manufacturers. Furthermore, in order to help ensure adequate
supply, we generally carry a higher level of inventory than would otherwise be
required if we were able to purchase directly from contact lens manufacturers.
We may not be able to obtain sufficient quantities of contact lenses at
competitive prices in the future to meet the existing or anticipated demand for
our products. Our inability to obtain sufficient quantities of contact lenses
would harm our business.

We obtain a large percentage of our inventory from a limited number of
suppliers.

A single distributor supplied us with approximately 40% and 47% of our
inventory in 1997 and 1998, respectively, and our top three suppliers accounted
for approximately 72% and 70% of our inventory in 1997 and 1998, respectively.
We believe that none of these suppliers is authorized by contact lens
manufacturers to distribute their products. If any of these suppliers could no
longer supply us with contact lenses, we may not be able to secure other
adequate sources of supply, or may not be able to obtain our inventory on terms
as favorable to us as our current supply. Either circumstance could harm us by
increasing our costs or, in the event adequate replacement supply cannot be
secured, reducing our net sales.

We expect to incur losses in the future and cannot assure you that our new
advertising strategies will prove successful. Our quarterly results are likely
to vary based upon the level of sales and marketing activity in any particular
quarter.

We expect to incur significant expenditures in order to increase awareness
of the 1-800 CONTACTS and www.contacts.com brand names through sales and
marketing and other promotional activities. As a result, we anticipate
realizing an operating loss in the third quarter of 1999 and in subsequent
periods. In addition, our new sales and marketing activities may not be
successful and may not result in increases in our net sales. Furthermore, we
currently expense all advertising costs, including all direct-mail advertising
costs, when the advertising first takes place. As a result, quarter-to-quarter
comparisons are affected by the timing of television, radio and Internet
advertisements and by the mailing of our printed advertisements within and
between quarters. The volume of mailings and other advertising may vary in
different quarters and from year to year depending on our assessment of
prevailing market opportunities. Our operating results for any particular
quarter may not be indicative of future operating results. For example, we
typically decrease our advertising expenditures in the fourth quarter due to
the increased cost to advertise during this period. As a result, we in the past
have and in the future expect to generate lower revenues in the fourth quarter
than in the preceding third quarter. You should not rely on quarter-to-quarter
comparisons of our results of operations as an indication of our future
performance. Our results of operations for the second quarter of 1998 were, and
in the future our results of operations may be, below the expectations of
public market analysts. This in the past has and in the future could cause the
trading price of our common stock to fall significantly.

10
<PAGE>

We are dependent on our telephone, Internet and management information systems
for the sale and distribution of contact lenses.

Our success depends, in part, on our ability to provide prompt, accurate
and complete service to our customers on a competitive basis, and our ability
to purchase and promote products, manage inventory, ship products, manage sales
and marketing activities and maintain efficient operations through our
telephone and proprietary management information systems. A significant
disruption in our telephone, Internet or management information systems could
harm our relations with our customers and our ability to manage our operations.
From time to time, we have experienced temporary interruptions in our telephone
service as a result of the technical problems experienced by our long-distance
carrier. In 1998, we experienced three interruptions, which lasted on average
approximately two to three hours each. Similar interruptions may occur in the
future and such interruptions may harm our business. Furthermore, extended or
repeated reliance on our back-up computer systems may harm our business.

We have limited operating history.

We were formed in February 1995 as the successor to the business founded
by our Vice President of Operations in March 1991. Our toll-free telephone
number, 1-800 CONTACTS, began operations in July 1995 and our first website,
www.1800contacts.com, began operations in October 1995. As a result, there is
only limited financial information and operating information available for a
potential investor to evaluate an investment in our common stock. In addition,
our limited operating history and rapid growth in net sales make it difficult
to forecast future operating results and reduce the relevance of quarter-to-
quarter comparisons.

The retail sale of contact lenses is highly competitive. Certain of our
competitors are large, national optical chains that have greater resources than
we have.

The retail sale of contact lenses is a highly competitive and fragmented
industry. Our principal competitors include ophthalmologists and optometrists
in private practice and retail chain stores. We also compete with national
optical chains, such as Cole Vision, LensCrafters and National Vision
Association and mass merchandisers, such as Wal-Mart, Sam's and Costco. We also
compete with other direct marketers of contact lenses. We may face increased
competition in the future from new entrants in the direct marketing business,
which may include national optical chains and mass merchandisers, some of which
may have significantly greater resources than we have. In addition, many of our
competitors, including most eye care practitioners, national optical chains and
mass merchandisers, have direct supply arrangements with contact lens
manufacturers, which in some cases afford such competitors better pricing terms
and access to supply. In light of such intense competition, we may not be able
to maintain our current market position or realize our anticipated growth.

The demand for contact lenses could be substantially reduced if alternative
technologies to permanently correct vision gain in popularity.

We also encounter competition from manufacturers of eyeglasses and from
alternative technologies, such as surgical refractive procedures, including new
refractive laser procedures such as PRK, or photo refractive keratectomy, and
LASIK, or laser in situ keratomileusis. If surgical refractive procedures
become increasingly accepted as an effective and safe technique for permanent
vision correction, they could substantially reduce the demand for contact
lenses by enabling patients to avoid the ongoing cost and inconvenience of
contact lenses. Accordingly, these procedures, or other alternative
technologies may be developed in the future, which may cause a substantial
decline in the number of contact lens wearers and thus harm our business.

We are dependent to a large degree on the services of our senior management
team.

We are dependent to a large degree on the services of our senior
management team, particularly Jonathan C. Coon, our President and Chief
Executive Officer, and John F. Nichols, our Vice President,

11
<PAGE>

Operations. In February 1998, Messrs. Coon and Nichols each entered into three
year employment agreements with us. The loss of any of our key executives could
harm our business. Our ability to manage our anticipated growth will depend on
our ability to identify, hire and retain highly skilled management and
technical personnel. Competition for such personnel is intense. As a result, we
may not be successful in attracting and retaining such personnel, and the
failure to attract and retain such personnel could harm our business. See
"Management."

Our executive officers and directors have the ability to effectively control
substantially all actions taken by our stockholders.

Upon completion of this offering, Messrs. Coon, Nichols and Yacktman will
collectively own 2,898,504 shares of our common stock and control approximately
37.6% of our aggregate voting power, assuming no exercise of the over-allotment
option. Acting together, these stockholders can effectively control
substantially all actions taken by our stockholders, including the election of
directors. Such concentration of ownership could also have the effect of
delaying, deterring or preventing a change in control of 1-800 CONTACTS that
might otherwise be beneficial to stockholders and may also discourage
acquisition bids for 1-800 CONTACTS and limit the amount certain investors may
be willing to pay for shares of the common stock. See "Management" and
"Principal and Selling Stockholders."

We do not have any property rights in the 1-800 CONTACTS telephone number or
the Internet addresses that we use.

We believe that a large portion of our success is attributable to the
competitive advantage we enjoy as a result of our toll-free telephone number.
While we have obtained the right to use the phone number 1-800 CONTACTS as well
as common "CONTACTS" misdials, we may not be able to obtain rights to use the
CONTACTS phone number as new toll-free prefixes are issued. Under applicable
FCC rules, we do not have and cannot acquire any property rights to this
telephone number. As a result, we cannot assure you that we will be able to
retain the use of the 1-800 CONTACTS telephone number in the future. The loss
of our ability to use the 1-800 CONTACTS number would harm our business.

We also have obtained the rights to various Internet addresses, including
but not limited to www.1800contacts.com, www.contacts.com and
www.contactlenses.com. We cannot practically acquire rights to all addresses
similar to www.contacts.com. If third parties obtain rights to use similar
addresses, these third parties may confuse our customers and cause our
customers to inadvertently place orders with these third parties, which could
result in lost sales for us and could damage our brand. As with telephone
numbers, we do not have and cannot acquire any property rights in Internet
addresses. As a result, we may be unable to retain the use of our Internet
addresses. The loss of our ability to use our Internet addresses would harm our
business.

If we, or third parties on which we rely, fail to achieve Year 2000 compliance,
our business could be harmed.

We are currently performing analysis and testing of Year 2000 compliance
on our computer applications, internal technology systems and embedded
technology. After completing our analysis and testing, we believe that we will
be able to take any necessary steps to become Year 2000 compliant. If this
analysis and testing, and any necessary corrective actions, are not completed
timely, the Year 2000 issue could have a material impact on our operations.

We are currently unable to determine the effects of Year 2000 compliance
by third parties that are significant to our operations. We have received
several responses to correspondence sent to significant third parties. We are
reviewing these responses to assess the third parties' Year 2000 compliance and
to determine the extent to which our operations will be impacted by those third
parties' failure, if any, to adequately address their own Year 2000 issues. If
the systems of critical third parties are not in compliance, our

12
<PAGE>

operations will be harmed. To date, we have not developed a contingency plan in
the event that one or more of these third parties are not Year 2000 compliant.

Increases in the cost of shipping, postage or credit card processing could harm
our business.

We ship our products to customers by United States mail and other
overnight delivery and surface services. We generally invoice the costs of
delivery and parcel shipments directly to customers as separate shipping and
handling charges. In addition, we use direct mailings to advertise our products
and receive a majority of our payments from customers using credit cards. Any
increases in shipping, postal or credit card processing rates could harm our
operating results as we may not be able to effectively pass such increases on
to our customers. Similarly, strikes or other service interruptions by these
shippers could limit our ability to market or deliver our products on a timely
basis. See "Business--Customers and Marketing."

Our business could be harmed if we are required to collect state sales tax on
the sale of products.

At present, we do not collect sales or other similar taxes in connection
with the sale of our products to consumers located outside the state of Utah.
From time to time, various states have sought to impose state sales tax
collection obligations on out-of-state direct marketing companies such as ours.
A successful assertion by one or more states that we should have collected or
should be collecting sales taxes on the sale of our products could result in
additional costs and administrative expenses to us and corresponding price
increases to our customers, which could harm our business.

We face an inherent risk of exposure to product liability claims in the event
that the use of the products we sell results in personal injury.

We face an inherent risk of exposure to product liability claims in the
event that the use of the products we sell results in personal injury. Although
we have not experienced any losses due to product liability claims, we cannot
assure you that we will not experience such losses in the future. We maintain
insurance against product liability claims, but we cannot be certain that such
coverage will be adequate to cover any liabilities that we may incur, or that
such insurance will continue to be available on terms acceptable to us. A
successful claim brought against us in excess of available insurance coverage,
or any claim that results in significant adverse publicity against us, could
harm our business.

We conduct our operations through a single distribution facility.

All of our inventory is stored and shipped from our distribution center in
Salt Lake City. We depend in large part on the orderly operation of this
receiving and distribution process, which depends, in turn, on adherence to
shipping schedules and effective management of the distribution center. We may
not have anticipated all of the changing demands that our expanding operations
will impose on our receiving and distribution system. In addition, events
beyond our control, such as disruptions in operations due to labor
disagreements, shipping problems, fires or natural disasters, may harm our
business.

Risks Relating to the Internet

Our success is dependent, in part, on continued growth in use of the Internet.

The Internet is new and rapidly evolving. A decrease in the growth of
Internet usage would harm our business. The following factors may inhibit
growth in Internet usage, limit visits to our Internet addresses or limit
orders placed through our website:

. inadequate Internet infrastructure;

. security and privacy concerns;

. inconsistent quality of service; and

. unavailability of low cost, high-speed service.

13
<PAGE>

Our success is dependent, in part, upon the ability of the Internet
infrastructure to support increased use. The performance and reliability of the
Internet may decline as the number of users increases or the bandwidth
requirements of users increase. The Internet has experienced a variety of
outages due to damage to portions of its infrastructure. If outages or delays
occur frequently in the future, Internet usage, including usage of our website,
could grow slowly or decline. Even if the necessary infrastructure or
technologies are developed, we may have to spend considerable amounts to adapt
our solutions accordingly.

Online security breaches could harm our business.

The secure transmission of confidential information over the Internet is
essential to maintain consumer confidence in our website. Substantial or
ongoing security breaches of our system or other Internet-based systems could
significantly harm our business. Any penetration of our network security or
other misappropriation of our users' personal information could subject us to
liability. We may be liable for claims based on unauthorized purchases with
credit card information, impersonation or other similar fraud claims. Claims
could also be based on other misuses of personal information, such as for
unauthorized marketing purposes. These claims could result in litigation and
financial liability. Security breaches also could damage our reputation and
expose us to a risk of loss or litigation and possible liability. We rely on
licensed encryption and authentication technology to effect secure transmission
of confidential information, including credit card numbers. It is possible that
advances in computer capabilities, new discoveries or other developments could
result in a compromise or breach of the technology used by us to protect
customer transaction data.

We may incur substantial expense to protect against and remedy security
breaches and their consequences. A party that is able to circumvent our
security systems could steal proprietary information or cause interruptions in
our operations. Our insurance policies' limits may not be adequate to reimburse
us for losses caused by security breaches. We cannot guarantee that our
security measures will prevent security breaches.

Government regulation and legal uncertainties relating to the Internet and
online commerce could negatively impact our business operations.

Online commerce is new and rapidly changing, and federal and state
regulation relating to the Internet and online commerce is evolving. Currently,
there are few laws or regulations directly applicable to the Internet or online
commerce on the Internet, and the laws governing the Internet that exist remain
largely unsettled. The most recent session of the U.S. Congress resulted in
Internet laws regarding online children's privacy, copyrights and taxation.
This or similar legislation could dampen growth in use and acceptance of the
Internet. Due to the increasing popularity of the Internet, it is possible that
additional laws and regulations may be enacted with respect to the Internet,
covering issues such as user privacy, pricing, taxation, content, copyrights,
distribution, antitrust and quality of products and services. The adoption or
modification of laws or regulations applicable to the Internet could harm our
business operations.

In addition, several telecommunications carriers have requested the
Federal Communications Commission to regulate telecommunications over the
Internet. Due to the increasing use of the Internet and the burden it has
placed on the current telecommunications infrastructure, telephone carriers
have requested the FCC to regulate Internet service providers and impose access
fees on those providers. If the FCC imposes access fees, the costs of using the
Internet could increase dramatically. This could result in the reduced use of
the Internet as a medium for commerce, which could harm our business
operations.

14
<PAGE>

Changing technology could adversely affect the operation of our website.

The Internet, online commerce and online advertising markets are
characterized by rapidly changing technologies, evolving industry standards,
frequent new product and service introductions and changing customer
preferences. Our future success will depend on our ability to adapt to rapidly
changing technologies and address our customers' changing preferences. However,
we may experience difficulties that delay or prevent our being able to do so.

Risks Related to this Offering

The price of our common stock has been volatile and could continue to fluctuate
in the future.

The market price for shares of the common stock has been volatile and
could fluctuate substantially based on a number of factors, including quarter-
to-quarter variations in our results of operations, news announcements, changes
in general market conditions for contact lenses, regulatory actions, adverse
publicity regarding us or the industry in general, changes in financial
estimates by securities analysts and other factors. In addition, broad market
fluctuations and general economic and political conditions may harm the market
price of the common stock, regardless of our actual performance. For example,
the market price for our common stock declined significantly in the third
quarter of 1998 upon the announcement of our operating results for the second
quarter. In October 1998, we commenced a share repurchase program. We have
suspended this program and have not made any purchases since March 1999.
Commencement of this program may have increased the trading price of our stock
over the price that would have existed in the absence of such a program. Should
we elect not to or be unable to resume such a program, the trading price of our
common stock could decline substantially.

Our management will have broad discretion over a portion of proceeds from this
offering.

Our management will have broad discretion to allocate the net proceeds to
us from this offering, including uses that stockholders may not deem desirable.
We may not be able to yield a significant return on any investment of these
proceeds. Substantially all of our proceeds from the offering will be invested
in short-term, interest-bearing, investment grade securities immediately
following the offering. We will not receive any of the proceeds from the sale
of shares by the selling stockholders. See "Use of Proceeds."

Future sales of our common stock could cause the price of our shares to
decline.

Future sales of the shares of common stock could have a negative effect on
the price of our common stock. Upon completion of the offering, we expect to
have 7,692,458 shares of common stock outstanding. Of these shares, 4,247,704
shares of common stock will be freely tradeable without restriction under the
Securities Act. The remaining 3,444,754 shares, which are held by our executive
officers, directors or a stockholder who owns greater than 5% of our
outstanding common stock, will be subject to certain 180-day "lock up"
agreements described in this prospectus. Upon the expiration of these lock-up
agreements, an aggregate of 2,898,754 shares will be eligible for sale in the
public market under Rule 144, subject to compliance with the resale volume
limitations and other restrictions of Rule 144, and the remaining
546,000 shares of common stock will be eligible for sale in the public market
pursuant to Rule 144(k) without such volume and other restrictions. Hambrecht &
Quist LLC may in its sole discretion at any time and without prior notice,
release all or any portion of the shares subject to the lock-up agreements.

15
<PAGE>

Certain provisions in our charter documents could delay or prevent a change in
control.

Certain provisions of our restated certificate of incorporation and our
by-laws may inhibit changes in control of us not approved by our board of
directors. These provisions include:

. a classified board of directors;

. a prohibition on stockholder action through written consents;

. a requirement that special meetings of stockholders be called only by
our board of directors or chief executive officer;

. advance notice requirements for stockholder proposals and nominations;

. limitations on the ability of stockholders to amend, alter or repeal
the by-laws; and

. the authority of the board of directors to issue without stockholder
approval preferred stock with such terms as the board of directors may
determine.

We are also afforded the protections of Section 203 of the Delaware General
Corporation Law, which could have similar effects. See "Description of Capital
Stock."

16
<PAGE>

FORWARD-LOOKING STATEMENTS

This prospectus contains "forward-looking statements," which may include
the following:

. our growth strategy;

. our future sales and marketing plans and the anticipated benefits from
such activities;

. expectations regarding the growth in the contact lens market;

. our belief that the Internet will increasingly be used by our
customers to order and reorder replacement contact lenses;

. the planned use of the net proceeds to us of this offering; and

. the adequacy of anticipated sources of funds, including the proceeds
to us from this offering, to fund our operations for at least 12
months following the date of this prospectus.

Other statements about our plans, objectives, expectations and intentions
contained in this prospectus that are not historical facts may also be forward-
looking statements. When used in this prospectus, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties,
actual results could differ materially from those expressed or implied by these
forward-looking statements for a number of reasons, including those discussed
under "Risk Factors" and elsewhere in this prospectus. We assume no obligation
to update any forward-looking statements.

17
<PAGE>

USE OF PROCEEDS

Our net proceeds from this offering, after deducting applicable
underwriting discounts and our estimated expenses, are estimated to be
approximately $30.1 million (assuming a public offering price of $23.0625 per
share). We expect to use the net proceeds to fund advertising and brand
development and for other general corporate purposes, including working
capital. We will not receive any of the proceeds from the sale of the shares by
the selling stockholders. The anticipated uses of our net proceeds are subject
to change due to the actual circumstances of operating our business. Pending
such uses, we currently plan to invest the net proceeds in investment grade,
short-term, interest-bearing securities. See "Risk Factors--Risks Relating to
this Offering."

We believe opportunities may exist from time to time to expand our current
business through acquisitions, strategic ventures and international expansion.
We may use a portion of the net proceeds from this offering for these purposes.
We are not currently a party to any contracts, letters of intent, commitments
or agreements, and are not currently engaged in active negotiations, with
respect to any acquisitions or strategic ventures.

18
<PAGE>

PRICE RANGE OF COMMON STOCK

Our common stock is traded on the Nasdaq National Market under the symbol
"CTAC." Our common stock commenced trading on February 10, 1998. The following
table sets forth the high and low closing sale prices per share for our common
stock as reported by the Nasdaq National Market for the periods presented:

<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
1998:
First Quarter (beginning February 10, 1998)............ $20.875 $13.563
Second Quarter......................................... 19.875 13.000
Third Quarter.......................................... 16.375 5.625
Fourth Quarter......................................... 18.000 4.750
1999:
First Quarter.......................................... $17.750 $10.625
Second Quarter......................................... 22.750 16.750
Third Quarter (through July 22, 1999).................. 23.563 17.250
</TABLE>

On July 22, 1999, the last reported sale price for our common stock on the
Nasdaq National Market was $23.0625 per share. As of July 21, 1999, there were
approximately 62 holders of record of our common stock. We expect that the
trading price of our common stock will continue to be volatile. See "Risk
Factors--Risks Relating to this Offering."

DIVIDEND POLICY

We anticipate that all of our future earnings will be retained to finance
the expansion of our business. Any future determination to pay dividends will
be at the discretion of our board of directors and will depend upon among other
factors, our results of operations, financial condition, capital requirements
and contractual restrictions. In addition, our credit facility prohibits us
from paying any cash dividends on our common stock.

Immediately prior to the consummation of our initial public offering, we
entered into an agreement to distribute to our then existing stockholders an
amount equal to our retained earnings from our formation date through the date
of the termination of our S corporation status. The distribution (net of notes
receivable from stockholders of $599,689) was in the form of promissory notes,
totaling $982,995. These promissory notes were paid in full during the first
quarter of fiscal 1998. Subsequent to this S corporation distribution, we have
not declared or paid any cash or other dividends on our common stock and do not
expect to pay dividends for the foreseeable future.

19
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of July 3, 1999:

. on an actual basis

. on an as adjusted basis to reflect the sale of 1,410,000 shares of
common stock by us at the assumed public offering price of $23.0625
per share and the application of the estimated net proceeds to us
therefrom.

The outstanding share information excludes:

. 258,108 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $9.99 per
share, and

. 241,142 shares of common stock reserved for future grant under our
stock options plan.

This information is qualified by, and should be read in conjunction with,
the more detailed financial statements of 1-800 CONTACTS, INC. and related
notes appearing at the end of the prospectus.

<TABLE>
<CAPTION>
July 3, 1999
------------------------
Actual As Adjusted
----------- -----------
<S> <C> <C>
Long-term obligations:
Capital lease obligation, less current portion..... $ 10,319 $ 10,319

Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, no shares issued or outstanding....... -- --
Common stock, $0.01 par value, 20,000,000 shares
authorized; 6,430,568 shares issued on an actual
basis; 7,840,568 shares issued on an as adjusted
basis............................................. 64,306 78,406
Additional paid-in capital......................... 23,017,266 53,145,385
Accumulated deficit................................ (6,491,087) (6,491,087)
Treasury stock at cost, 148,127 shares............. (1,777,099) (1,777,099)
----------- -----------
Total stockholders' equity....................... 14,813,386 44,955,605
----------- -----------
Total capitalization............................ $14,823,705 $44,965,924
=========== ===========
</TABLE>

20
<PAGE>

SELECTED FINANCIAL DATA

The statement of operations data for the year ended December 31, 1994 and
the one-month period ended January 31, 1995 and the balance sheet data at
December 31, 1994 and January 31, 1995 are derived from the audited financial
statements of our predecessor, Discount Lens Club, that are not included in
this prospectus. The statement of operations data for the period from February
1, 1995 to December 31, 1995, and the balance sheet data at December 31, 1995
and 1996 are derived from our audited financial statements that are not
included in this prospectus. The statement of operations data for the fiscal
years 1996, 1997 and 1998, and the balance sheet data as of the end of the
fiscal years 1997 and 1998 have been derived from our audited financial
statements included elsewhere in this prospectus. The statement of operations
data for the first two quarters of 1998 and 1999 and the balance sheet data as
of July 3, 1999 have been derived from our unaudited financial statements
included elsewhere in this prospectus. This information has been prepared on
the same basis as the audited financial statements and includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information for the periods presented. The operating
results for any interim periods are not necessarily indicative of the operating
results for any future period. Our selected financial data should be read in
conjunction with our financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.

<TABLE>
<CAPTION>
Predecessor 1-800 CONTACTS
------------------------ ---------------------------------------------------------------------------
One Month February 1,
Year Ended Ended 1995 to Fiscal Year First Two Quarters
December 31, January 31, December 31, ------------------------------------ ------------------------
1994 1995 1995 1996 1997 1998 1998 1999
------------ ----------- ------------ ---------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Net sales............ $212,584 $21,552 $587,918 $3,628,296 $21,115,314 $59,875,941 $23,229,742 $46,264,313
Cost of goods sold... 117,326 13,069 355,466 2,215,306 14,024,523 37,315,413 14,588,098 28,563,830
-------- ------- -------- ---------- ----------- ----------- ----------- -----------
Gross profit......... 95,258 8,483 232,452 1,412,990 7,090,791 22,560,528 8,641,644 17,700,483
-------- ------- -------- ---------- ----------- ----------- ----------- -----------
Advertising expense.. 375 -- 106,339 468,146 3,485,619 24,206,857 5,947,851 9,799,330
Other selling,
general and
administrative
expenses............ 78,209 9,369 211,559 573,166 2,459,602 7,334,668 2,578,807 5,615,991
-------- ------- -------- ---------- ----------- ----------- ----------- -----------
Total selling,
general and
administrative
expenses............ 78,584 9,369 317,898 1,041,312 5,945,221 31,541,525 8,526,658 15,415,321
-------- ------- -------- ---------- ----------- ----------- ----------- -----------
Income (loss) from
operations.......... 16,674 (886) (85,446) 371,678 1,145,570 (8,980,997) 114,986 2,285,162
Other income
(expense), net...... -- -- (9,105) (23,315) (113,162) 445,710 280,486 170,879
-------- ------- -------- ---------- ----------- ----------- ----------- -----------
Income (loss) before
benefit (provision)
for income taxes.... 16,674 (886) (94,551) 348,363 1,032,408 (8,535,287) 395,472 2,456,041
Benefit (provision)
for income taxes.... -- -- -- -- -- 642,679 (825,444) (692,679)
-------- ------- -------- ---------- ----------- ----------- ----------- -----------
Net income (loss).... $ 16,674 $ (886) $(94,551) $ 348,363 $ 1,032,408 $(7,892,608) $ (429,972) $ 1,763,362
======== ======= ======== ========== =========== =========== =========== ===========
Basic and diluted net
income (loss) per
common share........ $ (1.27) $ (0.07) $ 0.28
=========== =========== ===========
Pro forma income
(loss) before
benefit (provision)
for income taxes.... $(94,551) $ 348,363 $ 1,032,408 $(8,535,287) $ 395,472 $ 2,456,041
Pro forma benefit
(provision) for
income taxes........ 36,402 (134,120) (397,477) 642,679 (149,873) (692,679)
-------- ---------- ----------- ----------- ----------- -----------
Pro forma net income
(loss).............. $(58,149) $ 214,243 $ 634,931 $(7,892,608) $ 245,599 $ 1,763,362
======== ========== =========== =========== =========== ===========
Pro forma basic net
income (loss) per
common share........ $ 0.14 $ (1.27) $ 0.04 $ 0.28
=========== =========== =========== ===========
Pro forma diluted net
income (loss) per
common share........ $ 0.13 $ (1.27) $ 0.04 $ 0.28
=========== =========== =========== ===========
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
Predecessor 1-800 CONTACTS
------------------------- -----------------------------------------------------------------
December 31, January 31, December 31, December 31, December 31, January 2, July 3,
1994 1995 1995 1996 1997 1999 1999
------------ ------------ ------------- ------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital
(deficit).............. $13,449 $11,762 $ (12,093) $ (204,080) $(1,621,522) $11,844,537 $11,124,037
Total assets............ 25,574 23,687 243,845 1,156,646 7,781,064 18,016,136 25,299,750
Total debt (including
current portion)....... -- -- 207,864 370,705 2,759,837 66,877 49,001
Stockholders' equity
(deficit).............. 22,818 21,032 (28,412) 146,359 854,358 14,832,825 14,813,386
</TABLE>

22
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

1-800 CONTACTS, INC. is a leading direct marketer of replacement contact
lenses. We were formed in February 1995 and are the successor to the mail order
business founded by our Vice President of Operations in March 1991. Since our
formation, our net sales have grown rapidly, from $3.6 million in 1996 to $59.9
million in 1998 and from $23.2 million in the first two quarters of 1998 to
$46.3 million in the first two quarters of 1999.

Prior to consummation of our initial public offering in February 1998, we
operated as an S corporation and, as a result, were not subject to federal or
certain state income taxes. In connection with the consummation of the initial
public offering, we revoked our S Corporation status and became subject to
federal and state income taxes. As a result, we recorded a net deferred tax
liability and the related deferred tax provision of approximately $791,000 for
the tax effect of the differences between financial statement and income tax
basis of assets and liabilities that existed at the termination date of the S
corporation election.

Effective January 1, 1998, we changed from a calendar year end to a 52/53
week year ending on the Saturday nearest to December 31. Due to this change,
fiscal year 1998 represents 52 weeks and 3 days, covering the period January 1,
1998 to January 2, 1999 and the first two quarters of 1998 represent 26 weeks
and 3 days.

During 1998, we began utilizing a variety of new advertising vehicles,
including an extensive television marketing campaign, new print vehicles,
Internet and radio spots. As direct-response information became available
during the fourth quarter of 1998, we determined that our ability to track
individual sales to specific advertising campaigns was restricted as a result
of the variety of new advertising vehicles utilized. Therefore, beginning in
the fourth quarter of 1998, we began expensing all advertising costs, including
all direct-mail advertising costs, when the advertising first takes place. As a
result, quarter-to-quarter comparisons are impacted by the timing of
television, radio and Internet advertisements and by the mailing of our printed
advertisements within and between quarters. The volume of mailing and other
advertising may vary in different quarters and from year to year depending on
our assessment of prevailing market opportunities.

The sale and delivery of contact lenses are governed by both federal and
state laws and regulations. We sell to customers in all 50 states, and each
sale is subject to the laws of the state where the customer is located. Our
operating practice is to attempt to obtain a valid prescription from each of
our customers or his/her eyecare practitioner. If we are unable to obtain a
copy of or verify the customer's prescription, our practice is to ship the
lenses to the customer based on the information that the customer has provided.
We retained legal counsel to identify and summarize the applicable laws of each
of the states in which we generate material sales. We compared our operations
to the applicable requirements of the laws contained in such summaries. Based
on such comparison, we estimate that approximately one-third of our 1998 net
sales appeared to conform to the requirements of applicable state laws and
regulations. See "Business--Government Regulation."

23
<PAGE>

Results of Operations

The following table presents our results of operations expressed as a
percentage of net sales for the periods indicated:

<TABLE>
<CAPTION>
Fiscal Year First Two Quarters
------------------- --------------------
1996 1997 1998 1998 1999
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................ 61.1 66.4 62.3 62.8 61.7
----- ----- ----- --------- ---------
Gross profit...................... 38.9 33.6 37.7 37.2 38.3
Selling, general and
administrative expenses.......... 28.7 28.2 52.7 36.7 33.3
----- ----- ----- --------- ---------
Income (loss) from operations..... 10.2 5.4 (15.0) 0.5 5.0
Other income (expense), net....... (0.6) (0.5) 0.7 1.2 0.3
----- ----- ----- --------- ---------
Income (loss) before benefit
(provision) for income taxes..... 9.6 4.9 (14.3) 1.7 5.3
Pro forma benefit (provision) for
income taxes..................... (3.7) (1.9) 1.1 (0.6) (1.5)
----- ----- ----- --------- ---------
Pro forma net income (loss)....... 5.9% 3.0% (13.2)% 1.1% 3.8%
===== ===== ===== ========= =========
</TABLE>

First Two Quarters of 1999 Compared to First Two Quarters of 1998

Net sales. Net sales for the first two quarters of 1999 increased 100% to
$46.3 million from $23.2 million for the first two quarters of 1998. We believe
that this increase in net sales reflects some of the benefits of our increased
television and Internet advertising. Internet sales for the first two quarters
of 1999 were approximately $6.5 million as compared to $0.1 million for the
first two quarters of 1998. We are also realizing the benefits of repeat sales
from a growing customer base. Repeat sales for the first two quarters of 1999
increased 172% to $23.4 million from $8.6 million for the first two quarters of
1998. Although we believe that sales will increase substantially in 1999 as
compared to 1998, we expect the rate of growth in net sales to decrease in
future quarters of 1999.

Gross profit. Gross profit as a percentage of sales increased to 38.3% for
the first two quarters of 1999 from 37.2% for the first two quarters of 1998.
With the increase in sales, we were able to obtain inventory at lower costs
because of purchase volumes and more competitive pricing resulting from access
to more vendors.

Selling, general and administrative expenses. Selling, general and
administrative expenses for the first two quarters of 1999 increased $6.9
million, or 81%, from the first two quarters of 1998. As a percentage of net
sales, selling, general and administrative expenses decreased to 33.3% in the
first two quarters of 1999 from 36.7% in the 1998 period. The decrease as a
percentage of net sales is due to a reduction in advertising expense as a
percentage of net sales offset by an increase in other selling, general and
administrative expenditures as a percentage of net sales considered necessary
to support our sales growth. Advertising as a percentage of sales was 21.2% in
the first two quarters of 1999 as compared to 25.6% for the first two quarters
of 1998. We expect that advertising spending as well as advertising as a
percentage of sales in fiscal year 1999 will be slightly less than in fiscal
year 1998. However, if opportunities present themselves, we may increase
advertising spending above currently planned levels.

Other income (expense), net. Other income (expense) decreased to
approximately $171,000 in the first two quarters of 1999 from approximately
$280,000 in the first two quarters of 1998. The decrease in interest income due
to lower cash balances was offset by the decrease in interest expense as the
majority of debt was paid off during the first quarter of 1998 with proceeds
from our initial public offering.

Income taxes. The pro forma provision for income taxes for the first two
quarters of 1998 has been determined assuming we had been taxed as a C
corporation for federal and state income tax purposes for

24
<PAGE>

the quarter. Our effective tax rate for the first two quarters of 1999 was
approximately 28.2%, which reflects changes in the valuation allowance as a
result of utilizing some tax operating loss carryforwards. As of July 3, 1999,
we have provided a valuation allowance on all deferred tax assets. Our future
effective tax rate will depend upon future taxable income and changes in the
valuation allowance associated with the deferred tax assets.

Fiscal Year 1998 Compared to Fiscal Year 1997

Net sales. Net sales for fiscal 1998 increased 184% to $59.9 million from
$21.1 million for fiscal 1997. We believe that this increase in net sales
reflects some of the benefits of our increased television and Internet
advertising. We are also realizing the benefits of repeat sales from a growing
customer base. Repeat sales in fiscal 1998 reached $22.6 million, exceeding
total net sales for fiscal 1997 of $21.1 million.

Gross profit. Gross profit as a percentage of sales increased to 37.7% for
fiscal 1998 from 33.6% for fiscal 1997. With the increase in sales, we were
able to obtain inventory at lower costs because of purchase volumes and more
competitive pricing resulting from access to more vendors.

Selling, general and administrative expenses. Selling, general and
administrative expenses for fiscal 1998 increased 431% to $31.5 million from
$5.9 million for fiscal 1997. As a percentage of net sales, selling, general
and administrative expenses increased to 52.7% in fiscal 1998 from 28.2% in
fiscal 1997. During fiscal 1998, we continued to increase our sales and
marketing activity. Advertising as a percentage of sales was 40.4% in fiscal
1998 as compared to 16.5% in 1997.

During fiscal 1998, we began utilizing a variety of new advertising
vehicles, including new print vehicles, Internet and radio spots, and an
extensive television marketing campaign. As direct-response information became
available during the fourth quarter of 1998, we determined that our ability to
track individual sales to specific advertising campaigns was restricted as a
result of the variety of new advertising vehicles utilized. Therefore,
beginning in the fourth quarter of 1998, we began expensing all advertising
costs, including all direct-mail advertising costs, when the advertising first
takes place. We also determined that for previously deferred advertising costs
the period during which the future benefits were expected to be received was
shortened. Accordingly, we amortized the balance at the beginning of the fourth
quarter of 1998 over five months.

Other income (expense), net. The increase in other income (expense) is due
to interest income from funds received in our initial public offering in excess
of the interest expense incurred prior to the initial public offering.

Income taxes. The pro forma provision for income taxes has been determined
assuming we had been taxed as a C corporation for federal and state income tax
purposes for the year.

Fiscal Year 1997 Compared to Fiscal Year 1996

Net sales. Net sales for fiscal 1997 increased 482% to $21.1 million from
$3.6 million for fiscal 1996. This increase was primarily attributable to
higher sales volumes due to additional sales and marketing activities.

Gross profit. Gross profit as a percentage of sales decreased to 33.6% for
fiscal 1997 from 38.9% for fiscal 1996. Our gross profit margin for fiscal 1996
was positively impacted by the sale of manufacturers' promotional products,
which generally have higher margins.

Selling, general and administrative expenses. Selling, general and
administrative expenses for fiscal 1997 increased 471% to $5.9 million from
$1.0 million for fiscal 1996 due to the increase in sales and marketing
activity and the related increase in expenditures necessary to support the
increased sales. As a

25
<PAGE>

percentage of net sales, selling, general and administrative expenses decreased
to 28.2% in fiscal 1997 from 28.7% in fiscal 1996. This decrease was largely
due to the fixed nature of many such expenses, including rent, salaries,
depreciation and certain equipment costs.

Other income (expense), net. The decrease in other income (expense) was
primarily attributable to an increase in interest expense due to increased
borrowings by us from one of our stockholders and under our credit facility.
This increase in interest expense was offset partially by an increase in other
income primarily due to an increase in interest income from stockholders' notes
receivable.

Income taxes. The pro forma provision for income taxes was determined
assuming we had been taxed as a C corporation for federal and state income tax
purposes for fiscal 1997 and fiscal 1996.

26
<PAGE>

Quarterly Results of Operations

The following table sets forth certain unaudited quarterly statements of
operations data for the six quarters in the period ended July 3, 1999. This
information has been derived from our unaudited financial statements, which, in
the opinion of management, have been prepared on the same basis as the audited
financial statements, and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information for
the quarters presented. This information should be read in conjunction with our
financial statements and related notes included elsewhere in this prospectus.
The operating results for any quarter are not necessarily indicative of the
operating results for any future period.

<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1999
----------------------------------------------------- ------------------------
Q1 Q2 Q3 Q4 Q1 Q2
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $10,429,304 $12,800,438 $18,418,946 $18,227,253 $22,304,257 $23,960,056
Cost of goods sold...... 6,628,913 7,959,185 11,490,306 11,237,009 13,909,147 14,654,683
----------- ----------- ----------- ----------- ----------- -----------
Gross profit............ 3,800,391 4,841,253 6,928,640 6,990,244 8,395,110 9,305,373
----------- ----------- ----------- ----------- ----------- -----------
Advertising expense..... 2,003,660 3,944,191 8,516,652 9,742,354 5,410,276 4,389,054
Other selling, general
and administrative
expenses............... 1,134,266 1,444,541 2,487,563 2,268,298 2,589,829 3,026,162
----------- ----------- ----------- ----------- ----------- -----------
Total selling, general
and administrative
expenses............... 3,137,926 5,388,732 11,004,215 12,010,652 8,000,105 7,415,216
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from
operations............. 662,465 (547,479) (4,075,575) (5,020,408) 395,005 1,890,157
Other income (expense),
net.................... 80,236 200,250 137,116 28,108 84,385 86,494
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
provision for income
taxes.................. 742,701 (347,229) (3,938,459) (4,992,300) 479,390 1,976,651
Benefit (provision) for
income taxes........... (953,908) 128,464 1,468,123 -- (182,213) (510,466)
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)....... $ (211,207) $ (218,765) $(2,470,336) $(4,992,300) $ 297,177 $ 1,466,185
=========== =========== =========== =========== =========== ===========
<CAPTION>
Percentage of Total Net Sales
--------------------------------------------------------------------------------
Fiscal 1998 Fiscal 1999
----------------------------------------------------- ------------------------
Q1 Q2 Q3 Q4 Q1 Q2
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...... 63.6 62.2 62.4 61.6 62.4 61.2
----------- ----------- ----------- ----------- ----------- -----------
Gross profit............ 36.4 37.8 37.6 38.4 37.6 38.8
----------- ----------- ----------- ----------- ----------- -----------
Advertising expense..... 19.2 30.8 46.2 53.5 24.3 18.3
Other selling, general
and administrative
expenses............... 10.9 11.3 13.5 12.4 11.6 12.6
----------- ----------- ----------- ----------- ----------- -----------
Total selling, general
and administrative
expenses............... 30.1 42.1 59.7 65.9 35.9 30.9
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from
operations............. 6.3 (4.3) (22.1) (27.5) 1.7 7.9
Other income (expense),
net.................... 0.8 1.6 0.7 0.1 0.4 0.3
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
provision for income
taxes.................. 7.1 (2.7) (21.4) (27.4) 2.1 8.2
Benefit (provision) for
income taxes........... (9.1) 1.0 8.0 -- (0.8) (2.1)
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)....... (2.0)% (1.7)% (13.4)% (27.4)% 1.3% 6.1%
=========== =========== =========== =========== =========== ===========
</TABLE>

In the first quarter of 1998, we recorded a net deferred tax liability and
the related deferred tax provision of approximately $791,000 in connection with
the termination of our S corporation status. This liability reflects the tax
effect of the differences between financial statement and income tax basis of
assets and liabilities that existed at the termination date of the S
corporation election.

Our net sales increased from $12.8 million in the second quarter of 1998
to $18.4 million in the third quarter of 1998 due primarily to increased
advertising. Advertising expense increased from $3.9 million in the second
quarter of 1998 to $8.5 million in the third quarter of 1998 primarily as a
result of a change in our

27
<PAGE>

advertising strategy from mainly utilizing print advertising, which was then
capitalized, to utilizing a significant amount of fully-expensed broadcast
advertising (television, radio and Internet).

Advertising expense was $9.7 million in the fourth quarter of 1998 and
decreased to $5.4 million in the first quarter of 1999 primarily as a result of
our determination at the beginning of the fourth quarter of 1998 to shorten the
period during which previously deferred advertising costs were to be amortized
and to begin to expense all advertising costs, including all direct mail
advertising costs, when the advertising first takes place.

Income from operations increased to $1.9 million in the second quarter of
1999 from $0.4 million in the first quarter of 1999. This increase resulted
from an increase in net sales and gross profit as a percentage of net sales as
well as a decrease in selling, general and administrative expenses. The
decrease in selling, general and administrative expenses was due to a decrease
in advertising expense greater than the increase in other selling, general and
administrative expenses.

We expect to incur significant expenditures in order to increase awareness
of the 1-800 CONTACTS and contacts.com brand names through sales and marketing
and other promotional activities. As a result, we anticipate realizing an
operating loss in the third quarter of 1999 and in subsequent periods. In
addition, our new sales and marketing activities may not be successful and may
not result in increases in our net sales. Furthermore, we currently expense all
advertising costs, including all direct-mail advertising costs, when the
advertising first takes place. As a result, quarter-to-quarter comparisons are
affected by the timing of television, radio and Internet advertisements and by
the mailing of our printed advertisements within and between quarters. The
volume of mailings and other advertising may vary in different quarters and
from year to year depending on our assessment of prevailing market
opportunities. Our operating results for any particular quarter may not be
indicative of future operating results. For example, we typically decrease our
advertising expenditures in the fourth quarter due to the increased cost to
advertise during this period. As a result, we in the past have and in the
future expect to generate lower revenues in the fourth quarter than in the
preceding third quarter. You should not rely on quarter-to-quarter comparisons
of our results of operations as an indication of our future performance. Our
results of operations for the second quarter of 1998 were, and in the future
our results of operations may be, below the expectations of public market
analysts. This in the past has and in the future could cause the trading price
of our common stock to fall significantly.

Liquidity and Capital Resources

We have historically funded our growth through a combination of funds
generated from operations and borrowings. During February 1998, we issued
2,213,750 shares of common stock in connection with our initial public
offering, which included 288,750 shares pursuant to the underwriters' over-
allotment option. The proceeds received from the initial public offering, net
of underwriting commissions and offering costs, totaled approximately $24.9
million. We used these funds to enhance growth through increased advertising
expenditures and to increase inventory levels in anticipation of future sales.
In order to help ensure sufficient supply of inventory, we generally carry a
higher level of inventory than if we were able to purchase directly from all
contact lens manufacturers.

For the two quarters ended July 3, 1999 and July 4, 1998, net cash
provided by (used in) operating activities was approximately $5.7 million and
$(6.4) million, respectively. In the 1999 period, cash was provided primarily
by net income and increases in accounts payable and accrued liabilities offset
by an increase in inventories. In the 1998 period, cash was used primarily to
fund our growth as we significantly increased inventory levels and advertising
spending.

For 1998, 1997 and 1996, net cash provided by (used in) operating
activities was approximately $(13.8) million, $(1.0) million and $0.1 million,
respectively. For all years, cash was used primarily to fund our growth as we
increased inventory levels and advertising spending.

28
<PAGE>

We used approximately $1.3 million and $1.2 million for investing
activities in the first two quarters of 1999 and 1998, respectively. The
majority of these amounts relate to capital expenditures for infrastructure
improvements. Capital expenditures for the 1999 period were approximately $0.7
million. We began operations in our new distribution center in February 1999.
This new facility is several times the size of the prior distribution center
and is strategically located near the Salt Lake City, Utah airport. In
addition, on May 4, 1999, we acquired the assets of Contact Lenses Online, Inc.
("CLO") for $1.2 million in cash, of which $0.6 million was paid on the closing
date. The assets acquired include the web address, www.contactlenses.com,
various telephone numbers and CLO's customer database. Capital expenditures for
the 1998 period were approximately $1.2 million. We anticipate additional
capital expenditures for infrastructure as we continue to expand and improve
operating facilities, telecommunications systems and management information
systems in order to handle future growth.

We used approximately $2.0 million, $0.9 million and $0.4 million for
investing activities in 1998, 1997 and 1996, respectively. The majority of
these amounts relate to capital expenditures for infrastructure improvements
and increases in notes receivable from shareholders. We received payment in
full on the notes receivable during the first quarter of 1998, as the notes
were netted with the S corporation distribution paid during the period. The
amounts related to capital expenditures for 1998, 1997 and 1996 were
approximately $2,013,000, $488,000 and $175,000, respectively. We completed the
move into our new call center during July 1998. In conjunction with the move,
we acquired new telecommunications systems and enhanced our management
information systems.

As of July 3, 1999, we had entered in commitments to purchase
approximately $15 million of broadcast advertising from October 1999 through
September 2000. We can cancel up to 50% of the total amount committed.

During the first two quarters of 1999, we used approximately $1.8 million
for financing activities. We repurchased a total of 155,000 shares of our
common stock for a total cost of $1,860,005. This was offset slightly by
proceeds from the exercise of common stock options. During the first two
quarters of 1998, approximately $19.6 million was provided by financing
activities, resulting from net proceeds received from our IPO, offset by
repayments of debt, distributions to stockholders and the repurchase of stock.

For 1998, net cash of approximately $19.6 million was provided by
financing activities, resulting from net proceeds received from our initial
public offering, offset by repayments of debt, distributions to stockholders (S
corporation distribution) and repurchase of stock. For 1997 and 1996, net cash
of approximately $1.9 million and $0.3 million, respectively, was provided by
financing activities. These amounts primarily represent borrowings from one of
our stockholders and borrowings under our credit facility.

On October 13, 1998, our board of directors authorized a repurchase of up
to 500,000 shares of our common stock. A purchase of the full amount would
equal approximately 7.8% of the 6,430,568 shares issued. The repurchase of
common stock is subject to market conditions and is accomplished through
periodic purchases at prevailing prices on the open market, by block purchases
or in privately negotiated transactions. The repurchased shares will be
retained as treasury stock to be used for corporate purposes. Through July 3,
1999, we have repurchased 170,000 shares for a total cost of $1,941,380. The
repurchases were funded using cash on hand.

In August 1997, we established a revolving credit facility to provide for
working capital requirements and other corporate purposes. We amended the
credit facility in January 1998 and October 1998. As a result, the credit
facility provides for borrowings equal to the lesser of $5.0 million or 50
percent of eligible inventory. The credit facility bears interest at a floating
rate equal to the lender's prime interest rate plus 1.5 percent (9.5 percent as
of July 3, 1999). As of July 3, 1999, we had no outstanding borrowings under
the credit facility. The credit facility is secured by substantially all of our
assets and contains financial covenants customary for this financing. The
credit facility expires at the end of July 1999 and we are in the process of
replacing the facility.

29
<PAGE>

We believe that the net proceeds from this offering, together with cash on
hand, cash generated from operations and the cash available through our credit
facility, will be sufficient to support current operations and future growth
through fiscal 2000. We may be required to seek additional sources of funds for
accelerated growth or continued growth after that point, and there can be no
assurance that such funds will be available on satisfactory terms. Failure to
obtain such financing could delay or prevent our planned growth, which could
harm our business.

As a result of state regulatory requirements, our liquidity, capital
resources and results of operations may be negatively impacted in the future if
we incur increased costs or fines, are prohibited from selling our products in
a particular state(s) or experience losses of a substantial portion of our
customers for whom we are unable to obtain or verify a prescription due to the
enforcement of requirements by state regulatory agencies.

Year 2000 Issue

Based on a preliminary review of our current computer applications and
internal technology systems, we believe all of our applications and internal
technology systems are substantially Year 2000 compliant. To ensure we are Year
2000 compliant, we are currently taking steps to perform a more in-depth
analysis and testing of Year 2000 compliance on our computer applications,
internal technology systems and embedded technology. We do not expect Year 2000
compliance to be a major issue since we have replaced or upgraded the majority
of our critical technology systems within the last two years. However, we
believe that after completing this in-depth analysis and testing we will be
able to take any necessary steps to become Year 2000 compliant. If this
analysis and any necessary corrective actions are not completed timely, the
Year 2000 issue could have a material impact on our operations.

We have not yet incurred any significant costs related to Year 2000
compliance. Once we have completed the above steps, we will be able to
determine any significant future costs associated with Year 2000 compliance.
Although we have not yet approved a formal Year 2000 contingency plan, we have
manual processes, which can be used in the event of system disruption.

Inflation

We do not believe that inflation has had a material effect on our
operations.

Quantitative and Qualitative Disclosures About Market Risk

Based on our current operations, we believe we are not subject to
significant market risk. As of July 3, 1999, we did not hold any market risk
sensitive instruments and had no outstanding debt other than a capital lease
obligation of $49,001. In addition, all of our transactions are in U.S.
dollars.

30
<PAGE>

BUSINESS

Overview

1-800 CONTACTS is a leading direct marketer of replacement contact lenses.
As of July 3, 1999, we had shipped more than 1.5 million orders to
approximately 900,000 customers since our inception. Through our easy-to-
remember, toll-free telephone number, "1-800 CONTACTS" (1-800-266-8228), and
increasingly through our Internet addresses, which include
"www.1800contacts.com," "www.contacts.com" and "www.contactlenses.com," we sell
all of the popular brands of contact lenses, including those manufactured by
Johnson & Johnson, CIBA Vision, Bausch & Lomb, Wesley Jessen, Ocular Sciences
and CooperVision. Our high volume, cost-efficient operations, supported by our
proprietary management information systems, enable us to offer our products at
competitive prices while delivering a high level of customer service. As a
result of our extensive inventory of more than 18,000 SKUs, we generally ship
approximately 90% of our orders within one business day of receipt. We believe
that we offer our customers an attractive alternative for obtaining replacement
contact lenses in terms of convenience, price, speed of delivery and customer
service. Our net sales have grown rapidly, from $3.6 million in 1996 to $59.9
million in 1998 and from $23.2 million in the first two quarters of 1998 to
$46.3 million in the first two quarters of 1999.

The Internet is our fastest-growing sales channel and a more cost-
effective way for us to serve our customers. Our Internet sales for the first
two quarters of 1999 were $6.5 million compared to $0.1 million in the same
period in the previous fiscal year. During the second quarter of 1999, our
website generated approximately 24% of our new orders. Our online presence
enables us to operate more efficiently by substantially eliminating the payroll
and long distance costs associated with telephone orders. This increased
efficiency allows us to offer Internet customers free shipping in addition to
other services not possible with phone orders such as e-mail shipping
confirmation, online order tracking and e-mail correspondence. We believe that
our customers will increasingly use the Internet to order and reorder
replacement contact lenses.

We market our products through an aggressive national advertising campaign
that aims to increase recognition of the 1-800 CONTACTS brand, increase traffic
on our web site, add new customers, continue to build strong customer loyalty
and maximize repeat purchases. As compared to other direct marketers of
replacement contact lenses, we believe that our toll-free telephone number and
Internet addresses afford us a significant competitive advantage in generating
consumer awareness and repeat business. We spent approximately $22.7 million on
advertising in 1998 and intend to use a significant portion of the net proceeds
from this offering to further increase our sales and marketing activities. Our
experience has been that increases in advertising expenditures have a direct
impact on the growth of net sales. We believe that the planned increase in
advertising activities will enable us to attract significant numbers of new
customers. In addition, our new marketing campaign will more prominently
feature our website, contacts.com.

Industry Overview

Industry analysts estimate that over 50% of the United States' population
need some form of corrective eyewear. Contact lenses have become a convenient,
cost effective alternative to eyeglasses, and the number of contact lens
wearers is expected to increase as technology further improves the convenience,
comfort and fit of contact lenses. As a result, the contact lens market is
large and growing. We estimate, based on published reports, that the U.S.
retail market for contact lenses was approximately $3.7 billion in 1997 and,
according to industry analysts, is expected to grow at 4% to 6% in 1999, with
the disposable market growing at 8% to 12%. The growth in the disposable market
is largely due to the shift in the contact lens market away from traditional
soft lenses, which generally are replaced on an annual basis, to disposable
lenses, which are replaced on a daily, weekly, or bi-weekly basis.

Traditionally, contact lenses were almost exclusively sold to consumers by
either ophthalmologists or optometrists (referred to in this prospectus
collectively as "eye care practitioners"). Eye care practitioners

31
<PAGE>

would typically supply a patient with his or her initial pair of contact lenses
in connection with providing the patient an eye examination, and subsequently
provide all replacement lenses, regardless of whether the patient was given or
required another eye examination. Because the initial fitting of contact lenses
requires a prescription written by an eye care practitioner, the initial sale
of contact lenses still takes place primarily in this manner. Over the last
decade, however, a number of alternative sellers of replacement contact lenses
have emerged, including direct marketers.

We believe that increased consumer awareness of the benefits of the direct
marketing of contact lenses will lead to further growth of this method of
buying and selling contact lenses. Purchasing replacement contact lenses from a
direct marketer offers the convenience of shopping at home, rapid home
delivery, quick and easy telephone or Internet ordering and competitive
pricing. In addition, the growth in popularity of disposable contact lenses,
which require patients to purchase replacement lenses more frequently, has
contributed to the growth of the direct marketing channel. The direct marketing
industry continues to grow as many retail customers have migrated towards the
convenience and service offered by home shopping, and we expect the direct
marketing segment of the contact lens industry to grow in tandem with the
growth in the direct marketing industry as a whole.

The enormous growth and acceptance of the Internet as a medium of
communication and commerce presents significant opportunities for direct
marketers of contact lenses such as 1-800 CONTACTS. International Data
Corporation ("IDC") estimates that there were 142 million Internet users
worldwide at the end of 1998 and anticipates the number will increase to
approximately 502 million by the end of 2003. The factors driving this growth
include the increasing number and decreasing cost of personal computers in
homes and offices, technological innovations providing easier, faster and
cheaper access to the Internet, the proliferation of content and services being
provided on the Internet and the increasing use of the Internet by business and
consumers as a medium for conducting business.

The Internet possesses a number of unique and commercially powerful
characteristics that differentiate it from traditional media: users communicate
or access information without geographic limitations; users access dynamic and
interactive content on a real-time basis; and users communicate and interact
instantaneously. The Internet has created a dynamic and particularly attractive
medium for commerce, empowering customers to gather more comparative purchasing
data than is feasible with traditional commerce systems, to shop in a more
convenient manner and to interact with sellers in many new ways. IDC estimates
that the total value of products and services sold over the Internet by
retailers, catalog companies and online merchants will increase from
approximately $50.4 billion in 1998 to approximately $1.3 trillion by 2003. In
addition, according to Forrester Research, advertising spending on the Internet
will increase from $1.5 billion in 1998 to more than $15.3 billion in 2003. We
believe that the Internet provides a convenient and efficient medium for the
sale of replacement contact lenses.

Historically, sales of contact lenses by direct marketers have been
impeded by eye care practitioners and contact lens manufacturers. Many eye care
practitioners have been reluctant to provide patients with a copy of their
prescription or to release such information to direct marketers upon request,
thereby impeding patients from purchasing lenses from a direct marketer. In
addition, substantially all of the major manufacturers of contact lenses have
historically refused to sell contact lenses directly to direct marketing
companies and have sought to prohibit their distributors from doing so. These
traditional barriers to the direct marketing of contact lenses may be reduced
or eliminated in the future. The Federal Trade Commission (the "FTC") has from
time to time solicited comments regarding whether eye care practitioners should
be required to release contact lens prescriptions to their patients. In
addition, the Attorneys General for more than 30 states have joined in a
lawsuit against the major contact lens manufacturers and certain eye care
practitioners and their trade associations alleging that the manufacturers'
policy not to sell to direct marketers was adopted in conspiracy with eye care
practitioners to eliminate alternative channels of trade from the contact lens
market. See "Government Regulation," and "Purchasing and Principal Suppliers."

32
<PAGE>

Competitive Strengths

We attribute our success as a direct marketer in the replacement segment
of the contact lens industry and our significant opportunities for growth to
several competitive strengths, including the following:

. Our Brand. We believe that 1-800 CONTACTS is one of the most
recognized brands in the direct marketing segment of the replacement
contact lens industry. Our brand is characterized by the convenience
we offer via multiple sales channels, our extensive inventory of over
18,000 SKUs, and our focus on customer service. We believe that our
easy-to-remember, toll-free telephone number, 1-800 CONTACTS, and our
Internet addresses, www.1800contacts.com, www.contacts.com and
www.contactlenses.com, afford us a significant competitive advantage
over other direct marketers of replacement contact lenses in our
ability to generate consumer awareness in a cost-effective manner.
After we began using the 1-800 CONTACTS number in July 1995, net sales
per advertising dollar increased by over 20%. We believe that our
Internet addresses contain the terms that are most commonly used by
consumers to search the Internet for a direct marketer of replacement
contact lenses. The convenience offered to our customers through our
website complements the top-of-mind awareness generated by the 1-800
CONTACTS telephone number, enabling us to enjoy higher customer
retention rates and higher response rates than our competitors.

. Our Extensive Inventory. Our extensive inventory of over six million
contact lenses, incorporating more than 18,000 SKUs, allows us to
deliver lenses to the customer faster, on average, than eye care
practitioners or optical chains, which generally have smaller
inventories and place orders for lenses less frequently. Approximately
90% of our orders ship within one business day of receipt. Customers
generally receive their lenses from us in one to five business days
after shipping, depending on whether the customer chooses standard
delivery or pays an additional charge for delivery by an overnight
courier. In addition, lenses ordered from us are delivered directly to
the home or office of the customer, a service which most eye care
practitioners, optical chains and discount stores do not offer.

. Our Proprietary Technology Infrastructure. We believe we have been and
continue to be a leader in implementing integrated proprietary
technologies that support our Internet and telephone sales, and our
order fulfillment systems. Our proprietary management information
systems enable us to process both telephone and Internet orders,
continually monitor and track our inventory levels on substantially
all of our products, rapidly process credit card orders, increase the
speed of the shipping process and increase accuracy by scanning each
order prior to shipment. In addition, our customer service
representatives are electronically linked to this system, enabling
them to facilitate placement of an order and subsequently track
customer and order information. We believe that the operating
efficiency resulting from our proprietary management information
systems gives us a significant competitive advantage and that our
systems are capable of supporting our anticipated sales growth in the
forseeable future.

. Customer Service. Delivering high quality, consistent customer service
has been a cornerstone of our business strategy since our inception.
Our customer service representatives ("CSRs") are trained to provide
efficient and accurate order entry and are able to provide each
customer with real time product availability information and the
estimated delivery date for their lenses. In addition, our CSRs are
trained and authorized to handle all customer service issues,
including accepting product returns and issuing refunds, if
appropriate. We believe that consistently providing every customer
with prompt and courteous service throughout their relationship with
us increases our ability to attract and retain customers.

. Loyal Customer Base. We have built a loyal customer base due largely
to our focus on delivering a high level of customer service. As of
July 3, 1999, we had a customer base of approximately
900,000 customers. Through our direct contact with customers, we
maintain a database with customer information that includes name,
address, e-mail address, telephone

33
<PAGE>

number, prescription details and other key attributes. We use this
information to market to existing customers through targeted U.S. mail
and expect to use it for e-mail offers that contain customer specific
URLs for reordering. For the twelve month period ended June 30, 1998,
each $1.00 of sales to new customers generated $0.78 of reorder sales
in the succeeding 12 month period. Approximately $23.4 million or
50.5% of our net sales in the first two quarters of 1999 were to
repeat customers, compared to sales to repeat customers of
approximately $8.6 million, or 37.1%, in the comparable period in
1998. We expect our sales to repeat customers to continue to grow as
the contact lens market continues to shift towards disposable lenses
and consumers increase the frequency with which they replace their
lenses.

Growth Strategy

Our objective is to be the world's largest seller of replacement contact
lenses. The key components of our strategy are to:

. Increase Brand Awareness. We intend to establish 1-800 CONTACTS as the
world's largest seller of replacement contact lenses and related
products and services. We recently commissioned a study which showed
that only 13% of contact lens wearers are aware of the convenient,
cost-effective alternative available to them through 1-800 CONTACTS.
Our goal is to make the 1-800 CONTACTS brand synonymous with the most
readily accessible and competitively priced method of obtaining
replacement contact lenses. To achieve this goal, we intend to use a
significant portion of the net proceeds from this offering to fund an
aggressive nationwide advertising campaign that aims to increase
recognition of the 1-800 CONTACTS brand, increase traffic on our
website, add new customers, continue to build strong customer loyalty
and maximize repeat purchases. Our new marketing campaign will more
prominently feature our website, contacts.com. To date, our methods of
advertising have included broadcast and print media, as well as the
Internet, where we have promoted our website on major Internet
destinations such as AOL, Yahoo!, Lycos, AltaVista and others. In
addition, we intend to expand our direct marketing campaign to our
approximately 900,000 customers through the U.S. mail and e-mail.

. Increase the Number of Online Customers. Since the Internet is the
most efficient vehicle, from both a time and cost perspective, to
interact with our customers, our goal is to increase the number of
customers placing new and repeat orders through our website. To
achieve this goal we will continue to focus our online advertising
efforts on highly-visited Internet portals and other highly trafficked
web sites where our customers are likely to visit. We intend to
continue to use the unique resources of the Internet as a means of
marketing in an effort to drive both new and repeat order traffic.

. Leverage Customer Base through Strategic Partnerships. Although women
accounted for only 25% of online sales in 1996, Jupiter Communications
estimates that women will account for 47% of all online sales by 2000.
Approximately 70% of our 900,000 customers are female, most have a
higher than average annual income, and more than 40% have an e-mail
address. We believe that significant opportunities exist to develop
partnerships with other companies, both online and offline, who would
like to reach the attractive demographic of our customer base.

. Enhance Customer Relationships. We strive to develop long-term
relationships with our customers in an effort to build loyalty and
encourage repeat purchases. To achieve this goal, we intend to enhance
our relationships with customers, encouraging more frequent and more
extensive use of our website by introducing enhanced product-related
content and interactive features. For example, we are currently
upgrading our website to enable repeat customers to reorder online in
a few easy steps. In addition, we are expanding our CSR training
program in order to improve customer service. We believe that the key
to retaining our customers is to provide a competitive price and
convenient delivery while providing superior customer service.

34
<PAGE>

. Maintain Technology Focus and Expertise. We intend to enhance and
leverage our proprietary technology to continue to increase service
levels in our telephone and Internet business and to take advantage of
the efficiencies of the Internet. We are dedicated to maintaining our
technology leadership in online and telephone direct distribution. We
intend to further personalize the customer's interaction with us and
his or her ability to reorder quickly and conveniently.

. Pursue Selected Acquisitions. We recently acquired certain assets of
Contact Lenses Online, including its customer list, Internet
addresses, including www.contactlenses.com, and telephone numbers. We
believe that the highly fragmented nature of our industry affords us
significant opportunities to make additional acquisitions. As a
result, we intend to continue to actively pursue strategic
acquisitions and partnerships with companies that will allow us to
increase our customer base and enhance our brand awareness.

. Pursue International Expansion. We derived less than 1% of our net
sales in 1998 from international sales. According to published
reports, the international market for retail contact lens sales was
approximately $3.7 billion in 1997. We believe that this market is
currently under-served by direct marketing companies and are exploring
options with potential partners to penetrate the international markets
in Europe and Asia.

Product Offerings

Contact lenses can be divided into two categories: soft lenses and hard
lenses (primarily rigid gas permeable). There are three principal wearing
regimes for soft contact lenses: conventional, disposable and planned
replacement. Conventional lenses are designed to be worn indefinitely, but are
typically replaced after 12 to 24 months. Disposable soft contact lenses were
introduced in the late 1980s based on the concept that changing lenses on a
more regular basis was important to comfort, convenience, maintaining healthy
eyes and patient compliance. Disposable lenses are changed as often as daily
and up to every two weeks, depending on the product. Planned replacement lenses
are designed to be changed as often as every two weeks and up to every three
months and currently represent a small portion of the overall soft lens market.

We are a direct marketer of replacement contact lenses and do not
manufacture contact lenses or provide eye examinations or related services to
our customers. We offer substantially all of the soft and hard contact lenses
produced by the leading contact lens manufacturers, including Johnson &
Johnson, CIBAVision, Bausch & Lomb, Wesley Jessen, Ocular Sciences and
CooperVision. We stock a large inventory of lenses from which we can ship
approximately 90% of our orders within one business day of receipt. We believe
that our ability to maintain a large inventory of contact lenses provides us
with a competitive advantage over eye care practitioners, optical chains and
discount stores and serves as an effective barrier to entry to potential
entrants in the direct marketing of contact lenses.

In July 1997, we were approved as an authorized distributor of CIBA
Vision. We also purchase product directly from certain other manufacturers. Our
products are delivered in the same sterile, safety sealed containers in which
the lenses were packaged by the manufacturer. From time to time, we purchase
contact lenses that were labeled as "samples" by the manufacturer. Such lenses
are sometimes offered by us to customers as part of promotional programs at
reduced prices.

Customers and Marketing

Our customers are located principally throughout the United States. The
percentage of our customers that are located in each state is approximately
equal to the percentage of the United States' population which resides in such
state, with the largest concentration of our customers residing in California.
We strive to deliver a high level of customer service in an effort to maintain
and expand our loyal customer base. We utilize a focused, closely managed and
monitored marketing strategy that is designed to enhance the awareness and
value of our brand. We continually research and analyze new ways in which to
advertise our

35
<PAGE>

products. After identifying an attractive potential new advertisement or
advertising medium, we commit to such advertising for an initial test period.
The response generated by such advertising is monitored and analyzed by us and
a decision to commit significant resources to a particular advertisement or
advertising medium is made only if we are satisfied with the response rates we
have generated. After the initial testing period, we continue to closely
monitor our advertising in order to identify and react to trends in consumer
response patterns and adjust our marketing strategy accordingly.

The majority of contact lens wearers are between the ages of 18 and 49. In
addition, approximately two thirds of contact lens wearers are women and
contact lens wearers generally have higher incomes than eyeglass wearers do.
Through our national advertising campaign, we are able to target our
advertising to contact lens wearers in these key demographic groups, as well
as certain other persons based on other important demographics.

Using the proceeds from our initial public offering, we significantly
expanded our sales and marketing activities in 1998 to attract new customers
and increase sales to existing customers. We spent an aggregate of $22.7
million in 1998 on advertising as compared to $4.8 million in 1997. We
increased our use of direct mailings, cooperative mailings and free standing
inserts, and began advertising in mediums not previously utilized, including
television, magazines, traditional newspaper advertisements, radio and
Internet advertising.

We intend to use a significant portion of the net proceeds to us from this
offering to fund an aggressive nationwide advertising campaign that aims to
increase recognition of the 1-800 CONTACTS brand, increase traffic on our web
site, add new customers, continue to build strong customer loyalty and
maximize repeat purchases. Our new marketing campaign will feature more
prominently our website, contacts.com. Our advertising campaign targets both
our traditional telephone customers and our online customers and is designed
to drive new and reorder purchases through our website. In addition, we intend
to expand our direct marketing campaign to our approximately 900,000 customers
through the U.S. mail and e-mail.

A brief description of the principal components of our national
advertising campaign is set forth below:

Broadcast. In July 1998, we began our first nationwide broadcast
advertising campaign with significant purchases on both cable and network
television--testing different networks, commercial lengths and broadcast
times. We believe that this investment in television advertising was primarily
responsible for the 44% increase in sales in the third quarter of 1998. Our
television ads typically focus on our ability to rapidly deliver to customers
the same contact lenses offered by eye care practitioners. We believe that our
easy-to-remember phone number makes television a particularly effective
marketing vehicle and that television advertising will continue to be the key
to building awareness for our 1-800 CONTACTS and contacts.com brands.

Internet. We believe that we are one of our industry's leaders in
establishing an online advertising presence. We currently maintain an
advertising presence on several leading websites, including Yahoo!, America
Online, Excite, Infoseek and Lycos and other highly-visited websites where our
customers are likely to visit. We intend to continue to seek new opportunities
to expand this presence within top-tier portal sites and highly trafficked
content sites. We intend to significantly expand our Internet advertising and
marketing efforts with a portion of the proceeds from this offering. We intend
to continue to use the unique resources of the Internet as a means of
marketing in an effort to drive new and reorder traffic.

Direct-Mailing. We use direct-mail to advertise our products to selected
groups of consumers. We utilize mailing lists obtained from both private and
public sources to target our advertisements specifically to contact lens
wearers.

Cooperative Mailings. We advertise our products in cooperative mail
programs sponsored by the leading cooperative mail companies in the United
States. This advertising medium permits us to target consumers in specific zip
codes according to age, income and other important demographics.

36
<PAGE>

Free Standing Inserts. From time to time, we advertise our products
through free standing inserts, which are typically glossy advertisements
included inside the comic section of the Sunday paper. We use this advertising
medium because of its ability to reach a large audience in a cost-effective
manner. We utilize these inserts to supplement our direct and cooperative
mailing programs.

Magazines and Newspapers. From time to time, we also purchase
advertisements in national magazines and newspapers. We use this advertising
medium due to its ability to reach a large audience and its scheduling
flexibility.

Management Information Systems

We have developed proprietary management information systems that
integrate our order entry and order fulfillment operations. We believe that
these systems enable us to operate efficiently and provide enhanced customer
service. The key features of these management information systems are their
ability to:

. process both telephone and Internet orders;

. continually monitor and track our inventory levels for substantially
all of our products;

. rapidly process credit card orders;

. increase the speed of the shipping process with integrated and
automated shipping functions; and

. increase accuracy through the scanning of each order prior to shipment
to ensure it contains the correct quantity and type of lenses.

Our management information systems provide our CSRs with real-time product
availability information for substantially all of our products through a direct
connection with our distribution center, whereupon information is immediately
updated as lenses are shipped. Our management information systems also have an
integrated direct connection for processing credit card payments which allows
the CSR to charge the customer's card and ensure that a valid card number and
authorization have been received in approximately five seconds while the CSR is
on the phone with the customer. CSRs also have access to records of all prior
contact with a customer, including the customer's address, prescription
information, order history and payment history and notes of any prior contact
with the customer made by phone, Internet, mail or fax. Based on product
availability provided by our management information systems, the CSR provides
the customer with an estimated date of delivery of their lenses. If a
customer's order will not be shipped by the promised delivery date, our
management information systems notify the CSR who entered the order, and any
information explaining the delay, and the CSR then contacts the customer to
inform them of the delay.

After an order has been entered into our management information system by
a CSR, it is sent to our distribution center via a direct connection. After the
distribution center receives the order, the invoice for the order is printed.
The invoice for each order contains the type and quantity of the lenses, as
well as a shipping label for the order. Tracking, manifesting, billing and
other shipping functions are integrated into our management information system
so that all necessary bar codes and tracking information for shipment via
independent couriers are printed directly on our shipping label, and separate
labeling or a separate computer is not needed to ship packages via independent
couriers.

After the invoice for an order is printed at our distribution center, the
order is pulled from inventory and scanned to ensure that the prescription and
quantity of each item matches the order in our management information system.
Audible notices inform the shipping agent of any errors in the order. After the
order has been scanned for accuracy, the management information system updates
our inventory level, the order is placed in a box produced by our automated box
folder and is sent to an automatic sealer. After the package leaves the sealer,
another scanner reads the bar code on the shipping label to determine which
method of shipment is being used, adds the package to the appropriate carrier's
manifest and directs the appropriate hydraulic diverter to push the package
into the appropriate carrier's shipping bin.

37
<PAGE>

We have installed a battery powered back-up system capable of supporting
our entire call center, computer room and phone switch. This system is further
supported by a generator capable of supporting our entire operation for a
period of five days. All critical data is simultaneously written to a series of
back-up drives throughout the day and at the end of the day our data is
transmitted to an offsite location. We cannot assure you that our back-up
system will be sufficient to prevent an interruption in our operations in the
event of disruption in our management information systems, and an extended
disruption in our management information systems could harm our business.

Operations

The primary components of our operations include our teleservices, order
entry and customer service, Internet and distribution and fulfillment.

Teleservices, Order Entry and Customer Service. We provide our customers
with toll-free telephone access to our CSRs. Our call center generally operates
from 6:00 a.m. to 9:00 p.m. (MST) Monday through Friday, 7:00 a.m. to 5:00 p.m.
(MST) on Saturday and 8:00 a.m. to 4:00 p.m. (MST) on Sunday. Customers may
place orders via the Internet 24 hours a day, 7 days a week. Potential
customers may also obtain product, pricing or other information over the
Internet or through our interactive voice response system. Our orders are
received by phone, Internet, mail, facsimile and electronic mail. CSRs process
orders directly into our proprietary management information system, which
provides customer order history and information, product specifications,
product availability, expected shipping date and order number. CSRs are
provided with a sales script and are trained to provide information about
promotional items. Additionally, CSRs are trained to provide customer service
and are authorized to resolve all customer service issues, including accepting
returns and issuing refunds, as appropriate. For the second quarter of 1999,
our call center received an average of approximately 5,000 calls per day.

We believe our customers are particularly sensitive to the way merchants
and salespeople communicate with them. We strive to hire energetic, service-
oriented CSRs who can understand and relate to customers. CSRs participate in a
training program that includes a mentor system for working with more
experienced personnel. After training, CSRs are monitored to review performance
and are retrained periodically.

We completed the move into our new call center during July 1998. In
conjunction with the move, we acquired new telecommunications systems and
enhanced our management information systems. In our current facility, we
believe we have the capacity to handle up to 30,000 calls per day. We believe
that we process telephone orders on average in less time than our competitors,
which allows each CSR to handle a greater number of orders per day.

The laws in most states require that contact lenses be sold pursuant to a
valid prescription. Our operating practice is to attempt to obtain a valid
prescription from each of our customers or his/her eye care practitioner.
Customers may mail a copy of their prescription with their order or send it to
us via facsimile. Upon receipt of a prescription from a patient, the
prescription is filled by us. If we are unable to obtain a copy of or verify
the customer's prescription, it is our practice to ship the lenses to the
customer based on the information that the customer has provided.

Internet. Our website, contacts.com, provides our customers with a quick,
efficient and cost-effective method for obtaining replacement contact lenses.
Our website allows customers to easily browse and purchase substantially all of
our products, promotes brand loyalty and encourages repeat purchases by
providing an inviting customer experience. We have designed our website to be
fast, secure and easy to use and to enable our customers to purchase products
with minimal effort. We also offer Internet customers with services not
available to telephone customers such as free shipping, shipping confirmation
and online order tracking.Through our call center, we offer service and support
to our customers during our call center's operating periods over the telephone.
We also provide real-time online messaging and e-mail

38
<PAGE>

support to our customers. Our website allows customers to dispense with
providing personal profile and payment information after their initial order.
Our website has permitted us to expand our customer base through better service
while reducing transactional costs.

Our online service automates the processing of customer orders, interacts
with our management information systems and allows us to gather, store and use
customer and transaction information in a comprehensive and cost-efficient
manner. Our website contains customized software applications that interface
with our management information systems.

We maintain a database containing information compiled from customer
profiles, shopping patterns and sales data. We analyze information in this
database to develop targeted marketing programs and provide personalized and
enhanced customer service. Our database is scaleable to permit large
transaction volumes. Our systems support automated e-mail communications with
customers to facilitate confirmations of orders, provide customer support,
obtain customer feedback and engage in targeted marketing programs.

We use a combination of proprietary and industry-standard encryption and
authentication measures designed to protect a customer's information. We
maintain an Internet firewall to protect our internal systems and all credit
card and other customer information.

Distribution and Fulfillment. Approximately 90% of our orders are shipped
within one business day of receipt. Customers generally receive orders within
one to five business days after shipping, depending upon the method of delivery
chosen by the customer. A shipping and handling fee is charged on each customer
order, except those orders received via the Internet and those received by mail
with an enclosed check. Customers have the option of having their order
delivered by overnight courier for an additional charge. Our management
information system automatically determines the anticipated delivery date for
each order.

We use an integrated packing and shipping system via a direct connection
to our management information systems. This system monitors the in-stock status
of each item ordered, processes the order and generates warehouse selection
tickets and packing slips for order fulfillment operations. Our management
information systems are specifically designed with a number of quality control
features to help ensure the accuracy of each order.

We began operations in our new distribution center in February 1999. This
new facility is several times the size of the prior distribution center and is
strategically located near the Salt Lake City airport.

Purchasing and Principal Suppliers

Historically, substantially all of the major manufacturers of contact
lenses have refused to sell lenses directly to direct marketers, including
1-800 CONTACTS, and have sought to prohibit distributors from doing so. As a
result, we currently purchase a substantial portion of our products from
unauthorized distributors. We are aware that at least one large manufacturer of
contact lenses puts tracking codes on its products in an effort to identify
distributors who are selling to direct marketers. In June 1994, the Attorney
General for the State of Florida, acting on behalf of disposable contact lens
consumers in that State, filed an anti-trust action against Johnson & Johnson,
CIBA Vision, Bausch & Lomb and certain eye care practitioners and their trade
associations alleging, among other things, that, the contact lens
manufacturers' policy not to sell to mail order distributors and others was
adopted in conspiracy with eye care practitioners as the result of pressure by
eye care practitioners in order to eliminate alternative channels of trade from
the disposable lens market ("Florida Action").

In December 1996, the Attorney General for the State of New York, on
behalf of itself and the Attorney Generals for approximately 21 other States,
filed a substantially similar action naming three major manufacturers of soft
contact lenses as well as several optometrists and their trade associations as
defendants (the "New York Action"). Approximately 10 other states have joined
the New York Action since it was filed,

39
<PAGE>

and the Florida Action and the New York Action have been consolidated and are
currently pending in the United States district Court for the Eastern District
of New York (the "Attorney General Action"). Based upon public filings made in
the Attorney General Action, we believe that one defendant, CIBA Vision
Corporation, has entered into a proposed settlement agreement pursuant to which
it has agreed to pay $5 million into a settlement fund, agreed to provide
rebates and coupons to consumers and agreed to begin to sell soft contact
lenses to direct marketers. Since this settlement agreement was announced, we
have become an authorized distributor of CIBA Vision's contact lenses and can
purchase such lenses at wholesale level prices.

As a result of some manufacturers' refusal to sell to direct marketers, we
are not an authorized dealer for many of the products which we sell. In
addition, the price which we pay for certain of our products is sometimes
higher than those paid by eye care practitioners, retail chains and mass
merchandisers, who are able to buy directly from the manufacturers of such
lenses. Although we have been able to obtain most contact lens brands at
competitive prices in sufficient quantities on a regular basis, there can be no
assurance that we will not encounter difficulties in the future, particularly
in light of our anticipated growth. Our inability to obtain sufficient
quantities of contact lenses at competitive prices would have a material
adverse effect on our business, financial condition and results of operations.

Although we seek to reduce our reliance on any one supplier by
establishing relationships with a number of distributors and other sources, we
purchased from a single distributor 40% and 47% of our contact lens inventory
in 1997 and 1998, respectively. We also purchased from another distributor
approximately 40% and 21% of our contact lens inventory in 1996 and 1997,
respectively. Our top three suppliers accounted for approximately 72% and 70%
of our inventory in 1997 and 1998, respectively. We believe that none of these
suppliers is authorized by contact lens manufacturers to distribute their
products. We do not have written agreements with any of these suppliers. We
continually seek to establish new relationships with potential suppliers in
order to be able to obtain adequate inventory at competitive prices.

Competition

The retail sale of contact lenses is a highly competitive and fragmented
industry. Traditionally, contact lenses were almost exclusively sold to
customers by eye care practitioners in connection with providing them an eye
examination. Competition for patients and the revenue related to providing them
contact lenses significantly increased as optical chains and large discount
retailers began providing optical services and has further intensified with the
entry of direct marketers such as us. We believe that the eye care profession
suffers from a surplus of eye care practitioners, and that the resulting
competitive pressure has been exacerbated by the increased prevalence of retail
optical chains, mass merchandisers and direct marketers. Consequently, the
competition amongst eye care practitioners to acquire customers and the
competition to provide replacement lenses to such customers has intensified.

Our principal competitors include ophthalmologists and optometrists in
private practice. We also compete with national optical chains, such as Cole
Vision, LensCrafters and National Vision Association and mass merchandisers,
such as Wal-Mart, Sam's and Costco. In addition, we compete with other direct
marketers of contact lenses. We may face increased competition in the future
from new entrants in the direct marketing business, which may include national
optical chains and mass merchandisers, some of which may have significantly
greater resources than us.

We believe that many of our competitors, including, most eye care
practitioners, national optical chains and mass merchandisers, have direct
supply arrangements with contact lens manufacturers, which in some cases
affords such competitors with better pricing terms and access to supply. In
addition, some of the competitors are significantly larger in overall revenues
and have significantly greater resources than we have. We believe that the
principal basis of competition in the industry include price, product
availability, customer service and consumer awareness.

40
<PAGE>

Government Regulation

Federal Regulation. Contact lenses are regulated by the FDA as "medical
devices." The FDA classifies medical devices as Class I, Class II or Class III
and regulates them to varying degrees, with Class I medical devices subject to
the least amount of regulation and Class III medical devices subject to the
most stringent regulations. Rigid gas permeable and soft contact lenses are
classified as Class II medical devices if intended only for daily wear and as
Class III medical devices if intended for extended wear. These regulations
generally apply only to manufacturers of contact lenses, and therefore do not
directly impact us. Federal regulations also require the labels on "medical
devices" to contain adequate instructions for their safe and proper use.
However, there is an exemption from this requirement for medical devices the
use of which is not safe except under the supervision of a practitioner
licensed by law to direct the use of such device. Devices which fall in this
exception must contain as part of their labeling the statement "Caution:
Federal law restricts this device to sale by or on the order of (physician
or other licensed practitioner)," the blank to be filled in with the word
physician or other practitioner authorized by the law of the state in which the
practitioner practices to use or order the use of the device. The FDA considers
contact lenses to qualify for this labeling exemption; however, a device
bearing this legend that is dispensed without a prescription may be considered
misbranded by the FDA. Potential penalties for misbranding include warning
letters from the FDA, seizure, injunction, civil penalties, or prosecution. See
"Risk Factors--Risks Relating to Our Business."

State Regulation. The sale and delivery of contact lenses to the consumer
is subject to state laws and regulations. We sell to customers in all 50 states
and each sale is likely to be subject to the laws of the state where the
customer is located. The laws and regulations governing the sale and delivery
of contact lenses vary from state to state, but generally can be classified in
five categories:

(1) laws that require contact lenses only be dispensed pursuant to a
prescription;

(2) laws that require the dispenser to be licensed by the state as an
optometrist, ophthalmologist or other professional authorized to
dispense lenses;

(3) laws that require lenses be dispensed only in a face-to-face
transaction;

(4) laws with requirements that are unclear or do not specifically
address the sale and delivery of contact lenses; and

(5) laws that we believe place no restrictions on the dispensing of
replacement contact lenses.

Many of the states requiring that contacts be dispensed in face-to-face
meetings or by a person licensed by such state to dispense lenses also require
that lenses only be dispensed pursuant to a valid prescription.

The laws and regulations in a significant number of states, including most
of the states wherein a large portion of our sales are concentrated, require
that contact lenses only be sold to a consumer pursuant to a valid
prescription. In some states, satisfying this prescription requirement
obligates the dispenser only to verify the customer's prescription with the
customer's prescriber, while other states specifically require that a written
prescription be obtained before providing the lenses to the customer. Our
operating practice is to attempt to obtain a valid prescription from each of
our customers or his/her eye care practitioner. If the customer does not have a
copy of his/her prescription, we attempt to contact the customer's doctor to
obtain a copy of, or verify the customer's prescription. If we are unable to
obtain a copy of or verify the customer's prescription, it is our practice to
complete the sale and ship the lenses to the customer based on the prescription
information provided by the customer. We retain copies of the written
prescriptions that we receive and maintain records of our communications with
the customer's prescriber.

Our ability to comply with state laws and regulations requiring a valid
prescription is hampered because our customers are often unable to get a copy
of their prescription. We believe that optometrists, ophthalmologists and other
contact lens prescribers have historically refused to release copies of a
patient's contact lens prescription to the patient. In addition, such providers
have refused to release or verify prescriptions at the request of mail order
companies. Federal law requires prescribers to release

41
<PAGE>

prescriptions for eyeglasses to a patient, but the issue of whether or not a
prescriber must release a contact lens prescription to the patient, or at the
patients request, is currently governed by state law. There are approximately
22 states that require contact lens prescribers to release the prescriptions
for contact lenses to the patient. However, even in states with a mandatory
release law, we believe that many prescribers continue to refuse to release
prescriptions to their patients or to mail order contact lens distributors,
including 1-800 CONTACTS.

In addition to requiring a valid prescription, a substantial number of
states also require that contact lenses only be dispensed by a person licensed
to do so under that state's laws. A dispenser may be required to be licensed as
an optometrist, ophthalmologist, optician, ophthalmic dispenser or contact lens
dispenser, depending on which state the customer is located in. Neither we nor
any of our employees is a licensed or registered dispenser of contact lenses in
many of the states in which we do business. The laws in a small number of
states effectively prohibit the sale of contacts through the mail by requiring
that a person licensed under that state's law to dispense contacts be in
personal attendance at the place of sale. In addition, there are several states
in which the laws and regulations do not specifically address the issue of who
may dispense contact lenses or are unclear with respect to the requirements for
dispensing lenses. Generally, these laws are older and were written before mail
order and other distributors began selling contact lenses. Lastly, we believe
that the laws in a small number of states do not require that replacement
contact lenses be dispensed pursuant to a prescription or only by a
professional licensed in such state.

We retained legal counsel to identify and summarize the applicable laws of
each of the states in which we generate material sales. We compared our
operations to the applicable requirements of the laws contained in such
summaries. Based upon such comparison, we estimate that approximately one third
of our net sales in 1997 appeared to conform to the requirements of applicable
state laws and regulations. We believe that the figure for 1998 is similar. Any
action brought against us based on our failure to comply with applicable state
laws and regulations could result in us being subject to significant fines,
being prohibited from making sales in a particular state, being required to
comply with such laws or could constitute a misdemeanor. Such required
compliance could result in:

. increased costs to us;

. the loss of a substantial portion of our customers for whom we are
unable to obtain or verify their prescription;

. the inability to sell to customers at all in a particular state if we
cannot comply with such state's laws; and

. misdemeanor penalties and civil fines.

The occurrence of any of the above results could harm our ability to sell
contact lenses and to continue to operate profitably. Furthermore, there can be
no assurance that states will not enact or impose laws or regulations that
prohibit mail order dispensing of contact lenses or otherwise impair our
ability to sell contact lenses and continue to operate profitably. We have not
obtained an opinion of counsel with regard to our compliance with applicable
state laws and regulations or the enforceability of such state laws and
regulations, and information contained herein regarding our compliance with
applicable state laws and regulations should not be construed as being based on
an opinion of counsel. We have in the past, and intend in the future, to
vigorously defend any actions brought against us.

An FTC rule adopted in 1978 requires eye care practitioners to provide
their patients with a copy of their eyeglass prescription (the "Prescription
Release Rule"). The Prescription Release Rule was adopted based on a finding by
the FTC that consumers were being deterred from comparison shopping for
eyeglasses because eye care practitioners refused to release prescriptions. In
April 1997, the FTC published a request for comments regarding the Prescription
Release Rule with respect to whether the rule should be expanded to require the
release of contact lens prescriptions, whether consumers have historically been
able to get their contact lens prescriptions upon request and whether the
refusal to release contact lens prescriptions has benefits justifying such
refusal. The FTC undertook a similar review in 1985 and again in

42
<PAGE>

1995, both times concluding that the rule should not be expanded to require the
release of contact lens prescriptions.

From time to time we receive notices, inquiries or other correspondence
from states or their regulatory bodies charged with overseeing the sale of
contact lenses. Our practice is to review such notices with legal counsel to
determine the appropriate response on a case-by-case basis. It is the opinion
of management, after discussion with legal counsel, that we are taking the
appropriate steps to address the various notices received. To date, no formal
complaints have been filed against us concerning our business practices, other
than discussed in this prospectus under the heading "Legal Proceedings."

Intellectual Property

We conduct our business under the trade name and service marks "1-800
CONTACTS." We have taken steps to register and protect these marks and believe
that such marks have significant value and are an important factor in the
marketing of our products. We lease certain assets, including the right to use
the 1-800 CONTACTS telephone number, from an individual pursuant to a non-
cancelable lease. The lease expires in June 2000, at which time we have the
option to purchase such assets for $17,500. However, under applicable FCC
rules, we do not have and cannot acquire any property rights to the telephone
number. We do not expect to lose the right to use the 1-800 CONTACTS number,
however, there can be no assurance in this regard. The loss of our ability to
use the 1-800 CONTACTS number would have a material adverse effect on our
business, financial condition and results of operations. In addition, we have
obtained the rights to international equivalents for the 1-800 CONTACTS phone
number, however, like the 1-800 CONTACTS number, we do not have and cannot
acquire any property rights in these telephone numbers.

We also have obtained the rights to various Internet addresses, including
but not limited to www.1800contacts.com, www.contacts.com and
www.contactlenses.com. As with phone numbers, we do not have and cannot acquire
any property rights in Internet addresses. We do not expect to lose the ability
to use the Internet addresses, however, there can be no assurance in this
regard and such loss would have a material adverse effect on our financial
position and results of operations.

Employees

As of July 3, 1999, we employed 243 persons, of which 189 were full-time
employees and 54 were part-time employees. None of our employees are covered by
a collective bargaining agreement. We believe our relationship with our
employees to be good.

Properties

All of our management and call center operations are conducted through
approximately 32,000 square feet of leased space located in Draper, Utah, a
suburb of Salt Lake City. The lease relating to this facility expires in 2005.

In October 1998, we entered into a new lease agreement to occupy
approximately 35,000 square feet of space for our new distribution center
located near the Salt Lake City, Utah airport. The lease for the new
distribution center expires in December 2001. We began operations in this
distribution center in February of 1999. We are sub-leasing 10,000 square feet
of warehouse space that we formerly used as our distribution center to another
party for the duration of the lease term, which expires in January 2000.

Legal Proceedings

On July 14, 1998, Craig S. Steinberg, O.D., a professional corporation
d.b.a. City Eyes Optometry Center, filed a purported class action on behalf of
all optometrists licensed to practice in California against us and our
directors in Los Angeles County Superior Court (the "Steinberg Complaint"). The
complaint alleges three separate causes of action for unfair competition: (1)
selling contact lenses to California

43
<PAGE>

residents without being registered, (2) selling contact lenses to California
residents without verifying the prescription, and (3) failing to disclose in
our advertising that we sell "sample" lenses not intended for sale to the
public. The complaint requests various forms of relief, including damages of an
unspecified amount, attorney's fees and a permanent injunction to prevent us
from selling contact lenses to California residents without being registered
and without verifying the prescription as well as from selling sample contact
lenses to California residents. In addition, the plaintiff has filed a motion
for preliminary injunction seeking the injunctive relief requested in the
complaint. On August 11, 1998, we removed the action to the United States
District Court for the Central District of California based on diversity
jurisdiction.

In response to motions by us, plaintiff and another California
optometrist, Ellis Miles (collectively, "plaintiffs") filed a First Amended
Complaint ("FAC") against us and our directors on or about September 3, 1998
purporting to sue on behalf of the public under California's unfair competition
statute rather than as a class action on behalf of optometrists. Although the
substantive claims for unfair competition remain the same, the FAC seeks
restitutionary relief rather than damages. Plaintiffs also stipulated to
dismiss our directors as defendants rather than oppose our motion to dismiss
them, leaving us as the only remaining defendant.

On October 2, 1998, plaintiffs re-filed their motion for preliminary
injunction in federal court. We likewise filed a motion to strike plaintiffs'
claims for monetary relief. Plaintiffs withdrew their motion for preliminary
injunction on October 19, 1998, after we filed our opposition to the motion
indicating, inter alia, that we had been registered as a Nonresident Contact
Lens Seller in California. The Court denied our motion to strike plaintiffs'
claims for monetary relief on February 26, 1999. We filed our Answer to the FAC
on March 11, 1999.

On April 7, 1999, the Kansas Board of Examiners in Optometry commenced a
civil action against 1-800 CONTACTS. The action was filed in the District Court
of Shawnee County, Kansas, Division 6. The complaint was amended on May 28,
1999. The amended complaint alleges that on "one or more occasions"
1-800 CONTACTS sold contact lenses in the state of Kansas without receipt or
verification of a prescription. The amended complaint seeks the issuance of an
order enjoining us from further engaging in the alleged activity. The amended
complaint does not seek monetary damages. In response to the amended complaint,
we have retained counsel and intend to vigorously defend ourselves in this
action.

From time to time we are involved in other legal matters generally
incidental to our business. It is the opinion of management, after discussion
with legal counsel, that the ultimate dispositions of these matters will not
have a material impact on our financial condition, liquidity or results of
operations.

44
<PAGE>

MANAGEMENT

The following table sets forth certain information regarding our
directors, executive officers and certain key employees as of July 22, 1999:

<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Jonathan C. Coon.......... 29 President, Chief Executive Officer and Director
John F. Nichols........... 39 Vice President, Operations and Director
Scott S. Tanner........... 38 Chief Financial Officer and Director
Robert G. Hunter.......... 32 Corporate Controller
S. Todd Witzel............ 29 Manager, Information Technology
Jill A. Kocherhans........ 33 Call Center Manager
Stephen A. Yacktman
(1)(2)................... 29 Director
E. Dean Butler (1)(2)..... 54 Director
</TABLE>
- ------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.

Jonathan C. Coon is a co-founder of 1-800 CONTACTS and currently serves as
our President, Chief Executive Officer and a director. Mr. Coon received his
Bachelor's Degree from Brigham Young University in 1994. Mr. Coon has seven
years of experience in the contact lens distribution industry.

John F. Nichols is a co-founder of 1-800 CONTACTS and currently serves as
our Vice President, Operations and director. Mr. Nichols is a certified
optician in the State of California and was the owner of the Discount Lens Club
from 1991 until February 1995. Mr. Nichols worked with Bausch & Lomb as a
Senior Sales Representative from 1989 to 1991.

Scott S. Tanner has served as the Chief Financial Officer and a director
of 1-800 CONTACTS since November 1997. Prior to joining us, Mr. Tanner served
as the Chief Financial Officer of Country Club Foods, Inc., a Utah-based snack
food manufacturer and distributor, from 1995 to 1997. Prior to that, Mr. Tanner
served in various management positions at Apple Computer, Inc. from 1988 to
1995 and worked at Peat, Marwick & Mitchell & Co. in San Francisco from 1984 to
1986. Mr. Tanner received a B.A. from Stanford University and an MBA from
Harvard University. Mr. Tanner served as an executive officer of Country Club
Foods, Inc. at the time it filed a voluntary petition under chapter 11 of the
United States Bankruptcy Code in November 1995.

Robert G. Hunter has served as our Corporate Controller since November
1997. Prior to joining us, Mr. Hunter served as an auditor with Hawkins,
Cloward & Simister LC from November 1993 to 1997 and with Arthur Andersen LLP
from April 1992 to November 1993. Mr. Hunter is a Certified Public Accountant.
Mr. Hunter graduated summa cum laude with a Bachelor's Degree from Brigham
Young University, where he also earned a Masters of Accountancy Degree.

S. Todd Witzel has served as our Manager, Information Technology since
October 1996. Prior to joining us, Mr. Witzel worked for Access Software as a
programmer, where he helped develop Access' management information systems,
from 1994 to 1996.

Jill A. Kocherhans has served as our Call Center Manager since September
1998. From 1989 to 1998, Ms. Kocherhans held various managerial positions with
FranklinCovey Company, including Customer Service Manager and Corporate
Training Manager. Ms. Kocherhans holds a Bachelor's Degree in sociology from
the University of Utah.

Stephen A. Yacktman has served as a director of 1-800 CONTACTS since
February 1996. Mr. Yacktman is currently a Vice President at Yacktman Asset
Management Co., an investment advisory company, where he has been employed
since 1993. Mr. Yacktman's responsibilities include portfolio

45
<PAGE>

management, stock analysis and trading. Mr. Yacktman holds a Bachelor's Degree
in economics and an MBA from Brigham Young University.

E. Dean Butler has served as a director of 1-800 CONTACTS since January
1998. Mr. Butler currently serves as Chairman of Winning Vision Services Ltd.,
a United Kingdom-based operator of optical superstores in the former Soviet
Union. Mr. Butler served as Vice Chairman of Grand Vision, the largest retail
optical group in Europe from late 1997 to mid-1998. In 1988, Mr. Butler
founded Vision Express in Europe, which merged with the French retail group,
GPS, to form Grand Vision in late 1997. In 1983, Mr. Butler founded
LensCrafters and served as its Chief Executive Officer until 1988. Prior to
1983, Mr. Butler was employed by Procter & Gamble in various marketing
positions since 1969.

Executive officers are elected by our board of directors on an annual
basis and serve until their successors are duly elected and qualified. There
are no family relationships between or among any of our directors or executive
officers.

Compensation of Directors

We currently do not pay a cash salary or annual retainer to our
directors. In January 1998, we granted options to purchase an aggregate of
71,979 shares of common stock to Mr. Butler. Such options have an exercise
price equal to $11.00 per share and vest in three equal installments beginning
on the first anniversary of their grant date. In February 1999, we granted
options to purchase 2,000 shares of common stock to both Messrs. Butler and
Yacktman. These options have an exercise price of $12.563 per share and vest
in three equal installments beginning on the first anniversary of their grant
date. We reimburse all directors for reasonable expenses incurred in attending
board meetings. The directors do not receive any additional compensation for
committee participation.

Committees of the Board of Directors

The board has two standing committees: the audit committee and the
compensation committee.

The audit committee is authorized to make recommendations to the board
regarding the independent auditors to be nominated for election by the
stockholders and to review the independence of such auditors, approve the
scope of the annual audit activities of the independent auditors, approve the
audit fee payable to the independent auditors and review such audit results.
Arthur Andersen LLP presently serves as the independent public accountants of
1-800 CONTACTS. The audit committee is currently comprised of Messrs. Stephen
A. Yacktman and E. Dean Butler. The audit committee met on three occasions in
1998.

The compensation committee is authorized to make recommendations to the
full board relating to: (1) the compensation arrangements of all of our
executive officers and (2) awards under our stock incentive plan. The
compensation committee is currently comprised of Messrs. Stephen A. Yacktman
and E. Dean Butler. The compensation committee met on three occasions in 1998.

Compensation Committee Interlocks and Insider Participation

Prior to our initial public offering in February 1998, we did not have a
compensation committee. The current compensation arrangements for Messrs.
Coon, Nichols and Tanner were established by the terms of their respective
employment agreements with 1-800 CONTACTS. The terms of such employment
agreements were approved by the full board at the time of our initial public
offering. The compensation committee was established in connection with our
initial public offering and is currently comprised of Messrs. Yacktman and
Butler, neither of whom was at any time an employee of 1-800 CONTACTS. No
executive officer of 1-800 CONTACTS serves as a member of the board of
directors or compensation committee of any other entity which has one or more
executive officers serving as a member of 1-800 CONTACTS' board of directors
or compensation committee.

46
<PAGE>

Compensation of Executive Officers

The following table sets forth information concerning the compensation
earned for the last two fiscal years by our chief executive officer and our
other two executive officers. For ease of reference, we collectively refer to
these executive officers as the "named executives" throughout this prospectus.
None of our named executives were granted options in our last fiscal year.

Summary Compensation Table

<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
---------------------------------- ------------
Securities All Other
Name and Principal Other Annual Underlying Compensation
Position Year Salary Bonus Compensation Options (a)
- ------------------ ---- -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jonathan C. Coon........ 1998 $120,000 $40,500 $49,127(b) -- $ 9,835
President and Chief 1997 105,042 -- (d) -- 13,440
Executive Officer

John F. Nichols......... 1998 $120,000 $40,500 (d) -- $ 3,432
Vice President,
Operations 1997 110,625 -- -- 10,580

Scott S. Tanner(c)...... 1998 $110,000 $47,438 (d) -- $ 4,638
Chief Financial Officer 1997 7,944 1,000 (d) 47,986 357
</TABLE>
- ------------------
(a) Reflects payments made by 1-800 CONTACTS to such named executives for
medical costs and health insurance.
(b) Includes $43,220 for domestic services paid for by 1-800 CONTACTS on behalf
of Mr. Coon.
(c) Mr. Tanner joined 1-800 CONTACTS in November 1997.
(d) None of the perquisites and other benefits paid to each of the named
executives exceeded the lesser of $50,000 or 10% of the total annual salary
and bonus received by such named executives.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values

The following table sets forth information for the named executives
concerning stock option exercises during 1-800 CONTACTS' last fiscal year and
options outstanding at the end of the last fiscal year:

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)(a)
Shares Acquired Value ------------------------- -------------------------
Name on Exercise (#) Realized ($) Unexercisable/Exercisable Unexercisable/Exercisable
- ---- --------------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Jonathan C. Coon........ -- -- -/- -/-
John F. Nichols......... -- -- -/- -/-
Scott S. Tanner......... -- -- 31,991/15,995 $223,937/$111,965
</TABLE>
- ------------------
(a) Based upon a fair market value of the common stock at January 2, 1999 of
$18.00 per share.

47
<PAGE>

Employment Agreements

Immediately prior to the completion of the IPO, Messrs. Coon, Nichols and
Tanner each entered into an employment agreement with 1-800 CONTACTS, pursuant
to which Mr. Coon agreed to serve as our President and Chief Executive Officer
for a period of three years, Mr. Nichols agreed to serve as our Vice President,
Operations for a period of three years and Mr. Tanner agreed to serve as our
Chief Financial Officer for a period of three years. Pursuant to the respective
employment agreements, Messrs. Coon, Nichols and Tanner receive:

. an annual base salary equal to at least $120,000, $120,000 and
$110,000 respectively,

. an annual bonus up to 50% of their annual base salary (upon 1-800
CONTACTS achieving certain operating targets) and

. certain fringe benefits.

If the executive's employment is terminated for any reason prior to the
termination of such agreement other than for cause (as defined therein) or his
resignation, he will be entitled to receive his base salary and fringe benefits
for 12 months following such termination in addition to 50% of his bonus for
the year in which his employment was terminated if the termination is during
the first six months of the year or 100% if such termination was during the
last six months of the year. Messrs. Coon, Nichols and Tanner have each agreed
not to compete with 1-800 CONTACTS for a period of two years following his
termination of employment with 1-800 CONTACTS and not to disclose any
confidential information at any time without our prior written consent.

Incentive Stock Option Plan

Prior to the completion of the IPO, we established the 1-800 CONTACTS,
INC. Incentive Stock Option Plan (the "Stock Option Plan"). A maximum of
310,000 shares of common stock, subject to adjustment, were initially
authorized for the granting of stock options under the Stock Option Plan. As of
July 22, 1999, options to purchase an aggregate of 68,764 shares of common
stock, at exercise prices ranging from $5.625 to $15.875 per share, were
outstanding under the Stock Option Plan. All of the options granted under the
Stock Option Plan vest in three equal installments beginning on the first
anniversary of the grant date and have an exercise price equal to the fair
market value of the common stock on the grant date. Options granted under the
Stock Option Plan may be either "incentive stock options," which qualify for
special tax treatment under the Internal Revenue Code, or nonqualified stock
options. The purposes of the Stock Option Plan are to advance the interests of
1-800 CONTACTS and stockholders by providing our employees with an additional
incentive to continue their efforts on behalf of 1-800 CONTACTS, as well as to
attract people of experience and ability. The Stock Option Plan is intended to
comply with Rule 16b-3 of the Exchange Act.

All of our officers, directors and other employees are eligible to
participate under the Stock Option Plan, as deemed appropriate by the
compensation committee of the board of directors. Eligible employees will not
pay us anything to receive options. The Stock Option Plan is administered by
the compensation committee of the board of directors. The exercise price for
incentive stock options must be no less than the fair market value of the
common stock on the date of grant. The exercise price of nonqualified stock
options is not subject to any limitation based on the then current market value
of the common stock. Options will expire not later than the tenth anniversary
of the date of grant. An option holder will be able to exercise options from
time to time, subject to vesting. Options will vest immediately upon death or
disability of a participant and upon certain change of control events. Upon
termination for cause or after 30 days of termination for any other reason by
1-800 CONTACTS, the unvested portion of the options will be forfeited. Subject
to the above conditions, the exercise price, duration of the options and
vesting provisions will be set by the compensation committee of the board of
directors in it discretion.

48
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Loans to Executive Officers

At the beginning of fiscal 1998, 1-800 CONTACTS had outstanding loans to
Messrs. Coon and Nichols, each an executive officer and director of 1-800
CONTACTS, in an aggregate of $340,615 and $231,530, respectively, evidenced by
promissory notes due on demand. The notes provided for the payment of interest
calculated at a rate equal to the prime rate (8.5% at January 1998). These
loans were repaid in February 1998 in connection with the distribution of our
retained earnings.

Loans from Significant Stockholder

Prior to our initial public offering, we borrowed funds from time to time
for working capital and other corporate purposes from Mr. Donald A. Yacktman, a
former director and significant stockholder. In general, these borrowings bore
interest at the prime rate plus 2% and were unsecured. We repaid all of our
borrowings from Mr. Yacktman with a portion of the net proceeds from our
initial public offering. During fiscal 1998, 1997 and 1996, our largest
outstanding indebtedness to Mr. Donald Yacktman was approximately $1.7 million,
$1.6 million and $305,000, respectively.

Repurchase of Stock from Former Director

In February 1996, we redeemed all shares of our common stock then held by
Mr. Steve Gibson, a former director of 1-800 CONTACTS, which shares represented
twenty percent of our common stock then outstanding. The purchase price of such
redeemed shares as $240,000 in cash. Mr. Gibson resigned as a director of 1-800
CONTACTS in February 1996.

Agreement for Distribution of Retained Earnings and Tax Indemnification

Immediately prior to completion of our initial public offering, we entered
into the Agreement for Distribution of Retained Earnings and Tax
Indemnification (the "Distribution Agreement") with each of our existing
stockholders, including Messrs. Coon, Nichols, Stephen A. Yacktman and Donald
A. Yacktman (collectively, the "Existing Stockholders"). The Distribution
Agreement provides for among other things, the indemnification of the Existing
Stockholders for any losses or liabilities with respect to any additional taxes
(including interest, penalties and legal fees) and the repayment to 1-800
CONTACTS of amounts received as refunds, resulting from 1-800 CONTACTS'
operations during the period in which it was an S corporation. In addition, the
Distribution Agreement provided for the distribution to the Existing
Stockholders of the amount of our retained earnings from our formation through
the date immediately preceding the date we terminated our S corporation status.
The following table sets forth the amounts received by our executive officers
and/or directors under the Distribution Agreement:

<TABLE>
<CAPTION>
Name Amount
- ---- --------
<S> <C>
Jonathan C. Coon (1).................................................. $630,962
John F. Nichols....................................................... 633,075
Stephen A. Yacktman................................................... 79,064
Donald A. Yacktman (2)................................................ 237,473
</TABLE>
- ------------------
(1) Includes $15,756 paid to each of Mr. Coon's two children.
(2) Mr. Yacktman no longer serves as a director of 1-800 CONTACTS. Amounts
reflected in the table were paid to the Yacktman Family Trust.

49
<PAGE>

Stock Repurchase Option

Concurrently with the completion of our initial public offering, we
repurchased from Mr. Donald A. Yacktman 442,651 shares of our common stock for
an aggregate purchase price of $1.9 million. This repurchase was made pursuant
to an option we were granted in connection with Mr. Donald Yacktman's
investment in 1-800 CONTACTS in February 1996. In connection with entering into
a promissory note with Mr. Donald A. Yacktman in July 1997, a portion of this
option was cancelled.

Indemnification Agreements

Immediately prior to the completion of our initial public offering, each
of our directors and executive officers entered into an indemnification
agreement with 1-800 CONTACTS.

50
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

Except as otherwise noted, the following table sets forth certain
information as of July 22, 1999 as to the security ownership of equity
securities of 1-800 CONTACTS by:

. each of the named executives;

. each of our directors;

. all directors and executive officers as a group; and

. each person or entity known to us to be the beneficial owner of five
percent or more of the voting securities of 1-800 CONTACTS.

All information with respect to beneficial ownership has been furnished by
the respective director, executive officer or five percent beneficial owner, as
the case may be. Unless otherwise indicated, each person or entity named below
has sole voting and investment power with respect to the number of shares set
forth opposite his name. Beneficial ownership of the common stock listed in the
table has been determined in accordance with the applicable rules and
regulations promulgated under the Securities Exchange Act.

<TABLE>
<CAPTION>
Prior to the Offering After the Offering
------------------------ Number ------------------
Name and Address of Number Percent of Shares Number Percent
Beneficial Owner of Shares of Class Offered of Shares of Class
- ------------------- ------------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Directors and Executive
Officers:
Jonathan C. Coon
(1)(2)................. 2,366,198 37.7% 420,000 1,946,198 25.3%
John F. Nichols (1)..... 936,940 14.9 180,000 756,940 9.8
Stephen A. Yacktman
(3).................... 225,366 3.6 30,000 195,366 2.5
Scott S. Tanner (4)..... 16,245 * -- 16,245 *
E. Dean Butler (5)...... 23,993 * -- 23,993 *
All directors and
executive officers as a
group (5 persons)...... 3,568,742 56.4% 630,000 2,938,742 38.2%
5% Stockholders:
Donald A. Yacktman (6).. 546,000 8.7% -- 546,000 7.1%
</TABLE>
- ------------------
* Represents less than one percent.
(1) The address of such person is the executive offices of 1-800 CONTACTS.
(2) Includes: (i) direct beneficial ownership of 2,267,724 shares of common
stock; (ii) indirect beneficial ownership of 47,987 shares of common stock
held-by Mr. Coon as custodian under the Uniform Gift to Minors Act ("UGMA")
for and on behalf of Hannah K. Coon; (iii) indirect beneficial ownership of
an aggregate of 47,987 shares of common stock held by Mr. Coon as custodian
under the UGMA and on behalf of Abigail I. Coon; and (iv) indirect
beneficial ownership of 2,500 shares of common stock held by Mr. Coon as
custodian under the UGMA for and on behalf of Samuel Coon.
(3) The address of such person is c/o Yacktman Asset Management Co., 303 West
Madison Street, Chicago, Illinois 60606.
(4) Includes 15,995 shares of common stock that can be acquired through the
exercise of currently exercisable stock options.
(5) Includes 23,993 shares of common stock that can be acquired through the
exercise of currently exercisable stock options.
(6) Pursuant to a Schedule 13D filed with the SEC on October 13, 1998, Mr.
Donald A. Yacktman reported the sole power to vote or to direct the vote of
100,000 shares of common stock, and the sole power to dispose or to direct
the disposition of 100,000 shares of common stock. In addition,
Mr. Yacktman, in his capacity as trustee of the Aronold Trust, reported the
sole power to vote or to direct the vote of 4,000 shares of common stock,
and the sole power to dispose or to direct the

51
<PAGE>

disposition of 4,000 shares of common stock. By virtue of his relationship
with Carolyn Z. Yacktman (his spouse), Mr. Yacktman reported that he may be
deemed to share voting and dispositive power with respect to the 430,000
shares of common stock held by the Yacktman Family Trust (the "Trust") and
the 12,000 shares of common stock held by her as custodian of her three
minor children. Carolyn Z. Yacktman serves as a trustee of the Trust. Mr.
Donald A. Yacktman disclaims, for the purpose of Section 13(d) or 13(g) of
the Exchange Act or otherwise, beneficial ownership of any of the shares of
common stock beneficially owned by Mrs. Yacktman. The address for Mr.
Yacktman is c/o Yacktman Asset Management Co., 303 West Madison Street,
Chicago, Illinois 60606 and the address for the Trust is c/o Citicorp Trust
South Dakota, 701 East 60th Street North, Sioux Falls, South Dakota 57117.

52
<PAGE>

DESCRIPTION OF CAPITAL STOCK

General Matters

Our authorized capital stock consists of 20,000,000 shares of common
stock, par value $0.01 per share, and 1,000,000 shares of preferred stock, par
value $0.01 per share. Upon completion of this offering, 7,692,458 shares of
our common stock will be issued and outstanding and no shares of preferred
stock will be issued and outstanding. The following summary of certain
provisions of our capital stock describes all material provisions of, but does
not purport to be complete and is subject to, and qualified in our entirety
by, our restated certificate of incorporation and the by-laws that are
included as exhibits to the registration statement of which this prospectus
forms a part and by the provisions of applicable law. See "Where You Can Find
More Information."

Our restated certificate of incorporation and by-laws will contain certain
provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the board of directors and which may have the
effect of delaying, deferring or preventing a future takeover or change in
control of us unless such takeover or change in control is approved by the
board of directors.

Common Stock

The issued and outstanding shares of common stock are, and the shares of
common stock being offered by us will be upon payment therefor, validly
issued, fully paid and nonassessable. Subject to the prior rights of the
holders of any preferred stock, the holders of outstanding shares of common
stock are entitled to receive dividends out of assets legally available
therefor at such time and in such amounts as the board of directors may from
time to time determine. See "Dividend Policy." The shares of common stock are
not convertible and the holders thereof have no preemptive or subscription
rights to purchase any of our securities. Upon our liquidation, dissolution or
winding up, the holders of common stock are entitled to receive pro rata of
our assets which are legally available for distribution, after payment of all
debts and other liabilities and subject to the prior rights of any holders of
preferred stock then outstanding. Each outstanding share of common stock is
entitled to one vote on all matters submitted to a vote of stockholders. There
is no cumulative voting.

Our common stock is included for trading on the Nasdaq National Market
under the symbol "CTAC."

Preferred Stock

Our board of directors may, without further action by our stockholders,
from time to time, direct the issuance of shares of preferred stock in series
and may, at the time of issuance, determine the rights, preferences and
limitations of each series. Satisfaction of any dividend preferences of
outstanding shares of preferred stock would reduce the amount of funds
available for the payment of dividends on shares of common stock. Holders of
shares of preferred stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up before any payment is
made to the holders of shares of common stock. Under certain circumstances,
the issuance of shares of preferred stock may render more difficult or tend to
discourage a merger, tender offer or proxy contest, the assumption of control
by a holder of a large block of our securities or the removal of incumbent
management. Upon the affirmative vote of a majority of the total number of
directors then in office, of our board of directors, without stockholder
approval, may issue shares of preferred stock with voting and conversion
rights which could adversely affect the holders of shares of common stock.
Upon consummation of the offering, there will be no shares of preferred stock
outstanding, and we have no present intention to issue any shares of preferred
stock.

Certain Provisions of the Restated Certificate of Incorporation and By-laws

Classified Board. Our restated certificate of incorporation provides for
the board of directors to be divided into three classes, as nearly equal in
number as possible, serving staggered terms. Approximately

53
<PAGE>

one-third of the board of directors will be elected each year. See
"Management." Under the Delaware General Corporation Law, directors serving on
a classified board can only be removed for cause. The provision for a
classified board could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of the board of directors
until the second annual stockholders meeting following the date the acquiror
obtains the controlling stock interest. The classified board provision could
have the effect of discouraging a potential acquiror from making a tender offer
or otherwise attempting to obtain control of us and could increase the
likelihood that incumbent directors will retain their positions.

Elimination of Stockholder Action Through Written Consents. Our restated
certificate provides that stockholder action can be taken only at an annual or
special meeting of stockholders and cannot be taken by written consent in lieu
of a meeting.

Elimination of the Ability to Call Special Meetings. Our restated
certificate of incorporation and the by-laws provides that, except as otherwise
required by law, special meetings of the stockholders can only be called
pursuant to a resolution adopted by a majority of the board of directors or by
our chief executive officer. Stockholders will not be permitted to call a
special meeting or to require the board of directors to call a special meeting.

Advanced Notice Procedures. Our by-laws establish an advance notice
procedure for stockholder proposals to be brought before an annual meeting of
our stockholders, including proposed nominations of persons for election to the
board of directors. Stockholders at an annual meeting may only consider
proposals or nominations specified in the notice of meeting or brought before
the meeting by or at the direction of the board of directors or by a
stockholder who was a stockholder of record on the record date for the meeting,
who is entitled to vote at the meeting and who has given to our secretary
timely written notice, in proper form, of the stockholder's intention to bring
that business before the meeting. Although the by-laws do not give the board of
directors the power to approve or disapprove stockholder nominations of
candidates or proposals regarding other business to be conducted at a special
or annual meeting, the by-laws may have the effect of precluding the conduct of
certain business at a meeting if the proper procedures are not followed or may
discourage or defer a potential acquiror from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of us.

Amendments to the Restated Certificate and By-laws. Our restated
certificate of incorporation and by-laws provide that the affirmative vote of
holders of at least 66 2/3% of the total votes eligible to be cast in the
election of directors is required to amend, alter, change or repeal certain of
their provisions. This requirement of a super-majority vote to approve
amendments to our restated certification of incorporation and by-laws could
enable a minority of our stockholders to exercise veto power over any such
amendments.

Certain Provisions of Delaware Law

We are subject to the "Business Combination" provisions of the Delaware
General Corporation Law. In general, such provisions prohibit a publicly held
Delaware corporation from engaging in various "business combination"
transactions with any "interested stockholder" for a period of three years
after the date of the transaction which the person became an "interested
stockholder," unless

. the transaction is approved by the board of directors prior to the
date the "interested stockholder" obtained such status;

. upon consummation of the transaction which resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder,"
owned at least 85% of the voting stock of the corporation outstanding
at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned by (a)
persons who are directors and also officers and (b) employee stock
plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer; or

54
<PAGE>

. on or subsequent to such date the "business combination" is approved
by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of
the outstanding voting stock which is not owned by the "interested
stockholder."

A "business combination" is defined to include mergers, asset sales and other
transactions resulting in financial benefit to a stockholder. In general, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a
corporation's voting stock. The statute could prohibit or delay mergers or
other takeover or change in control attempts with respect to us and,
accordingly, may discourage attempts to acquire us.

Limitations on Liability and Indemnification of Officers and Directors

Our restated certificate of incorporation limits the liability of
directors to the fullest extent permitted by the Delaware General Corporation
Law. In addition, our restated certificate of incorporation provides that we
shall indemnify our directors and officers to the fullest extent permitted by
such law. We entered into indemnification agreements with our current directors
and executive officers prior to the completion of our initial public offering
and expect to enter into similar agreements with any new directors or executive
officers.

Transfer Agent and Registrar

The Transfer Agent and Registrar for our common stock is American Stock
Transfer & Trust Company. Its address is 40 Wall Street, New York, New York
10015 and its telephone number is (718) 921-8200.

55
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, Hambrecht & Quist LLC
and McDonald Investments Inc., have severally agreed to purchase from us and
the selling stockholders the following respective number of shares of our
common stock:

<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Hambrecht & Quist LLC............................................
McDonald Investments, Inc........................................
---------
Total........................................................ 2,040,000
=========
</TABLE>

The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions that we and the selling
stockholders must satisfy, including the receipt of certain certificates,
opinions and letters from us, the selling stockholders, counsel and the
independent auditors. The nature of the underwriters' obligation is such that
they are committed to purchase all shares of common stock offered in this
prospectus if any of such shares are purchased.

The underwriters propose to offer the shares of our common stock directly
to the public at the public offering price set forth on the cover page of this
prospectus and to certain dealers at a price less a concession not in excess of
$ per share. The underwriters may allow and such dealers may reallow a
concession not in excess of $ per share to certain other dealers.
After the public offering of the shares, the underwriters may change the
offering price and other selling terms.

1-800 CONTACTS and the selling stockholders have granted to the
underwriters an option, exercisable no later than 30 days after the date of
this prospectus, to purchase up to 306,000 additional shares of our common
stock at the public offering price, less the underwriting discount set forth on
the cover page of this prospectus. To the extent that the underwriters exercise
this option, each underwriter will have a firm commitment to purchase a number
of shares that approximately reflects the same percentage of total shares said
underwriter purchased in the above table. We will be obligated to sell shares
to the underwriters to the extent the option is exercised. The underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of common stock offered in this prospectus.

The following table summarizes the compensation that we and the selling
stockholders will pay to the underwriters in connection with this offering:

<TABLE>
<CAPTION>
Total
-----------------------------
Per Without With
Share Over-allotment Over-allotment
----- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts
and commissions
paid by us............ $ $ $
Underwriting discounts
and commissions
paid by the selling
stockholders..........
</TABLE>

The offering of the shares is made for delivery when, as and if accepted
by the underwriters and subject to prior sale and to withdrawal, cancellation
or modification of the offering without notice. The underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.

56
<PAGE>

We and the selling stockholders have agreed to indemnify the underwriters
against liabilities, including liabilities under the Securities Act, and to
contribute to payments the underwriters may be required to make with respect to
those liabilities.

Executive officers, directors and our stockholders who beneficially own
greater than 5% of our outstanding common stock have agreed that, with certain
exceptions, they will not, directly or indirectly, without the prior written
consent of Hambrecht & Quist LLC, sell, offer, contract to sell, transfer the
economic risk of ownership in, make any short sale, pledge or otherwise dispose
of any shares of our common stock or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire our common
stock during the 180-day period following the effective date of the
registration statement relating to this prospectus. Hambrecht & Quist LLC may,
in its sole discretion and at any time without prior notice, release all or any
portion of the common stock subject to the lockup agreement.

In general, the rules of the Securities and Exchange Commission will
prohibit the underwriters from making a market in our common stock during the
"cooling off" period immediately preceding the commencement of sales in the
offering. The Commission has, however, adopted exemptions from these rules that
permit passive market making under certain conditions. These rules permit an
underwriter to continue to make a market subject to the conditions, among
others, that its bid not exceed the highest bid by a market maker not connected
with the offering and that its net purchases on any one trading day not exceed
prescribed limits. Pursuant to these exemptions, certain underwriters, selling
group members (if any) or their respective affiliates intend to engage in
passive market making in our common stock during the cooling off period.

Certain persons participating in this offering may over-allot or effect
transactions that stabilize, maintain or otherwise affect the market price of
our common stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase, for the purpose of pegging,
fixing or maintaining the price of the common stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with the offering. A penalty bid means an arrangement that
permits the underwriters to reclaim a selling concession from a syndicate
member in connection with the offering when shares of common stock sold by the
syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq National Market, in the over-the-
counter market or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.

We estimate that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $750,000.

57
<PAGE>

EXPERTS

Our financial statements included in this prospectus and elsewhere in the
registration statement to the extent and for the periods indicated in their
report, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said
firm as experts in giving said report.

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for us
by Kirkland & Ellis, Chicago, Illinois (a partnership which includes
professional corporations). Certain legal matters will be passed upon for the
underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, Palo Alto,
California.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement (of which this
prospectus is a part and which term shall encompass any amendments thereto) on
Form S-1 pursuant to the Securities Act with respect to the common stock being
offered in the offering. This prospectus does not contain all the information
set forth in the registration statement and the exhibits and schedules thereto,
certain portions of which are omitted as permitted by the rules and regulations
of the SEC. Statements made in this prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete,
with respect to any such contract, agreement or other document filed as an
exhibit to the registration statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in our entirety by such reference. For further information
about us and our securities offered hereby, reference is made to the
registration statement and to the financial statements, schedules and exhibits
filed as a part thereof.

We are subject to the informational requirements of the Securities
Exchange Act, and, in accordance therewith, will file reports and other
information with the SEC. The registration statement, the exhibits and
schedules forming a part thereof and the reports and other information filed by
us with the SEC in accordance with the Securities Exchange Act may be inspected
and copied at the public reference facilities maintained by the SEC at room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the following regional offices of the SEC: Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material or part
thereof may also be obtained by mail from the Public Reference Section of the
SEC, 450 Fifth Street, Washington, D.C. 20549 at prescribed rates or accessed
electronically by means of the SEC's home page on the Internet at
http://www.sec.gov.

58
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................. F- 2
Balance Sheets as of January 2, 1999 and December 31, 1997............... F- 3
Statements of Operations for the years ended January 2, 1999, and
December 31, 1997 and 1996.............................................. F- 5
Statements of Stockholders' Equity for the years ended January 2, 1999,
and December 31, 1997 and 1996.......................................... F- 6
Statements of Cash Flows for the years ended January 2, 1999, and
December 31, 1997 and 1996.............................................. F- 7
Notes to Financial Statements............................................ F- 9
Unaudited Condensed Balance Sheet as of July 3, 1999..................... F-22
Unaudited Condensed Statements of Operations for the Two Quarters Ended
July 3, 1999 and
July 4, 1998............................................................ F-23
Unaudited Condensed Statement of Stockholders' Equity for the Two
Quarters Ended July 3, 1999............................................. F-24
Unaudited Condensed Statements of Cash Flows for the Two Quarters Ended
July 3, 1999 and
July 4, 1998............................................................ F-25
Notes to Unaudited Condensed Financial Statements........................ F-27
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To 1-800 CONTACTS, INC.:

We have audited the accompanying balance sheets of 1-800 CONTACTS, INC. (a
Delaware corporation) as of January 2, 1999 and December 31, 1997, and the
related statements of operations, stockholders' equity and cash flows for each
of the three fiscal years in the period ended January 2, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of 1-800 CONTACTS, INC. as of
January 2, 1999, and December 31, 1997, and the results of its operations and
its cash flows for each of the three fiscal years in the period ended January
2, 1999 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Salt Lake City, Utah
February 4, 1999 (except with respect to certain matters discussed inNotes 5
and 12, as to which the date is March 26, 1999)

F-2
<PAGE>

1-800 CONTACTS, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
January 2, December 31,
1999 1997
----------- ------------
ASSETS

<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 3,762,220 $ --
Inventories......................................... 10,752,324 4,811,855
Prepaid advertising................................. 294,259 127,696
Other current assets................................ 188,880 54,968
----------- ----------
Total current assets.............................. 14,997,683 4,994,519
----------- ----------
DEFERRED ADVERTISING COSTS............................ 175,631 1,705,695
----------- ----------
PROPERTY AND EQUIPMENT, at cost:
Office, computer and other equipment................ 2,078,102 630,186
Leasehold improvements.............................. 458,341 75,270
----------- ----------
2,536,443 705,456
Less -- accumulated depreciation and amortization... (487,593) (142,953)
----------- ----------
Net property and equipment........................ 2,048,850 562,503
----------- ----------
DEFERRED INCOME TAXES................................. 642,679 --
----------- ----------
OTHER ASSETS.......................................... 151,293 518,347
----------- ----------
Total assets...................................... $18,016,136 $7,781,064
=========== ==========
</TABLE>

See accompanying notes.

F-3
<PAGE>

1-800 CONTACTS, INC.

BALANCE SHEETS (continued)

<TABLE>
<CAPTION>
January 2, December 31,
1999 1997
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY

<S> <C> <C>
CURRENT LIABILITIES:
Line of credit..................................... $ -- $1,055,640
Notes payable to stockholders...................... -- 1,370,000
Current portion of capital lease obligation........ 36,712 23,532
Accounts payable................................... 2,056,451 3,762,158
Accrued liabilities................................ 890,443 300,439
Unearned revenue................................... 169,540 104,272
----------- ----------
Total current liabilities........................ 3,153,146 6,616,041
----------- ----------
LONG-TERM LIABILITIES:
Notes payable to stockholders...................... -- 243,788
Capital lease obligation, less current portion..... 30,165 66,877
----------- ----------
Total long-term liabilities...................... 30,165 310,665
----------- ----------

COMMITMENTS AND CONTINGENCIES (Notes 1 and 5)

STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 20,000,000 shares
authorized,
6,430,568 and 4,659,469 shares issued,
respectively.................................... 64,306 46,595
Additional paid-in capital......................... 23,017,266 93,688
Retained earnings (deficit)........................ (8,189,072) 1,286,220
Treasury stock at cost, 11,000 shares.............. (59,675) --
Notes receivable from stockholders................. -- (572,145)
----------- ----------
Total stockholders' equity....................... 14,832,825 854,358
----------- ----------
Total liabilities and stockholders' equity....... $18,016,136 $7,781,064
=========== ==========
</TABLE>

See accompanying notes.

F-4
<PAGE>

1-800 CONTACTS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year Ended
---------------------------------------
January 2, December 31, December 31,
1999 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
NET SALES............................... $59,875,941 $21,115,314 $3,628,296
COST OF GOODS SOLD...................... 37,315,413 14,024,523 2,215,306
----------- ----------- ----------
Gross profit.......................... 22,560,528 7,090,791 1,412,990
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................... 31,541,525 5,945,221 1,041,312
----------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS........... (8,980,997) 1,145,570 371,678
----------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest expense...................... (104,370) (161,520) (26,175)
Interest income....................... 553,843 34,963 7,261
Other, net............................ (3,763) 13,395 (4,401)
----------- ----------- ----------
Total other, net.................... 445,710 (113,162) (23,315)
----------- ----------- ----------
INCOME (LOSS) BEFORE BENEFIT FOR INCOME
TAXES.................................. (8,535,287) 1,032,408 348,363
BENEFIT FOR INCOME TAXES................ 642,679 -- --
----------- ----------- ----------
NET INCOME (LOSS)....................... $(7,892,608) $ 1,032,408 $ 348,363
=========== =========== ==========
PER SHARE INFORMATION:
Basic and diluted net loss per common
share................................ $ (1.27)
===========
PRO FORMA INFORMATION:
Income (loss) before benefit
(provision) for income taxes......... $(8,535,287) $ 1,032,408 $ 348,363
Benefit (provision) for income taxes.. 642,679 (397,477) (134,120)
----------- ----------- ----------
Net income (loss)..................... $(7,892,608) $ 634,931 $ 214,243
=========== =========== ==========
Basic net income (loss) per common
share................................ $ (1.27) $ 0.14
=========== ===========
Diluted net income (loss) per common
share................................ $ (1.27) $ 0.13
=========== ===========
</TABLE>

See accompanying notes.

F-5
<PAGE>

1-800 CONTACTS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Notes
Common Stock Additional Retained Treasury Stock Receivable
------------------ Paid-in Earnings ----------------- From
Shares Amount Capital (Deficit) Shares Amount Stockholders Total
--------- ------- ----------- ----------- ------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1995................... 4,659,469 $46,595 $ 33,688 $ (94,551) -- $ -- $ (14,144) $ (28,412)
Repurchase of common
stock................. (931,894) (9,319) (230,681) -- -- -- -- (240,000)
Sale of common stock... 931,894 9,319 290,681 -- -- -- -- 300,000
Advances to
stockholders.......... -- -- -- -- -- -- (233,592) (233,592)
Net income............. -- -- -- 348,363 -- -- -- 348,363
--------- ------- ----------- ----------- ------- -------- --------- -----------
BALANCE, December 31,
1996................... 4,659,469 46,595 93,688 253,812 -- -- (247,736) 146,359
Advances to
stockholders.......... -- -- -- -- -- -- (324,409) (324,409)
Net income............. -- -- -- 1,032,408 -- -- -- 1,032,408
--------- ------- ----------- ----------- ------- -------- --------- -----------
BALANCE, December 31,
1997................... 4,659,469 46,595 93,688 1,286,220 -- -- (572,145) 854,358
Advances to
stockholders.......... -- -- -- -- -- -- (27,544) (27,544)
Distributions to
stockholders, net..... -- -- -- (1,582,684) -- -- 599,689 (982,995)
Sale of common stock,
net of offering
costs................. 2,213,750 22,138 24,827,971 -- -- -- -- 24,850,109
Repurchase and
retirement of common
stock................. (442,651) (4,427) (1,895,573) -- -- -- -- (1,900,000)
Purchase of treasury
shares................ -- -- -- -- (15,000) (81,375) -- (81,375)
Exercise of common
stock options......... -- -- (8,820) -- 4,000 21,700 -- 12,880
Net loss............... -- -- -- (7,892,608) -- -- -- (7,892,608)
--------- ------- ----------- ----------- ------- -------- --------- -----------
BALANCE, January 2,
1999................... 6,430,568 $64,306 $23,017,266 $(8,189,072) (11,000) $(59,675) $ -- $14,832,825
========= ======= =========== =========== ======= ======== ========= ===========
</TABLE>

See accompanying notes.

F-6
<PAGE>

1-800 CONTACTS, INC.

STATEMENTS OF CASH FLOWS

Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
Year Ended
---------------------------------------
January 2, December 31, December 31,
1999 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................... $ (7,892,608) $1,032,408 $ 348,363
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization........ 446,389 150,933 46,044
Other................................ -- 20,000 --
Loss on retirement of property and
equipment........................... 13,762 -- 1,834
Deferred income taxes................ (642,679) -- --
Changes in operating assets and
liabilities:
Inventories........................ (5,940,469) (4,336,445) (385,892)
Prepaid advertising................ (166,563) (127,696) --
Other current assets............... (133,912) (45,945) (8,423)
Deferred advertising costs......... 1,530,064 (1,311,398) (394,297)
Accounts payable................... (1,705,707) 3,290,864 421,228
Accrued liabilities................ 590,004 236,639 54,432
Unearned revenue................... 65,268 68,327 30,986
------------ ---------- ---------
Net cash (used in) provided by
operating activities............ (13,836,451) (1,022,313) 114,275
------------ ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in notes receivable from
stockholders........................ (27,544) (324,409) (233,592)
Purchase of property and equipment... (2,013,361) (488,244) (174,992)
Proceeds from sale of property and
equipment........................... 101,768 -- --
Purchase of intangible assets........ (5,000) (50,000) --
Deposits............................. (38,049) (40,425) --
------------ ---------- ---------
Net cash used in investing
activities...................... $ (1,982,186) $ (903,078) $(408,584)
============ ========== =========
</TABLE>

See accompanying notes.

F-7
<PAGE>

1-800 CONTACTS, INC.

STATEMENTS OF CASH FLOWS (continued)

Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
Year Ended
--------------------------------------
January 2, December 31, December 31,
1999 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock, net of
underwriting discounts and
commissions.......................... $25,734,844 $ -- $300,000
Common stock offering costs........... (509,537) (375,198) --
Common stock repurchases.............. (1,981,375) -- (240,000)
Proceeds from exercise of common stock
options.............................. 12,880 -- --
Net (repayments) borrowings on line of
credit............................... (1,055,640) 1,055,640 --
Borrowings from stockholders.......... -- 1,800,000 365,000
Principal payments on notes payable to
stockholders......................... (1,613,788) (411,212) (180,000)
Principal payments on notes payable
for distributions to stockholders,
net.................................. (982,995) -- --
Principal payments on long-term debt.. -- (55,871) (21,717)
Principal payments on capital lease
obligation........................... (23,532) (19,425) (442)
Bank overdraft........................ -- (68,543) 68,543
----------- --------- --------
Net cash provided by financing
activities......................... 19,580,857 1,925,391 291,384
----------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ 3,762,220 -- (2,925)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD.............................. -- -- 2,925
----------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................. $ 3,762,220 $ -- $ --
=========== ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................ $ 228,907 $ 42,699 $ 18,984
</TABLE>

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During the year ended January 2, 1999, the Company distributed $1,582,684
to its S Corporation stockholders. This distribution (net of notes receivable
from stockholders of $599,689) was in the form of promissory notes, totaling
$982,995, issued by the Company. The promissory notes were paid in full during
fiscal year 1998.

See accompanying notes.

F-8
<PAGE>

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS

1. Nature of Operations and Organization of Business

1-800 CONTACTS, INC., (the "Company") was incorporated in the state of
Utah in February 1995. The Company was reincorporated in Delaware in February
1998 in conjunction with its initial public offering of common stock. The
Company is a direct marketer of replacement contact lenses. The Company sells
contact lenses primarily through its toll-free telephone number and the
Internet.

Regulatory Compliance

The Company sells contact lenses to customers in all 50 states and each
sale is likely to be subject to the laws of the state where the customer is
located. The laws and regulations relating to the delivery and sale of contact
lenses vary from state to state, but can generally be classified into five
categories: (i) laws that require contact lenses only be dispensed pursuant to
a valid prescription, (ii) laws that require the dispenser to be licensed by
the state as an optometrist, ophthalmologist or other professional authorized
to dispense lenses, (iii) laws that require lenses be dispensed only in a face-
to-face transaction, (iv) laws with requirements that are unclear or do not
specifically address the sale and delivery of contact lenses; and (v) laws that
the Company believes place no restrictions on the dispensing of replacement
contact lenses. The Company's operating practice is to attempt to obtain a
prescription from its customers or his/her eye care practitioner. If the
customer does not have a copy of his/her prescription, the Company attempts to
contact the customer's doctor to obtain a copy of, or verify the customer's
prescription. If the Company is unable to obtain a copy of, or verify the
customer's prescription, it is the Company's practice to complete the sale and
ship the lenses to the customer, based on the prescription information provided
by the customer. As a result, certain sales made by the Company violate the
applicable statute or regulation in the state in which the customer is located.
Any action brought against the Company based on its violation of such state
laws and regulations could result in fines to the Company and /or the required
compliance with such laws. Such required compliance could result in
(i) increased costs to the Company, (ii) the loss of a substantial portion of
the Company's customers for whom the Company is unable to obtain or verify
their prescription and (iii) the inability to sell to customers at all in a
particular state if the Company cannot comply with such state's laws. The
occurrence of any of the above could have a material adverse effect on the
Company's ability to sell contact lenses and continue to operate profitably.
Furthermore, there can be no assurance that states will not enact or impose
laws or regulations that prohibit mail order dispensing of contact lenses or
otherwise impair the Company's ability to sell contact lenses and continue to
operate profitably.

From time to time the Company receives notices, inquiries or other
correspondence from states or their regulatory bodies charged with overseeing
the sale of contact lenses. The Company's practice is to review such notices
with legal counsel to determine the appropriate response on a case-by-case
basis. It is the opinion of management, after discussion with legal counsel,
that the Company is taking the appropriate steps to address the various notices
received. To date, no formal complaints have been filed against the Company
concerning its business practices, other than the Steinberg Complaint (see Note
5).

The FDA regulates the labeling of medical devices. The contact lenses that
the Company sells are prescription devices, and therefore contain the statement
required by FDA regulations: "Caution: Federal law restricts this device to
sale by or on the order of a (physician or other licensed
practitioner)." However, because of the difficulty the Company has encountered
in obtaining the cooperation of eye care practitioners, the Company sometimes
sells lenses based solely on the prescription information provided by the
customer without a written prescription or other order by the customer's eye
care practitioner. Although the FDA has not objected to the sale of contact
lenses without a written prescription or other order directly from the
customer's eye care practitioner, it is possible that the FDA will consider
contact lenses that are sold in such a fashion to be misbranded. The sale of
misbranded devices is unlawful under the Federal Food, Drug, and Cosmetic Act,
and can result in a warning letter, seizure, injunction, civil penalties, or
prosecution. To date, the Company has not received any notices from the FDA.

F-9
<PAGE>

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

1. Nature of Operations and Organization of Business (continued)

Sources of Supply

Historically, substantially all of the major manufacturers of contact
lenses have refused to sell lenses directly to direct marketers, including the
Company, and have sought to prohibit their distributors from doing so. As a
result, the Company currently purchases a substantial portion of its products
from unauthorized distributors. The Company is aware that at least one large
manufacturer of contact lenses puts tracking codes on its products in an effort
to identify distributors who are selling to direct marketers. The Company is
not an authorized dealer for the majority of the products which it sells. In
addition, the price the Company pays for certain of its products is sometimes
higher than that paid by eye care practitioners, retail chains and mass
merchandisers, who are able to buy directly from the manufacturers. There can
be no assurance that the Company will be able to obtain sufficient quantities
of contact lenses at competitive prices in the future to meet the existing or
anticipated demand for its products. Any such inability would have a material
adverse effect on the Company's business, financial position and results of
operations.

Although the Company seeks to reduce its reliance on any one supplier by
establishing relationships with a number of distributors and other sources, the
Company purchased from a single distributor approximately 47 percent and 40
percent of its contact lens inventory in 1998 and 1997, respectively. The
Company also purchased from another distributor 21 percent and 40 percent of
its contact lens inventory in 1997 and 1996, respectively. The Company
continually seeks to establish new relationships with potential suppliers in
order to be able to obtain adequate inventory at competitive prices. In the
event that these suppliers could no longer supply the Company with contact
lenses, there can be no assurance that the Company could secure other adequate
sources of supply, or that such supply could be obtained on terms no less
favorable to the Company than its current supply, which could adversely affect
the Company by increasing its costs or, in the event adequate replacement
supply cannot be secured, reducing its net sales.

2. Summary of Significant Accounting Policies

Change in Accounting Period

Effective January 1, 1998, the Company changed from a calendar year end to
a 52/53 week year, ending on the Saturday nearest to December 31. Due to this
change, fiscal year 1998 represents 52 weeks and 3 days, covering the period
January 1, 1998 to January 2, 1999.

Revenue Recognition

Sales are recognized at the time of shipment to the customer. Payment for
the product is generally received prior to shipment. As a result, unearned
revenue represents amounts received from customers for which shipment has not
occurred. Shipping and handling fees are included as part of net sales. The
related freight costs associated with shipping products to customers are
included as a component of cost of goods sold.

Use of Estimates

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

F-10
<PAGE>

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

2. Summary of Significant Accounting Policies (continued)

Cash Equivalents

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

Inventories

Inventories consist of contact lenses and are recorded at the lower of
cost (using the first-in, first-out method) or market.

Property and Equipment

Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives ranging from three to
seven years. Leasehold improvements are amortized over the term of the lease.
Major additions and improvements are capitalized, while costs for minor
replacements, maintenance and repairs that do not increase the useful life of
an asset are expensed as incurred. Upon retirement or other disposition of
property and equipment, the cost and related accumulated depreciation or
amortization are removed from the accounts. The resulting gain or loss is
reflected in income.

Advertising Costs

Prior to the fourth quarter of fiscal 1998, the Company capitalized
certain direct-mail advertising costs and amortized those costs over the period
for which the revenues were generated in accordance with Statement of Position
("SOP") 93-7. Based upon the Company's past direct-response information, the
Company capitalized direct-mail advertising costs on a cost-pool-by-cost-pool
approach and amortized those costs over a 12 month period, which was the period
during which the future benefits were expected to be received. Approximately
73 percent of capitalized costs were amortized over the first six months after
the advertisement. Accordingly, deferred advertising costs were amortized in
proportion to the expected future benefits to be received. The Company expensed
all other advertising costs when the advertising first occurred.

At each balance sheet date, the Company evaluates the realizability of
amounts reported as assets by comparing the carrying amounts of such assets to
the estimated remaining future net revenues (revenues less direct costs)
expected to result from the advertisement. To the extent the carrying amounts
exceeded the remaining future net revenues, the excess was recorded as
advertising expense in the current period.

During 1998, the Company began utilizing a variety of new advertising
vehicles, including new print vehicles, Internet and radio spots, and an
extensive television marketing campaign. As direct-response information became
available during the fourth quarter of 1998, the Company determined that its
ability to track individual sales to specific advertising campaigns was
restricted as a result of the variety of new advertising vehicles utilized.
Therefore, beginning in the fourth quarter of 1998, the Company began expensing
all advertising costs, including all direct-mail advertising costs, when the
advertising first takes place. The Company also determined that for previously
deferred advertising costs the period during which the future benefits were
expected to be received was shortened and accordingly, is amortizing the
balance at the beginning of the fourth quarter of 1998 over 5 months.

The Company recorded total advertising expense of approximately
$24,207,000, $3,486,000 and $468,000 for the years ended January 2, 1999 and
December 31, 1997 and 1996, respectively.

F-11
<PAGE>

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

2. Summary of Significant Accounting Policies (continued)

Other Assets

Other assets consist of the following:

<TABLE>
<CAPTION>
January December 31,
2, 1999 1997
--------- ------------
<S> <C> <C>
Intangible assets................................. $ 175,447 $170,447
Deferred offering costs........................... -- 375,198
Deposits.......................................... 78,474 40,425
--------- --------
253,921 586,070
Accumulated amortization.......................... (102,628) (67,723)
--------- --------
$ 151,293 $518,347
========= ========
</TABLE>

Intangible assets consist of amounts paid to secure the rights to the
Company's telephone numbers and Internet domain names. These costs are
amortized over an estimated life of 5 years. The Company has contractual rights
customary to the industry to use its telephone numbers and Internet domain
names. However, under applicable rules and regulations of the Federal
Communications Commission, the Company does not have and cannot acquire any
property rights to the telephone numbers. In addition, the Company does not
have and cannot acquire any property rights to the Internet domain names. The
Company does not expect to lose the right to use the numbers or domain names,
however, there can be no assurance in this regard and such loss would have a
material adverse effect on the Company's financial position and results of
operations.

Fair Value of Financial Instruments

The Company's financial instruments consist mainly of cash and cash
equivalents, short-term payables and notes payable. The Company believes that
the carrying amounts approximate fair value.

Long-lived Assets

The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.

Income Taxes

The Company recognizes deferred tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred tax assets or
liabilities are determined based upon the difference between the financial
statement and income tax bases of assets and liabilities using enacted tax
rates expected to apply when differences are expected to be settled or
realized.

Prior to February 9, 1998, the Company had elected for federal and state
income tax purposes to include its taxable income with that of its shareholders
(an S Corporation election). For the years ended December 31, 1997 and 1996,
the unaudited pro forma net income presents the pro forma effects on historical
net income adjusted for a pro forma provision for income taxes. The pro forma
provision for income taxes has been determined assuming the Company had been
taxed as a C corporation for federal and state income tax purposes using an
effective income tax rate of 38.5 percent.

F-12
<PAGE>

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

2. Summary of Significant Accounting Policies (continued)

Net Income (Loss) Per Common Share

Basic net income (loss) per common share ("Basic EPS") excludes dilution
and is computed by dividing net income (loss) by the weighted-average number of
common shares outstanding during the period. Diluted net income (loss) per
common share ("Diluted EPS") reflects the potential dilution that could occur
if stock options or other common stock equivalents were exercised or converted
into common stock.

The pro forma Basic and Diluted EPS for the year ended December 31, 1997
gives effect to the pro forma effects on historical net income adjusted for a
pro forma provision for income taxes assuming the Company had been taxed as a C
Corporation for federal and state income tax purposes. In addition, it takes
into consideration the shares deemed to be outstanding at the initial public
offering price of $12.50 per share, sufficient to fund the S Corporation
distribution of approximately $983,000 (see Note 9).

The following is a reconciliation of the numerator and denominator used to
calculate Basic and Diluted EPS:

<TABLE>
<CAPTION>
Year Ended January 2, 1999 Year Ended December 31, 1997
-------------------------------- ----------------------------
Income Per-Share Income Per-Share
(Loss) Shares Amount (Loss) Shares Amount
----------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Historical:
Basic EPS.............. $(7,892,608) 6,227,640 $(1.27)
Effect of stock
options...............
----------- --------- ------
Diluted EPS............ $(7,892,608) 6,227,640 $(1.27)
=========== ========= ======
Pro Forma:
Basic EPS.............. $(7,892,608) 6,227,640 $(1.27) $634,931 4,659,469 $0.14
Effect of stock
options............... 20,782
Assumed distribution... 78,640
----------- --------- ------ -------- --------- -----
Diluted EPS............ $(7,892,608) 6,227,640 $(1.27) $634,931 4,758,891 $0.13
=========== ========= ====== ======== ========= =====
</TABLE>

At January 2, 1999, there were outstanding options to purchase 223,010
shares of common stock that were not included in the computation of Diluted EPS
because they would be antidilutive.

Reclassifications

Certain amounts in prior years' financial statements have been
reclassified to conform to the fiscal 1998 presentation.

3. Line of Credit

Line of Credit

The Company has a revolving credit facility that provides for borrowings
equal to the lesser of $5.0 million or 50 percent of eligible inventory. The
credit facility bears interest at a floating rate equal to the lender's prime
interest rate plus 1.5 percent (9.25 percent at January 2, 1999). As of January
2, 1999, the Company had no outstanding borrowings. The credit facility is
secured by substantially all of the Company's assets and expires on July 31,
1999.

F-13
<PAGE>

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

3. Line of Credit (continued)

The credit facility contains various affirmative and negative covenants
which require, among other things, restrictions on additional debt, quarterly
pre-tax income, maintenance of working capital and restrictions on
distributions and changes in ownership. As of January 2, 1999, the Company was
not in compliance with the covenants regarding quarterly pre-tax income. The
bank waived these covenants for the year ended January 2, 1999.

4. Notes Payable to Stockholders

Long Term

In February 1996, the Company entered into a credit agreement with a
stockholder that provides for maximum borrowings of $250,000. The borrowings
accrued interest at the prime rate plus 2 percent (9.75 percent at January 2,
1999). As of December 31, 1997, outstanding borrowings totaled $243,788. During
1998, this amount was paid in full with proceeds from the Company's initial
public offering of common stock.

Short Term

In May 1997, the Company borrowed $250,000 from a stockholder that was
repaid prior to December 31, 1997.

In May 1997, the Company borrowed $600,000 from a stockholder under a
short-term promissory note. The note accrued interest at the prime rate plus 2
percent and was due in November 1997. In July 1997, the Company repaid $100,000
on the note and refinanced the remaining $500,000 plus borrowed an additional
$600,000 from the stockholder under a new short-term promissory note. The total
$1,100,000 unsecured note payable accrued interest at prime plus 2 percent and
was due July 30, 1998. As consideration for entering into this note, the
Company agreed to modify the option it held to repurchase the stockholder's
common stock. Under the revised terms of the option, the Company had the right
to repurchase 442,651 shares of the stockholder's common stock for $1,900,000
(see Note 6).

In September 1997, the Company borrowed $250,000 from a stockholder under
a short-term, unsecured promissory note. The note accrued interest at prime
plus 2 percent and was due in September 1998. In addition, for every month the
note was outstanding, a fee of $5,000 was added to the outstanding balance and
expensed as additional interest. As of December 31, 1997, $20,000 had been
added to the balance of the note.

As of December 31, 1997, accrued interest on stockholder notes payable
totaled $98,315 and is included in the caption "accrued liabilities" in the
accompanying December 31, 1997 balance sheet.

During 1998, all amounts owed to stockholders were paid in full with
proceeds from the Company's initial public offering of common stock.

5. Commitments and Contingencies

Legal and Regulatory Matters

On July 14, 1998, Craig S. Steinberg, O.D., a professional corporation
d.b.a. City Eyes Optometry Center, filed a purported class action on behalf of
all optometrists licensed to practice in California against the Company and its
directors in Los Angeles County Superior Court (the "Steinberg Complaint"). The

F-14
<PAGE>

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

5. Commitments and Contingencies (continued)

complain alleges three separate causes of action for unfair competition: (i)
selling contact lenses to California residents without being registered, (ii)
selling contact lenses to California residents without verifying the
prescription, and (iii) failing to disclose in its advertising that it sells
"sample" lenses not intended for sale to the public. The complaint requests
various forms of relief, including damages of an unspecified amount,
attorney's fees and a permanent injunction to prevent the Company from selling
contact lenses to California residents without being registered and without
verifying the prescription as well as from selling sample contact lenses to
California residents. In addition, the plaintiff has filed a motion for
preliminary injunction seeking the injunctive relief requested in the
complaint. On August 11, 1998, the Company removed the action to the United
States District Court for the Central District of California based on
diversity jurisdiction.

In response to motions by the Company, plaintiff and another California
optometrist, Ellis Miles (collectively "plaintiffs") filed a First Amended
Complaint ("FAC") against the Company and its directors on or about September
3, 1998 purporting to sue on behalf of the public under California's unfair
competition statute rather than as a class action on behalf of optometrists.
Although the substantive claims for unfair competition remain the same, the
FAC seeks restitutionary relief rather than damages. Plaintiffs also
stipulated to dismiss the Company's directors as defendants rather than oppose
the Company's motion to dismiss them, leaving the Company as the only
remaining defendant.

On October 2, 1998, plaintiffs re-filed their motion for preliminary
injunction in federal court. The Company likewise filed a motion to strike
plaintiff's claims for monetary relief. Plaintiffs withdrew their motion for
preliminary injunction on October 19, 1998, after the Company filed its
opposition to the motion indicating, inter alia, that the Company had been
registered as a Nonresident Contact Lens Seller in California. The Court
denied the Company's motion to strike plaintiffs' claims for monetary relief
on February 26, 1999. The Company filed its Answer to the First Amended
Complaint on March 11, 1999.

From time to time the Company is involved in other legal matters generally
incidental to its business.

It is the opinion of management, after discussion with legal counsel, that
the ultimate dispositions of these matters will not have a material impact on
the financial condition, liquidity or results of operations of the Company.

See Note 1 for a discussion of regulatory matters.

Capital Lease Obligation

The Company leases the rights to use its telephone number from an
individual under a capital lease arrangement. At the end of the lease, the
Company has the option to purchase the interest in the telephone number for
$17,500. The minimum future lease payments under the capital lease as of
January 2, 1999 are as follows:

<TABLE>
<CAPTION>
Fiscal Year Amount
----------- --------
<S> <C>
1999........................................................... $ 42,000
2000........................................................... 31,500
--------
Total minimum lease payments................................... 73,500
Less amount representing interest.............................. (6,623)
--------
Present value of minimum lease payments........................ 66,877
Less current portion........................................... (36,712)
--------
Capital lease obligations, excluding current portion........... $ 30,165
========
</TABLE>

F-15
<PAGE>

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

5. Commitments and Contingencies (continued)

Operating Leases

The Company leases office and warehouse facilities and certain equipment
under noncancelable operating leases. Lease expense for the years ended January
2, 1999 and December 31, 1997 and 1996 totaled approximately $376,700, $88,000
and $30,900, respectively. In October 1998, the Company agreed to occupy
warehouse space in a facility then under construction. The new lease commitment
commenced in January, 1999.

Future minimum lease payments under noncancelable operating leases are as
follows (including expense under the new lease):

<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ----------
<S> <C>
1999........................................................... $ 759,246
2000........................................................... 746,298
2001........................................................... 760,503
2002........................................................... 598,293
2003........................................................... 602,389
Thereafter..................................................... 658,703
----------
$4,125,432
==========
</TABLE>

Sales Tax

The Company's direct mail business is located, and all of its operations
are conducted, in the state of Utah. At January 2, 1999, the Company did not
collect sales or other similar taxes. However, various states have sought to
impose state sales tax collection obligations on out-of-state mail-order
companies, such as the Company. The U.S. Supreme Court has held that the
various states, absent Congressional legislation, may not impose tax collection
obligations on an out-of-state mail order company whose only contacts with the
taxing state are the distribution of advertising materials through the mail,
and whose subsequent delivery of purchased goods is by mail or interstate
common carriers. The Company has not received an assessment from any state. The
Company anticipates that any legislative changes, if adopted, would be applied
on a prospective basis.

Advertising Commitments

The Company has entered into certain noncancelable commitments with
cooperative mail companies that will require the Company to pay approximately
$3.5 million for direct mail services through December 31, 1999.

6. Common Stock Transactions

In February 1996, the Company repurchased 931,894 shares of its
outstanding common stock for $240,000 in cash. Concurrently with the purchase,
the Company sold these shares to new stockholders for $300,000 in cash. The
Company received the right to repurchase 442,651 of these shares for $1,900,000
prior to February 1, 2001 (see Note 4). In connection with its initial public
offering, the Company exercised its rights to repurchase these shares.

In connection with the filing of an effective Form S-1 Registration
Statement and a reincorporation in the state of Delaware, the Board of
Directors and stockholders approved a 414.175 for 1 stock split and a

F-16
<PAGE>

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

6. Common Stock Transactions (continued)

change in the authorized common stock to 20,000,000 shares at $0.01 par value
per share. This stock split and change in authorized common stock have been
retroactively reflected in the accompanying financial statements.

During February 1998, the Company completed its initial public offering of
common stock. In connection therewith, the Company issued 2,213,750 shares of
common stock, which included 288,750 shares issued pursuant to the
underwriters' over-allotment option. The proceeds received from the offering,
net of underwriting commissions and offering costs, totaled approximately
$24,850,000.

On October 13, 1998, the Company's Board of Directors authorized a
repurchase of up to 500,000 shares of its common stock. A purchase of the full
amount would equal approximately 7.8 percent of the total shares issued. The
repurchase of common stock is subject to market conditions and is accomplished
through periodic purchases at prevailing prices on the open market, by block
purchases or in privately negotiated transactions. The repurchased shares will
be retained as treasury stock to be used for corporate purposes. The repurchase
program will be effected in accordance with the safe harbor provisions of
Rule 10b-18. During 1998, the Company repurchased 15,000 shares for a total
cost, including commissions, of $81,375. See Note 12 for repurchases subsequent
to year end.

During December 1998, an employee exercised stock options to purchase
4,000 shares of common stock at $3.22 per share for a total of $12,880.

7. Stock Options and Stock Option Plan

During fiscal 1998, the Company established a nonqualified and incentive
stock option plan. The plan provides for the issuance of a maximum of 310,000
shares of common stock to officers, directors and consultants and other key
employees. Incentive stock options and nonqualified options are granted at not
less than 100 percent of the fair market value of the underlying common stock
on the date of grant. As of January 2, 1999, 292,610 shares are available for
future granting.

Prior to the establishment of the stock option plan, the Company issued
nonqualified stock options to an employee in November 1996 to purchase 47,986
shares of common stock at an exercise price of $3.22. In addition, during the
year ended December 31, 1997, the Company issued nonqualified stock options to
an employee to purchase 4,799 shares of common stock at an exercise price of
$8.16 and nonqualified options to two employees to purchase an aggregate of
67,181 shares at $11 per share. The Company also issued stock options to a
consultant in February 1997 to purchase 19,195 shares of common stock at an
exercise price of $4.70. In January 1998, the Company granted nonqualified
stock options to purchase 71,979 shares of common stock at $11 per share to a
director of the Company. All options granted through January 2, 1999 vest
equally over a three year period and expire in ten years.

F-17
<PAGE>

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

7. Stock Options and Stock Option Plan (continued)

A summary of stock option activity is as follows:

<TABLE>
<CAPTION>
Weighted-Average
Exercise Price
Shares Per Share
------- ----------------
<S> <C> <C>
Outstanding at January 1, 1996.................. -- --
Granted....................................... 47,986 $ 3.22
------- ------
Outstanding at December 31, 1996................ 47,986 3.22
Granted....................................... 91,175 9.52
------- ------
Outstanding at December 31, 1997................ 139,161 7.35
Granted....................................... 89,369 11.22
Exercised..................................... (4,000) 3.22
Forfeited..................................... (1,520) 12.50
------- ------
Outstanding at January 2, 1999.................. 223,010 $ 8.94
======= ======
Exercisable at January 2, 1999.................. 82,378 $ 7.81
======= ======
</TABLE>

The following is additional information with respect to stock options:

<TABLE>
<CAPTION>
Outstanding as Weighted-Average Exercisable as
Range of of January 2, Remaining Weighted-Average of January 2, Weighted-Average
Exercise Prices 1999 Contractual Life Exercise Price 1999 Exercise Price
--------------- -------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 3.18 -- $ 4.76 63,181 7.9 $ 3.67 34,390 $ 3.50
4.77 -- 6.35 3,000 9.7 5.63 0 0.00
7.94 -- 9.52 4,799 8.4 8.16 1,600 8.16
9.53 -- 11.11 139,160 8.9 11.00 46,388 11.00
11.12 -- 12.70 7,870 9.2 12.18 0 0.00
14.29 -- 15.88 5,000 9.5 15.88 0 0.00
------- --- ------ ------ ------ ---
223,010 8.7 $ 8.94 82,378 $ 7.81
======= ======
</TABLE>

The Company applies APB No. 25 and related interpretations in accounting
for its stock option grants to employees. Accordingly, no compensation expense
has been recognized for these stock option grants. Had compensation expense for
the Company's employee stock option grants been determined in accordance with
SFAS No. 123, the Company's net income (loss) for the years ended January 2,
1999 and December 31, 1997 and 1996, and diluted net income (loss) per common
share for the years ended January 2, 1999 and December 31, 1997 would have been
reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1998 1997 1996
----------- -------- --------
<S> <C> <C> <C>
Net income (loss):
As reported (1)........................ $(7,892,608) $634,931 $214,243
Pro forma.............................. $(8,070,562) $617,785 $211,860
Diluted net income (loss) per common
share:
As reported (1)........................ $ (1.27) $ 0.13
Pro forma.............................. $ (1.30) $ 0.13
</TABLE>

- ------------------
(1) Includes the effect of the pro forma adjustments as described in Note 2.

F-18
<PAGE>

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

7. Stock Options and Stock Option Plan (continued)

Due to the nature and timing of options grants, the resulting pro forma
compensation cost may not be indicative of future years.

The fair value of each option grant has been estimated on the grant date
using the Black-Scholes option-pricing model with the following assumptions:
weighted average risk-free interest rate of 5.6 percent for 1998 grants and 6.5
percent for 1997 and 1996 grants, expected stock price volatility of
approximately 78 percent for 1998 grants and 0 percent for 1997 and 1996
grants, an expected dividend yield of 0 for all grants and an expected life of
five years for all grants. The weighted average fair value of options granted
during fiscal years 1998, 1997 and 1996 was $7.53, $2.64 and $0.89 per share,
respectively.

8. Related Party Transactions

During fiscal 1998, 1997 and 1996, the Company made aggregate loans to two
stockholders totaling $22,300, $289,473 and $226,331, respectively. The loans
were unsecured, accrued interest at the prime rate and were due on demand.
Interest income on the loans totaled $5,244, $34,936 and $7,261 for the years
ended January 2, 1999, and December 31, 1997 and 1996, respectively, and is
included in the outstanding balance of the notes receivable. As of December 31,
1997 and 1996, notes receivable from stockholders totaled $572,145 and
$247,736, respectively. During 1998, the Company made equity distributions to
the stockholders sufficient to allow for their repayment on these notes. As a
result, these notes were classified as a reduction in stockholders' equity in
the accompanying 1997 financial statements. See Note 4 for a discussion of
other related party transactions.

9. Distributions to Stockholders

Prior to the consummation of its initial public offering, the Company
entered into an agreement for the distribution of retained earnings and tax
indemnification with the existing stockholders. Pursuant to the agreement, an S
Corporation distribution of $982,995 (net of notes receivable due from
stockholders of $599,689) was distributed in the form of promissory notes
issued by the Company. The notes were paid in full after the closing of the
offering. The agreement provided for, among other things, the indemnification
of the existing stockholders for any losses or liabilities with respect to any
additional taxes (including interest, penalties and legal fees) and the
repayment to the Company of amounts received as refunds, resulting from the
Company's operations during the period in which it was an S Corporation. No
amounts are currently payable, or anticipated to be payable, or receivable, or
anticipated to be receivable under the agreement. The existing stockholders
will be indemnified by the Company with respect to federal and state income tax
liabilities as a result of an adjustment to the Company's taxable income which
increases the tax liability to the existing stockholders for taxable periods
ending prior to the termination of the S corporation status. In addition, the
existing stockholders will indemnify the Company with respect to any federal
and state tax liabilities as a result of an adjustment which decreases the
existing stockholders' tax liability for taxable periods ending prior to the
termination of the Company's S corporation status and correspondingly increases
the tax liability of the Company for a taxable period commencing on or after
the termination of the Company's S corporation status.

10. Income Taxes

Effective February 9, 1998 the Company's S corporation election was
terminated. As a result, the Company recorded a net deferred tax liability and
the related deferred tax provision of approximately $791,000 for the tax effect
of the differences between financial statement and income tax basis of assets
and liabilities that existed at the termination date of the S corporation
election.

F-19
<PAGE>

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

10. Income Taxes (continued)

The components of the provision for income taxes for the period in fiscal
1998 since the termination of the S corporation status are as follows:

<TABLE>
<S> <C>
Current provision............................................ $ --
Deferred benefit (provision):
Federal.................................................... 2,864,270
State...................................................... 443,386
Change in valuation allowance.............................. (1,874,211)
Change from S corporation status........................... (790,766)
-----------
Total benefit for income taxes........................... $ 642,679
===========
</TABLE>

The following is a reconciliation between the statutory federal income tax
rate and the Company's effective income tax rate which is derived by dividing
the benefit for income taxes by loss before benefit for income taxes for the
fiscal year ended January 2, 1999.

<TABLE>
<S> <C>
Statutory federal income tax rate.................................. 34.0%
State income taxes, net of federal benefit......................... 3.3
Change from S corporation status................................... (8.0)
Valuation allowance................................................ (22.0)
Other.............................................................. .2
-----
7.5%
=====
</TABLE>

The components of the deferred tax assets and liabilities at January 2,
1999 are as follows:

<TABLE>
<S> <C>
Deferred income tax assets:
Operating loss carryforward............................... $ 2,357,190
Accrued reserves.......................................... 176,429
Intangibles amortization.................................. 23,741
Other..................................................... 33,645
-----------
2,591,005
Valuation allowance....................................... (1,874,211)
-----------
716,794
-----------
Deferred income tax liabilities:
Deferred advertising costs................................ (65,510)
Depreciation.............................................. (8,605)
-----------
(74,115)
-----------
Net deferred income tax asset............................... $ 642,679
===========
</TABLE>

A valuation allowance is provided when it is more likely than not that all
or some portion of the deferred tax assets will not be realized. Due to the
uncertainty with respect to the ultimate realization, the Company has
established a valuation allowance for a portion of the deferred tax assets. The
amount of the net deferred tax assets considered realizable, however, could
change in the near term based on changing conditions.

As of January 2, 1999, the Company has net operating loss carryforwards
for income tax purposes of approximately $6,320,000 which expire in fiscal year
2018 for federal income tax purposes and 2013 for state income tax purposes.

F-20
<PAGE>

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

11. Preferred Stock

The Company has 1,000,000 shares authorized of $.01 par value preferred
stock. For the years ended January 2, 1999, and December 31, 1997 and 1996 no
shares were issued or outstanding.

12. Subsequent Events

Stock Options

In February 1999, the Company granted nonqualified stock options to
purchase 54,700 shares of common stock at $12.5625 per share to employees and
Directors of the Company. The options vest over a three year period and expire
in ten years.

Stock Repurchases

In March 1999, the Company repurchased a total of 155,000 shares of its
common stock for a total cost, including commissions, of $1,860,005.

F-21
<PAGE>

1-800 CONTACTS, INC.

UNAUDITED CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>
July 3,
1999
-----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 6,324,180
Inventories...................................................... 14,759,008
Other current assets............................................. 516,894
-----------
Total current assets........................................... 21,600,082
PROPERTY AND EQUIPMENT, net........................................ 2,330,792
INTANGIBLE ASSETS, net............................................. 1,250,117
OTHER ASSETS....................................................... 118,759
-----------
Total assets................................................... $25,299,750
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease obligation...................... $ 38,682
Acquisition payable.............................................. 600,000
Accounts payable................................................. 7,007,627
Accrued liabilities.............................................. 2,364,026
Unearned revenue................................................. 465,710
-----------
Total current liabilities...................................... 10,476,045
-----------
CAPITAL LEASE OBLIGATION, less current portion..................... 10,319
-----------
STOCKHOLDERS' EQUITY:
Common stock..................................................... 64,306
Additional paid-in capital....................................... 23,017,266
Accumulated deficit.............................................. (6,491,087)
Treasury stock................................................... (1,777,099)
-----------
Total stockholders' equity..................................... 14,813,386
-----------
Total liabilities and stockholders' equity..................... $25,299,750
===========
</TABLE>

See accompanying notes.

F-22
<PAGE>

1-800 CONTACTS, INC.

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Two Quarters Ended
------------------------
July 3, July 4,
1999 1998
----------- -----------
<S> <C> <C>
NET SALES............................................ $46,264,313 $23,229,742
COST OF GOODS SOLD................................... 28,563,830 14,588,098
----------- -----------
Gross profit....................................... 17,700,483 8,641,644
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......... 15,415,321 8,526,658
----------- -----------
INCOME FROM OPERATIONS............................... 2,285,162 114,986
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense................................... (3,244) (75,840)
Interest income.................................... 174,123 348,124
Other, net......................................... -- 8,202
----------- -----------
Total other, net................................. 170,879 280,486
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES............. 2,456,041 395,472
PROVISION FOR INCOME TAXES........................... (692,679) (825,444)
----------- -----------
NET INCOME (LOSS).................................... $ 1,763,362 $ (429,972)
=========== ===========
PER SHARE INFORMATION:
Basic and diluted net income (loss) per common
share............................................. $ 0.28 $ (0.07)
=========== ===========
PRO FORMA INFORMATION:
Income before provision for income taxes........... 2,456,041 395,472
Provision for income taxes......................... (692,679) (149,873)
----------- -----------
Net income......................................... $ 1,763,362 $ 245,599
=========== ===========
Basic and diluted net income per common share...... $ 0.28 $ 0.04
=========== ===========
</TABLE>

See accompanying notes.

F-23
<PAGE>

1-800 CONTACTS, INC.

UNAUDITED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY

For the Two Quarters Ended July 3, 1999

<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
----------------- Paid-in Accumulated ---------------------
Shares Amount Capital Deficit Shares Amount Total
--------- ------- ----------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 2,
1999................... 6,430,568 $64,306 $23,017,266 $(8,189,072) (11,000) $ (59,675) $14,832,825
Purchase of treasury
shares................ -- -- -- -- (155,000) (1,860,005) (1,860,005)
Exercise of common
stock options......... -- -- -- (65,377) 17,873 142,581 77,204
Net income............. -- -- -- 1,763,362 -- -- 1,763,362
--------- ------- ----------- ----------- -------- ----------- -----------
BALANCE, July 3, 1999... 6,430,568 $64,306 $23,017,266 $(6,491,087) (148,127) $(1,777,099) $14,813,386
========= ======= =========== =========== ======== =========== ===========
</TABLE>

See accompanying notes.

F-24
<PAGE>

1-800 CONTACTS, INC.

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

Increase (Decrease) In Cash and Cash Equivalents

<TABLE>
<CAPTION>
Two Quarters Ended
------------------------
July 3, July 4,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................... $ 1,763,362 $ (429,972)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization...................... 434,546 198,821
Loss on retirement of property and equipment....... -- 1,798
Deferred income taxes.............................. 642,679 825,444
Changes in operating assets and liabilities:
Inventories....................................... (4,006,684) (5,009,791)
Other current assets.............................. (33,755) (714,790)
Deferred advertising costs........................ 175,631 (4,217,349)
Accounts payable.................................. 4,951,176 2,112,938
Accrued liabilities............................... 1,473,583 635,581
Unearned revenue.................................. 296,170 164,600
----------- -----------
Net cash provided by (used in) operating
activities..................................... 5,696,708 (6,432,720)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in notes receivable from
stockholders...................................... -- (27,544)
Purchase of property and equipment................. (655,398) (1,150,327)
Purchase of intangible assets...................... (638,388) (5,000)
Deposits........................................... 5,236 (21,802)
----------- -----------
Net cash used in investing activities........... $(1,288,550) $(1,204,673)
----------- -----------
</TABLE>

See accompanying notes.

F-25
<PAGE>

1-800 CONTACTS, INC.

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS (continued)

Increase (Decrease) In Cash and Cash Equivalents

<TABLE>
<CAPTION>
Two Quarters Ended
------------------------
July 3, July 4,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock, net of underwriting discounts
and commissions.................................... $ -- $25,734,844
Common stock offering costs......................... (45,521) (563,733)
Common stock repurchases............................ (1,860,005) (1,900,000)
Proceeds from exercise of common stock options...... 77,204 --
Net repayments on line of credit.................... -- (1,055,640)
Principal payments on notes payable to
stockholders....................................... -- (1,613,788)
Principal payments on notes payable for
distributions to stockholders, net................. -- (982,995)
Principal payments on capital lease obligation...... (17,876) (10,481)
----------- -----------
Net cash (used in) provided by financing
activities...................................... (1,846,198) 19,608,207
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS............. 2,561,960 11,970,814
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...... 3,762,220 --
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............ $ 6,324,180 $11,970,814
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................................ $ 4,720 $ 201,852
</TABLE>

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During the period ended July 4, 1998, the Company distributed $1,582,684
to its S Corporation stockholders. This distribution (net of notes receivable
from stockholders of $599,689) was in the form of promissory notes, totaling
$982,995, issued by the Company. The promissory notes were paid in full during
the period ended July 4, 1998.

During the period ended July 3, 1999, the Company acquired certain
intangible assets. As of July 3, 1999, the Company had an acquisition payable
of $600,000 (see Note 8).

See accompanying notes.

F-26
<PAGE>

1-800 CONTACTS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1. Presentation of Condensed Financial Statements

The accompanying condensed financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These condensed financial statements reflect all adjustments
(consisting only of normal recurring adjustments), which in the opinion of
management, are necessary to present fairly the results of operations of the
Company for the periods presented. It is suggested that these condensed
financial statements be read in conjunction with the audited financial
statements and the notes thereto included elsewhere in this prospectus.

The results of operations for the period ended July 3, 1999 are not
necessarily indicative of the results to be expected for the full year.

2. Change in Accounting Period

Effective January 1, 1998, the Company changed from a calendar year end to
a 52/53 week year ending on the Saturday nearest to December 31. Due to this
change, the first two quarters of 1998 represents 26 weeks and 3 days, covering
the period January 1, 1998 to July 4, 1998.

3. Income Taxes and Pro Forma Information

Effective February 9, 1998 the Company's S Corporation election was
terminated. As a result, the Company recorded a net deferred tax liability and
the related deferred tax provision of approximately $791,000 for the tax effect
of the differences between financial statement and income tax basis of assets
and liabilities that existed at the termination date of the S Corporation
election.

The pro forma net income presents the pro forma effects on historical net
income adjusted for a pro forma provision for income taxes. The pro forma
provision for income taxes has been determined assuming the Company had been
taxed as a C Corporation for federal and state income tax purposes.

4. Advertising Costs

The Company recorded total advertising expense of approximately $9,799,000
and $5,948,000 for the two quarters ended July 3, 1999 and July 4, 1998,
respectively.

During the two quarters ended July 3, 1999, the Company entered into
certain commitments to purchase approximately $15 million of broadcast
advertising from October 1999 through September 2000. The Company can cancel up
to 50 percent of the total amount committed.

5. Net Income (Loss) Per Common Share

The pro forma Basic and Diluted EPS for the two quarters ended July 4,
1998 gives effect to the pro forma effects on historical net income adjusted
for a pro forma provision for income taxes assuming the Company had been taxed
as a C Corporation for federal and state income tax purposes.

F-27
<PAGE>

1-800 CONTACTS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)

5. Net Income (Loss) Per Common Share (continued)

The following is a reconciliation of the numerator and denominator used to
calculate Basic and Diluted EPS:

<TABLE>
<CAPTION>
Two Quarters Ended July 3, Two Quarters Ended July 4,
1999 1998
------------------------------ ------------------------------
Income Per-Share Income Per-Share
(Loss) Shares Amount (Loss) Shares Amount
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Historical:
Basic EPS.............. $1,763,362 6,331,111 $0.28 $(429,972) 6,033,580 $(0.07)
Effect of stock
options............... 59,106
---------- --------- ----- --------- --------- ------
Diluted EPS............ $1,763,362 6,390,217 $0.28 $(429,972) 6,033,580 $(0.07)
========== ========= ===== ========= ========= ======
Pro Forma:
Basic EPS.............. $1,763,362 6,331,111 $0.28 $ 245,599 6,033,580 $ 0.04
Effect of stock
options............... 59,106 61,437
---------- --------- ----- --------- --------- ------
Diluted EPS............ $1,763,362 6,390,217 $0.28 $ 245,599 6,095,017 $ 0.04
========== ========= ===== ========= ========= ======
</TABLE>

6. Common Stock Transactions

During the two quarters ended July 3, 1999, the Company repurchased a
total of 155,000 shares of its common stock for a total cost of $1,860,005.

During the two quarters ended July 3, 1999, employees exercised stock
options to purchase 17,873 shares of common stock for a total of $77,204.

7. Stock Option Grants

8. Asset Acquisition

In May 1999, the Company acquired the assets of Contact Lenses Online,
Inc. ("CLO") for $1.2 million in cash to be paid as follows: $600,000 on the
closing date, $300,000 six months after the closing date and $300,000 one year
after the closing date. The assets acquired include the web address
www.contactlenses.com, various telephone numbers and CLO's customer database
which are included in intangible assets and amortized over an estimated life of
5 years.

9. Legal Matters

On April 7, 1999 the Kansas Board of Examiners in Optometry commenced a
civil action against the Company. The action was filed in the District Court of
Shawnee County, Kansas Division 6. The complaint was amended on May 28, 1999.
The amended complaint alleges that on "one or more occasions" the Company sold
contact lenses without receipt or verification of a prescription. The relief
requested is the issuance of an order enjoining the Company from further
engaging in the alleged activity. The amended complaint does not seek monetary
damage. The Company, in response to the amended complaint, has retained counsel
and intends to vigorously defend itself in this action. An answer to the
amended complaint is not presently due but will be filed in a timely manner.

It is the opinion of management, after discussion with legal counsel, that
the ultimate dispositions of this and other matters will not have a material
impact on the financial condition, liquidity or results of operations of the
Company.

F-28
<PAGE>

[www.contacts.com]

<PAGE>

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

2,040,000 Shares

[1-800 CONTACTS LOGO APPEARS HERE]

Common Stock
-------------
PROSPECTUS
-------------
Hambrecht & Quist
McDonald Investments Inc.
-------------
, 1999
-------------

You should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.

No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering and
the distribution of the prospectus applicable to that jurisdiction.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following is a statement of estimated expenses, to be paid solely by
1-800 CONTACTS, of the issuance and distribution of the securities being
registered:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $14,694
NASD filing fee................................................... 5,786
Nasdaq Stock Market listing fee................................... *
Blue Sky fees and expenses (including attorneys' fees and
expenses)........................................................ *
Printing expenses................................................. *
Accounting fees and expenses...................................... *
Transfer agent's fees and expenses................................ *
Legal fees and expenses........................................... *
Miscellaneous expenses............................................ *
-------
Total......................................................... $ *
=======
</TABLE>
- ------------------
* To be provided by amendment.

Item 14. Indemnification of Directors and Officers.

1-800 CONTACTS is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware ("Section
145") provides that a Delaware corporation may indemnify any persons who are,
or are threatened to be made, parties to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise.
The indemnity may include expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding, provided such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests and, with respect to any criminal
action or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any persons who are, or are
threatened to be made, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is or
was serving at the request of such corporation as a director, officer, employee
or agent of another corporation or enterprise. The indemnity may include
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit,
provided such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the corporation's best interests except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director has actually and reasonably incurred.

1-800 CONTACTS's Certificate of Incorporation and By-laws provide for the
indemnification of directors and officers of 1-800 CONTACTS to the fullest
extent permitted by Section 145.

In that regard, the By-laws provide that 1-800 CONTACTS shall indemnify
any person whom it has the power to indemnify by Section 145 from or against
any and all of the expenses, liabilities or other

II-1
<PAGE>

matters referred to or covered in Section 145, and such indemnification is not
exclusive of other rights to which such person shall be entitled under any By-
law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in such person's official capacity for or in behalf of 1-800
CONTACTS and/or any subsidiary of 1-800 CONTACTS and as to action in another
capacity while holding such office and shall continue as to such person who has
ceased to be a director, officer, employee, or agent of 1-800 CONTACTS and/or
subsidiary of 1-800 CONTACTS and shall inure to the benefit of the heirs,
executors, and administrators of such person.

1-800 CONTACTS has entered into indemnification agreements with each of
its executive officers and directors.

Item 15. Recent Sales of Unregistered Securities.

Within the past three years, 1-800 CONTACTS has not issued any securities
without registration under the Securities Act of 1933, as amended, except in
February 1996, 1-800 CONTACTS repurchased 2,250 shares of its outstanding
common stock and immediately subsequently resold these shares to Donald and
Stephen Yacktman for $300,000 in cash. The above-described transaction was
exempt from registration under the Securities Act pursuant to Section 4(2) of
the Securities Act as a transaction not involving any public offering.

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits.

II-2
<PAGE>

<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.15 Second Amendment to Lease between 1-800 CONTACTS and Draper Land
Partnership II, dated August 6, 1998, with respect to 1-800
CONTACTS's call center. (3)
10.16 Lease between 1-800 CONTACTS and ProLogis Development Services
Incorporated, dated October 13, 1998, with respect to 1-800
CONTACTS's distribution center. (3)
10.17 Revolving Credit Agreement between 1-800 CONTACTS and Zions First
National Bank, dated October 29, 1998. (3)
23.1 Consent of Independent Public Accountants.
*23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).
**24.1 Power of Attorney (included in signature page).
**27.1 Financial Data Schedule.
</TABLE>
- ------------------
* To be filed by amendment.
** Previously filed.
(1) Incorporated by reference to 1-800 CONTACTS's Quarterly Report on Form 10-Q
for the quarterly period ended April 4, 1998 (Commission File No. 0-23633).
(2) Incorporated by reference to the same numbered exhibit to 1-800 CONTACTS's
Registration Statement on Form S-1 (Registration No. 333-41055).
(3) Incorporated by reference to the same numbered exhibit to 1-800 CONTACT's
Annual Report on Form 10-K for the year ended January 2, 1999 (Commission
File No. 0-23633).

(b) Financial Statement Schedules.

All schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions,
are inapplicable or not material, or the information called for thereby is
otherwise included in the financial statements and therefore has been omitted.

Item 17. Undertakings.

The undersigned registrant hereby undertakes:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

II-3
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Pre-Effective Amendment No. 2 to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Draper, State of Utah, on July 26, 1999.

1-800 Contacts, Inc.

/s/ Jonathan C. Coon
By: _________________________________
Jonathan C. Coon
President and Chief Executive
Officer

* * * *

Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to Registration Statement have been signed by the
following persons in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----

<S> <C> <C>
/s/ Jonathan C. Coon President, Chief Executive July 26, 1999
____________________________________ Officer and Director
Jonathan C. Coon (principal executive
officer)

* Chief Financial Officer and July 26, 1999
____________________________________ Director (principal
Scott S. Tanner financial officer)

* Corporate Controller July 26, 1999
____________________________________ (principal accounting
Robert G. Hunter officer)

* Vice President, Operations July 26, 1999
____________________________________ and Director
John F. Nichols

* Director July 26, 1999
____________________________________
Stephen A. Yacktman

* Director July 26, 1999
____________________________________
E. Dean Butler
</TABLE>

* The undersigned, by signing his name hereto, does hereby sign and execute
this Pre-Effective Amendment No. 2 to Registration Statement on Form S-1 on
behalf of the above named officers and directors of 1-800 CONTACTS, INC.
pursuant to the Power of Attorney executed by such officer and/or director
and filed with the Commission.

<TABLE>
<S> <C> <C>
/s/ Jonathan C. Coon
By: __________________________________
Jonathan C. Coon
Attorney-in-Fact
</TABLE>

II-4
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1(i) Restated Certificate of Incorporation of 1-800 CONTACTS. (1)
3.1(ii) Restated By-Laws of 1-800 CONTACTS. (1)
4.1 Form of certificate representing shares of Common Stock, $0.01 par
value per share. (2)
*5.1 Opinion of Kirkland & Ellis.
10.1 Employment Agreement between 1-800 CONTACTS and Jonathan C. Coon.
(2)
10.2 Employment Agreement between 1-800 CONTACTS and John F. Nichols.
(2)
10.3 Employment Agreement between 1-800 CONTACTS and Scott S. Tanner.
(2)
10.4 Employment Agreement between 1-800 CONTACTS and Robert G. Hunter.
(2)
10.5 1-800 CONTACTS, Inc. 1998 Incentive Stock Option Plan. (2)
10.6 Lease between 1-800 CONTACTS and Draper Land Partnership II, dated
September 4, 1996, with respect to 1-800 CONTACTS's former call
center. (2)
10.7 Lease between 1-800 CONTACTS and Draper Land Partnership II, dated
November 3, 1997, with respect to 1-800 CONTACTS's call center. (2)
10.8 Lease between 1-800 CONTACTS and Bird and Saunders, dated January
23, 1998, with respect to 1-800 CONTACTS's warehouse. (2)
10.9 Revolving Credit Agreement between 1-800 CONTACTS and Zions First
National Bank. (2)
10.10 Indemnification Agreement between 1-800 CONTACTS and its officers
and directors. (2)
10.11 Agreement for Distribution of Retained Earnings and Tax
Indemnification between 1-800 CONTACTS and the Existing
Stockholders. (2)
10.12 Lease between 1-800 CONTACTS and Larry T. Short, dated June 27,
1995, with respect to the 1-800 CONTACTS telephone number. (2)
10.13 Stock Option Agreement. (2)
10.14 First Amendment to Lease between 1-800 CONTACTS and Draper Land
Partnership II, dated May 25, 1998, with respect to 1-800
CONTACTS's call center. (3)
10.15 Second Amendment to Lease between 1-800 CONTACTS and Draper Land
Partnership II, dated August 6, 1998, with respect to 1-800
CONTACTS's call center. (3)
10.16 Lease between 1-800 CONTACTS and ProLogis Development Services
Incorporated, dated October 13, 1998, with respect to 1-800
CONTACTS's distribution center. (3)
10.17 Revolving Credit Agreement between 1-800 CONTACTS and Zions First
National Bank, dated October 29, 1998. (3)
23.1 Consent of Independent Public Accountants.
*23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).
**24.1 Power of Attorney (included in signature page).
**27.1 Financial Data Schedule.
</TABLE>
- ------------------
* To be filed by amendment.
** Previously filed.
(1) Incorporated by reference to 1-800 CONTACTS's Quarterly Report on Form 10-Q
for the quarterly period ended April 4, 1998 (Commission File No. 0-23633).
(2) Incorporated by reference to the same numbered exhibit to 1-800 CONTACTS's
Registration Statement on Form S-1 (Registration No. 333-41055).
(3) Incorporated by reference to the same numbered exhibit to 1-800 CONTACT's
Annual Report on Form 10-K for the year ended January 2, 1999 (Commission
File No. 0-23633).

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
(and to all references to our firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

Salt Lake City, Utah
July 26, 1999